-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PMPkh1NPCiMVPcgHPPCKw32rts/hpYR4g0r/i17j76Qx86oXVRjzatc3s/SWF6jJ WB32NrfM/Y87lOtbzxkeTQ== 0000950147-01-500650.txt : 20010402 0000950147-01-500650.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950147-01-500650 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUOTEMEDIA COM INC CENTRAL INDEX KEY: 0001101433 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 912008633 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-28599 FILM NUMBER: 1587928 BUSINESS ADDRESS: STREET 1: 11100 NE 8TH STREET STREET 2: SUITE 300 CITY: BELLEVUE STATE: WA ZIP: 98004 BUSINESS PHONE: 4154511604 MAIL ADDRESS: STREET 1: 11100 NE 8TH STREET STREET 2: SUITE 300 CITY: BELLEVUE STATE: TX ZIP: 98004 10KSB 1 e-6582.txt ANNUAL REPORT FOR YEAR ENDING 12-31-00 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For fiscal year ended December 31, 2000 Commission file number 0-28599 QUOTEMEDIA.COM, INC. (Exact Name of Small Business Issuer in Its Charter) NEVADA 91-2008633 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 14500 NORTHSIGHT BOULEVARD, SUITE 312, SCOTTSDALE, ARIZONA 85260 (480) 905-7311 (Address, including zip code, and telephone number, including area code, of issuer's executive offices) Securities registered pursuant to Section 12(b) of the Exchange Act: [NONE] Securities registered pursuant to Section 12(g) of the Exchange Act: COMMON STOCK, PAR VALUE $.001 PER SHARE Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to item 405 of Regulation S-B in this form, and no disclosure will be contained, to the best of registrant's 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. [ ] Issuer's revenue for its most recent fiscal year: $44,728. As of March 16, 2001, there were outstanding 20,595,112 shares of the issuer's common stock, par value $.001 per share. The aggregate market value of common stock held by non-affiliates of the issuer (10,182,778 shares) based on the closing price of the issuer's common stock as reported on the Over the Counter Bulletin Board operated by the National Association of Securities Dealers on December 31, 2000, was $1,629,244. For purposes of this computation, all executive officers, directors, and 10% beneficial owners of the issuer are deemed to be affiliates. Such determination should not be deemed an admission that such officers, directors, or 10% beneficial owners are, in fact, affiliates of the issuer. Documents incorporated by reference: None. QUOTEMEDIA.COM, INC. ANNUAL REPORT ON FORM 10-KSB FISCAL YEAR ENDED DECEMBER 31, 2000 TABLE OF CONTENTS Page ---- PART I ITEM 1. DESCRIPTION OF BUSINESS....................................... 1 ITEM 2. DESCRIPTION OF PROPERTY....................................... 9 ITEM 3. LEGAL PROCEEDINGS............................................. 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 9 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...... 10 ITEM 6. PLAN OF OPERATION............................................. 11 ITEM 7. FINANCIAL STATEMENTS.......................................... 13 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........................... 13 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS............ 13 ITEM 10. EXECUTIVE COMPENSATION........................................ 14 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................... 17 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 17 ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K........................................... 18 SIGNATURES.................................................................. 19 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................. 20 STATEMENT REGARDING FORWARD-LOOKING STATEMENTS THE STATEMENTS CONTAINED IN THIS REPORT ON FORM 10-KSB THAT ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, INCLUDING STATEMENTS REGARDING OUR "EXPECTATIONS," "ANTICIPATION," "INTENTIONS," "BELIEFS," OR "STRATEGIES" REGARDING THE FUTURE. THE MANAGED SERVICES AND COMMUNICATIONS INDUSTRY IN GENERAL AND THE MANAGED NETWORK SOLUTIONS INDUSTRY IN PARTICULAR ARE IN A STATE OF SIGNIFICANT CHANGE. THIS MAKES US SUSCEPTIBLE TO VARIOUS FACTORS THAT MAY AFFECT FUTURE RESULTS SUCH AS THE FOLLOWING: DEPENDENCE ON KEY CUSTOMERS; RISKS RELATED TO OUR TECHNOLOGY BECOMING OBSOLETE; NO ASSURANCE OF SUCCESSFUL INTEGRATION AND OPERATION OF ACQUIRED SERVICE PROVIDERS; GROWTH STRATEGY AND DIFFICULTY IN GENERATING GROWTH; REVENUE MIX; DEPENDENCE ON CERTAIN BUSINESS RELATIONSHIPS; RISKS RELATED TO INTANGIBLE ASSETS, HIGH UTILIZATION OF SERVICES BY CUSTOMERS UNDER FIXED RATE SERVICE ARRANGEMENTS; COMPETITIVE MARKET FORCES; FLUCTUATION IN QUARTERLY RESULTS; VOLATILITY OF STOCK PRICE; AND DEPENDENCE ON KEY PERSONNEL. IT IS IMPORTANT TO NOTE THAT OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. AMONG THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY ARE THE FACTORS DISCUSSED IN ITEM 1, "SPECIAL CONSIDERATIONS." -i- PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL We are a leading Internet software developer and Application Service Provider, or ASP, specializing in the collection, aggregation, and delivery of both delayed and real-time financial data and complementary content via the Internet. We develop and license unique plug and play web-based software modules that deliver cost effective, visually appealing, and dynamic content to web sites of brokerage firms, financial institutions, and Fortune 500 companies. Our unique plug and play product capabilities provide a competitive advantage to Internet sites by offering a cost effective and simple alternative to the complex and expensive data feed model employed by most web sites today. The modules are lightweight, reliable, and easy to install, require fewer content updates and data feeds, and have fewer maintenance issues. They are highly customizable, allowing for seamless integration into a customer's web page. To add a module to a web site, a webmaster simply copies and pastes one line of our code to the desired web page. We have also developed unique and proprietary "Web to Desktop Convergence Technologies" that allow web sites and publishers to deliver content and corporate branding directly to a user's desktop outside of the web browser. Our products allow existing web portals and brokerage firms to offer investment information and services to their clients via the Internet. Investors can monitor investments through our customizable portfolio tracker, research investment opportunities, watch live video, and execute trades, all from within their browser. We believe that the business model of licensing turnkey, cost effective software solutions to our customers on a private label basis is unique and timely. The private label model allows our company to take advantage of existing brand recognition and loyalties already established between our customers and their clients. We maintain our executive offices at 14500 Northsight Boulevard, Suite 312, Scottsdale, Arizona 85260, and our telephone number is (480) 905-7311. All references to our business operations in this Report include the operations of QuoteMedia.com, Inc. and our operating divisions. STRATEGY Our business strategy is to utilize a multi-level approach to generate revenues. The first of these strategies includes engaging in the on-line financial services market by focusing on private labeling our turnkey Internet products for a monthly licensing fee to established web portals, brokerage, and other financial services firms which currently do not offer or offer inadequate on-line financial information and trading tools to their clients. The second strategy involves offering free quote boxes to smaller volume sites, enabling them to offer their users free quotation services. Users accessing the free quote boxes will automatically by linked to our site and can avail themselves of the information offered. Both strategies are being implemented simultaneously. By using this model, we believe this will increase site usage significantly, accelerating our revenue base and growth as a company. However, no assurances can be provided that this will occur. We intend to offer financial content engines, which navigate the Internet, to on-line brokerages to offer their clients the ability to conduct investment research by providing an aggregation of comprehensive financial content, advisory content, discussion forums, and virtual communities complemented with an improved trading interface to their existing on-line brokerage. We believe this combination of content and transactional elements will offer their clients what we believe to be the first true one-stop, on-line trading experience. We have identified five potential target markets for our products, which include large web portals, brokerage firms, banks and financial institutions, cyber investors, and corporate advertisers. Initially, cyber investors will not be direct paying customers for our basic service, because they will not be charged to use our 1 services. We still deem them extremely important to our business because cyber investors accessing our site generate quantifiable, site-specific Internet traffic and site-specific Internet traffic in turn generates advertising and revenue. In the future, we will charge cyber investors a monthly subscription fee for real-time streaming quotes and analytical tools. Public companies are expected to be direct paying customers for our products and services provided on our site. We will charge commercial advertisers and publishers for banner advertising and mutual links on our site. Financial institutions will have the opportunity to license our interface for their own private label Internet-based investment sites as well as have the opportunity to have our services to reside on their own corporate Intranets. Our goal is to generate revenue from the new Internet model of information syndication. Under the syndication model, information is customized to suit the needs of our customer's web sites without the usual high up-front cost of customization involved in packaged software or specific content feeds. We currently target worldwide web sites and offer our comprehensive suite of information software applications at a cost that we believe will be less than the cost these sites would otherwise incur. We believe that potential markets for our products include: * brokerage firms, banks, and other financial institutions; * large, established web portals; * corporate intranets via Corporate Tools(TM); * wireless portals; and * many smaller websites, which can expand content via Financial, News, Sports, or Entertainment Kool Tools(TM). PRODUCTS We believe our software applications can provide cost effective content solutions to large-scale portals, smaller web sites, and Fortune 500 companies, allowing them to present dynamic, customizable, and interactive web-based content without the cost and time of internally developing the necessary applications and feeds. Our product lines include the following: * Kool Tools(TM); * Corporate Tool(TM); and * Private Branded Applications. KOOL TOOLS(TM) Kool Tools(TM) software applications are a suite of customizable Java applets and servlets that combine the depth of a variety of established databases with the flexibility and efficiency of the web to deliver financial, news, sports, and entertainment information. These information applications are typically licensed for various amounts per month. FINANCIAL We believe our financial applications can be seamlessly integrated onto an existing web site or into an existing business. We can add business information, trading, and other financial capabilities to a company's web site, which enables the web business to provide comprehensive financial content and retain their web visitors without linking them to another site. Through turnkey solutions, users can monitor investments in real time, through customizable portfolio trackers; research investment opportunities; watch live video; view streaming financial data; and execute trades. For the web investor, our financial software applications provide a wide array of interactive tools, products, and services via the Internet. 2 NEWS We offer approximately 500 news categories on the static news headlines and news wire components. Web pages receive news headlines/wires via simple-to-use Java Script inserts that allow web sites to display up to three different current news topics and/or relevant news wires each displaying the five most recent headlines. These customizable, lightweight components integrate seamlessly into any web site using the news wizard. Interactive headlines link to full text news stories. SPORTS We are developing and co-branding a series of Java-based applets that display real-time sports scores and headlines from baseball, football, hockey, basketball, and other sports. Users will be able to access the full story through a linked headline. Our sports ticker will also provide the most comprehensive up-to-date sports stories and information. ENTERTAINMENT We are developing a series of Java applets and scripts that display top box office movies, music charts, and books of the week. Each component is interactive, and users can hyperlink to full movie reviews, theater locations, and play times. Top music charts link users to the CDNOW.com CD review and users have the ability to sample songs from various albums. The top books' hyperlinks launch the Amazon.com book review section. CORPORATE TOOLS(TM) We are developing a version of Kool Tools(TM) called Corporate Tools(TM) that are scheduled to launch in the first quarter of 2001 and will be offered on a licensed and user fee basis to corporate intranets and larger financial corporations. Corporate Tools(TM) are web applications that provide corporations with portfolio manager, stock watch, and other functional applications to provide extra value-added service to their customers or employees. QuoteStream(TM) is a revolutionary new Java applet that delivers delayed and real-time streaming stock quotes in a small web delivered micro-application. This comprehensive micro-application allows corporations to integrate the delivery of real-time, streaming financial data relevant to their customers' needs and support their current business model. PRIVATE BRANDED APPLICATIONS We have a number of software applications that can be licensed to web sites that prefer not to convey our brand. Our private branded product lines are only offered in the financial and news areas. The applications vary in complexity from a complete financial portal to individual stock or news packages that other web sites use to present more dynamic and interactive content. We anticipate that these applications will account for a small percentage of our overall market focus. EMPLOYEES We currently have seven full time employees, (1) Mr. R. Keith Guelpa, who is our Chief Executive Officer, President, and a director; (2) our chief internet architect; (3) our Chief Financial Officer; (4) a manager of investor relations; (5) a vice president of sales; (6) a chief computer programmer; and (7) an executive assistant. In addition, we employ five part-time programmers on a project basis. Our employees are not members of any union, nor have we entered into any collective bargaining agreements. We believe that our relationship with our employees is good. In the event we are successful in implementing our business plan, we may retain additional employees in the next year to handle the anticipated growth. We anticipate that we would hire additional employees in the areas of administration, sales, marketing, and technology customer care. COMPETITION We believe we have very little competition to our core market competency as a developer of proprietary B2B web-based software for the brokerage and financial institution market. 3 There are over 13,000 brokerage firms, nearly 10,000 financial firms, and insurance institutions in America today and approximately four of those have a "streaming" product that is similar to our product. Our product is exclusively for the institution's VIP customers. Many financial information companies license information to web businesses and feed it to them through industry standard FTP feeds or links, a business model that syndicates content. We believe we offer a different product then these companies by our focus on the development of software for the delivery of information. We package information into flexible software applications to meet the specific needs of our clients. We have created application technology that we believe is unique in the marketplace in terms of features and functionality. Our products offer significant technological advantages through key features by * providing dynamic real-time information onto the desktop with no need to launch the web browser (Active Desktop Mode); * allowing for the complete customization by end users of content and appearance of content delivery (an exclusive feature of our company); * not requiring any bandwidth, software, or back-end infrastructure from clients' web sites to run our technology; and * entering the market quickly through e-mail. We believe our software applications offer a rapidly integrated and updated financial information solution to web sites. Subscribers do not need to purchase, lease, or download any software. All of our financial software applications and our financial information content are available via the Internet for a monthly fee. We do not attempt to compete in the pure financial information marketplace as a raw information provider such as S&P, Reuters, and Comtex. Rather, we offer reliable, real-time financial and stock information delivered via our own proprietary software information applications or "tools." We believe this makes our products and services distinct from other products currently in the marketplace. Other companies provide stock quotes and related information. Hundreds of web sites offer stock quotes and charts on the Web today. The most popular and largest of these websites include MSN Investor, Quicken, CBS MarketWatch, The Street.com, and PC Quote. Many online brokerages also offer detailed market information to their clients, such as E*Trade, Charles Schwab, SureTrade, and many others. We believe that our business model offers strong market differentiation through our strategy of offering turnkey private labeled financial web solutions to large, well-established web portals and brokerages. This should allow us to take advantage of existing brand recognition and loyalties already established between our customers and their clients. We cannot, however, provide assurances that this will occur. See "Special Considerations" below. SPECIAL CONSIDERATIONS YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, IN ADDITION TO THOSE DISCUSSED ELSEWHERE IN THIS REPORT, IN EVALUATING OUR COMPANY AND OUR BUSINESS. OUR INDEPENDENT AUDITORS HAVE EXPRESSED A GOING CONCERN OPINION. As a result of our lack of revenues and accumulated deficit of $3,034,843 at December 31, 2000, the financial statements accompanying this report have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The financial statements do not include any adjustment that might result from the outcome of this uncertainty. We have had a limited operating history and have generated minimal revenues or earnings from our current operations. We will, in all likelihood, continue to sustain operating expenses without corresponding revenues, at least until our business plan, as described herein, is fully implemented. This may result in us continuing to incur a net operating loss until we are able to generate profits from operations, which is not expected to occur until the end of year 2001. We cannot, however, make any assurances that we will generate profits from operations. Our short operating history makes it difficult to predict our future financial results. If we do not begin generating profits, the price of our common stock will suffer and our shareholders may not be able to recover their initial investment. 4 WE WILL NEED ADDITIONAL CAPITAL WITH WHICH TO IMPLEMENT OUR BUSINESS PLAN AND THERE IS NO AGREEMENT WITH ANY THIRD PARTY TO PROVIDE SUCH CAPITAL. Based on current levels of operations and planned growth, we anticipate that we will need additional capital to implement our business plan. We are currently attempting to raise up to $2.5 million of equity financing in a private offering, which may result in significant dilution to our existing shareholders. If we are successful in raising the entire $2.5 million, we believe this amount will be sufficient to meet our needs for the immediate future. There can be no assurances, however, that we will be able to complete our current private offering. In addition, if we require additional funding or determine it appropriate to raise additional funding in the future, there is no assurance that adequate funding, whether through additional equity financing, debt financing, or other sources, will be available when needed or on terms acceptable to us. Further, any such funding may result in significant dilution to existing shareholders. The inability to obtain sufficient funds from operations and external sources when needed would have a material adverse affect on our business, results of operations, and financial condition. OUR PROPOSED OPERATIONS ARE SPECULATIVE. WE HAVE NOT CONDUCTED ANY MARKET RESEARCH, NOR DO WE HAVE A MARKETING ORGANIZATION OTHER THAN OUR CURRENT MANAGEMENT. The success of our proposed plan of operation will depend largely on the acceptance of our business premise by the general public. We neither have conducted, nor have made available to the general public, results of market research indicating that market demand exists for our contemplated business plan. Moreover, we do not yet have a formal marketing organization. Even if demand is identified for our contemplated business plan, there is no assurance that our operations will successfully generate profits. Without the ability to generate profits, our shareholders may not be able to recover their investment. WE ARE A DEVELOPMENT STAGE COMPANY AND HAVE A LIMITED OPERATING HISTORY. WE ANTICIPATE CONTINUED LOSSES IN THE NEAR FUTURE AND OUR FUTURE RESULTS ARE UNCERTAIN. We have only a limited operating history upon which investors can evaluate our company and prospects. Our prospects must be evaluated with a view to the risks encountered by a company in an early stage of development, particularly in light of the uncertainties relating to the new and evolving markets in which we have begun to operate and whether there will be acceptance of our business model. We will incur costs as we continue to develop software applications, establish marketing and distribution relationships, acquire additional hardware and software, and enhance our existing administrative organization. To the extent that such expenses are not subsequently followed by commensurate revenues, our business, results of operations, and financial condition will be materially adversely affected. There can be no assurance that we will be able to generate sufficient revenues from our business sales to achieve or maintain profitability on a quarterly or an annual basis in the future. We expect negative cash flow from operations to continue, at least for the foreseeable future, as we continue to develop and market our business. If cash generated by operations is insufficient to satisfy our liquidity requirements, we may be required to sell debt or additional equity securities. The sale of additional equity or convertible debt securities would result in additional dilution to our shareholders. Further, there can be no assurances that we will successfully be able to sell our securities in order to obtain additional capital. OUR BUSINESS PLAN IS DEPENDENT IN PART ON THE INTERNET AND THERE IS UNCERTAIN ACCEPTANCE OF THE INTERNET AS A MEDIUM FOR COMMERCE. Use of the Internet by consumers is at an early stage of development and market acceptance of the Internet as a medium for commerce is subject to a high level of uncertainty. Our future success will depend on our ability to generate significant revenues, which will require the development and widespread acceptance of the Internet as a medium for commerce. There can be no assurance that the Internet will be a successful retailing channel. The Internet may not prove to be a viable commercial marketplace because of inadequate development of the necessary infrastructure, such as reliable network backbones, or complementary services, such as high-speed modems and security procedures for financial transactions. The viability of the Internet may prove uncertain due to delays in the development and adoption of new standards and protocols, for example, the next generation Internet Protocol, to handle increased levels of Internet activity or due to increased governmental regulation. If use of the Internet does not continue to grow, or if the necessary Internet infrastructure or complementary services are not developed to effectively support the growth that may occur, our business, results of operations, and financial condition could be materially adversely affected. 5 Our future success will be significantly dependent upon our ability to attract paying users to our web-site. There can be no assurance that we will be attractive to a sufficient number of users to generate significant revenues. There can also be no assurance that we will be able to anticipate, monitor, and successfully respond to rapidly changing consumer tastes and preferences so as to continually attract a sufficient number of users to our web-site. If we are unable to develop Internet content that allows us to attract, retain, and expand a loyal user base, our business, results of operations, and financial condition will be materially adversely affected. THERE IS A RISK OF CHANGES IN TECHNOLOGY. Our success will also depend upon our ability to develop and provide new products and services. The delivery of our products and services on-line is, and will continue to be, like the Internet, characterized by rapidly changing technology, evolving industry standards, changes in customer requirements, and frequent new service and product introductions. Our future success will depend, in part, on our ability to effectively use leading technologies, continue our technological expertise, enhance our current services, develop services that meet changing customer requirements, and influence and respond to emerging industry standards and other technological changes on a timely and cost-effective basis. There can be no assurance that we will respond to these changing technological conditions. If we do not, the price of our common stock will likely decrease. WE ARE SUBJECT TO COMPETITION IN CERTAIN SERVICE AREAS. The market for Internet content providers is new, highly competitive, and rapidly changing. Since the Internet's commercialization in the early 1990's, the number of web sites on the Internet competing for consumers' attention and spending has proliferated. With no substantial barriers to entry, we expect that competition will continue to intensify. Currently, there are hundreds of real-time data information, research, and trading services web sites on the Internet. With respect to competing for consumers' attention, in addition to intense competition from Internet content providers we also face competition from traditional brokerage institutions. We believe that the primary competitive factors in providing our services via the Internet are name recognition, content availability on an exclusive basis, the variety of value-added services, ease of use, price, quality of service, availability of customer support, reliability, technical expertise, and experience. Our success in this market will depend heavily upon our ability to provide high-quality content, cutting-edge technology, and value-added Internet services. We believe that our business model offers strong market differentiation through our strategy of offering turnkey private labeled financial software application solutions to large, well-established web portals and brokerages for a monthly fee. This should allow us to take advantage of existing brand recognition and loyalties already established between our customers and their clients. There can be no assurances, however, that this will occur. If it does not occur, the value of our common stock will likely decrease. Our industry is highly competitive. Many of our current and potential competitors in the Internet and financial industry have longer operating histories, significantly greater financial, technical, and marketing resources, greater name recognition, and larger existing customer bases. These competitors may be able to respond more quickly to new or emerging technologies and changes in customer requirements and to devote greater resources to the development, promotion, and sale of their services. There can be no assurance that we will be able to compete successfully against current or future competitors. Failure to adequately compete will have a negative impact on our value. In addition, the market in which we compete is characterized by frequent new product introductions, rapidly changing technology, and the emergence of new industry standards. The rapid development of new technologies increases the risk that current or new competitors will develop products or services that reduce the competitiveness of and are superior to our products and services. Our future success will depend to a substantial degree upon our ability to develop and introduce in a timely fashion new products, services, and enhancements to our existing products and services that meet changing customer requirements and emerging industry standards. The development of new, technologically advanced products and services is a complex and uncertain process requiring high levels of innovation, as well as the accurate anticipation of technological and market trends. There is a potential for product development delay due to the need to comply with new or modified standards. We cannot provide any assurance that we will be able to identify, develop, market, support, or manage the transition to new or enhanced products or services successfully, provide new products and services, that will be responsive to technological changes or that new products and services will gain market acceptance, or respond effectively to 6 announcements by competitors, technological changes, or emerging industry standards. Our business, results of operations, and financial condition would be materially adversely affected if we were to be unsuccessful, or to incur significant delays, in developing and introducing new products, services, or enhancements. OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY. Our quarterly operating results may fluctuate significantly in the future as a result of a variety of factors, most of which are outside of our control, including, but not limited to, the following: * the level of use of the Internet; * number of licenses sold; * Internet advertising; * seasonal trends in Internet use, purchases, and advertising placements; * the level of traffic on our Internet sites; * the amount and timing of capital expenditures and other costs relating to the expansion of our Internet operations; * the introduction of new software applications or services by us or our competitors; * price competition or pricing changes in the industry; * technical difficulties or system downtime; * general economic conditions; and * economic conditions specific to the Internet and Internet media. Due to the foregoing factors, among others, it is likely that our operating results will fall below our expectations or our shareholders' expectations in some future quarter. WE ARE DEPENDENT ON KEY PERSONNEL AND EXPECT TO HIRE ADDITIONAL PERSONNEL. Our performance is substantially dependent on the services of R. Keith Guelpa, our Chief Executive Officer and President. The loss of Mr. Guelpa, or other key employees, could have a material adverse affect on our business, which will have a negative impact on the value of our company. Our future success will also depend in large part upon our ability to attract and retain highly skilled management, technical engineers, sales and marketing personnel, and finance and technical personnel. Competition for such personnel is intense and there can be no assurance that we will be able to attract and retain such personnel. The loss of the services of any key personnel, the inability to attract or retain qualified personnel in the future, or any delays in hiring required personnel, particularly technical engineers and sales personnel, could have a material adverse affect on our business, results of operations, and financial condition. WE ARE DEPENDENT ON THIRD PARTIES FOR INTERNET OPERATIONS AND PRODUCT DELIVERIES. Our ability to license financial software applications for use on other Internet sites and the willingness of the owners of such sites to direct users to our Internet site through hypertext links is critical to the success of our Internet operations. We rely on the cooperation of owners of copyrighted materials and Internet search services and on our relationships with third party vendors of Internet development tools and technologies. There can be no assurance that the necessary cooperation from third parties will be available on acceptable commercial terms or at all. If we are unable to develop and maintain satisfactory relationships with such third parties on acceptable commercial terms, or if our competitors are better able to leverage such relationships, our business, results of operations, and financial condition will be materially adversely affected, which will have a negative impact on our value. 7 WE MAY NEED TO SPEND SIGNIFICANT AMOUNTS OF MONEY TO PROTECT AGAINST SECURITY BREACHES. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our Internet operations. We may be required to expend significant capital and resources to protect against the threat of such security breaches or to alleviate problems caused by such breaches. Consumer concern over Internet security has been, and could continue to be, a barrier to commercial activities requiring consumers to send their credit card information over the Internet. Computer viruses, break-ins, or other security problems could lead to misappropriation of proprietary information and interruptions, delays, or cessation in service to our customers. Moreover, until more comprehensive security technologies are developed, the security and privacy concerns of existing and potential customers may inhibit the growth of the Internet as a merchandising medium. Were these risks to occur, our business, results of operations, and financial condition could be materially adversely affected. WE MAY BECOME SUBJECT TO SIGNIFICANT GOVERNMENT REGULATIONS IN THE FUTURE THAT COULD NEGATIVELY INFLUENCE OUR PROPOSED BUSINESS. We are not currently subject to direct federal, state, or local laws or regulations applicable to access to, or commerce on, the Internet, other than regulations applicable to businesses generally. However, due to the increasing popularity and use of the Internet and other on-line services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or other on-line services covering issues such as user privacy, "indecent" materials, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights, and information security. The adoption of any such laws or regulations might also decrease the rate of growth of Internet use, which in turn could decrease the demand for our products and services, increase the cost of doing business, or in some other manner have a material adverse effect on our business, results of operations, and financial condition. In addition, applicability of existing laws governing issues such as property ownership, copyrights and other intellectual property issues, taxation, libel, obscenity, and personal privacy to the Internet is uncertain. The vast majority of such laws were adopted before the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. We do not believe that such regulations, which were adopted before the advent of the Internet, govern the operations of our business nor have any claims been filed by any state implying that we are subject to such legislation. There can be no assurance, however, that a state will not attempt to impose these regulations upon us in the future or that such imposition will not have a material adverse effect on our business, results of operations, and financial condition. Several states have also proposed legislation that would limit the uses of personal user information gathered on-line or require on-line services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one on-line service regarding the manner in which personal information is collected from users and provided to third parties. Changes to existing laws or the passage of new laws intended to address these issues could create uncertainty in the marketplace that could reduce the demand for our products and services, increase our costs of doing business as a result of litigation costs or increased service delivery costs, or could in some other manner have a material adverse effect on our business, results of operations, and financial condition. In addition, because our products and services are accessible worldwide, other jurisdictions may claim that we are required to qualify to do business as a foreign corporation in a particular state or foreign country. We are qualified to do business in Nevada and our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties for the failure to qualify and could result in our inability to enforce contracts in such jurisdictions. Any new legislation or regulation, or the application of laws or regulations from jurisdictions whose laws do not currently apply to our business, could have a material adverse effect on our business, results of operations, and financial condition. THE SUCCESS OF OUR ANTICIPATED FUTURE GROWTH IS DEPENDENT UPON OUR ABILITY TO SUCCESSFULLY MANAGE THE GROWTH OF OUR PROPOSED OPERATIONS. We expect to experience significant growth in our number of employees and scope of operations. Our future success will be highly dependent upon our ability to successfully manage the expansion of our operations. Our ability to manage and support our growth effectively will be substantially dependent on our ability to implement adequate improvements to financial and management controls, reporting, order entry systems, and other procedures and hire sufficient numbers of financial, accounting, administrative, and management personnel. Our expansion and 8 the resulting growth in the number of our employees will result in increased responsibility for both existing and new management personnel. There can be no assurance that we will be able to identify, attract, and retain experienced accounting and financial personnel. Our future operating results will depend on the ability of our management and other key employees to implement and improve our systems for operations, financial control, and information management and to recruit, train, and manage our employee base. There can be no assurance that we will be able to achieve or manage any such growth successfully or to implement and maintain adequate financial and management controls and procedures. Any inability to do so would have a material adverse effect on our business, results of operations, and financial condition. Our future success depends upon our ability to address potential market opportunities while managing our expenses to match our ability to finance operations. This need to manage our expenses will place a significant strain on our management and operational resources. If we are unable to manage our expenses effectively, our business, results of operations, and financial condition will be adversely affected. PENNY STOCK RULES MAY MAKE BUYING OR SELLING OUR COMMON STOCK DIFFICULT. Our common stock in the past has been, and from time to time in the future may be, subject to the "penny stock" rules as promulgated under the Securities Exchange Act of 1934. In the event that no exclusion from the definition of a "penny stock" under the Exchange Act is available, then any broker engaging in a transaction in our common stock will be required to provide each customer with * a risk disclosure document; * disclosure of market quotations, if any; * disclosure of the compensation of the broker-dealer and its salesperson in the transaction; and * monthly account statements showing the market values of our securities held in the customer's accounts. The bid and offer quotation and compensation information must be provided prior to effecting the transaction and must be contained on the customer's confirmation. Certain brokers are less willing to engage in transactions involving "penny stocks" as a result of the additional disclosure requirements described above, which may make it more difficult for holders of our common stock to dispose of their shares. INVESTORS SHOULD NOT EXPECT TO RECEIVE A DIVIDEND IN THE FUTURE. We have never paid any cash dividends on our common stock and do not currently anticipate that we will pay dividends in the foreseeable future. Instead, we intend to apply earnings to the expansion and development of our business. ITEM 2. DESCRIPTION OF PROPERTY. We lease approximately 4,000 square feet of executive office space in Scottsdale, Arizona. The initial term of this lease expires in May 2003, with a three-year renewal option. We also sublease approximately 400 square feet of office space in Vancouver, British Columbia, Canada. This sublease is on a month-to-month basis. We believe that our current leased space is sufficient to meet our needs for the foreseeable future. We have no other properties and have no agreements to acquire any properties. ITEM 3. LEGAL PROCEEDINGS. There is no litigation pending or threatened by or against us. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 9 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Our common stock is quoted on the OTC Bulletin Board under the symbol "QMCI." The following table sets forth the high and low sales prices for our common stock for the calendar quarters indicated. High Low ------ ------ YEAR ENDED DECEMBER 31, 1999: First Quarter............................................... $ 3.06 $ 0.50 Second Quarter.............................................. 1.50 0.50 Third Quarter............................................... 2.63 0.59 Fourth Quarter.............................................. 4.72 0.72 YEAR ENDED DECEMBER 31, 2000: First Quarter............................................... $ 4.25 $ 1.37 Second Quarter.............................................. 4.03 1.75 Third Quarter............................................... 1.93 0.77 Fourth Quarter.............................................. 0.70 0.11 YEAR ENDED DECEMBER 31, 2000: First Quarter (as of March 16, 2001)........................ $ 0.69 $ 0.11 As of March 16, 2001, there were approximately 266 holders of record of our common stock. As of March 16, 2001, the closing price for our common stock was $0.16. DIVIDENDS For the foreseeable future, we intend to retain any future earnings to finance our operations and do not anticipate paying cash dividends with respect to our common stock. Subject to the preferences that may be applicable to any then-outstanding preferred stock, the holders of our common stock will be entitled to receive such dividends, if any, as may be declared by our board of directors from time to time out of legally available funds. Payments of any cash dividends in the future will depend on our financial condition, results of operations, and capital requirements as well as other factors deemed relevant by our board of directors. RECENT SALES OF UNREGISTERED SECURITIES During November 2000, we issued 30,000 shares of common stock at a price of $0.22 per share, or an aggregate offering price of $6,600, to a consultant as partial consideration for services rendered to our company. We issued these shares without registration under the Securities Act in reliance on the exemption provided by Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering. During December 2000, we issued 250,000 shares of common stock at a price of $0.16 per share, or an aggregate offering price of $40,000, to a consultant in consideration for services rendered to our company. We also issued 500,000 shares of restricted common stock at a price of $0.31 per share, or an aggregate offering price of $153,503, in consideration for web content provided to our company. We issued these shares without registration under the Securities Act in reliance on the exemption provided by Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering. During February 2001, we issued 37,500 shares of restricted common stock as a price of $0.40 per share, or an aggregate offering price of $15,000, to a consultant in consideration for services rendered to our company. We issued these shares without registration under the Securities Act in reliance on the exemption provided by Section 4(2) of the Securities Act as a transaction by an issuer not involving a public offering. 10 ITEM 6. PLAN OF OPERATION Our plan of operation over the next 12 months will focus primarily on the market introduction of our streaming, real-time financial software applications. In addition, we will focus on completing other financial software applications in the development stage and bringing those products to market. We also plan to develop strategic alliances for wireless applications of our financial software applications. These activities may give rise to additional products that may be commercialized by our company. There can be no assurance, however, that our efforts will result in marketable products or products that can be produced at commercially acceptable costs. We will require additional capital to execute our proposed plan of operation. There can be no assurance that such additional capital will be available to our company, on commercially reasonable terms or at all. Our future performance will be subject to a number of business factors, including those beyond our control, such as economic downturns and evolving industry needs and preferences as well as the level of competition and our ability to successfully market our products and technology. There can be no assurance that we will be able to successfully implement a marketing strategy, generate significant revenues, or achieve profitable operations. In addition, because our company has had only limited operations to date, there can be no assurance that our estimates will prove to be accurate or that unforeseen events will not occur. RESULTS OF OPERATIONS GENERAL On July 14, 1999, our company acquired all of the outstanding common stock of Quotemedia.com, Inc., a Colorado corporation, in exchange for 11,000,000 shares of our common stock. As a result of this transaction, the shareholders of our predecessor company received shares of common stock representing an aggregate of 72% of our outstanding common stock, resulting in a change in control of our company. As a result of the merger, we became the surviving entity and the predecessor company ceased to exist. At this time, we changed our name to Quotemedia.com, Inc. Following the acquisition, the surviving entity for accounting purposes commenced operations on June 28, 1999. Therefore, the results of operations only contain comparative information for the period from June 28, 1999 to December 31, 1999. We were in the development phase during the comparative period and, accordingly, there are no comparative revenue figures and the expenses in this period reflect a lower activity level. REVENUE Revenue consists of licensing fees from our software applications and fees generated from sponsorship advertisements. Revenue for the year ended December 31, 2000, was $44,728. WEBSITE CONTENT Website content expenses consist primarily of fees paid to our strategic partners for providing financial content such as news, stock quotes, charts, company background data, and general information. Website content expenses for the year ended December 31, 2000, were $649,393 compared with $121,013 for the period ended December 31, 1999. The increase is due to the growth of our company in relation to the comparative period, as the comparative period reports the first six months of operations from inception. PROFESSIONAL FEES Professional fees consist primarily of legal and accounting fees. Professional fees for the year ended December 31, 2000 were $161,601 compared with $77,717 for the period ending December 31, 1999. The increase is due to the growth of our company in relation to the comparative period, as the comparative period reports the first six months of operations from inception. RESEARCH AND DEVELOPMENT Research and development expenses consist primarily of costs associated with the design, programming, and testing of the company's software applications. Research and development expenses for the year ended 11 December 31, 2000, were $372,622 compared with $31,331 for the period ended December 31, 1999. The increase is due to the growth of our company in relation to the comparative period, as the comparative period reports the first six months of operations from inception. BUSINESS DEVELOPMENT Business development consists primarily of marketing, investor relations, travel, and printing expenses. Business development expenses for the year ended December 31, 2000 were $389,722 compared to $183,513 for the period ended December 31, 1999. The increase is due to the growth of our company in relation to the comparative period, as the comparative period reports the first six months of operations from inception. OFFICE Office expenses consist primarily of premises rent, computer equipment leases, computer maintenance and storage, and salary and recruiting expenses. Office expenses for the year ended December 31, 2000, were $889,763 compared to $61,177 for the year ended December 31, 1999. The increase is due to the growth of our company in relation to the comparative period, as the comparative period reports the first six months of operations from inception. INTEREST AND OTHER INCOME Interest and other income consist of interest earned on cash and money market investments and gains realized from the sale of marketable securities. Interest and other income for the year ended December 31, 2000, was $40,664 compared to $9,149 for the year ended December 31, 1999. The increase was due to interest earned on cash and money market investments in the current period. GAIN ON RELINQUISHMENT OF RIGHTS We relinquished its claim to future sales of Skyline Records, Inc. in exchange for the cancellation of 1,100,000 shares of the company owned by Skyline and a company related to Skyline. As a result of this transaction, we recognized a gain of $318,895. See Note 6(a) to the Financial Statements. LOSS FOR THE PERIOD As a result of the foregoing, we incurred a loss for the year ended December 31, 2000, of $2,058,814, or approximately $(0.11) per share, compared to a loss of $465,602, $(0.03) per share, for the period ended December 31, 1999. LIQUIDITY AND CAPITAL RESOURCES Our cash totaled $158,339 at December 31, 2000, compared $672,038 at December 31, 1999, a decrease of $513,699. Net cash of $2,186,750 was used in operations for the year ended December 31, 2000, primarily resulting from our net loss for the period. Net cash used by investing activities for the year ended December 31, 2000, was $12,801, resulting primarily from proceeds from the sale of marketable securities, offset by the purchase of fixed assets. Net cash provided by financing activities for the year ended December 31, 2000, was $1,660,250, resulting from the issuance of new capital stock. We cannot predict the timing and amount of future capital expenditures. We believe, however, that cash on hand will be sufficient to fund our current operations into the second quarter of 2001. We intend to accelerate our development and infrastructure spending in the coming calendar quarters if we have sufficient available capital resources. We will require additional financings, which may come from future equity or debt offerings that could result in dilution to our stockholders. Adequate capital may not be available at that time and the lack of such capital could adversely affect our business. 12 ITEM 7. FINANCIAL STATEMENTS. Reference is made to the Consolidated Financial Statements, the Notes thereto, and the Report of Independent Public Accountants thereon commencing at page F-1 of this Report, which Consolidated Financial Statements, Notes, and Report are incorporated herein by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS. The following table sets forth certain information regarding our directors and executive officers: NAME AGE POSITION ---- --- -------- R. Keith Guelpa....... 54 Chief Executive Officer, President, and Director Ian D. Lambert........ 55 Director Robert J. Thompson.... 58 Chairman of the Board Keith J. Randall...... 34 Treasurer, Chief Financial Officer, and Secretary Our listed officers and directors will serve until the next annual meeting of the shareholders or until their death, resignation, retirement, removal, disqualification, or until their successors have been duly elected and qualified. Vacancies in our existing Board of Directors are filled by majority vote of the remaining directors. Our officers serve at the will of our Board of Directors. There is no family relationship between any executive officer and director. R. KEITH GUELPA has served as our President, Chief Executive Officer, and a director since July 1999. From March 1999 until June 1999, Mr. Guelpa served as President of R.K. Guelpa & Associates, a private consulting company. From January 1998 until February 1999, Mr. Guelpa was Chairman and Chief Executive Officer of Mailbank.com, Inc., Vancouver, Canada, a privately held Canadian Internet based corporation which owned the largest registration of top level Domain names in the world. From November 1995 until December 1997, Mr. Guelpa served as President/CDO of C.M. Oliver Inc., a publicly held Canadian corporation offering brokerage/financial planning and investment banking services. Mr. Guelpa received a Bachelor of Commerce degree from the University of British Columbia in 1970. He devotes substantially all of his business time to our affairs. IAN D. LAMBERT has served as a director since July 1999. Mr. Lambert served as our President and a director from May 1994 until July 1999. In July 1999, he resigned his position as President and was appointed as Secretary. Mr. Lambert resigned his position as Secretary in July 2000. In addition to his positions with us, Mr. Lambert has been President and a Director of Canasia Data Corporation, Vancouver, Canada, a privately held management services and consulting company, since 1983. Mr. Lambert is also a director of Tasty Fries, Inc., a publicly held Delaware corporation engaged in development, manufacturing, and marketing of a French fry vending machine, and Litewave Corp., a publicly held Nevada corporation engaged in the installation and operation of voice-over Internet protocol telecom networks. Mr. Lambert received a Bachelor of Commerce degree in quantitative analysis and computer science from the University of Saskatchewan in 1970. He devotes approximately 5% of his time to our business. ROBERT J. THOMPSON has served as our Chairman of the Board since February 2000. Since May 1996, Mr. Thompson has served as the President of Bimsi Marketing Services, Inc., Vancouver, Canada, a privately held company that manages the worldwide marketing activities for Birkman International, Inc., Houston, Texas, which is one of the world's leading companies in employment behavior assessment companies utilized by Fortune 500 companies. From October 1994 until May 1996, he served as President of The Robert Thompson Partnership, Certified Management Consultants Inc., a division of which was the predecessor firm of Bimsi Marketing Services. 13 For over 30 years, Mr. Thompson practiced as a professional management consultant and was a partner of KPMG Management Consultants, Woods Gordon/Clarkson Gordon, and Ernst & Whitney. He devotes approximately 20% of his time to our business. KEITH J. RANDALL has served as our Vice President, Treasurer, and Chief Financial Officer since September 1999 and Secretary since July 2000. From August 1998 until August 1999, Mr. Randall served as controller of C.M. Oliver & company Ltd., a publicly held Canadian corporation offering brokerage/financial planning, and investment banking services. Mr. Randall served as Vice President and Chief Financial Officer of C.M. Oliver from August 1999 until March 2000. From April 1998 until August 1998, Mr. Randall served as a consultant with KPMG, Inc., an accounting firm. From December 1997 until April 1998, Mr. Randall served as the Chief Financial Officer for Vantage Securities Inc., a Canadian brokerage firm. From November 1995 until December 1997, Mr. Randall served as an exchange examiner for the Vancouver Stock Exchange. From September 1991 until November 1995, Mr. Randall was employed as a chartered accountant with KPMG, Inc. Mr. Randall is a licensed chartered accountant in Canada. He received a Bachelor of Commerce degree with Honors from Queen's University in May 1991. He devotes substantially all of his business time to our business. COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Exchange Act requires our directors, officers, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Directors, officers, and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon our review of the copies of such forms that we received during the fiscal year ended December 31, 2000, and written representations that no other reports were required, we believe that each person who at any time during the fiscal year was a director, officer, or beneficial owner of more than 10% of our common stock complied with all Section 16(a) filing requirements during such fiscal year. ITEM 10. EXECUTIVE COMPENSATION. SUMMARY OF CASH AND OTHER COMPENSATION The following table sets forth certain information concerning the compensation for the fiscal years ended December 31, 1999, and 2000 earned by our chief executive officer. No other executive officers earned cash salaries and bonuses exceeding $100,000 during fiscal 2000. We consider Messrs. Guelpa and Randall to be our executive officers. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS SECURITIES NAME AND OTHER ANNUAL UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(2) OPTIONS (#) COMPENSATION($) ------------------ ---- --------- -------- ------------------ ----------- --------------- R. Keith Guelpa.............. 2000 $175,000 -- -- 350,000 -- Chief Executive Officer, 1999 $ 43,414 -- -- -- -- President, and Director (1)
- ---------- (1) Mr. Guelpa became our Chief Executive Officer in July 1999. (2) The officer listed also received certain perquisites, the value of which did not exceed 10% of his salary during fiscal 1999 and 2000. 14 OPTIONS GRANTS The following table provides information on stock options granted to our chief executive officer during the fiscal year ended December 31, 2000. OPTION GRANTS IN LAST FISCAL YEAR
NUMBER OF % OF TOTAL OPTIONS SECURITIES UNDERLYING GRANTED TO EMPLOYEES EXERCISE EXPIRATION NAME OPTIONS GRANTED(#) IN FISCAL YEAR PRICE DATE ---- ------------------ -------------- ----- ---- R. Keith Guelpa........ 200,000 12% $ 0.50 11/14/05 R. Keith Guelpa........ 150,000 9% $ 0.24 11/14/05
YEAR END OPTION VALUES The following table provides information respecting the options held by our Chief Executive Officer as of December 31, 2000. He did not exercise options during fiscal 2000. OPTIONS HELD AS OF DECEMBER 31, 2000 NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS AT FISCAL YEAR-END(1) ------------------------------ NAME EXERCISABLE UNEXERCISABLE ---- ----------- ------------- R. Keith Guelpa..................... 350,000 -- - ---------- (1) None of the unexercised options listed had any value at fiscal year-end because the exercise price of all of the options held by the listed officers was greater than $0.11, which was the closing sales price of our common stock as quoted on the OTCBB on December 31, 2000. 1999 STOCK OPTION PLAN During March 1999, we adopted, and our stockholders approved, the 1999 Stock Option Plan to advance the interests of our company by encouraging and enabling key employees to acquire a financial interest in our company and link their interests and efforts to the long-term interests of our stockholders. A total of 400,000 shares of common stock was initially reserved for issuance under the plan. During September 1999, this number was increased to 2,500,000. As of March 16, 2001, no shares of our common stock had been issued upon exercise of options granted under the plan, and there were outstanding options to acquire 2,250,000 shares of our common stock under the plan. The plan is administered by our board of directors or a committee appointed by our board. Our board or the committee has the authority to grant options, determine the purchase price of shares of our common stock covered by each option, determine the persons who are eligible under the plan, interpret the plan, determine the terms and provisions of an option agreement, and make all other determinations deemed necessary for the administration of the plan. Options may be granted to any director, officer, key employee, or any advisory board member of our company. Incentive stock options may not be granted to a director, consultant, or advisory board member that is not an employee of our company. The price of any incentive stock options may not be less than 100% of the fair market value of our common stock on the date of grant. The price of any incentive stock options granted to a person who owns more than 10% of our common stock may not be less than 110% of the fair market value of our common stock on the date of grant. The option price for non-incentive stock options may not be less than 50% of the fair market value of our common stock on the date of grant. Options may be granted for terms of up to but not exceeding ten years from the date of grant, however, in the case of an incentive stock option granted to an individual who beneficially owns 10% more of 15 the stock of our company, the exercise period shall not exceed five years from the date of grant. Our board of directors may accelerate the exerciseability of any outstanding options at any time for any reason. In the event of any change in the number of shares of our common stock, the number of shares of common stock covered by outstanding options and the price per share of such options will be adjusted accordingly to reflect any such changes. Similar changes will also be made if our company engages in any merger, consolidation, or reclassification in which is it the surviving entity. In the event that we are not the surviving entity, each option shall terminate provided that each holder will have the right to exercise during a ten period ending on the fifth day prior to such corporate transaction. In the event of a change of control, our board or the committee may terminate each option, provided that each holder receive the amount of cash equal to the difference between the exercise price of the each option and the fair market value of each share of stock subject to such option. Our board may suspend, terminate, modify, or amend the plan provided that, in certain instances, the holders of a majority of our common stock issued and outstanding approve the amendment. RECENT GRANTS OF STOCK OPTIONS From the period January 1, 2001 to March 16, 2001 the company granted options to acquire 350,000 shares of our common stock at exercise prices ranging from $0.26 to $0.29 and an expiration date of February 27, 2006. The Company also canceled and reissued 950,000 options to acquire shares of our common stock. The canceled stock options had an exercise price of $0.50 and the reissued stock options had exercise prices ranging from $0.26 to $0.29. These options include 200,000 options issued to Keith Guelpa at an exercise price of $0.29; 350,000 options issued to Robert Thompson at an exercise price of $0.26; 200,000 options issued to Ian Lambert at an exercise price of $0.26; and 150,000 options issued to Keith Randall at an exercise price of $0.26. EMPLOYMENT AGREEMENT We have a five-year employment agreement with Mr. Guelpa, our Chief Executive Officer, terminating in July 2004. For the fiscal year beginning on January 1, 2000, the employment agreement provided for a base salary of $175,000 per year. The agreement provides for incentive based compensation based upon the performance of our company and Mr. Guelpa as determined by our board of directors. The agreement also contains provisions granting options to purchase shares of our common stock. In the event of termination, we may be required to make a severance payment to Mr. Guelpa. The amount of the payment depends upon (1) the event causing the termination, and (2) the timing of the termination. 16 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding beneficial ownership of our common stock as of March 16, 2001 for (i) all directors, our Chief Executive Officer, and the other executive officer; (ii) all directors and officers as a group; and (iii) each person known by us to beneficially own more than 5% of our common stock. SHARES BENEFICIALLY NAME OF BENEFICIAL OWNER OWNED (1)(2) PERCENT (2) - ------------------------ ------------ ----------- DIRECTORS AND EXECUTIVE OFFICERS: R. Keith Guelpa ............................... 5,079,667(3) 22.9% Ian D. Lambert ................................ 350,000(4) 1.7% Robert Thompson ............................... 300,000(6) 1.4% All executive officers and directors as a group (4 persons) ....................... 5,817,167 25.5% 5% OR GREATER STOCKHOLDER: Duane Nelson .................................. 3,553,000(7) 16.9% - ---------- * Less than 1%. (1) Unless otherwise indicated, all persons listed have sole voting and investment power, subject to applicable community property law, over their shares unless otherwise indicated, and can be reached at 14500 Northsight Boulevard, Suite 312, Scottsdale, Arizona, 85260. (2) The percentages shown are calculated based upon 20,595,112 shares of common stock outstanding on March 16, 2001. The numbers and percentages shown include the shares of common stock actually owned as of March 16, 2001, and the shares of common stock that the person or group had the right to acquire within 60 days of March 16, 2001. In calculating the percentage of ownership, all shares of common stock that the identified person or group had the right to acquire within 60 days of March 16, 2001 upon the exercise of options and warrants are deemed to be outstanding for the purpose of computing the percentage of the shares of common stock owned by such person or group, but are not deemed to be outstanding for the purpose of computing the percentage of the shares of common stock owned by any other person. (3) Includes 3,360,000 shares of our common stock held in the name of Keeva Trust, which is the trustee for a trust to which Mr. Guelpa's wife and children are beneficiaries, as well as 92,167 shares of our common stock owned in the name of Mr. Guelpa's wife. Mr. Guelpa disclaims any and all beneficial ownership of such shares. Also includes 1,600,000 shares of common stock issuable upon exercise of stock options and warrants. (4) Includes 200,000 shares of common stock issuable upon exercise of stock options. (5) Includes 87,500 shares of common stock issuable upon exercise of stock options. (6) Represents 300,000 shares of common stock issuable upon exercise of stock options. (7) Includes 400,000 shares of common stock issuable upon exercise of stock options. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The company held a claim on future record sales of Skyline Records, Inc. ("Skyline"), a 10% shareholder of the Company. The value of this right was written off in 1999 due to the uncertainty of realizing any benefit from this right. On October 23, 2000, the company entered into a settlement agreement with Skyline whereby the company agreed to relinquish any claim to Skyline's record sales and cancel a $99,105 debt to the company in exchange for the cancellation of 1,100,000 shares of the company owned by Skyline and a company related to Skyline. As a result of this transaction, the company recognized a gain of $318,895 during the year, and Skyline no longer owns 10% of the company and is therefore no longer a related party or an affiliate. In May 2000, we re-located our corporate offices to Scottsdale, Arizona. Our company loaned Mr. Keith Guelpa, our Chief Executive Officer, $80,000 to provide relocation assistance. The loan bears interest at the rate of prime plus 0.5%. Repayment terms are at the discretion of our board of directors. 17 ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) EXHIBITS EXHIBIT NUMBER DESCRIPTION OF EXHIBIT ------ ---------------------- 3.1 Articles of Merger Between Physician Cybernetic System, Inc. and Genetic Futures, Inc. (1) 3.3 Amended and Restated Articles of Incorporation (1) 3.4 Certificate of Amendment to Articles of Incorporation (1) 3.5 Certificate of Amendment to Articles of Incorporation (1) 3.6 Certificate of Amendment to Articles of Incorporation (1) 3.7 Certificate of Amendment to Articles of Incorporation (1) 3.8 Articles of Merger Between Skyline Entertainment, Inc. and Quotemedia.com, Inc. (1) 3.9 Bylaws (1) 4.1 Form of Pooling Agreement executed by certain of the Company's shareholders (1) 10.1 Agreement and Plan of Reorganization between the Company and Quotemedia.com, Inc., a Colorado corporation (1) 10.2 Employment Agreement between the Registrant and R. Keith Guelpa (1) 10.3 Employment Agreement between the Registrant and Keith Randall (1) 10.4 Employment Agreement between the Registrant and Duane Nelson (1) 10.5 Filtered Souls Entertainment 1999 Stock Option Plan - ---------- (1) Incorporated by reference to the Registrant's Registration Statement on Form 10-SB filed with the Commission on December 21, 1999. (b) REPORTS ON FORM 8-K. Not applicable. 18 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 16, 2001 QUOTEMEDIA.COM, INC. By: /s/ R. Keith Guelpa ------------------------------------- R. Keith Guelpa President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Robert J. Thompson Chairman of the Board March 16, 2001 - ------------------------- Robert J. Thompson /s/ R. Keith Guelpa President, Chief Executive March 16, 2001 - ------------------------- Officer, and Director R. Keith Guelpa /s/ Keith J. Randall Vice President, Treasurer, March 16, 2001 - ------------------------- Secretary, and Chief Financial Keith J. Randall Officer (Principal Financial and Accounting Officer) /s/ Ian D. Lambert Director March 16, 2001 - ------------------------- Ian D. Lambert 19 PART F/S QUOTEMEDIA.COM, INC. INDEX TO FINANCIAL STATEMENTS Independent Auditor's Report F-1 Balance Sheet F-2 Statement of Operations F-3 Statement of Cash Flows F-4 Statement of Stockholders' Equity F-5 Notes to Financial Statements F-6 - F-12 20 DUNCAN BUDGE, C.A. CHARTERED ACCOUNTANT STE. #200 - 120 LONSDALE AVE. NORTH VANCOUVER, B.C. V7M 2E8 TELEPHONE: (604) 990-6680 FACSIMILE: (604) 990-8013 INDEPENDENT AUDITOR'S REPORT The Stockholders and Board of Directors QUOTEMEDIA.COM, INC. I have audited the balance sheets of QUOTEMEDIA.COM, INC. as at December 31, 2000 and 1999 and the statements of operations, stockholders' equity, and cash flows for the year ended December 31, 2000 and the period from date of incorporation, June 28, 1999 to December 31, 1999. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with United States generally accepted auditing standards. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. In my opinion, these financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2000 and 1999 and the results of its operations and its cash flows for the year ended December 31, 2000 and the period from the date of incorporation, June 28, 1999 to December 31, 1999, in accordance with generally United States accepted accounting principles applied on a consistent basis. The accompanying financial statements have been prepared assuming that QUOTEMEDIA.COM, INC. will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has limited revenue to date. This raises substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Vancouver, Canada /s/ DUNCAN BUDGE, C.A. March 23, 2001 CHARTERED ACCOUNTANT F-1 QUOTEMEDIA.COM, INC. BALANCE SHEET AS AT DECEMBER 31, 2000 AND 1999
DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 158,339 $ 672,038 Marketable securities (Note 4) 41,420 102,500 Accounts receivable 3,443 23,931 Deposits 30,538 -- ----------- ----------- Total current assets 233,740 798,469 Fixed assets, net (Note 5) 47,518 14,206 Due from related parties (Note 6 (b)) 96,863 -- ----------- ----------- $ 378,121 $ 812,675 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 189,146 $ 130,240 Deferred revenue 2,055 -- Due to related parties -- 13,200 ----------- ----------- 191,201 143,440 ----------- ----------- STOCKHOLDERS' EQUITY Common stock, $0.001 par value, 50,000,000 shares authorized, 20,577,612 shares issued and outstanding (Note 7) 20,558 17,228 Additional paid-in capital 2,943,705 1,370,536 Accumulated deficit (2,777,343) (718,529) ----------- ----------- 186,920 669,235 ----------- ----------- $ 378,121 $ 812,675 =========== ===========
"Commitments" (Note 9) "Contingencies" (Note 10) "Subsequent Events" (Note 11) See accompanying notes F-2 QUOTEMEDIA.COM, INC. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 AND PERIOD FROM DATE OF INCORPORATION TO DECEMBER 31, 1999
PERIOD FROM DATE OF YEAR ENDED INCORPORATION TO DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- OPERATING REVENUE Licensing fees $ 24,529 $ -- Advertising 20,199 -- ------------ ------------ 44,728 -- OPERATING EXPENSES Business development (marketing) 389,722 183,513 Office 889,763 61,177 Professional fees 161,601 77,717 Research and development 372,622 31,331 Website content 649,393 121,013 ------------ ------------ 2,463,101 474,751 ------------ ------------ OPERATING LOSS (2,418,373) (474,751) OTHER INCOME Interest and other income 40,664 9,149 Gain on relinquishment of rights (Note 6 (a)) 318,895 -- ------------ ------------ 359,559 9,149 ============ ============ Loss for period $ (2,058,814) $ (465,602) ============ ============ EARNINGS PER SHARE Basic loss per share $ (0.11) $ (0.03) ============ ============ Diluted $ (0.10) $ (0.03) ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING Basic 19,428,480 16,159,071 ============ ============ Diluted 19,804,742 16,275,897 ============ ============
See accompanying notes F-3 QUOTEMEDIA.COM, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 2000 AND PERIOD FROM DATE OF INCORPORATION TO DECEMBER 31, 1999
PERIOD FROM DATE OF YEAR ENDED INCORPORATION TO DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: LOSS FOR PERIOD $(2,058,814) $ (465,602) ADJUSTMENTS TO RECONCILE LOSS TO NET CASH USED IN OPERATING ACTIVITIES Depreciation 11,851 750 Loss on sale of marketable securities 3,116 -- Gain on relinquishment of rights (318,895) -- Issuance of capital stock for services 334,249 132,500 CHANGES IN ASSETS AND LIABILITIES: Accounts receivable 20,488 (21,625) Deposits (30,538) -- Accounts payable 58,906 67,146 Deferred revenue 2,055 -- Due from related parties (209,168) (184,875) ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (2,186,750) (471,706) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of marketable securities 57,964 -- Fixed assets (45,163) (12,857) Cash acquired on acquisition of subsidiary -- 1,100 ----------- ----------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES 12,801 (11,757) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of capital stock for cash 1,660,250 1,155,501 ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,660,250 1,155,501 ----------- ----------- NET (DECREASE) INCREASE IN CASH (513,699) 672,038 CASH, BEGINNING OF PERIOD 672,038 -- ----------- ----------- CASH, END OF PERIOD $ 158,339 $ 672,038 =========== ===========
See accompanying notes F-4 QUOTEMEDIA.COM, INC. STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 2000 AND PERIOD FROM DATE OF INCORPORATION TO DECEMBER 31, 1999
CAPITAL STOCK ------------------------ ADDITIONAL COMMON PAID-IN SHARES AMOUNT CAPITAL DEFICIT ----------- -------- ----------- ----------- BALANCE, JUNE 28, 1999 4,393,710 $ 4,394 $ 6,317,427 $(6,563,748) Elimination of deficit and share capital of Quotemedia.com, Inc., as at date of acquisition -- (3,294) (6,317,427) 6,563,748 Write off of excess cost of acquisition of Quotemedia.com, Inc. -- -- -- (252,927) ----------- -------- ----------- ----------- 4,393,710 1,100 -- (252,927) Shares issued - acquisition of Quotemedia.com, Inc. 11,000,000 11,000 -- -- Shares issued - for cash 1,540,669 1,540 1,153,961 -- Shares issued - for debt 176,667 177 132,323 -- Shares issued - settlement of debt 116,638 117 87,546 -- Transfer to par value -- 3,294 (3,294) -- Loss for period -- -- -- (465,602) ----------- -------- ----------- ----------- BALANCE, DECEMBER 31, 1999 17,227,684 17,228 1,370,536 (718,529) =========== ======== =========== =========== Shares issued - for cash 3,551,999 3,552 1,656,698 -- Shares issued - for services 877,929 878 333,371 -- Shares cancelled (Note 6 (a)) (1,100,000) (1,100) (416,900) -- Loss for period -- -- -- (2,058,814) ----------- -------- ----------- ----------- BALANCE, DECEMBER 31, 2000 20,577,612 $ 20,558 $ 2,943,705 $(2,777,343) =========== ======== =========== ===========
See accompanying notes F-5 QUOTEMEDIA.COM, INC. NOTES TO FINACIAL STATEMENTS DECEMBER 31, 2000 1. HISTORY AND ORGANIZATION OF THE COMPANY The Company ("QuoteMedia") was incorporated June 28, 1999 under the laws of the State of Colorado. On July 14, 1999, Skyline Entertainment, Inc., ("Skyline") issued 11,000,000 common shares to acquire 100% of the issued and outstanding shares of QuoteMedia. This issuance represented approximately 72% of the issued and outstanding shares of Skyline. As a result, the selling shareholders of QuoteMedia have become the controlling shareholders of Skyline. This transaction, under which control of the parent company passes to the former shareholders of the subsidiary, is accounted as a reverse takeover. Under reverse takeover accounting, the cost of the acquisition of QuoteMedia has been recorded using the purchase method, with QuoteMedia (the legal subsidiary) being recognized as the parent for accounting purposes. Under the July 14, 1999 agreement, immediately after the reverse takeover, QuoteMedia was merged into Skyline, with Skyline being the surviving corporation. Skyline's name was then changed to QuoteMedia.com, Inc. 2. GOING CONCERN The Company's financial statements are prepared using generally accepted accounting principals applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has had limited revenues to date. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. 3. SIGNIFICANT ACCOUNTING POLICIES a) CASH AND CASH EQUIVALENTS Cash equivalents include money market investments that are redeemable on demand. b) FIXED ASSETS Fixed assets are recorded at cost less accumulated depreciation. Depreciation is calculated on a declining-balance basis at a rate of 30% for the computer. In the years of acquisition and disposal, depreciation is calculated at one-half the normal rate. c) LOSS PER SHARE Financial Accounting Standards No. 128 "Earnings Per Share" requires the presentation of basic and diluted earnings per share. Basic earnings per share are computed by dividing income by the weighted average number of shares outstanding during the year. Diluted earnings per share takes into account shares outstanding (computed under basic earnings per share) and potentially dilutive common shares (such as stock options outstanding). The effect of a stock split or reverse split is applied retroactively to preceding periods. F-6 QUOTEMEDIA.COM, INC. NOTES TO FINACIAL STATEMENTS DECEMBER 31, 2000 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) d) STOCK BASED COMPENSATION Statement of Financial Accounting Standards No. 123 "Accounting Per Stock-Based Compensation" ("FAS 123") encourages, but does not require, to record the compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to account for stock-based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee is required to pay for the stock. The company has provided the pro-forma stock compensation information required by FAS 123 in note 7 d). e) INCOME TAXES Income taxes are provided in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes". A deferred tax asset or liability is recorded for all temporary differences between income for financial statement purposes and income for tax purposes as well as operating loss carry forwards. Deferred tax expenses or recovery result from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance, when, in the opinion of management, it is likely that some portion of the deferred tax asset will not be realized. Deferred taxes are adjusted for the effects of changes in tax laws and rates. f) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that effect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities as at the year end and the reported amount of revenues and expenses during the year. Actual results may vary from the estimates. g) NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities" establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for all fiscal quarters or years beginning after June 15, 1999. The Company does not anticipate that adoption of the statement will have a significant impact on its financial statements. h) REPORTING ON COSTS OF START-UP ACTIVITIES In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5: "Reporting the Costs of Start-Up Activities" which provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. The statement is effective for fiscal years beginning after December 15, 1998. The company does not anticipate that the statement will have a significant impact on its future financial statements. F-7 QUOTEMEDIA.COM, INC. NOTES TO FINACIAL STATEMENTS DECEMBER 31, 2000 4. MARKETABLE SECURITIES TASTY FRIES, INC. Number of shares 109,000 Recorded value $41,420 Tasty Fries, Inc., a U.S. corporation trades on the Over the Counter Bulletin Board operated by the National Association of Security Dealers. Tasty Fries, Inc. owns the right to manufacture, distribute and sell a fully automated French fry vending machine. In addition to acquiring the above shares in Tasty Fries, Inc. during 1995, the company was interested in become involved in the business. The company was granted the distribution rights for 15 European Countries. Consideration is only payable to Tasty Fries, Inc. at the time vending machines are ordered and delivered. To date, no business has evolved from this distributorship agreement. 5. FIXED ASSETS Cost $ 62,085 Accumulated Depreciation (14,567) -------- Net Value $ 47,518 ======== 6. RELATED PARTY TRANSACTIONS a) The Company held a claim on future record sales of Skyline Records, Inc. ("Skyline"), a 10% shareholder of the Company. The value of this right was written off in 1999 due to the uncertainty of realizing any benefit from this right. On October 23, 2000, the Company entered into a settlement agreement with Skyline whereby the company agreed to relinquish any claim to Skyline's record sales and cancel a $99,105 debt to the Company in exchange for the cancellation of 1,100,000 shares of the Company owned by Skyline and a company related to Skyline. Because of this transaction, the company recognized a gain of $318,895 during the year, and Skyline no longer owns 10% of the Company and is therefore no longer a related party. b) In May 2000, the Company's re-located its corporate offices to Scottsdale, Arizona. The Company loaned Mr. Keith Guelpa, the Chief Executive Officer of the Company, $80,000 to provide relocation assistance. The loan bears interest at the rate of prime plus 1/2 percent. Repayment terms are at the discretion of the Board of Directors. F-8 QUOTEMEDIA.COM, INC. NOTES TO FINACIAL STATEMENTS DECEMBER 31, 2000 7. CAPITAL STOCK a) AUTHORIZED SHARE CAPITAL 400,000 Series A-1 preferred, $0.001 par value 1,036,500 Series A-11 preferred, $0.001 par value 8,563,000 non-designated preferred, $0.001 par value 50,000,000 common shares, $0.001 par value b) ISSUED SHARE CAPITAL Preferred, Series A-1, A-11 and non-designated, none issued Common, 20,595,112 c) ADDITIONAL PAID-IN CAPITAL The excess of proceeds received for common shares over their par value of $0.001 is credited to additional paid in capital. d) STOCK OPTION PLAN The Company has a stock option plan whereby shares of the Company's common stock may be issued pursuant to the exercise of stock options granted to employees, officers, directors, advisors, and independent contractors of the company. The exercise price of the common stock underlying an option will be determined by the Board of Directors or compensation committee and may be equal to, greater than, or less than the fair market value but in no event less than 50% of fair market value. The options generally vest after one year unless, at the discretion of the Board of Directors, alternative vesting methods are allowed. The term of each option is determined at the time it is granted and may extend to a maximum of ten years. At December 31, 1999, the Company has reserved 2,500,000 options for issuance under the stock option plan. Options may also be granted outside the Company stock option plan. Options granted outside the plan generally contain terms that are more restrictive in nature and have a maximum expiration term of five years. An unlimited number of options may be granted by the Company outside the Company stock option plan at the discretion of the Board of Directors. F-9 QUOTEMEDIA.COM INC. NOTES TO FINACIAL STATEMENTS DECEMBER 31, 2000 7. CAPITAL STOCK (CONTINUED) The following table sets forth certain stock option information:
Weighted-Average Options Exercise Price ----------- ---------------- Outstanding at June 28, 1999 -- -- ---------- ----- Granted under company stock option plan 750,000 $1.54 Granted outside company stock option plan 250,000 $0.94 Exercised -- -- Cancelled -- -- ---------- ----- Outstanding at December 31, 1999 1,000,000 $1.39 ---------- ----- Granted under company stock option plan 2,305,000 $0.95 Granted outside company stock option plan 350,000 $1.64 Exercised (100,000) $0.75 Cancelled (1,580,000) $1.89 ---------- ----- Outstanding at December 31, 2000 1,975,000 $0.55 ========== ===== Options Outstanding Options Exercisable -------------------------------------------------- ------------------------------- Weighted Number Average Weighted Number Weighted Range of Outstanding at Remaining Average Exercisable at Average Exercise Price Dec. 31, 2000 Contractual Life Exercise Price Dec. 31, 1999 Exercise Price -------------- ------------- ---------------- -------------- ------------- -------------- $0.16-1.68 1,975,000 4.55 $0.55 1,420,000 $0.58
As explained in note 3 d), if the Company has adopted only the disclosure provisions of FAS 123 for options granted under the existing employee stock option plan. As at December 31, 2000 all stock options have been granted with exercise prices equal to or greater than the market value of the underlying common shares on the date of grant therefore no compensation expense has been recognized for the stock option plan in the statement of operations. F-10 QUOTEMEDIA.COM INC. NOTES TO FINACIAL STATEMENTS DECEMBER 31, 2000 7. CAPITAL STOCK (CONTINUED) FAS 123 uses a fair value method of calculating the cost of stock option grants. Had the Company elected to recognize compensation cost for its option plans based on this method net income and earnings per share would have been as follows: 2000 1999 ---- ---- Net income: As reported $ (2,058,814) $ (465,604) Pro forma (2,109,046) (723,813) Basic earnings per share: As reported (0.11) (0.03) Pro forma (0.11) (0.04) Diluted earnings per share: As reported (0.10) (0.03) Pro forma (0.11) (0.04) The weighted average fair value of the options granted during the year is $0.49 per share. The fair value of each option on the date of grant is estimated using the Black-Scholes option-pricing model with the following weighted average assumptions for 2000: expected dividend yield of 0%, expected stock price volatility of 247%, a risk free interest rate of 6%; and an expected life of options of one year. 8. COMPARATIVE FIGURES Certain figures in the comparative period have been reclassified to conform to the current year's presentation. 9. COMMITMENTS The Company has contracts with web content providers, and premise lease commitments extending one to three years. Commitments total $262,176, $210,140 and $50,412 in years 2001, 2002, and 2003, respectively. F-11 QUOTEMEDIA.COM INC. NOTES TO FINACIAL STATEMENTS DECEMBER 31, 2000 10. CONTINGENCIES Fortress Entertainment Group, Inc. launched a lawsuit against Skyline Entertainment, Inc. and Skyline Records, Inc. in which Quotemedia.com, Inc. was also named in the suit as the successor company to Skyline Entertainment, Inc. The lawsuit was settled during the year. The settlement requires Skyline Records, Inc. to pay $65,000 on or before April 15, 2001. In the event that payment is not made, a Stipulated Judgment will be entered in the amount of $130,000. In the event that Skyline Records, Inc. fails to make payment, Quotemedia.com, Inc. is liable as a named party in the suit. 11. SUBSEQUENT EVENTS a) RELATED PARTY TRANSACTIONS On February 14, 2001, Keith Guelpa, President and Chief Executive Officer of the Company, loaned the Company $50,000. The loan is interest bearing at 8% per annum, due on demand and secured by the unencumbered assets of the Company. As consideration for this loan, the Company issued Mr. Guelpa 1,250,000 warrants to purchase common stock of the Company. The warrants have an exercise price of $0.10 and expire on February 14, 2006. b) STOCK OPTIONS On February 27, 2000, the Company granted 350,000 stock options inside the Company stock option plan at exercise prices ranging from $0.26 to $0.29 and an expiry date of February 27, 2006. The Company also cancelled and reissued 950,000 stock options inside the Company Stock Option plan. The cancelled stock options had an exercise price of $0.50 and the reissued stock options had exercise prices ranging from $0.26 to $0.29. c) WARRANTS On January 8, 2001, the Company engaged the services of CPP Ventures, LLP ("CPP") for advisory services and to provide news content. In exchange for these services, the Company granted CPP 500,000 warrants to purchase common stock of the Company. The warrants have an exercise price of $0.10 and expire on January 8, 2002. F-12 EX-10.5 2 ex10-5.txt 1999 STOCK OPTION PLAN OF FILTERED SOULS ENT. Exhibit 10.5 FILTERED SOULS ENTERTAINMENT 1999 STOCK OPTION PLAN 1. PURPOSE This Stock Option Plan (the "Plan") for Filtered Souls Entertainment, Inc. (the "Company") is intended to provide incentive to directors, officers, key employees of and consultants to the Company and members of the Company's Advisory Board by providing those persons with opportunities to purchase shares of the Company's Common Stock under (a) incentive stock options ("Incentive Stock Options") as such term is defined under Section 422A of the Internal Revenue Code of 1986, as amended, and (b) other stock options (collectively herein referred to as "Options"). 2. DEFINITIONS As used in this Plan, the following words and phrases shall have the meanings indicated: (a) "Board" shall mean the Board of Directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Common Stock" shall mean the common stock of the Company, no par value. (d) "Company" shall mean Filtered Souls Entertainment, Inc., the employer which has established this Plan. (e) "Disability" shall mean an Optionee's inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. (f) "Fair Market Value" per share as of a particular date shall mean (i) the closing sales price per share of Common Stock on the principal national securities exchange, if any, on which the shares of Common Stock shall then be listed for the last preceding date on which there was a sale of such Common Stock on such exchange, or (ii) if the shares of Common Stock are not then listed on a national securities exchange, the last sales price per share of Common Stock entered on a national inter-dealer quotation system for the last preceding date on which there was a sale of such Common Stock on such national inter-dealer quotation system, or (iii) if no closing or last sales price per share of Common Stock is entered on a national inter-dealer quotation system, the average of the closing bid and asked prices for the shares of Common Stock in the over-the-counter market for the last preceding date on which there was a quotation for such Common Stock in such market, or (iv) if no price can be determined under the preceding alternatives, then the price per share as most recently determined by the Board, which shall make such determinations of value at least once annually. (g) "Incentive Stock Option" means one or more options to purchase Common Stock which, at the time such Options are granted under this Plan or any other such plan of the Company, qualify as incentive stock options under Section 422A of the Code. (h) "Parent" shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of granting an Option, each of the corporations other than the Company owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (i) "Plan" shall mean this Stock Option Plan. (j) "Option" shall mean any option issued pursuant to this Plan. (k) "Optionee" shall mean any person to whom an Option is granted under this Plan. (l) "AB Member" shall mean a member of the Company's Advisory Board. (m) "Subsidiary" shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting an Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (n) "Ten Percent Shareholder" shall mean an Optionee who, at the time an Option is granted, owns directly or indirectly (within the meaning of Section 425(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company, its Parent or a Subsidiary. 3. GENERAL ADMINISTRATION (a) The Plan shall be administered by the Board or, in the Board's sole discretion, a Stock Option Committee (the "Committee") consisting of not less than three members of the Board; provided, however, that following the registration of the Company's shares of Common Stock under the Securities Exchange Act of 1934, as amended (the "Act"), the Board shall delegate its duties and authorities with respect to the Plan to a Committee, all members of which shall be "disinterested persons" within the meaning of Section 16b-3 of the Act. (b) The Board or the Committee, as the case may be, shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Options; to determine the purchase price of shares of Common Stock covered by each Option (the "Option Price"); to determine the persons to whom, and the time or times at which, Options shall be granted; to determine the number of shares to be covered by each Option; to interpret the Plan; 2 to prescribe, amend and rescind rules and provisions relating to the Plan; to determine the terms and provisions of the Option Agreements (which need not be identical) entered into in connection with Options granted under the Plan; and to make all other determinations deemed necessary or advisable for the administration of the Plan. (c) If the Plan is administered by the Committee, the Board shall fill all vacancies, however caused, in the Committee. The Board may from time to time appoint additional members to the Committee, and may at any time remove one or more Committee members and substitute others. (d) No member of the Board or Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Option granted hereunder. 4. GRANTING OF OPTIONS Options may be granted under the Plan at any time prior to December 31, 2009. 5. ELIGIBILITY (a) Options may be granted to any director, officer, key employee of or consultant to the Company or any AB Member. In determining from time to time the directors, officers, employees, consultants and AB Members to whom Options shall be granted and the number of shares to be covered by each Option, the Board or the Committee, as the case may be, shall take into account the duties of such persons, their present and potential contributions to the success of the Company and such other factors as they shall deem relevant in connection with accomplishing the purposes of the Plan. (b) At the time of the grant of each Option under the Plan, the Board or the Committee, as the case may be, shall determine whether such Option is to be designated an Incentive Stock Option. Incentive Stock Options shall not be granted to a director, consultant or AB Member who is not an employee of the Company. The length of the exercise period of Incentive Stock Options shall be governed by Section 7(e)(1) of the Plan; the exercise period of all other Options shall be governed by Section 7(e)(2) of the Plan. 6. STOCK (a) The stock subject to the Options shall be shares of the Common Stock. Such shares may, in whole or in part, be authorized but unissued shares contributed directly by the Company or shares which shall have been or which may be acquired by the Company. The aggregate number of shares of Common Stock as to which Options may be granted from time to time under the Plan shall not exceed 400,000 shares. The limitation established by the preceding sentence shall be subject to adjustment as provided in Section 7(i) hereof. (b) If any outstanding Option under the Plan for any reason expires or is terminated without having been exercised in full, the shares of Common Stock allocable to the unexercised portion of such Option shall (unless the Plan shall have been terminated) become available for subsequent grants of Options under the Plan. 3 7. TERMS AND CONDITIONS OF OPTIONS Each Option granted pursuant to the Plan shall be evidenced by Option Agreements in such forms as the Board or the Committee, as the case may be, may from time to time approve. Options shall comply with and be subject to the following terms and conditions: (a) OPTION PRICE. Each Option shall state the Option Price, which in the case of an Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the shares of Common Stock on the date of grant of the Option; provided, however, that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, the Option Price shall not be less than one hundred ten percent (110%) of such Fair Market Value. The Option Price for Options that are not Incentive Stock Options shall not be less than fifty percent (50%) of the Fair Market Value of the Shares of Common Stock on the date of grant of the Option. The Option price shall be subject to adjustment as provided in Section 7(i) hereof. The date on which the Board or the Committee, as the case may be, adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted. (b) RESTRICTIONS. Any Common Stock issued under the Plan may contain restrictions, including, but not limited to, limitations on transferability that may constitute substantial risks of forfeiture, as the Board or the Committee, as the case may be, may determine. (c) VALUE OF SHARES. Options may be granted to any eligible person for shares of Common Stock of any value, provided that the aggregate Fair Market Value (determined at the time the Option is granted) of the stock with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all the plans of the Company, its Parent and its Subsidiaries) shall not exceed $100,000. (d) MEDIUM AND TIME OF PAYMENT. The Option Price shall be paid in full, at the time of exercise, in cash or, with the approval of the Board or the Committee, as the case may be, in shares of Common Stock having a Fair Market Value in the aggregate equal to such Option Price or in a combination of cash and such shares. (e) TERM AND EXERCISE OF OPTIONS. (1) INCENTIVE STOCK OPTIONS. Incentive Stock Options shall be exercisable over the exercise period specified by the Board or the Committee, as the case may be, in the Option Agreement, but in no event shall such period exceed ten (10) years from the date of the grant of each such Incentive Stock Option; provided, however, that in the case of an Incentive Stock Option granted to a Ten Percent Shareholder, the exercise period shall not exceed five (5) years from the date of grant of such Option. The exercise period shall be subject to earlier termination as provided in Section 7(f) and 7(g) hereof and may be accelerated, as specified by the Board or the Committee, as the case may be, in the Option Agreement, upon certain events such as an initial public offering of the Company's Common Stock. An Incentive Stock Option may be exercised, as to any or all full shares of Common Stock as to which the Incentive Stock Option has become exercisable, by giving written notice of such exercise to the 4 Board or the Committee, as the case may be; provided that an Incentive Stock Option may not be exercised at any one time as to less than 100 shares (or such number of shares as to which the Incentive Stock Option is then exercisable if such number of shares is less than 100). (2) NON-INCENTIVE STOCK OPTIONS. Options which have not been designated by the Board or the Committee, as the case may be, as Incentive Stock Options shall be exercisable over a period of eleven (11) years. (f) TERMINATION OF EMPLOYMENT. Except as provided in Section 7(g) hereof and except with respect to Options granted to an AB Member or consultant which have not been designated as Incentive Stock Options, (i) an Option may not be exercised unless the Optionee is then a director of or in the employ of the Company or any Parent or Subsidiary of the Company (or a corporation or a Parent or Subsidiary of such corporation issuing or assuming the Option in a transaction to which Section 425(a) of the Code applies), and unless the Optionee has remained continuously a director or so employed, as the case may be, since the date of grant of the Option, and (ii) in the event all association of an Optionee with the Company (as an employee or director) shall terminate (other than by reason of death or Disability), all Options or unexercised portions thereof granted to such Optionee which are then otherwise exercisable shall terminate ninety (90) days following the day on which the Optionee ceases to be an employee and/or director, but in no event later than the date of expiration of the Options. A bona fide leave of absence shall not be considered a termination or break in continuity of employment for any purpose of the Plan so long as the period of such leave does not exceed ninety (90) days or such longer period during which the Optionee's right to reemployment is guaranteed by statute or by contract. Where the period of such leave exceeds ninety (90) days and the Optionee's right to reemployment is not guaranteed, the Optionee's employment will be deemed to have terminated on the ninety-first day of such leave. Nothing in the Plan or in any Option granted pursuant hereto shall confer upon an employee any right to continue in the employ of the Company or any of its divisions or Parent or Subsidiaries or interfere in any way with the right of the Company or any such divisions or Parent or Subsidiary to terminate such employment at any time. (g) DEATH OR DISABILITY OF OPTIONEE. If an Optionee shall die while a director of or employed by the Company or any Parent or Subsidiary of the Company, or if the Optionee's employment shall terminate by reason of Disability, all Options theretofore granted to such Optionee may, unless earlier terminated in accordance with their terms, be exercised by the Optionee or by the personal representative of the Optionee's estate or by a person who acquired the right to exercise such Option by bequest or inheritance or otherwise by reason of the death of the Optionee, at any time within nine (9) months after the date of death or Disability of the Optionee, but in no event later than the date of expiration of the Option, provided that during the lifetime of the Optionee any Option granted to him may be exercised only by the Optionee. (h) NONTRANSFERABILITY OF OPTIONS. Options granted under the Plan shall not be transferable other than by will or by the laws of descent and distribution, and Options may be exercised, during the lifetime of the Optionee, only by the Optionee. 5 (i) EFFECT OF CERTAIN CHANGES. (1) If there is any change in the number of shares of Common Stock through the declaration of stock dividends, recapitalization resulting in stock splits, or combinations or exchanges of such shares, then the number of shares of Common Stock available for Options, the number of such shares covered by outstanding Options and the price per share of such Options shall be proportionately adjusted to reflect any increase or decrease in the number of issued shares of Common Stock; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. (2) In the event of the proposed dissolution or liquidation of the Corporation, each Option granted under the Plan shall terminate as of a date to be fixed by the Board; provided, however, that each Optionee shall have the right, immediately prior to such termination, to exercise the Options as to all or any part of the shares of Common Stock covered thereby, including shares as to which such Options would not otherwise be exercisable. (3) In the event of any merger, consolidation or reorganization of the Company, the Board or the Committee, as the case may be, shall promptly make an appropriate adjustment to the number and class of shares of Common Stock available for Options, and to the amount and kind of shares or other securities or property receivable upon exercise of any outstanding Options after the effective date of such transaction, and the price thereof (subject to the limitations of Section 425 of the Code) in order to preserve each Optionee's proportionate interest therein, and in order that the aggregate Option Price remains unchanged. A consolidation of the Company with, or sale of substantially all of the assets of the Company to, or the merger of the Company with, any other person (other than a consolidation or merger in which the Company is the surviving corporation) shall cause each outstanding Option to terminate, provided that each Optionee shall have the right during a ten (10) day period ending on the fifth day prior to such consolidation or merger to exercise his or her Options, in whole or in part, including shares as to which such Options would not otherwise be exercisable. (4) In the event of a change in the Common Stock as presently constituted, which is limited to a change of all of its authorized shares with or without par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. (5) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Board or the Committee, as the case may be, whose determination in that respect shall be final, binding and conclusive, provided that each Option granted pursuant to this Plan and designated an Incentive Stock Option shall not be adjusted in a manner that causes the Option to fail to continue to qualify as an Incentive Stock Option within the meaning of Section 422A of the Code. 6 (6) Except as hereinbefore expressly provided in this Section 7(i), the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation, and any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Option Price of shares of Common Stock subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassification, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. (7) For purposes of the Plan, a "change in control" of the Company occurs if: (a) any "person" (defined as such term as used in Sections 13(d) and 14(d)(2) of the Act) is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty five percent (25%) or more of the combined voting power of the Company's outstanding securities then entitled to vote for the election of directors; or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof; or (c) the Board of Directors shall approve the sale of all or substantially all of the assets of the Company or any merger, consolidation, issuance of securities or purchase of assets, the result of which would be the occurrence of any event described in clause (a) or (b) above. In the event of a change in control of the Company, the Board or the Committee, as the case may be, in its discretion, may determine that, upon the occurrence of a transaction described in the preceding paragraph, each Option outstanding hereunder shall terminate within a specified number of days after notice to the holder, and such holder shall receive, with respect to each share of Common Stock subject to such Option, an amount of cash equal to the excess of the Fair Market Value of such share immediately prior to the occurrence of such transaction over the exercise price per share of such Option. The provisions contained in the preceding sentence shall be inapplicable to an Option granted within six (6) months before the occurrence of the transaction described above if the holder of such Option is a director or officer of the Company or a beneficial owner of the Company as defined in Section 16(a) of the Act, unless such holder dies or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior to the expiration of such six month period. Alternatively, the Board or the Committee, as the case may be, may determine, in its discretion, that all then outstanding Options shall immediately become exercisable upon a change of control of the Company. (j) RIGHTS AS A SHAREHOLDER. An Optionee or a transferee of an Option shall have no rights as a shareholder with respect to any shares covered by his Option until the date of the issuance of a stock certificate to him for such shares. No adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record 7 date is prior to the date such stock certificate is issued, except as provided in Section 7(i) hereof. (k) OTHER PROVISIONS. The Option Agreements authorized under the Plan shall contain such other provisions, including, without limitation, (i) the imposition of restrictions upon the exercise of an Option, and (ii) the inclusion of any condition not inconsistent with such Option qualifying as an Incentive Stock Option, as the Board of the Committee, as the case may be, shall deem advisable, including provisions with respect to compliance with federal and applicable state securities laws. 8. AGREEMENT BY OPTIONEE REGARDING WITHHOLDING TAXES (a) No later than the date of exercise of any Option granted hereunder, the Optionee will pay to the Company or make arrangements satisfactory to the Board or the Committee, as the case may be, regarding payment of any federal, state or local taxes of any kind required by law to be withheld upon the exercise of such Option; and (b) The Company shall, to the extent permitted or required by law, have the right to deduct from any payment of any kind otherwise due to the Optionee any federal, state or local taxes of any kind required by law to be withheld upon the exercise of such Option. 9. TERM OF PLAN Options may be granted pursuant to the Plan from time to time within a period of ten (10) years from the date on which the Plan is adopted by the Board, provided that no Options granted under the Plan shall become exercisable unless and until the Plan shall have been approved by the Company's shareholders. 10. SAVINGS CLAUSE Notwithstanding any other provision hereof, this Plan is intended to qualify as a plan pursuant to which incentive stock options may be issued under Section 422A of the Code. If this Plan or any provision of this Plan shall be held to be invalid or fail to meet the requirements of Section 422A of the Code or the regulations promulgated thereunder, such invalidity or failure shall not affect the remaining parts of this Plan, but rather it shall be construed and enforced as if the Plan or the affected provisions thereof, as the case may be, complied in all respects with the requirements of Section 422A of the Code. 11. AMENDMENT AND TERMINATION OF THE PLAN The Board may at any time and from time to time suspend, terminate, modify or amend the Plan, provided that any amendment that would materially increase the aggregate number of shares of Common Stock as to which Options may be granted under the Plan, materially increase the benefits accruing to participants under the Plan, or materially modify the requirements as to eligibility for participation in the Plan shall be subject to the approval of the holders of a majority of the Common Stock issued and outstanding, except that any such increase or modification that may result from adjustments authorized by Section 7(i) hereof shall not require such approval. Except as provided in Section 8 hereof, no suspension, termination, modification or amendment of the Plan may adversely affect any 8 Option previously granted unless the written consent of the Optionee is obtained. ADOPTED by the Board of Directors on March __, 1999. FILTERED SOULS ENTERTAINMENT, INC. ATTEST: By: ______________________________ President ______________________________ Secretary 9 -----END PRIVACY-ENHANCED MESSAGE-----