U. S. 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, 2002 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 000-27243 WORLDTEQ GROUP INTERNATIONAL, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 03-7392107 -------------------- ------------------ (State or other (I.R.S. Employer jurisdiction of Identification incorporation or No.) organization) 30 West Gude Drive, Rockville, Maryland 20850 ------------------------------------------- ----------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (240) 403-2000 ---------------- Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered N/A N/A Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, $0.001 PAR VALUE (Title of Class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of 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. [X] WorldTeq Group International Inc.'s revenues for its most recent fiscal year ended December 31, 2002 were $4,221,968. On December 31, 2002, the aggregate market value of the voting stock of WorldTeq Group International, Inc. (consisting of common stock, $0.001 par value) held by non-affiliates of the Registrant (approximately 10,616,000 shares) was approximately $849.280.00 based on the closing price for such common stock ($0.08) on said date as reported by the OTC Bulletin Board. As of December 31, 2002, there were 21,630,000 outstanding common shares of WorldTeq Group International, Inc. common stock. Documents incorporated by reference: Portions of several 8K announcements during the year are incorporated by reference in Part III hereof. TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE) YES NO X The Index of Exhibits filed with this Report begins on page . WORLDTEQ GROUP INTERNATIONAL, INC. FORM 10-KSB TABLE OF CONTENTS Page ---- PART I Item 1. Description of Business . . . . . . . . . . . . . . 3 Item 2. Description of Property . . . . . . . . . . . . . . 15 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 16 Item 4. Submission of Matters to a Vote of Security Holders 16 PART II Item 5. Market for Common Equity and Related Stockholder Matters 16 Item 6. Management's Discussion and Analysis or Plan of Operation 17 Item 7. Financial Statements. . . . . . . . . . . . . . . . 19 Item 8. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . 19 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act. . . . . . . . . . . . . . . . . . . 19 Item 10. Executive Compensation. . . . . . . . . . . . . . . 21 Item 11. Security Ownership of Certain Beneficial Owners and Management. . . . . . . . . . . . . . . . . . . . 22 Item 12. Certain Relationships and Related Transactions. . . 23 Item 13. Exhibits and Reports on Form 8-K. . . . . . . . . . 26 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 24 PART I FORWARD LOOKING STATEMENTS This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as "believes", "anticipates", "intends", or "expects". These forward-looking statements relate to our plans, objectives and expectations for future operations and growth. Other forward-looking statements in this Form 10-K include statements regarding synergies and growth expected as a result of future acquisitions, expected growth in earnings, EBITDA, revenue and gross margin, expected decreases in operating expenses, our expectation regarding our ability to consummate future acquisitions. In light of the risks and uncertainties inherent in all such projected operational matters, the inclusion of forward-looking statements in this Form 10-K should not be regarded as a representation by us or any other person that any of our objectives or plans will be achieved or that any of our operating expectations will be realized. Our revenues and results of operations are difficult to forecast and could differ materially from those projected in the forward-looking statements contained in this Form 10-K as a result of certain risks and uncertainties including, but not limited to, our business reliance on third parties to provide us with technology, infrastructure and content, our ability to integrate and manage acquired technology, assets, companies and personnel, changes in market conditions, the volatile and intensely competitive environment in the telecommunications and Internet industries, the availability of transmission facilities, dependence on call termination agreements, entry into new and developing markets, risks associated with the international telecommunications industry, customer concentration and attrition, dependence on a few significant foreign and domestic customers and suppliers, international economic and political instability, dependence on effective billing and information systems, rapid technological change, the risk of litigation in connection with the contents of our Web based systems, and our dependence on key employees in a competitive market for skilled personnel. These factors should not be considered complete; we undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The discussion in this report contains forward looking statements, including, without limitation, statements relating to WorldTeq Group International, Inc. and its wholly-owned subsidiaries, WorldTeq Corporation, NetWorld of Ohio Inc., or DigitalTeq Corporation ("WTEQ"). Although we believe that the expectations reflected in the forward looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. The forward looking statements involve risks and uncertainties that affect our business, financial condition and results of operations, including without limitation, our possible inability to obtain additional financing, lack of agent growth, the possible loss of key personnel, rate changes, fee policy or application changes, technological changes and increased competition. Many of these risks are beyond our control. We are not entitled to rely on the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or Section 21E of the Securities Exchange Act of 1934, as amended, when making forward looking statements. ITEM 1. DESCRIPTION OF BUSINESS CORPORATE HISTORY WorldTeq Group International, Inc. was incorporated under the laws of Nevada on October 13, 1997, and was originally named Halo Holdings of Nevada, Inc. On October 15, 2001, we amended our articles of incorporation to adopt our current name, which we believe more accurately reflects the business in which we are now engaged. From the date of our incorporation in 1997 until early 1999 our company was engaged in skydiving and related business ventures. Between February and April 1999 we sold our skydiving business and acquired three companies which were providers of Internet connectivity and related products and services. Specifically, in February 1999 we acquired Virtual Information Express, Inc. a Maryland corporation which provided outsourced Internet services such as e-commerce applications and collaborative technologies. In March 1999, we acquired Computer Ease LLC, a Maryland limited liability company which provided Web design and development services to corporate clients and associations. Computer Ease was merged into our subsidiary A1 Internet Services, Inc., a Delaware corporation. In April 1999 we acquired Networld Ohio, Inc., an Ohio corporation, which is an Internet service provider ("ISP") based in Freemont, Ohio. In November of 2000 we formed WorldTeq Corporation, a Delaware Corporation, to focus on adding Long Distance services to our product line. As a result of these transactions, our principal business now is providing Internet access, Long Distance Service and related products and services. Our principal offices are located at 30 West Gude Drive, Rockville, MD 20850 (telephone # 240-403-2000). OVERVIEW We are a switch-less and facilities-based provider of Internet protocol and traditional fiber based communications services, including voice, data and Internet access, along with traditional Long Distance Calling Cards and related services. We market our services to groups specializing in specific ethnic demographics, residential communities located in major metropolitan areas, associations, network marketing organizations, and ISPs. Our goal is to become a leading provider of Internet Protocol, ("IP"), and communication services, including voice, data and Internet services to our targeted markets, comprised of affinity communities. We provide our services through a flexible network of owned, contracted facilities and resale arrangements. We have an extensive network available to us of IP gateways, international gateways, domestic switches, and a North American local access network of over 6,500 Points of Presence. Through our subsidiaries we provide associations and businesses with opportunities to generate revenues by supplying those associations, individuals, and businesses with Internet technology and communications solutions and services that they can re-sell under their own names and brands. Our products and services enable the affinity group to offer their members, customers and others a variety of revenue producing solutions and services without making large investments in technology, infrastructure or staff. The principal products and services which we offer are: - Long Distance Service - Toll Free Products - Specialized Call Center Products - Billing Services - Wireless Products - Web site creation and design; - Web site hosting; - Internet access and VoIP service (Voice over Internet Protocol) - Complete electronic commerce services; - E-mail and related services such as conference and bulletin board facilities and mailing list management; In addition, we own one regional ISP located in Fremont, Ohio which had a total of 2,900 subscribers as of December, 2002 that are owned by the company. RECENT DEVELOPMENTS Beginning in the fourth quarter of 2002, we began to modify our business plan to better focus on our core competencies. In December of 2002 the Board of Directors and Management decided to change the focus of several companies not focused on our core competencies, with specific emphasis on cash flow and profits. The revised plan called for a restructuring that included 1) a change in our staff with more experience in our industry, 2) accelerated migration of direct customer sales staff to that of a contracted agent network, 3) discontinuation of unprofitable, low-margin business lines and 4) implementation of certain cost reduction procedures. Implementation of this plan commenced in the first quarter of 2003 and 5) consolidation of selected offices and centralization of our Network Operations Centers and 6) deployment of a new web based enterprise-wide reporting system accessible by all our offices 7) investigation into the sale of one of our subsidiaries 8) launching of our financial services products. 2002 KEY ACCOMPLISHMENTS Our strategy is to facilitate our continued expansion into emerging economies by expanding telecommunications and Internet services for our residential and small business customers and adding financial services products. During 2002, we continued to take advantage of our strong technical abilities to develop and deploy our own billing and provisioning systems. We expanded our strength in affinity communities by enhancing the services we offer. During 2002 some of our key accomplishments included: 1. Expansion of our available networks by contracting additional vendors which incorporated the required infrastructure for the company to offer VoIP products. 2. Increased our success in the small and medium-sized business market through the roll out of several new high demand products such as calling cards, Toll Free services, 1 + dialing plans, and enhanced hosting services. 3. Enhancement of our Billing System, known as WEBBSsm, to take better control over our provisioning and billing activities, thereby allowing us to provide service to a greater number of people without increasing our overhead expense. 4. Creation of strategic agent relationships with several very successful resellers already in the market place. INDUSTRY BACKGROUND The Internet is a global network of multiple private and public networks that use standardized communication protocols to communicate with each other. The Internet has become an important communication and commercial medium and presents a significant opportunity for associations and businesses to interact in new and different ways with a larger number of members, customers, employees, suppliers and partners. As use of the Internet grows, associations, individuals and businesses are increasing the breadth and depth of their Internet product and service offerings. Pioneering Internet-based organizations have developed Internet products and services in areas such as finance, insurance, media, tourism, retail and advertising. Other organizations have begun to use the Internet for an expanding variety of applications, ranging from corporate or association publicity and advertising, to sales, distribution, customer service, employee training and communication with partners. Increasingly, Internet operations are becoming mission-critical for many of these enterprises. To ensure the reliability of their Internet operations, enterprises are requiring that these operations have high performance standards, scalability and expert management 24 hours a day, 7 days a week. Enterprises generally utilize two types of Internet services: connectivity and valued-added services. Connectivity services provide access to the Internet, while value-added services consist of products such as Web design and hosting, electronic commerce services, and communication services that improve the internal and external operations of an enterprise. Internet connectivity and value-added services represent two of the fastest growing segments of the telecommunications services market. The availability of Internet access advancements in technologies required to navigating the Internet and the proliferation of content and applications available over the Internet have attracted a growing number of Internet users. The Internet service provider market is segmented into large national or multinational providers with large high speed networks and regional or local ISPs who enlist subscribers under their own names but typically rely upon the larger providers for Internet access. The largest providers, like AT&T, have what are referred to as "tier one" networks, which exchange Internet traffic cost-free, at multiple public peering points, as well as through private peering arrangements. As the number of ISPs has grown, the requirements to become a tier one network have also increased. It has therefore become more difficult to achieve tier one provider status. Regional and local ISPs typically purchase access to the Internet, and invest in the equipment and personnel necessary to provide products and services, customized hands-on support, and bear the cost of marketing. Since regional and local ISPs often have limited financial resources, the range of products and services they can offer is often limited. As is typical in the case of a new and rapidly evolving industry, the Internet is characterized by rapidly changing technology, evolving industry standards and frequent new product and service introductions. Demand for recently introduced products and services are subject to a level of uncertainty. Despite growing interest in the many uses of the Internet some potential users could be deterred from purchasing Internet access services because of a perceived inconsistent quality of service, the need to deal with multiple and frequently incompatible vendors, and perceived inadequate protection of the confidentiality of stored data and information moving across the Internet. In particular, a perceived lack of security of commercial data, such as credit card numbers, could impede commercial exploitation of the Internet. There can be no assurance that encryption or other technologies will satisfactorily address these security concerns. The adoption of the Internet for commerce and communications, particularly by those individuals and enterprises which have historically relied upon alternative means of commerce and communication, generally requires the understanding and acceptance of a new way of conducting business. OUR BUSINESS STRATEGY Our business strategy is to combine the global scale of tier one providers with the local presence of regional and local resellers of Internet products and Long Distance Voice services. We provide affordable connectivity on a global scale by contracting with Qwest, UUNET, Broadwing and MegaPop, leading tier one providers, for access to their Internet network at a fixed monthly fee per end-user. We contract with several Long Distance carriers who have excess capacity and we acquire wholesale rates based on the amount of traffic we are purchasing. We enable associations, membership sales organizations and other affinity groups to create revenue and sales programs by offering their members high quality communications products and services without the investment in technology, equipment and personnel that would ordinarily be required to establish this kind of service. We enable existing regional and local ISPs to reduce and control their costs, focus their energies on sales and enhance their marketing by providing a variety of products and services and high quality support services at affordable rates which are resold to their customers. In effect, we enable associations, membership sales organizations and ISPs to become virtual communications resellers who market under their own name products and services which they purchase from us. We anticipate that a majority of the end-users of our services will be derived from resellers of our products and services. Therefore, to a large extent, our ability to grow depends upon the resources and dedication which resellers are willing to commit to marketing our services. Our current business strategy also depends upon being able to charge for services rendered to realize recurring revenues. We believe that the practice of offering free Internet Access will not become prevalent among the customers we are targeting. If our belief is erroneous, we would be required to develop a different approach to marketing our products and services. Much of our anticipated growth will be derived from the sale of our electronic commerce related products. Our ability to grow also depends upon the increasing acceptance of electronic commerce and the reliability of the inventory, billing and delivery systems utilized by electronic commerce vendors. MARKETS In late 2000 we recognized the cost effective marketing potential of the Internet to assist us in our growth plans. We created an agent marketing operation based exclusively on the Internet to reach the end users and communicate with our authorized agent network. Our initial goal was to expand our marketing reach by increasing the number of independent agents working with us while we remained focused on expanding the number of products and services that these agents could sell to the customer base. To aid in maintaining our goal of controlled growth, we deployed a self replicating web management system. This internally developed proprietary technology dynamically created a personalized web based destination for each new agent immediately upon receipt of their signed contract. We developed and launched our own proprietary billing system known as WEBBS(sm) (Web Enabled Back-office Business Systems) which assists us in achieving total control of all record keeping and reporting. WEBBS(sm) maintains live up-to-date information regarding customer details, their status, frequently asked questions and customer service issues. We embraced a strategy of enabling each agent to sell internet and telecommunications services as independent contractors and to recruit new agents. The original agent receives an override on sales generated by them and the agents they recruit as their down-line. Our commission structure enables our agents to earn recurring revenues without requiring them to develop the necessary infrastructure. Our direct agents are required to commit to significant minimum levels of sales achievement to maintain their direct relationship with our company. Each agent can view their records, sales activity and account status on their accounts and those of their down-line relationships, through WEBBS(sm). In addition to our agent network and direct sales efforts, we developed and deployed a variety of affiliate programs. Utilizing these programs, large affiliate organizations such as religious groups, trade organizations, and a variety of membership businesses can be utilized for commission sharing. We focus on three market segments: Associations; membership marketing companies with existing customer bases; and, regional and local ISPs. ASSOCIATIONS: There are numerous non-profit Associations and a number of other affinity groups in the United States. These organizations regularly communicate with established membership groups composed of persons with common interests. We offer these organizations a means to communicate with their members and to provide membership services. In addition, our connectivity services generate subscription income and our electronic commerce products provide organizations that are dependent upon membership dues for their revenues with opportunities to realize non-dues revenue without large up-front capital investments. MEMBERSHIP MARKETING COMPANIES. There are many large membership-marketing businesses in the United States with established customer bases. To these businesses we offer sales programs with opportunities for recurring profits, low barriers of entry and opportunities to build brand equity. REGIONAL AND LOCAL ISPS: There are more than 8,100 ISPs in the United States, according to Thelist.com. We offer these ISPs the opportunity to control their costs by purchasing connectivity and other products and services under their own name and brand at a fixed price for each end-user. This allows the ISPs to focus on marketing, and provides them with a broader range of products and services they might otherwise not be able to offer. SALES Our direct sales force consists of two staff members dedicated to Association and membership sales and additional employees dedicated to the sale of Web site design, Web site hosting, electronic mail services and other value added products. In addition, we utilize indirect sales channels, principally through our vendor's network sales force, Trade Associations and other affinity groups to supplement our direct sales force. PRODUCTS AND SERVICES We offer a variety of Internet services including connectivity, electronic mail services, electronic commerce services, Web hosting and Web site design. We intend to develop a broader range of value added solutions and services independently, through acquisitions, and through strategic relationships with providers. Following is a description of the products and services we currently offer to our customers. CONNECTIVITY We offer a variety of Internet access solutions; providing basic connectivity to the Internet, as well as value-added products and services, such as e-mail, that enable our customers to expand their basic Internet connectivity capability. We currently offer both analog and integrated services digital network dial-up (ISDN) access at speeds up to 128 Kbps. We provide this access at local telephone rates via a combined network utilizing services from UUNET, MegaPop, Broadwing and Qwest which provides approximately 6,500 points of presence throughout the United States and parts of Canada. We also offer frame relay, dedicated connectivity, and Point-To-Point service. Our Flex T-1(TM) Frame Relay Account offers access to T-1 lines on an as needed basis with bandwidths ranging from 256 Kbps to capacities in excess of 1024 Kbps. We offer a Digital Subscriber Line (DSL) service that permits access to the Internet at up to 1.5 Mbps. These services accommodate connectivity requirements of Internet users ranging from the single user with a computer in his or her home, to work groups and businesses with multiple users. Although the available services are identical, pricing for our connectivity service is dependent on whether the customer is retail or wholesale based. Retail customers are end-users that purchase and utilize our dial up connectivity services directly. Wholesale customers are businesses and associations that resell our services to end-users. We currently charge each retail customer a monthly fee ranging between $17.95, for our basic analog service, and $39.95, for our premium ISDN access. As of December 31, 2001, we had approximately 2,900 retail customers which accounted for 65% of our overall connectivity customers. Our wholesale customers are charged a monthly fee on a sliding scale based on the number of users utilizing our connectivity services through a unique wholesale customer. At current usage levels, wholesale customers with fewer than 50,000 users are charged $11 per user, per month. As the number of subscribers brought to us by unique wholesale resellers increases beyond 50,000, the monthly charge per user will decrease until it reaches the minimum of $5.95 per customer, per month for 250,000 or more users. At December 31, 2002, we had 9 wholesale customers that resell our services to approximately 4,000 end-users who represent 35% of our connectivity customers. CUSTOM SITE DESIGN Web site design is the development of the content that will be displayed on the Web site when it is being viewed on the Internet. We design Web sites that convey our customers' marketing messages. Our services range from the development of a basic Web page to the development of a sophisticated e-commerce Web site. In addition, we provide domain name registration, place Web site information in search engines, issue electronic press releases and track the detailed use of each site. We also offer co-linking of non-competing Web sites, banner advertisements on Web sites and links to cyber malls, associations and groups. Our pricing for Web site design is based upon the time required and the materials used to design the site. Currently, this is a value added service to our customers and not a division promoted as a stand alone service. WEB SITE HOSTING We offer our customers several options for hosting their Web sites. A customer can share space on a server which also hosts the Web sites of other customers. If a customer chooses, we can provide a separate server dedicated to that customer's Web site. A Web site provides a company with a tangible identity and interactive presence on the Internet. The site allows a company to post information about itself that is easily accessible to all Internet users. Web sites are also the basis for providing electronic commerce, where a company can advertise and sell its products and services. We offer a comprehensive range of basic Web site hosting products, as well as a growing suite of enhanced Web site hosting products including electronic commerce solutions. Generally, our customers elect to rely upon us to provide the hardware and software that is necessary to host a Web site. We provide these services from a reliable data center environment. We offer 9 Web site hosting plans, the largest of which provides up to 5,000 megabytes of data transfer per month and up to 50 megabytes of disk storage on servers located at dedicated space in the Exodus network operations center and our own network operations center (NOC) in Fremont Ohio. The Exodus center is maintained and serviced by on-site technical personnel 24 hours a day, 7 days a week. Our monthly fees for our plans range from $9.95 to $99.95 per site. We also offer co-location services to customers who have the resources to manage their own servers and Web sites and who prefer not to share a server with others. Co-location customers receive the benefits of having their servers housed in the (NOC), uninterrupted power supply, daily tape back-up and the availability of a catastrophic recovery process. We charge each co-location customer an initial set up fee of $150. Thereafter, our monthly rates range between $495 (for our basic monthly service plan) and $645 (for our premium monthly service plan). ELECTRONIC COMMERCE Electronic commerce is the execution of commercial transactions over the Internet. Our electronic commerce services provide businesses the ability to sell products and services on the Internet. We create links to our customers' Web sites bringing purchasers into our customers' on-line stores. Our e-commerce service displays products, takes purchase orders for specified quantities of each product ordered, collects billing addresses, credit card information and shipping information, chooses a shipping method, forwards this data to the seller for completion of each order, and prepares a confirmation of each order for the purchaser. Our servers deploy the latest encryption software and digital signature solutions in order to protect the security of our customers' electronic commerce transactions. Each secure Web Site has its own VeriSign Digital ID or equivalent and dedicated payment system. We work directly with each customer's bank to ensure secure, complete technology transfer while maintaining secure data protection schemes. All customer information is housed on dedicated machines and protected from unauthorized access by our internal firewall. Our system is flexible and permits sellers to add, delete or modify products, add pricing variations, change product descriptions, update prices, and offer different pricing levels or volume discounts. Our platform also enables clients to conduct electronic auctions and to merchandise products in various other ways. Our prices for providing electronic commerce services range from $99 to $249 per month, depending on the complexity of the services desired by our customers. We have also begun to utilize our electronic commerce platform to sell products ourselves. We are currently offering a series of educational courses delivered over the Internet and are developing a range of Long Distance and Calling Card products. We are negotiating arrangements to obtain other products for sale. OTHER SERVICES We offer a variety of other services, which enable communication over the Internet. These include virtual hosting of electronic mail. This allows users to maintain their own domains while housing their e-mail on our servers. We offer the filtering of unsolicited e-mail. Our List Serve Management product enables the broadcast of e-mail to an established user group. Our E-Share product provides centralized controlled communication among a specified group of people. It is used to conduct training sessions electronically, thereby eliminating the travel and related costs associated with live sessions. Our Web board product is used to post messages to members of a closed group and allows recipients of messages to respond. We offer our customers various combinations of these services which we call packages. We charge our customers a monthly fee per user per package, which varies from $0.10 to $0.50 depending on the complexity of the package. CUSTOMERS We provide value added services to Associations. Our association customers include the, Fusion Productions, International Right of Way Association, The Rutherford B. Hayes Presidential Center, and the National Association of Enrolled Agents. At December 31, 2002 we had approximately 11,000 users of our services. Approximately 3,800 of these were retail customers, and approximately 7,100 were users who came to us through wholesale customers. Retail customers are end-users that purchase and utilize our services directly, while wholesale customers are businesses and associations that resell our services to end-users. At present 65% of our revenues are derived from retail customers and 35% from users who came to us though our wholesale customers. CAPACITY We define "capacity" to be the number of customers and the amount of usage which our equipment and systems can service efficiently. As our business grows, we attempt to assure that our servers and other equipment are adequate for a larger customer base and for increased usage by each of those customers. Web site hosing is the principal activity for which we must monitor the capacity of our equipment. Our ability to provide hosting services is directly impacted by the capacity and the number of servers available to us. At present, we have 20 servers, and estimate that at peak usage our facilities are 25% utilized. Based on our customers' historical average usage, our current capacity is sufficient to provide hosting services to more than 100,000 subscribers. Based on our arrangements with Exodus and UUNET, both major providers of bandwidth, we have access to sufficient bandwidth to meet our foreseeable needs. In the future, our ability to service increasing numbers of customers depends in part upon our ability to issue bills to, and collect payments from, large numbers of customers. To that end, the company has standardized its Internet billing systems on Rodopi software and has purchased enough licenses to address our current and expected near future requirements. The license requires no minimum annual payments of any kind. The software is database driven on our own infrastructure and enables us to automatically bill end-users for Internet related services that we provide. We expect Rodopi to significantly enhance our efficiency as we build our customer base by reducing the amount of time and manpower required to manage our customer billings. Our Long Distance end users are billed through our proprietary package WEBBS(sm). COMPETITION Though there are no substantial barriers to entry, the business of providing Internet connectivity and Long Distance services and solutions is a highly competitive one. We believe that competition will intensify in the future, and our ability to successfully compete depends on a number of factors, including the: - Capacity, reliability and security of the networks with which we interconnect; - pricing structures of our services; - Expansion of the variety of products and services we offer; - Ability to adapt our products and services to new technological developments; - Ability to build and maintain a larger, knowledgeable and effective sales force; - Our ability to implement broad and effective distribution channels; and - Principal market and economic trends. Current and prospective competitors include: - National, regional and local ISPs; - Long distance and local telecommunications providers; - Cable television companies; and - Web site hosting providers. Major long distance companies currently offer Internet access services and major cable companies. Companies using wireless terrestrial and satellite-based technologies are expected to offer Internet connectivity and related services in the near future. Such competitors have the ability to bundle Internet connectivity with other services such as local and long distance telecommunications. This bundling could adversely affect our ability to compete and could result in a downward pressure on our prices that could adversely affect our business, financial condition and results of operations. More particularly as providers of connectivity, we compete with MSN, MegaPop, UUNet, Earthlink, and AOL. We are also dependent upon Qwest, UUNET, Broadwing and MegaPop for access to the Internet. Thus we are both a source of end-users and a competitor for customers of these networks. Our current relationships with these networks have allowed us to negotiate relationships that give us access at a cost allowing us to price our products competitively. If these relationships were to be terminated or substantially amended our ability to provide and maintain competitive prices to our customers could be materially and adversely affected. Please refer to Risk Factors - We are Dependent on Qwest, UUNET, Broadwing, and MegaPop for Access to the Internet Network. In the area of Web site design we compete with USWeb. Big Planet is a direct competitor in the business of providing packaged Internet services to Associations. Each of these competitors has significantly greater market presence, established brand recognition, financial, technical and personnel resources than we have. We do not have available information which would permit us to accurately measure our market share. However, several major ISPs have reported that they have millions of end-users each; compared to the approximately 11,000 end-users we have at present. In the area of Web site design, and the business of providing packaged Internet services to Associations, a number of our competitors report significantly greater revenues, and we believe that we represent substantially less than 1% of these market sectors. We strive to differentiate ourselves from our competitors by: - offering lower prices made possible by our lower overhead; - focus on superior customer service; - our ability to quickly adapt to new developments in our industry resulting from the small size of our organization; and - offering the high quality Qwest, UUNET, Broadwing, Global Crossing, Touch America and MegaPop network backbones which many of our other competitors do not offer. EMPLOYEES As of December 31, 2002 we had 13 full time employees categorized as follows: - 3 full time employees in sales and marketing; - 4 full time technical personnel; - 2 full time employees in product development; and - 4 full time in administration staff. There are no collective bargaining agreements in effect. We believe the relations with our employees are good. INTELLECTUAL PROPERTY We have no patented technology that would preclude or inhibit competitors from entering our market. We have entered into confidentiality and invention assignment agreements with our employees to limit access to and disclosure of our proprietary information. We intend to apply for copyrights as we develop new products and solutions. There can be no assurance that these measures will prove sufficient to prevent misappropriation of our intellectual property or to deter independent third-party development of similar products. REGULATION Our operations are not currently subject to direct regulation by governmental agencies other than regulations applicable to businesses generally. As use of the Internet continues to grow, jurisdictions in which we operate may adopt regulations relating to prices charged users, content, privacy, intellectual property protection, libel or other matters. If adopted, such regulations could significantly affect our results of operations INVESTMENTS Gravity Pilot Air, Inc., one of our wholly-owned subsidiaries whose operations were discontinued and all assets liquidated at the end of 2000, originally owned two airplanes that it leased to a skydiving company. In December 1999, the aircraft's lessee was 5 months in arrears on its lease payments. We engaged counsel to pursue all available remedies against the lessee, including retaking possession of the aircraft. On March 18, 2000, a shareholder of the lessee agreed to participate in a settlement agreement whereby he would pay $300,000 to bring current the past due lease payments and to settle various other matters. In addition, the lessee relinquished possession of the airplanes. Following the execution of the settlement agreement we sold one of the airplanes for approximately $710,000. Unfortunately, the shareholder breached the agreement. We perfected a confessed judgment in the local jurisdiction in the amount of $263,000 against any and all of his personal assets. A preliminary investigation was conducted and assets sufficient to satisfy this judgment could not be located. We are continuing to pursue every legal option available to recover the debt owed. RISK FACTORS You should consider carefully the risks described below and other information in this Form 10-KSB. If any of the events identified in the following risk factors actually occur, they could materially adversely affect our business, financial condition and results of operations. We Have a History of Losses and Cannot Be Certain We will Achieve Positive Cash Flow Since inception, we have incurred significant operating losses and negative cash flow from operations. We are likely to continue to incur significant additional losses in the intermediate term. Even thereafter, we cannot be certain that we will achieve or sustain positive cash flow or profitability from our operations. Our net losses and negative cash flow from operating activities are likely to continue even longer than we currently anticipate if: - We can not establish and maintain a customer base that generates sufficient revenue; - Prices for our products or services decline faster than we have anticipated; - We can not remain competitive in the innovation and quality of our products; - We can not attract and retain qualified personnel; Our ability to achieve our objectives is subject to financial, competitive, regulatory, legal, technical and other factors, many of which are beyond our control. PURCHASES AND SALES OF OUR STOCK ARE SUBJECT TO PENNY STOCK REGULATIONS Our stock has had a market price of less than $5.00 per share. The SEC has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price less than $5.00 per share, subject to certain exceptions. During periods when our common stock does not qualify for inclusion on the NASDAQ Small Cap Market or is removed there from, the common stock may become subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser's written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the rules require the delivery, prior to the transaction, of a disclosure schedule prepared by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell our common stock and may affect the ability of investors to sell our common stock in the public market. Our Limited Operating History makes it Difficult to Assess Our Past Performance and Future Prospects You have limited historical operating and financial information on which to base your evaluation of our performance and our prospects. We have acquired five companies since the beginning of 1999 and disposed of substantially, all of the businesses in which we were engaged in prior years. This limits the comparability of our operating and financial information from period to period. You should consider our prospects in light of the substantial risks, expenses, uncertainties and difficulties frequently encountered by companies in the new and rapidly evolving markets for Internet products and services. Such risks include the possibility that: - We may be unable to increase and sustain levels of interest in our products and services by Associations, membership marketing companies and ISPs; - We may fail to sell our products successfully through our direct sales force; - Our competitors may develop services or products similar or superior to our own; - Market prices for our products and services may fall as a result of competition or other factors; - We may be unable to identify, attract, motivate and retain qualified personnel; and - We may fail to fully integrate our existing operations the technology and operations with any of the businesses that we might acquire. We cannot be sure that we will be successful in addressing such risks, and the failure to do so could have a material adverse impact on our business, financial condition and results of operation. WE ARE DEPENDENT ON QWEST, UUNET AND MEGAPOP FOR ACCESS TO THE INTERNET NETWORK Our ability to offer end-user access to a tier one Voice and Internet network on an affordable basis is dependent upon our relationship with Qwest, UUNET, Broadwing, Global Crossing and MegaPop. This enables us to offer connectivity to multiple tier one networks for which we pay only when end-users subscribe for our services. If these relationships were to be terminated, or if the terms were to be substantially amended, we might be required to enter into arrangements for bandwidth with other providers on less favorable terms. There is no assurance that we would be able to purchase connectivity on comparable terms and there is no assurance that we would be able to pass on additional costs to our customers. Our inability to obtain bandwidth on comparable terms could materially and adversely affect our business, financial condition and results of operations. WE RELY ON OTHERS TO MARKET OUR PRODUCTS AND SERVICES TO END-USERS We believe that we will derive the majority of our recurring revenues from subscription fees and fees for value added services paid by end-users of our products and services. The amount of these revenues is dependent upon the level of success achieved by Associations, membership marketing companies and ISPs in marketing our products and services to their members and customers. Most of our contractual relationships with Associations were formed recently and have not yet generated substantial sales to end-users. Thus, we are not yet in a position to assess whether our products and services will gain acceptance among the members of these Associations or whether these Associations will invest the resources necessary to market our products and services successfully. If sales to end-users do not meet our expectations, our business would be adversely affected and we would be required to develop alternate marketing and sales strategies. We Are Subject to Risks As We Make Acquisitions and Engage in Strategic Alliances As part of our business strategy, we may acquire, make investments in, or enter into strategic alliances with companies in complementary businesses, so as to optimize our market presence in the regions we presently serve and expand into other regions. In particular, we intend to acquire local and regional ISPs and E-commerce companies. Any such future acquisitions, investments or strategic alliances would involve risks, such as - Incorrect assessment of the value, strengths and weaknesses of acquisition and investment opportunities; - Underestimating the difficulty of integrating the operations and personnel of newly acquired companies; - Potential disruption of our ongoing business, including possible diversions of resources and management time; - Potential inability to maintain uniform standards, control, procedures and policies; - And the threat of impairing relationships with employees and customers as a result of changes in management or ownership. We cannot assure that we will be successful in overcoming these risks. Moreover, we cannot be certain that any desired acquisition, investment or strategic alliance could be made in a timely manner or on terms and conditions acceptable to us. Neither can we assure that we will be successful in identifying attractive acquisition candidates. We expect that competition for such acquisitions may be significant. Competition for Internet companies is based on a number of factors including price, terms and conditions, size, access to capital, and ability to offer cash, stock or other forms of consideration. We may compete with others who have similar acquisition strategies, many of whom may be larger and have access to greater financial and other resources than those available to us at any given time. An additional risk associated with acquisitions is that many attractive acquisition candidates do not have audited financial statements and have varying degrees of internal controls. Although we may believe that the available financial information for a particular business is reliable, we cannot guarantee that a subsequent audit would not reveal matters of significance, including but not limited to those in connection with liabilities, contingent or otherwise. We expect that, from time to time in the future, we will enter into acquisition agreements, the pro forma effect of which are not known and cannot be predicted. WE MAY HAVE DIFFICULTY MANAGING OUR RAPID GROWTH Our growth strategy has placed, and will continue to place, a significant strain on our customer support, sales and marketing, administrative resources, network and operations, and management and billing systems. Such a strain on our administrative and operational capabilities could adversely affect the quality of our services and our ability to collect revenues. To manage our growth effectively, we will have to enhance the efficiency of our operational support, all back office processes and financial systems and controls. We cannot assure that we will be able to maintain adequate internal operating, administrative and financial systems, and procedures and controls. Managing our growth will become even more challenging as we expand our target markets and our product and service offerings. Promotion and enhancement of our products and services will depend largely on our success in continuing to provide high quality Internet communications services, solution and product support. We cannot guarantee that we will be able to maintain those levels of quality. If we are unable to do so or otherwise fail to promote and maintain our products or services, or if we incur excessive expenses in an attempt to improve our services or promote and maintain our products, then our business, results of operations and financial condition could be materially and adversely affected. In addition, as we continue to grow we will have to expand and train our employee base to handle the increased volume and complexities of our business. We cannot assure that we will be able to attract, train and manage sufficient personnel to keep pace with our growth. SALES OF SHARES BY OUR SHAREHOLDERS COULD DEPRESS OUR STOCK PRICE The market price of our common stock could drop as a result of sales of a large number of our shares in the public market. The perception that such sales may occur could have the same effect. As of January 31, 2003, our executive officers and directors affiliates owned, directly or indirectly, approximately 34.6 % of our common stock. WE ARE SUBJECT TO SECURITY AND FRAUD RISKS Despite our efforts to implement network security measures, such as limiting physical and network access to our computers, our Internet infrastructure is vulnerable to computer viruses, break-ins and similar disruptive problems caused by customers, employees or other Internet users. Computer viruses, break-ins or other disruptive or security problems could lead to interruptions, delays or cessation in service to our Internet customers. Further, such inappropriate or unauthorized use of the Internet could also potentially jeopardize the security of confidential information stored in the computer systems of our customers and other parties connected to the Internet, which may deter potential customers and give rise to liability to users whose security or privacy has been violated. The security and privacy concerns of existing and potential customers may inhibit the growth of the Internet service industry in general and our customer base and revenues in particular. A significant security breach could result in a loss of customers, damage to our reputation, direct damages, costs of repair and detection and other expenses. In addition, our revenues for any given period may be adversely affected by fraud or debt collection problems that we experience. The occurrence of any of these events could have a material adverse effect our business, results of operations and financial condition. WE MAY BE HURT BY SYSTEM FAILURES Our success is largely dependent upon our ability to deliver high speed, uninterrupted access to the Internet. Any system failure that causes interruptions in our operations could have a material adverse effect on us. We currently rely upon our vendor's Internet Network. Failures in this or any other telecommunications network on which we rely would result in customers' receiving no or diminished access to the Internet. WE COULD BE HELD LIABLE FOR INFORMATION DISSEMINATED OVER OUR NETWORK The law relating to the liability of ISPs for information and materials carried on or disseminated through their networks has not been completely clarified. The possibility that courts could impose liability for information or material carried on or disseminated through our network could require us to take measures to reduce our exposure to such liability. Such measures may require us to spend substantial resources or to discontinue certain product or service offerings. Any of these actions could have a material adverse effect on our business, operating results and financial condition. Due to the increasing use of the Internet, it is possible that additional laws and regulations may be adopted with respect to the Internet covering issues such as user privacy, pricing, taxes, defamation, obscenity, intellectual property protection, consumer protection, technology export and other controls. Changes in the regulatory environment relating to the Internet services industry could have a material adverse effect on our business, results of operation and financial condition. WE ARE SUBJECT TO INTELLECTUAL PROPERTY RISKS Legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving and we cannot be certain as to the future viability or value of any of our intellectual property rights or those of other companies within the IT industry. We cannot assure that the steps we have taken to protect our intellectual property rights will be adequate or that third parties will not infringe or misappropriate our proprietary rights. Any such infringement or misappropriation, should it occur, could have a material adverse effect on our business, results of operations and financial condition. Furthermore, we cannot be certain that our business activities will not infringe the proprietary rights of others or that such other parties will not assert infringement claims against us. We anticipate that we may be subject to claims in the ordinary course of our business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties due to the dissemination of our content or the provision of access by our online services to content made available by third parties. Such claims and any resultant litigation, should it occur, could subject us to significant liability for damages and could result in invalidation of our property rights and, even if not meritorious, could be time-consuming and expensive to defend, and could result in the diversion of management time and attention, any of which could have a material adverse effect on our business, results of operations and financial condition. We regard substantial elements of our products and services as proprietary and we attempt to protect them by relying on trademark, service mark, trade dress, copyright and trade secret laws and restrictions on disclosure and transfer of title. We also enter into confidentiality agreements with our employees, suppliers, distributors, consultants, vendors and customer and license agreements with third parties and generally seek to control access to and distribution of our technology, documentation and other proprietary information. We are pursuing the registration of our service marks, but we currently have no patents or applications for patents pending for our products or services. Effective service mark, copyright and trade secret protection may not be available. WE ARE SUBJECT TO THE RISKS ASSOCIATED WITH RAPID INDUSTRY CHANGES The Internet services industry in which we operate is characterized by rapidly changing technology, evolving industry standards, emerging competition and frequent new service, software and other product innovations. We cannot guarantee that we will be able to identify new service opportunities successfully and develop and bring new products and services to market in a timely and cost-effective manner, or that product, software and services or technologies developed by others will not render our products and services non-competitive or obsolete. In addition, we cannot provide any assurance that our product or service developments or enhancements will achieve or sustain market acceptance or be able to address effectively the compatibility and interoperability issues raised by technological changes or new industry standards. WE DO NOT EXPECT TO PAY DIVIDENDS The Company does not anticipate paying cash dividends in the foreseeable future. ITEM 2. DESCRIPTION OF PROPERTY Our headquarters is located at 30 West Gude Drive, Suite 470, Rockville, Maryland 20850, where we share approximately 13,000 square feet of office space. The month-to-month term of the lease commenced on August 1, 2002 and the monthly rent is $3000.00. We leased 450 square feet of office space in Sandusky, Ohio at an annual rental of $3,750, and approximately 2,800 square feet in Fremont, Ohio at an annual rental of $16,800. The properties were subject to one-year leases that expired on July 31, 2002 however they continued on a month to month basis until December 31, 2003 and are no longer being utilized.We sub-lease approximately 300 square feet at Exodus Center for use as our data warehousing facility. The lease has a one-year renewable term and we pay rent at the rate of $21,000 per year. The facility has more than one gigabyte of Internet bandwidth available to us, allowing us to provide hosting services on a "pay as you go" basis. ITEM 3. LEGAL PROCEEDINGS From time to time we are involved in litigation incidental to the conduct of our business. We are not currently a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on our business, financial condition or results of operations. We are pursuing through legal channels the collection of several cases, one in the amount of $3,400,000 where we have a default judgment against St. Andrews Telecommunications and are investigating the possibility of pursuing the management and shareholders to collect. We have filed in District Court in Montgomery County MD a suit to collect $337,000 by Zenex Telecommunications; this debt has a signed promissory note and guarantee from the public company parent Zenex International. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual shareholder meeting has been postponed to date in the near future. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Shares of our common stock, par value $.001, were initially available to the public October 10, 1998 trading on the OTC Bulletin Board under the symbol "HALO". On May 24, 1999 the board of directors and shareholders approved a name change to A1 Internet.com Inc. and the symbol was changed to "AWON". On January 4, 1999, the SEC approved amendments to Rules of the National Association of Securities Dealers that limit quotations on the OTC Bulletin Board to the stock of companies that are registered with the SEC under the Securities Exchange Act of 1934. The letter "E" is affixed to ticker symbols of those companies that have not completed the registration process with the SEC as of a certain date and indicates that the affected company will be removed from the OTC Bulletin board within 30 days. On November 19, 1999, an "E" was affixed to our OTC Bulletin Board trading symbol and our common stock began trading under the symbol "AWONE." Our common stock was removed from the OTC Bulletin Board on December 16, 1999, because we had not then completed the registration process, and began trading on the "Pink Sheets" of the National Quotation Bureau, LLC. The closing price of our common stock on the OTC Bulletin Board was 6-3/4 as of December 15, 1999. In March 2000, we completed our registration under the Securities Exchange Act of 1934, as amended. On March 20, 2000, our common stock was once again listed on the OTC Bulletin Board and began trading under the symbol "AWON." In late 2000 an "E" was affixed to our OTC Bulletin Board trading symbol and our common stock began trading under the symbol "AWONE. The closing price of our common stock on the "Pink Sheets" of the National Quotation Bureau, LLC was $.26 as of December 31, 2001. On March 22, 2002 our common stock was again listed on the OTC Bulletin Board and began trading under the symbol "WTEQ" to reflect our name change, the closing price of our common stock on the OTC was $.08 as of December 31, 2002. We have not declared any cash dividends on the common stock. We intend to retain future earnings, if any, for use in our business and do not anticipate paying regular cash dividends on the common stock. The following table sets forth, on a per share basis, the high and low sale prices for our common stock as reported by the OTC Bulletin Board Market, for the periods indicated. Such prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and do not necessarily represent actual transactions. HIGH LOW -------- -------- 1998 1st Quarter $5.00 $ 3.750 1999 1st Quarter $7.500 $ 1.000 2nd Quarter 8.000 5.130 3rd Quarter 7.750 5.000 4th Quarter 6.750 3.375 2000 1st Quarter 5.000 2.750 2nd Quarter 4.250 2.000 3rd Quarter 3.750 2.250 4th Quarter 2.375 .125 2001 1st Quarter 0.531 0.125 2nd Quarter 0.270 0.030 3rd Quarter 0.050 0.010 4th Quarter 0.350 0.030 2002 1st Quarter 0.110 0.300 2nd Quarter 0.170 0.430 3rd Quarter 0.040 0.330 4th Quarter 0.050 0.130 We made the following sales of unregistered common stock during the year ended December 31, 2002. All sales since that date were made by WorldTeq Group International. DATE OF ISSUE TITLE PURCHASER SHARES SOLD CONSIDERATION EXEMPTION --------- --------- --------------- ----------- ------------- ----------- NO SALES WERE MADE DURING 2002 In connection with a private placement offering in July 1999 we are obligated to issue warrants to the investors and the placement agents if gross sales of $13,000,000 are not achieved as of specified dates. During the time frame we were $422,359 short of our goal and therefore the investors will receive 100,000 warrants and each placement agent will receive 50,000 warrants. These warrants will have an exercise price of $2.75 and a term of five years from the date of issuance. As part of this private place warrants in the amount of 386,650 shares of common stock exercisable at $5.50 per share with 5 year expiration were also issued. During the year we exchanged 3,420,000 shares of our common stock to an officer of our corporation in exchange for debt in the amount of $260,000. These securities were received by an accredited investor exempt from registration under Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") and are subject to registration restriction for a period of 2 years. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion and analysis of the financial condition and results of operations should be read in conjunction with the financial statements, related notes, and other detailed information included elsewhere in this Form 10-K. Certain information contained below and elsewhere in this Form 10-KSB, including information regarding our plans and strategy for our business, are forward-looking statements. See "Note Regarding Forward-Looking Statements." RECENT DEVELOPMENTS Beginning in the fourth quarter of 2002, we began to modify our business plan to better focus on our core competencies. In November of 2002 the Board of Directors and Management decided to change the focus of several companies not focused on our core competencies, with specific emphasis on cash flow and profits. The revised plan called for a restructuring that included 1) a change in our staff with more experience in our industry, 2) accelerated migration of direct customer sales staff to that of a contracted agent network, 3) discontinuation of unprofitable, low-margin business lines and 4) implementation of certain cost reduction procedures. Implementation of this plan commenced in the first quarter of 2003 and 5) consolidation of selected offices and centralization of our Network Operations Centers and 6) deployment of a new web based enterprise-wide reporting system accessible by all our offices 7) investigation into the sale of one of our subsidiaries 8) launching of our financial services products. 2002 KEY ACCOMPLISHMENTS Our strategy is to facilitate our continued expansion into emerging economies by expanding telecommunications, wireless products, and local services for our residential and small business customers and adding financial services products. During 2002, we continued to take advantage of our strong technical abilities to develop and deploy our own billing and provisioning systems. We expanded our strength in affinity communities by enhancing the services we offer. During 2002 some of our key accomplishments included: 1. Expansion of our available networks by contracting additional vendors which incorporated the required infrastructure to offer VoIP, new local flat rate programs, and wireless products. 2. Increased our success in the small and medium-sized business market through the roll out of several new high demand products such as calling cards, Toll Free services, 1 + dialing plans, and enhanced cost containment and management services. 3. Enhancement of our Billing System, to take better control over our provisioning and billing activities, thereby allowing us to provide service to a greater number of people without increasing our overhead expense. 4. Creation of strategic agent relationships with several very successful resellers already in the market place. 5. Acquisition of a selected asset customer base located in Kansas. We believe these actions, combined with our commitment to cost containment and focused sales, position us to be EBITDA and net income positive during 2003. During the fourth quarter of 2002, we eliminated approximately four positions within our various companies. This represented approximately 20% of our total workforce at that time. The consolidation of Operations reflected our increased focus on businesses that perform. A portion of this reduction was related to our decision to shift our customer service operations to an out-sourced based arrangement. This allowed us to achieve a fixed cost per subscriber to support end-users. During 2002 we made the decision to centralize our Internet Operations and Management to Ohio. This resulted in an 8% cost savings while improving our ability to react quickly to network issues. This shift also allowed us to take advantage of a geographically based reduction in personnel costs and overhead. We have received several offers that the company is considering for its NetWorld of Ohio operation. The sale of this company would reduce debt considerably and still allow the company to offer the same services; management is considering 1 offer in particular that it feels will be accepted in the very near future. In the fourth quarter 2002, we began eliminating low margin wholesale business in our product mix and focused on retail oriented projects. This not only improved margins, but created a longer term relationship with clients for recurring revenue in our other departments. This also freed up our resources to focus on our internal needs to help control growth costs. While we expect this to reduce revenues it will allow us to maintain a higher return on investment for our shareholders. During the year we developed our own financial services products such as a branded Debit card that we launched during the first quarter of 2003, we expect this product to contribute significantly to our bottom line profit during the upcoming year. LIQUIDITY AND CAPITAL RESOURCES FINANCIAL CONDITION We have limited financial resources after our restructuring. We have eliminated non-productive assets and pared down our workforce to reduce overhead, we are entertaining an offer to sell one of our subsidiaries which will reduce our debt by nearly $400,000. We have little long-term debt although our operating cash flow was negative in the fourth quarter of 2002; we believe it will be positive for 2003. We have not raised any capital through sales of stock in 2001 or 2002. In 2001, we financed $400,521 negative operating cash flow with $529,359 in key shareholder loans and contributions to capital. During 2002 we financed negative operating cash flows of $154,887 with$150,524 in contributions to capital and majority shareholder loans. We believe 2003 will be a cash flow positive year, as our customer base has now reached a greater than break-even point in monthly cash inflows. Our base continues to grow each month, and is diverse enough to avoid sudden interruptions from cancellation by any single customer. Our billing system takes advance credit card payments and we are not dependent on any specific future events to achieve a profitable 2003 year. RESULTS OF OPERATIONS Total sales for the year ending 2002 increased from 2001 by 34% to $4,221,968. This was due to our successful sales efforts, the acquisition of St. Andrews Telecommunications' selected customers, our focused efforts on growth and our stable vendor relationships, as contrasted with the chaos and cut-throat competition generally prevalent in the Internet and telecommunications industries. In addition, we added several sales agents in fiscal 2002 and new affiliate and affinity programs. As a result of the change of focus, telecommunications revenue accounted for 79% of our total revenue for 2002. The addition of new product offerings including wholesale services from a St. Andrews reseller, and an increase in active telecommunications customers accounted for majority of the increase. Our net loss for the year ending 2002 was $536,797 or .03 per share which is an improvement of 48% over the period ending December 31, 2001. Our operating loss for the period ending December 31, 2002 was $493,749. Cost of sales for 2002 increased from 2001 by 17%. This is due to the increase in revenue of our wholesale Telecommunications business. We believe our cost of sales as a percentage of total sales will drop in 2003 as this is not an area we intend to focus on. Selling, General and Administrative expenses for the period ending December 31, 2002 decreased by $47,165 or 2% compared to the same period ending 2001. Our rapid growth rate produced some overhead costs that we do not believe will repeat, including salaries, legal and accounting expenses. We anticipate a drop in total general and administrative costs in 2003 even with our change in sales focus. During the year we experienced $62,000 in one time charges associated with the change in personnel in our Internet subsidiary in Ohio. Our bad debt expense for 2002 totaled $667,981 the majority of which stems from an account we acquired from the St. Andrews transaction. The customer in question has a corporate guarantee in place from the parent of the company owing the debt and we are pursuing legal action, however we unsure if we will be able to collect on it. If we are successful this will also decrease payables by $199,000. Presently we have registered disputes with several of our vendors totaling, $368,000 that management feels fairly confident these will be settled positively for the company within the next 90 days which will impact our debt totals moving forward. Interest expense dropped by 28% to $44,194, depreciation expense dropped 43% and totaled $47,532 for the period ending December 31, 2002. Should we successfully conclude the sale of our subsidiary we will realize a one time gain in 2003 plus a reduction in our overall debt total by approximately $400,000. This will make a significant impact on our operating margins and cash flow for 2003, while still allowing the company to offer the same services but as an agent with no costs associated with the service. In May of 2002 we acquired a customer base from a company in Kansas, as part of the transaction we placed 1,500,000 shares of our common stock in Escrow to protect the company. In August we filed suit charging fraudulent inducement which resulted in a default judgment in the amount of $3,400,000. The company then filed chapter 7 liquidation, while we do not feel confident about collecting on this judgment; we are pursuing our legal remedies against the shareholders of the company and are confident that the 1,500,000 shares being held in Escrow will be retired back to treasury in the upcoming year. To meet our growth expectations, we anticipate that we will need to add up to 5 additional employees in the areas of computer programming, marketing, and sales over the next twelve months. We do not see a need to invest further in our infrastructure to sustain our growth projections for the next 2 years. ITEM 7. FINANCIAL STATEMENTS Information with respect to this item is contained in the Consolidated Financial Statements beginning on page F-1 of this Report. Such information is incorporated herein by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE For the fiscal year ended December 31, 2002, we have retained Malone and Bailey PLLC as our principal independent accountant who replaced Michael Johnson and Co. LLC, our principal accountant for the fiscal year ended December 31, 2000. Michael Johnson and Co. LLC's report on our financial statements for the prior fiscal year did not contain an adverse opinion or disclaimer of opinion and was not modified as to uncertainty, audit scope, or accounting principals. The decision to change accountants was approved by our Board of Directors. There were no disagreements with our former accountant, whether or not resolved, on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which if not resolved would have caused our former accountant to make reference to the subject matter of the disagreement(s) in connection with its report. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The following table sets forth information regarding the executive officers and directors of the Company. Name Age Position Since ---------------------- --- ------------------- ----------- Jeff Lieberman 35 President, Treasurer March 1999 and Chairman of the Board of Directors Donald Dea 47 Secretary and Director October 1999 Jeff Lieberman - Mr. Lieberman serves as our President, Treasurer and Chairman of the Board of Directors. Mr. Lieberman has more than 10 years of experience in the high technology industry. He has been with the company since its inception as a private company through its acquisition by HALO Holdings in 1999 until today. He graduated from the University of Maryland in 1991 with a Bachelor of Science Degree in Personnel Management and Labor Relations. After completion of his degree he studied for and passed his Series 6, 63, and series 7 tests to become a fully licensed stockbroker and financial planner. After a short internship with a small firm he accepted a position in 1991 with Robinson & Lukens, a conservative brokerage house located in Washington D.C. There he worked very closely with man retired clients with a structured focus on income and money preservation investment strategies. Donald Dea - Mr. Dea serves as our Secretary and Director. Mr. Dea has also been a co-founder and partner of Fusion Productions, a meeting planning company, since 1995. Mr. Dea was Vice President and co-founder of Alaris Inc., a developer of high performance systems, motherboards and peripheral products for personal computers, from 1992 to 1995. From 1984 to 1992, he worked for Xerox Corporation, servings as: General Manager of U.S. Customer Operations, in charge of developing strategic partnerships; General Manager of OEM/VAR Channel Operations; Manager of Marketing and Quality. (b) There are no other officers or significant employees. (c) No family relationships exist between the directors and the officers. (d) No legal proceedings have been instituted in the previous five years against any of our current directors or officers OUTSTANDING ISSUES INVOLVING PRIOR DIRECTORS AND/OR BOARD MEMBERS: On March 30, 1999, our wholly-owned subsidiary, Skydive USA, was sold to Larry Kerschenbaum and Thomas Keese, two of our founding shareholders, officers and directors. In consideration for Skydive USA, Messrs. Kerschenbaum and Keese returned to us a total of 400,000 shares of our outstanding common stock. The company has a confessed judgment on file from Mr. Kerschenbaum in the amount of $262,213.21 and has perfected its position in the state of Florida. The company feels there is little chance of collection and has written this amount off. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires that our officers and directors, and persons who own more than ten percent (10%) of a registered class of our equity securities file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and with the exchange on which our securities are traded. Such reporting persons are required by SEC regulation to furnish us with copies of all Section 16(a) forms so filed. Based solely on a review of Forms 3, 4 and 5 and amendments thereto furnished to us pursuant to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934, or upon written representations received by us, we are not aware of any failure by an officer, director or beneficial owner of more than 10% of the our common stock to file timely with the Securities and Exchange Commission any Forms 3, 4 or 5 relating to the fiscal year ended December 31, 2002. ITEM 10. EXECUTIVE COMPENSATION (a) GENERAL. No salary or regular compensation is paid to our directors. Pursuant to our By-laws, directors are eligible to be reimbursed for their actual out of pocket expenses incurred in attending Board of Directors meetings and other director functions, as well as fixed fees and other compensation to be determined by the Board of Directors. No such compensation or expense reimbursements have been requested by the directors or paid to date. Salary amounts paid and stock options granted to our executive officers are detailed in subsection (b) below. (b) SUMMARY COMPENSATION TABLE. The following table sets forth certain summary information concerning the compensation paid to the Chief Executive Officer and certain executive officers for the fiscal years ended December 31, 2001 and 2002. ---------------------------------------------------------------------------------------------------------------------------- Annual Long-Term Compensation Compensation ---------------------------------------------------------------------------------------------------------------------------- Name and Principal Position Fiscal Salary ($) Securities All Other Year Underlying Compensation Options ($) SARS (#) ---------------------------------------------------------------------------------------------------------------------------- Jeff Lieberman 2002 (4) 96,000 50,000 N/A (3) ---------------------------------------------------------------------------------------------------------------------------- President, Treasurer and Chairman of the Board 2001 96,000 50,000 N/A ---------------------------------------------------------------------------------------------------------------------------- Donald Dea(1) 2002 N/A 100,000 N/A ---------------------------------------------------------------------------------------------------------------------------- Secretary and Director 2001 N/A 100,000 N/A ---------------------------------------------------------------------------------------------------------------------------- Lori Samuelson (2) 2002 48,000 50,000 N/A (3) ---------------------------------------------------------------------------------------------------------------------------- Assistant Secretary 2001 57,000 20,000 N/A ---------------------------------------------------------------------------------------------------------------------------- (1) Mr. Dea joined us in October 1999. Mr. Dea does not receive any salary or bonus. (2) Mrs. Samuelson has been a full time employee of the company since 1999. (3) The amount listed reflects total bonuses paid. (4) Mr. Lieberman has been a full time employee of the company since 1999. (c) OPTION/SAR GRANTS. The Company has established the 2000 Incentive and Non-statutory Stock Option Plan, which authorizes the issuance of up to 5,000,000 shares of the Company's common stock. The Plan will remain in effect until 2010 unless terminated earlier by an action of the Board. All employees, board members and consultants of the Company are eligible to receive options under the Plan at the discretion of the Board. Options issued under the Plan vest according to the individual option agreement for each grantee. During fiscal year 2001 the company issued 700,000 options with a strike price of $.29 (29 cents) per share. During 2002 no options were issued (d) AGGREGATE OPTION/SAR EXERCISES. No stock options or stock appreciation rights have been exercised in the last fiscal year. (e) LONG TERM INCENTIVE PLAN AWARDS. No long-term incentive plans have been awarded. (f) COMPENSATION OF DIRECTORS. No salary or regular compensation is paid to our directors. Our directors are entitled to reimbursement of out of pocket expenses incurred in connection with their duties as directors. To date, no such expenses have been requested or paid. (g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT. - None (h) REPORT ON REPRICING OF OPTIONS/SARs. None. The Company intends to maintain insurance against all liability incurred by its officers and directors in defense of any actions to which they may be made parties by reason of their positions as officers and directors and is in the process of obtaining this insurance. Nevada law authorizes a Nevada corporation to indemnify its officers and directors against claims or liabilities arising out of such person's conduct as officers or directors if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the Company. The Articles of Incorporation provide for indemnification of the directors and officers of the Company. In addition, the Bylaws of the Company provide for indemnification of the directors, officers, employees, or agents of the Company. In general, these provisions provide for indemnification in instances when such persons acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the Company. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of WorldTeq Group International's common stock and Series A preferred stock as of January 31, 2002, by each shareholder known by us to be the beneficial owner of more than 5% of WorldTeq Group International's common stock, each director and all executive officers and directors as a group. Unless otherwise indicated by footnote, each of the shareholders named in the table has sole voting and investment power with respect to the shares of common stock beneficially owned. TITLE OF CLASS NAME AND ADDRESS Number of Shares Owned % OF CLASS -------------- ---------------- ---------- Common Jeff Lieberman 266,000(1) 1.23 30 West Gude Drive Rockville, MD 20850 Common Donald Dea 40,000(2) 0.0018 12 Saint Ebbas Drive Penfield, NY 14526 Common Bruce Bertman 7,172,000(3) 33.15 30 West Gude Drive Rockville, MD 20850 Common All Executive officers and Directors and affiliates as a group 7,478,000(4) 34.57 Notes: (1) Mr. Lieberman is our CEO and Chairman, and has sole voting authority for all of these shares. (2) Mr. Dea is a current member of the Board of Directors. (3) Mr. Bertman is a shareholder of the company, and has sole voting authority for all of these shares. (4) Total includes, Mr. Donald Dea, Mr. Jeff Lieberman, Mrs. Lori Samuelson and Mr. Bruce Bertman. (5) Included in the total outstanding are 1,500,000 held in Escrow which the company believes will be returned sometime in the middle of 2003, these shares were utilized for the transaction with St. Andrews Telecommunications. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) The following transactions have been undertaken within the last three years with related parties. LARRY KERSCHENBAUM AND THOMAS KEESE On March 30, 1999, our wholly-owned subsidiary, Skydive USA, was sold to Larry Kerschenbaum and Thomas Keese, two of our founding shareholders, officers and directors. In consideration for Skydive USA, Messrs. Kerschenbaum and Keese returned to us a total of 400,000 shares of our outstanding common stock. On March 31, 1999, our wholly-owned subsidiary, Gravity Pilot Air, Inc., agreed to lease its two airplanes to Skydive USA, a former subsidiary, for a term of twelve months. The lease provides that Gravity Pilot Air, Inc. is to receive base rent of $21,176 per month for the use of the airplanes, and an additional $35 for each hour of flight of the leased aircraft. In connection with the resignation of Larry Kerschenbaum, we paid him a total of $35,000 as severance pay. This amount was paid in seven monthly payments of $5,000 each. During the first six months of 1999, we challenged claims for reimbursement of alleged business expenses made by our former President Larry Kerschenbaum and our former CEO Thomas Keese. These claims had previously been carried on our books as liabilities totaling $177,331. Messrs. Kerschenbaum and Keese did not provide documentation or other evidence substantiating these claimed expenses and agreed to forgive the alleged indebtedness. BRUCE BERTMAN On February 1, 1999, we entered into an Exchange Agreement with Bruce Bertman, our present Chief Executive Officer, President, Treasurer and Chairman of the Board, pursuant to which we purchased 100% of the outstanding common stock of Virtual Information Express from Mr. Bertman in exchange for 300,000 shares of our restricted common stock, valued at $2 per share. Our Board of Directors valued our common stock at $2 per share based upon its determination that the market would not support a higher valuation. Our common stock was quoted on the OTC Bulletin Board at approximately $5.50 per share from January to March, 1999. However, there was minimal trading volume during this period. In addition, in December 1998 we undertook a private offering of our common stock at $2 per share which was completed in April 1999. The Board determined that the price of $2 per share used in the offering was an accurate indicator of what investors were willing to pay for our common stock at the time. On March 24, 1999, we entered into an Exchange Agreement with the members of Computer Ease, pursuant to which we purchased 100% of the membership units of Computer Ease, in exchange for 4,000,000 shares of our restricted common stock and our agreement to provide Computer Ease with $500,000 in working capital. At the time of the transaction, Mr. Bertman was the majority owner of Computer Ease. Computer Ease has since merged with our wholly-owned subsidiary, Al Internet Services, Inc.(SM). Computer Ease's purchase price was determined by using a multiple of 1 times Computer Ease's gross revenues. In connection with this transaction, we valued our stock at $2 per share on the basis of an analysis similar to that used in the Virtual Information Express transaction. On April 20, 1999, we issued 120,000 shares of our common stock to Bruce Bertman in full payment for the $372,692 owed to Mr. Bertman by Computer Ease and Virtual Information Express. During 1997 and 1998, Computer Ease borrowed various amounts from Bruce Bertman and Mr. Bertman incurred $62,292 in reimbursable business expenses on behalf of that company. Some of these amounts were repaid. Upon our acquisition of Computer Ease, we became responsible for the balance owed to Mr. Bertman. As of September 30, 1999, the outstanding balance was $370,649. When we acquired Computer Ease, we assumed the rights and obligations of Computer Ease, LLC with regard to the accounts receivable and accounts payable. On September 30, 1999, we purchased from Bruce Bertman computer hardware and equipment valued at $558,020. In consideration for Mr. Bertman's contribution of this hardware and equipment, we paid the purchase price by offsetting accounts payable to Stockmaker.com, Inc. and Cyber Realm Inc., in the amounts of $304,875 and $248,623, respectively. LEONARD J. TAMBASCO On March 9, 1999, we issued 250,000 shares of our common stock to Leonard J. Tambasco, Jr. in exchange for his agreement to serve as our President. On February 2, 1999, we issued to EBI Securities Corporation a warrant to purchase 500,000 shares of our common stock with an exercise price of $.10 per share as payment for professional services performed in the first quarter of 1999. There have been no other related party transactions, or any other transactions or relationships required to be disclosed pursuant to Item 404 of Regulation S-B. There are no transactions between WorldTeq Group International and other companies for which our directors serve as directors or employees other than in the normal course of business. With the exception of Fusion Productions, we charge companies that share directors or officers with us at the same rate at which we charge other, unrelated companies. Our director, Donald Dea, is a co-founder of Fusion Productions. A part of the business of Fusion Productions involves the sale of Web site design and other value added services to its customers. We provide those services to Fusion Productions at wholesale rates, so they may be resold at competitive prices. Fusion Productions was a client of Computer Ease for almost 6 years prior to the time we purchased Computer Ease in March, 1999. We continue to charge Fusion Productions the same or higher rate than those rates charged prior to Mr. Dea becoming one of our directors. SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. WORLDTEQ GROUP INTERNATIONAL, INC. Date: May 6, 2003 By: /s/ Jeffrey Lieberman JEFFREY LIEBERMAN, CEO In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date ------------------- ---------------------------------- ---------------- /s/ Jeff Lieberman President, Treasurer and May 6, 2003 Jeff Lieberman Chairman of the Board of Directors /s/ Donald Dea Secretary and Director May 6, 2003 Donald Dea SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-KA CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): MARCH 4, 2002. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (Exact Name of Registrant as Specified in Its Charter) Nevada 000-27243 98158A1016 (State or Other (Commission File Number) (I.R.S. Employee Jurisdiction of Identification Number) Incorporation) 15200 Shady Grove Road, Rockville, Maryland 20850 (301) 296-4234 -------------------------------------------------------------------------------- ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT. ------------------------------------------------------ As of March 4, 2002 a change in the auditing firm for the corporation was finalized. Malone & Bailey, PLLC of Houston, Texas now represents the corporation for financial review and reporting. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (FORMERLY A1 INTERNET.COM, INC.) (Registrant) Date: March 4, 2002 By: /s/ Bruce Bertman ------------------------------------- (Signature) Name: Bruce Bertman Title: President, Chief Executive Officer UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-KA CURENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report: MARCH 11, 2002. WORLDTEQ GROUP INTERNATIONAL INCORPORATED Nevada 000-27243 98158A1016 (State or Other (Commission File number) (I.R.S. EIN) Jurisdiction of Incorporation) Registrant Address: 15200 Shady Grove Road, Suite 350, Rockville, MD 20850 Registrant Phone: (301) 296-4234 -------------------------------------------------------------------------------- ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT. ------------------------------------------------------- On March 3, 2002, Michael Johnson & Company, LLC resigned as the firm providing the accounting and financial services to WorldTeq Group International, Inc. The decision was approved by the Audit Committee, and mutually agreed to by both companies. A letter of confirmation from Michael Johnson & Company is included as Exhibit 16. For the year ending December 31, 2000 Michael Johnson & Company included qualified opinions, but did not list any other modifications as to the scope of the audit/review or accounting principles, or any adverse opinions. Except for the going concern comment listed in the 2000 year end statement and quarterly report for the period ending January 31, 2001, subsequent quarters up to and including the period ending September 30, 2001 included no such concerns. There were no disagreements on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure up to and including the date of March 11, 2002. On March 4, 2002 the accounting firm of Malone & Bailey, PLLC of Houston, Texas was retained by WorldTeq Group International, Inc. to provide financial review and auditing services beginning with the period ending December 31, 2001 moving forward. Their experience in acquisition transactions supports the future focus of WorldTeq Group International, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (FORMERLY A1 INTERNET.COM, INC.) (Registrant) Date: March 11, 2002 By: /s/ Bruce Bertman ----------------------------------- (Signature) Name: Bruce Bertman Title: President, Chief Executive Officer WorldTeq Group International, Inc. Michael Johnson & Co., LLC Certified Public Accountants 9175 East Kenyon Ave., Suite 100 Denver, Colorado 80237 Michael B. Johnson C.P.A. Telephone:(303)796-0099 Member: A.I.C.P.A. Fax:(303) 796-0137 Colorado Society of C.P.A.s Securities and Exchange Commission 450 5th Street, N.W. Washington, D.C. 20549 Re: WorldTeq Group International, Inc Commission File #000-27243 Gentleman: We have read and agree with the comments in Item 4 of the Form 8-K of WorldTeq Group International, Inc. dated March 11, 2002. ----------------------------------- /s/ Michael Johnson & Company LLC Denver, Colorado March 11, 2002 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): MAY 21, 2002. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (Exact Name of Registrant as Specified in Its Charter) Nevada 000-27243 98158A1016 (State or Other (Commission File Number) (I.R.S. Employee Jurisdiction of Identification Number) Incorporation) 15200 Shady Grove Road, Rockville, Maryland 20850 (301) 296-4234 ----------------------------------------------- ITEM 5. COMPLETION OF SELECTED ASSET ACQUISITION. ------------------------------------------------- As of May 9, 2002 WorldTeq Group International completed the acquisition of the selected assets of St. Andrews Telecommunications Inc. of Lawrence Kansas. St. Andrews will continue as a going concern and the selected assets, which consist of some customers, contracts, and fixtures will be integrated into WorldTeq Corporation, a wholly owned subsidiary of WorldTeq Group International. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (FORMERLY A1 INTERNET.COM, INC.) (Registrant) Date: May 21, 2002 By: /S/ Bruce Bertman ---------------------------- (Signature) Name: Bruce Bertman Title: President, Chief Executive Officer WorldTeq Group International, Inc. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): AUGUST 14, 2002. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (Exact Name of Registrant as Specified in Its Charter) Nevada 000-27243 98158A1016 (State or Other (Commission File Number) (I.R.S. Employee Jurisdiction of Identification Number) Incorporation) 30 W. Gude Drive Suite 420 Rockville, Maryland 20850 Telephone: 240.403.2000 ITEM 5. OTHER INFORMATION. ------------------------------------------------- Worldteq Group International, Inc. was advised on August 13, 2002 by its President and Chief Executive Officer, Mr. Bruce Bertman, that Mr. Bertman and others had been indicted in the Southern District of Florida for wire, mail and securities fraud and conspiracy in connection with the sale of Worldteq Group International common stock. Mr. Bertman has been ordered to appear in Miami, Florida on August 21, 2002. Mr. Bertman has advised the company that he intends to vigorously contest the allegations of the indictment. Worldteq Group International common stock is qualified for quotation on the over the counter bulletin board under the symbol "WTEQ." SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (FORMERLY A1 INTERNET.COM, INC.) (Registrant) Date: August 14, 2002 By: /S/ Donald Dea ---------------------------- (Signature) Name: Donald Dea Title: Director WorldTeq Group International, Inc. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): AUGUST 15, 2002. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (Exact Name of Registrant as Specified in Its Charter) Nevada 000-27243 98158A1016 (State or Other (Commission File Number) (I.R.S. Employee Jurisdiction of Identification Number) Incorporation) 30 W. Gude Drive Suite 420 Rockville, Maryland 20850 Telephone: 240.403.2000 ITEM 5. OTHER INFORMATION. WorldTeq Group International (OTC BB: WTEQ) addresses the recent action taken against the President of the company, Bruce Bertman. - The indictment does not name Worldteq or any other Worldteq employee. - Although alleging a broader conspiracy, the indictment refers to only one actual sale of stock by Mr. Bertman in March 2001 for only 40,000 shares. - At the time of this sale, the company did business as A1 Internet, not WorldTeq. - The other persons named currently have no involvement in the business of the company. - There are no allegations of financial statement impropriety, unlike recent actions taken against companies such as WorldCom. We have no reason to believe our financial statements as filed with the SEC are in any way inaccurate or will in any way require restatement. We intend to continue our normal day-to-day business operations while Mr. Bertman vigorously contests the allegations. Worldteq Group International common stock is qualified for quotation on the over the counter bulletin board under the symbol "WTEQ." SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (FORMERLY A1 INTERNET.COM, INC.) (Registrant) Date: August 15, 2002 By: /S/ Donald Dea ---------------------------- (Signature) Name: Donald Dea Title: Director WorldTeq Group International, Inc. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): September 26, 2002. WorldTeq Group International Incorporated (Exact Name of Registrant as Specified in Its Charter) Nevada 000-27243 98158A1016 (State or Other (Commission File Number) (I.R.S. Employee Jurisdiction of Identification Number) Incorporation) 30 West Gude Drive, Rockville, Maryland 20850 (240) 403-2000 ITEM 5. Other Events. On September 26, 2002 WorldTeq Group International ("the company") better defined and implemented and enhanced "Insider Trading Policy". The updated policy contained the following information: TRADING PROHIBITION You are prohibited from purchasing or selling Worldteq securities beginning on the first day of a calendar quarter until the third business day after WorldTeq's release of its quarterly earnings results. This prohibition includes exercising stock appreciation rights, but it does not include exercising with cash, an option on Worldteq securities issued pursuant to a Worldteq compensation plan and holding the underlying securities. In addition, all standing purchase and sale orders regarding Worldteq securities must be canceled prior to the first day of the calendar quarter. You are prohibited from purchasing options on: margin trading (the securities to otherwise secure a loan); day trading (buying and selling the same securities during one calendar day); and short selling (selling the securities at a specified price on a specified date without owning the securities on the trade date) Worldteq securities. The receipt of an option grant pursuant to a Worldteq compensation plan does not constitute the purchase of an option on Worldteq securities. Members of Worldteq Corp.'s management must obtain the approval of the Outside Counsel or designate prior to buying or selling Worldteq securities. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (FORMERLY A1 INTERNET.COM, INC.) (Registrant) Date: September 26, 2002 By:/S/ Bruce Bertman ------------------------------------- (Signature) Name: Bruce Bertman Title: President, Chief Executive Officer WorldTeq Group International, Inc. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): February 6, 2003 WorldTeq Group International Incorporated (Exact Name of Registrant as Specified in Its Charter) Nevada 000-27243 98158A1016 (State or Other (Commission File Number) (I.R.S. Employee Jurisdiction of Identification Number) Incorporation) 30 West Gude Drive, Rockville, Maryland 20850 (240) 403-2000 ITEM 5. Other Events. CEO Bruce Bertman will be taking a leave of absence after having been convicted in the United Stated District Court In Miami. Mr. Bertman announced that his attorneys will be filing a Motion for Judgment of Acquittal Not Withstanding The Verdict. Mr. Bertman's attorney Martin K. Leppo of Boston Massachusetts stated that there are several grounds that he will present to the court. Bruce Bertman said, "In the interest of the company I feel it is better that I step aside while I exercise my appellate rights. My resignation is in the capacity as CEO only and I will continue to assist the company in anyway I can. It should further be noted that I was convicted of a victimless crime through a 'sting' which I will further explain at another time on the advice of counsel." The Company has selected Mr. Jeff Lieberman to be Acting CEO in the interim. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WorldTeq Group International Incorporated (Registrant) Date: February 7, 2003 By:/S/ Jeff Lieberman ------------------------------------- (Signature) Name: Jeff Lieberman Title: Acting - Chief Executive Officer WorldTeq Group International, Inc. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders WorldTeq Group International, Inc. (formerly A1 Internet.com, Inc.) Rockville, Maryland We have audited the accompanying consolidated balance sheet of WorldTeq Group International, Inc. and subsidiaries as of December 31, 2002, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the two years then ended. These financial statements are the responsibility of WorldTeq's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from 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 significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of WorldTeq Group International, Inc. as of December 31, 2002, and the results of its operations and its cash flows for the two years then ended, in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that WorldTeq will continue as a going concern. As discussed in Note 2 to the financial statements, WorldTeq's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. MALONE & BAILEY, PLLC www.malone-bailey.com Houston, Texas April 14, 2003 WORLDTEQ GROUP INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 2002 ASSETS CURRENT ASSETS: Restricted cash $ 85,000 Trade accounts receivable, net of allowance for doubtful accounts of $425,000 78,974 Other current assets 12,574 ------------- Total current assets 176,548 EQUIPMENT, net of $330,711 accumulated depreciation 74,573 ------------- Total assets $ 251,121 ============= LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Notes payable $ 98,703 Current portion, note payable stockholder 48,000 Accounts payable 646,263 Accrued expenses 15,717 Deferred revenue 51,616 ------------- Total current liabilities 860,299 NOTE PAYABLE SHAREHOLDER, net of current portion 96,208 COMMITMENTS AND CONTINGENCIES (note 9) STOCKHOLDERS' DEFICIT: Series A convertible preferred stock, $.001 par; 4,749,989 liquidation value 5,000,000 shares authorized;1,055,553 shares issued and outstanding 1,055 Common stock, $.001 par; 100,000,000 shares authorized; 20,380,000 shares issued and outstanding 21,630 Additional paid-in capital 20,089,016 Accumulated deficit (20,817,087) ------------- Total stockholders' deficit (705,386) ------------- Total liabilities and stockholders' deficit $ 251,121 ============= See accompanying summary of accounting policies and notes to financial statements WORLDTEQ GROUP INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2002 and 2001 2002 2001 ----------- ------------- Sales $ 4,221,968 $ 3,156,591 Cost of sales 2,156,704 1,846,947 Selling, general and administrative 1,843,500 1,890,665 Bad debts 667,981 14,002 Depreciation 47,532 82,866 Amortization - 71,800 Impairment of goodwill - 161,984 ------------ ------------ Operating expenses 4,715,717 4,127,887 ------------ ------------ Loss from operations (493,749) (911,673) OTHER INCOME (EXPENSE) Other income 1,146 660 Interest expense (44,194) (60,283) ------------ ------------ (43,048) (59,623) ------------ ------------ NET LOSS $ (536,797) $ (971,296) =========== ============ BASIC AND DILUTED LOSS PER COMMON SHARE: $ (0.03) $ (0.08) =========== ============ Weighted Average Common Shares Outstanding 19,105,000 12,543,333 ============ ============ See accompanying summary of accounting policies and notes to financial statements. WORLDTEQ GROUP INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 2002 and 2001 Preferred Stock Common Stock -------------------- --------------------- Shares Amount Shares Amount ---------- -------- --------- --------- Balances, December 31, 2000 1,115,553 $ 1,115 11,100,000 $11,100 Rescission of CTNA acquisition - - (1,200,000) (1,200) Shares issued for debt - - 7,930,000 7,930 Shareholder capital contribution - - - - Net loss - - - - ---------- -------- ----------- -------- Balances, December 31, 2001 1,115,553 $ 1,115 17,830,000 $17,830 Shares issued for debt - - 3,420,000 3,420 Shares issued for services - - 420,000 420 Shares returned and retired - - (100,000) (100) Shareholder capital contribution - - - - Conversion of preferred stock into common (60,000) (60) 60,000 60 Net loss - - - - ---------- -------- ----------- -------- Balances, December 31, 2002 1,055,553 $ 1,055 21,630,000 $21,630 ========== ======== =========== ======== See accompanying summary of accounting policies and notes to financial statements. WORLDTEQ GROUP INTERNATIONAL, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT YEARS ENDED DECEMBER 31, 2002 and 2001 Paid In Accumulated Capital Deficit Total ----------- ------------- ---------- Balances, December 31, 2000 $19,273,119 $(19,308,994) $ (23,660) Rescission of CTNA Acquisition 1,200 - - Shares issued for debt 229,970 - 237,900 Shareholder capital contribution 52,500 - 52,500 Net loss - (971,296) (971,296) ----------- ------------- ---------- Balances, December 31, 2001 19,556,789 (20,280,290) (704,556) Shares issued for debt 256,580 - 260,000 Shares issued for services 103,880 - 104,300 Shares returned and retired 100 - - Shareholder capital contribution 171,667 - 171,667 Conversion of preferred stock into common - - - Net loss - (536,797) (536,797) ----------- ------------- ---------- Balances, December 31, 2002 $20,089,016 $(20,817,087) $ 705,386 =========== ============= ========== See accompanying summary of accounting policies and notes to financial statements WORLDTEQ GROUP INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(536,797) $(971,296) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 47,532 154,666 Bad debt 667,981 14,002 Non-cash stock compensation 104,300 - Impairment loss - 161,984 Change in assets and liabilities: Trade accounts receivable (554,505) (197,579) Other current assets (528) 75,426 Accounts payable 168,115 215,816 Accrued expenses (4,550) 48,409 Deferred revenue (46,435) 98,051 ---------- ---------- Net cash used in operating activities (154,887) (400,521) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment (13,448) (48,551) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from shareholder note payable, net 28,951 343,109 Capital contribution 171,667 - Purchase of treasury stock - 52,500 Proceeds from notes payable - 133,750 Payments on notes payable (50,094) - ---------- ---------- Net cash provided by financing activities 150,524 529,359 ---------- ---------- CHANGE IN CASH (18,045) 80,287 CASH AND CASH EQUIVALENTS, beginning of year 103,045 22,758 ---------- CASH AND CASH EQUIVALENTS, end of year $ 85,000 $ 103,045 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Payment of interest $ 14,953 $ 3,750 ========== ========== NON-CASH FINANCING ACTIVITIES: Stock issued for shareholder note payable $ 260,000 $ 237,900 ========== ========== See accompanying summary of accounting policies and notes to financial statements WORLDTEQ GROUP INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Nature of business. WorldTeq Group International, Inc. ("WorldTeq") is a Nevada corporation formed October 13, 1997 and originally named Halo Holdings of Nevada, Inc. The name was changed to A1 Internet.com, Inc. in 1999 and again on October 15, 2001 to the current name. In 1999, WorldTeq acquired Virtual Information Express, Inc., Computer Ease LLC, and Networld Ohio, Inc. Virtual Information Express and Computer Ease were discontinued in 2000. WorldTeq sells long-distance telephone service and various Internet-related services, including website creation and hosting and internet connectivity services. Basis of presentation. The consolidated financial statements include the accounts of WorldTeq and its wholly-owned subsidiaries, WorldTeq Corporation and NetWorld of Ohio, Inc. Significant inter-company accounts and transactions have been eliminated. Estimates and assumptions. Preparing financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses at the balance sheet date and for the period then ended. Actual results could differ from these estimates. Cash and cash equivalents include all highly liquid investments purchased with original maturities of three months or less. Restricted cash is a credit card merchant cash deposit to secure customer credit card long distance payments. Revenue recognition. Revenue from internet and long-distance services is recognized when services are rendered. Deferred revenue represents collected prepaid long-distance services. An allowance for doubtful accounts is provided based on credit experience. Property and Equipment. The Company calculates depreciation for financial reporting for its computers and other equipment using the straight-line method over the useful lives of the assets, estimated at 3 - 5 years. In 2001 the remaining unamortized balance of the NetWorld of Ohio, Inc. goodwill was written off in accordance with Statement of Financial Accounting Standards No. 121, Impairment of Long-Lived Assets. Amortization of the goodwill from the NetWorld of Ohio, Inc. acquisition had been calculated using the straight-line method over 5 years. Income taxes are computed using the tax liability method of accounting, whereby deferred income taxes are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect when the differences reverse. Advertising costs are expensed as incurred. Loss per Share. Basic loss per share equals net loss divided by weighted average shares outstanding during the year. Diluted earnings per share include the impact of common stock equivalents using the treasury stock method when the effect is dilutive. There were no common stock equivalents during 2002 or 2001. Stock options are accounted for by following Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, and by following Statement of Financial Accounting Standards No. 123, Accounting for Stock Based Compensation, which established a fair-value-based method of accounting for stock-based compensation plans. Had compensation cost for the WorldTeq's stock-based compensation plan for employees been determined based on the fair value at the grant dates for awards under those plans consistent with the Black-Scholes option-pricing model suggested by FASB Statement 123, the Company's net losses and loss per share would have been increased to the pro forma amount indicated below: 2002 2001 ------------ ----------- Net loss available for common shareholders -As reported $( 350,122) $(971,296) -Pro forma ( 350,122) (1,051,673) Net loss per share -As reported $(.02) $(.08) -Pro forma (.02) (.08) The weighted average fair value of the stock options and warrants granted to employees during 2002 and 2001 was $.07. Variables used in the Black-Scholes option-pricing model include (1) 5.0% risk-free interest rate, (2) expected option life is the actual remaining life of the options as of each year end, (3) expected volatility is the actual historical stock price fluctuation volatility and (4) zero expected dividends. New Accounting Principles. WorldTeq does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its financial position, results of operations or cash flow. Reclassifications. Certain prior years' amounts have been reclassified to conform with the current year presentation. NOTE 2 - GOING CONCERN The financial statements have been prepared assuming that WorldTeq will continue as a going concern. WorldTeq has a significant accumulated deficit and working capital deficiency at December 31, 2002 and is unable to meet its obligations as they come due; all of which raise substantial doubt about WorldTeq's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or to the amounts and classification of liabilities that might be necessary should WorldTeq be unable to continue as a going concern. The continued support of WorldTeq's creditors, lenders and shareholders is required in order for WorldTeq to continue as a going concern. Management's plans to support WorldTeq's operations include cutting overhead costs, borrowing additional funds and raising additional capital. WorldTeq's inability to obtain additional capital or obtain such capital on favorable terms could have a material adverse effect on its financial position, results of operations and its ability to continue operations. NOTE 3 - NOTE PAYABLE TO STOCKHOLDER In February 2003, WorldTeq signed a note with the majority stockholder. This note is secured by all asset of WorldTeq, bears interest at 8% and is due in monthly installments of $4,000, with the balance due February 2004. The note is convertible into common stock at $.10 per share. NOTE 4 - NOTE PAYABLE This note is past due and incurs interest at 15%. NOTE 5 - INCOME TAXES WorldTeq has had losses since inception and therefore has no income tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $20,350,000 at December 31, 2002, and will expire in various years through 2022. Deferred income taxes consist of the following at December 31, 2002: Long-term: Deferred tax assets $ 6,900,000 Valuation allowance (6,900,000) ----------- $ - =========== NOTE 6 - PREFERRED STOCK Series A Convertible Preferred Stock was issued in 1999 for net proceeds of $3,602,560. It is convertible into the Company's common stock at any time at the option of the holder on a one-for-one basis. This series is non-voting and pays no dividends. The liquidation value is $4.50 per share. Preferred stockholders have converted 60,000 shares of preferred stock into 60,000 shares of common stock. Note 7 - COMMON STOCK In 2001, WorldTeq's board of directors approved the issuance of 7,930,000 shares of common stock to the President and Chairman of the Board of WorldTeq for $237,900 of debt owed to the President. In 2001, WorldTeq retired 1,200,000 shares of stock related to recession of an acquisition attempted by WorldTeq. In 2002, WorldTeq recorded expense totaling $104,300 related to stock issued for services. The stock was valued at the trading price on the date of issuance. 100,000 shares were issued to a consultant for investor relations services, 200,000 shares were issued to the President and majority shareholder as a bonus and the remaining 120,000 shares were issued to various employees as a bonus. In 2002, WorldTeq recorded a $110,000 reduction in note payable to the majority shareholder in exchange for 920,000 shares of common stock. The transaction was approved by the board of directors. In 2002, WorldTeq recorded 60,000 shares of common stock issued in exchange for 60,000 shares of preferred stock. In 2002, 100,000 shares of common stock was returned to WorldTeq by a stockholder. These shares were retired in 2002. NOTE 8 - STOCK OPTIONS AND WARRANTS WorldTeq's Stock Option Plan provides for the grant of both qualified and non-qualified options to directors, employees and consultants of WorldTeq, and opportunities for directors, officers, employees and consultants of WorldTeq to make purchases of stock in WorldTeq. In addition, WorldTeq issues stock warrants from time to time to employees, consultants, stockholders and creditors as additional financial incentives. The plan and warrants issuance are administered by the Board of Directors of WorldTeq, who have substantial discretion to determine which persons, amounts, time, price, exercise terms, and restrictions, if any. WorldTeq uses the intrinsic value method of calculating compensation expense for employees, as described and recommended by APB Opinion 25, and allowed by FASB Statement 123. During the years ended December 31, 2002 and 2001, no compensation expense was recognized for the issuance of options and warrants to employees, because no option prices were below market prices at the date of grant. During the year ended December 31, 2001, no compensation expense was recognized for the issuance of warrants to non-employees because the fair market value as calculated using the Black-Scholes method was below the exercise prices of $2.75 and $5.50 per share. Options and warrants to purchase 3,545,000 shares of common stock that had no intrinsic value were issued to employees during the year ended December 31, 2001. No options were issued in 2002. During the year ended December 31, 2001, WorldTeq issued 150,000 options to consultants whose stock-based compensation must be recorded at fair value pursuant to FASB Interpretation Number 44. The compensation cost record for these options and warrants was $0 based on the Black-Scholes option pricing model as suggested by FASB Statement 123. Summary information regarding options and warrants is as follows: Weighted Weighted average average Options Share Price Warrants Share Price --------- --------- -------- ----------- Year ended December 31, 2001: ---------------------------- Outstanding, 2000 687,000 .29 886,650 $2.45 Granted 545,000 .29 3,150,000 .16 -------- ----- ---------- ----- Outstanding at December 31, 2001 1,232,000 .29 4,036,650 .66 Year ended December 31, 2002: ---------------------------- Granted - - - - -------- ----- --------- ----- Outstanding at December 31, 2002 1,232,000 $ .29 4,036,650 $ .66 ========= ===== ========= ===== Options outstanding and exercisable as of December 31, 2002: - - Outstanding - - Exercisable Number Remaining Number Exercise Price of Shares life of Shares --------- --------- ----------- $.29 87,000 3 years 44,000 $.29 145,000 4 years 73,000 $.29 600,000 5 years 300,000 $.29 400,000 6 years 134,000 --------- ----------- 1,232,000 551,000 ========= =========== Warrants outstanding and exercisable as of December 31, 2002: - - Outstanding - - Exercisable Number Remaining Number Exercise Price of Shares life of Shares --------- --------- ----------- $5.50 386,650 2 years 386,650 $2.75 150,000 4 years 150,000 $ .10 500,000 2 years 500,000 $ .03 3,000,000 4 years 3,000,000 --------- ----------- 4,036,650 4,036,650 ========= =========== NOTE 9 - COMMITMENTS AND CONTINGENCIES WorldTeq's office lease is month-to-month. Total rent expense for 2002 and 2001 was $101,789 and $98,303, respectively. WorldTeq has a dispute with its former long-distance carrier, Qwest Communications, relating to the balance due to Qwest as of December 31, 2002 when the relationship had been terminated. WorldTeq has a liability recorded of approximately $222,000 at December 31, 2002 to this Qwest, however, Qwest has invoiced WorldTeq approximately $710,000 or a disputed difference of approximately $488,000. The difference relates mainly to charges incurred at various payphones. WorldTeq obtained a waiver from liability from the payphones owner and from Qwest for any of these charges. Management is currently in contact with Qwest and the differences are being reviewed by the Qwest. Management believes WorldTeq is not liable for the charges since waivers were obtained and has not recorded any liability as of December 31, 2002 related to these payphone fees. If WorldTeq is ultimately responsible for the charges they would be required to record an additional liability of approximately $488,000. NOTE 10 - MAJOR CUSTOMERS AND VENDORS WorldTeq incurred approximately $990,000 with two long-distance carries in 2002 and $714,000 in charges with one long-distance carrier during 2001 which are included in cost of sales. No customer and no other vendor accounted for 10% or more of total sales or costs during 2002 or 2001. STATEMENT UNDER OATH OF PRINCIPAL EXECUTIVE OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS. I Jeffrey Lieberman state and attest that; 1) To the best of my knowledge, based upon review of the covered reports of WorldTeq Group International Inc., and except as corrected or supplemented in a subsequent covered report: No covered report contained an untrue statement of material fact as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed); and No covered report omitted to state a material fact necessary to make the statements in the covered report, in light of the circumstances under which they were made, not misleading as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed). 2) I have reviewed the contents of this statement with the Company's audit committee. 3) In this statement under oath, each of the following, if filed on or before the date of this statement, is a "covered report": Annual Report 10-KSB of WorldTeq Group International, Inc. for the fiscal year ended December 31, 2002 filed with the Securities and Exchange Commission. All reports on Form 10-QSB, all reports on Form 8-K and all definitive proxy materials of WorldTeq Group International, Inc. filed with the Commission subsequent to the filing of the Form 10-KSB identified above; and Any amendments to any of the foregoing. -------------------------------------------------------------------------------- SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED HEREUNTO DULY AUTHORIZED. WORLDTEQ GROUP INTERNATIONAL INCORPORATED (REGISTRANT) DATE: MAY 6, 2003 BY:/S/ BRUCE BERTMAN ------------------------------------- (SIGNATURE) NAME: JEFFREY LIEBERMAN TITLE: PRESIDENT, CHIEF EXECUTIVE OFFICER