Edgar Filing: QUEPASA COM INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------

FORM 10-Q/A

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 0-25565

QUEPASA.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 84-0879433
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

ONE ARIZONA CENTER, 400 E. VAN BUREN 85004
4TH FLOOR, PHOENIX, AZ (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 602-716-0100

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NAME OF EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
NONE. NONE.

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

The number of outstanding shares of the registrant's Common Stock as of
NOVEMBER 6, 2000 was approximately 18,693,942 shares.

QUEPASA.COM, INC.

INDEX

PAGE NO.

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2000
(unaudited) and December 31, 1999......................................................... 3

Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2000,
and 1999 (unaudited)...................................................................... 4

Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999 (unaudited)................................. 5

Notes to Condensed Consolidated Financial Statements ..................................... 7

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Risk Factors................................................ 16

Item 3. Quantitative and Qualitative Disclosures About Market Risk .............................. 34

PART II. OTHER INFORMATION

Item 1. Legal Proceedings........................................................................ 35

Item 6. Exhibits and Reports on Form 8-K......................................................... 35

Signatures........................................................................................ 36

PART I FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUEPASA.COM, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30,
2000
(UNAUDITED) DECEMBER 31,
(restated) 1999
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents ..................... $ 2,296,752 $ 6,961,592
Trading securities ............................ 7,192,470 22,237,656
Accounts receivable (net of allowance for
doubtful accounts of $299,802 and $4,813,
respectively) ............................... 455,278 297,170
Forgivable loans .............................. 34,339 368,042
Prepaid expenses .............................. 857,231 2,161,494
Other current assets .......................... 5,102,216 --
------------ ------------
Total current assets .................... 15,938,286 32,025,954
Prepaid marketing services ...................... 7,908,478 10,120,192
Property and equipment, net ..................... 1,672,055 2,051,103
Goodwill, net ................................... 16,442,909 --
Other assets .................................... 918,733 153,743
------------ ------------
Total assets .................................... $ 42,880,461 $ 44,350,992
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .............................. $ 688,821 $ 2,775,347
Accrued liabilities ........................... 199,934 1,023,984
Deferred revenue .............................. 21,250 85,417
------------ ------------
Total current liabilities ............... 910,005 3,884,748

Redeemable common stock ......................... -- 2,000,000
Deferred advertising expense .................... -- (1,600,000)

Stockholders' equity:
Preferred stock, authorized 5,000,000 shares,
no par value, -- none issued or outstanding.... -- --
Common stock, authorized 50,000,000 shares,
$0.001 par value; issued and outstanding
17,763,290 shares and 14,536,058 shares,
respectively .................................. 17,763 14,536
Additional paid-in capital ...................... 104,399,947 75,829,202
Accumulated deficit ............................. (62,447,254) (35,777,494)
------------ ------------
Total stockholders' equity ............... 41,970,456 40,066,244
------------ ------------
Total liabilities and stockholders' equity ...... $ 42,880,461 $ 44,350,992
============ ============

See accompanying notes to condensed consolidated financial statements.

QUEPASA.COM, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

THREE MONTHS NINE MONTHS
ENDED SEPT. 30, ENDED SEPT. 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
(restated) (restated)

Gross revenue .................... $ 822,343 $ 153,582 $ 2,567,288 $ 170,144

Less commissions ................. (45,975) (25,898) (185,509) (34,017)
----------- ----------- ------------ ------------
Net revenue ...................... 776,368 127,684 2,381,779 136,127
----------- ----------- ------------ ------------
Operating expenses:
Product & content dev .......... 1,645,177 798,844 5,143,178 1,264,407
Advertising & marketing ........ 4,219,136 6,195,450 15,405,918 11,277,435
General & administrative ....... 1,426,354 1,879,233 4,821,355 9,672,112
Amortization of goodwill ....... 1,752,228 -- 4,583,847 --
----------- ----------- ------------ ------------
Total operating expenses.... 9,042,895 8,873,527 29,954,298 22,213,954
----------- ----------- ------------ ------------
Loss from operations ............. (8,266,527) (8,745,843) (27,572,519) (22,077,827)
----------- ----------- ------------ ------------
Other income (expense):
Interest expense ............... (2,214) (79,465) (53,461) (212,587)
Interest income & other ........ 194,398 494,972 1,093,527 512,918
Short-term gain on
trading securities ........... -- -- 2,820 --
Unrealized gain (loss) on
trading securities ........... (3,018) 33,895 (140,127) 34,948
----------- ----------- ------------ ------------

Other income (expenses), net...... 189,166 449,402 902,759 335,279
----------- ----------- ------------ ------------
Net loss ......................... $(8,077,361) $(8,296,441) $(26,669,760) $(21,742,548)
=========== =========== ============ ============
Net loss per share,
basic & diluted ................ $ (0.45) $ (0.58) $ (1.56) $ (1.96)
Weighted average number of
shares outstanding,
basic & diluted ................ 17,763,290 14,352,093 17,146,753 11,115,254

See accompanying notes to condensed consolidated financial statements.

QUEPASA.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
(restated)
------------ ------------

Cash flows from operating activities:
Net loss ................................................................... $(26,669,760) $(21,742,548)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .......................................... 6,348,242 149,822
Stock based compensation ............................................... 61,638 4,907,732
Forgiveness of forgivable loans ........................................ 333,703 --
Amortization of prepaid marketing services ............................. 2,211,714 --
Consulting services received in exchange for stock ..................... -- 550,000
Unrealized (gain) loss on trading securities ........................... 140,127 (34,948)
Short-term (gain) loss on trading securities ........................... (2,820) --
Increase (decrease) in cash resulting from changes in assets/liabilities
net of effects from acquisitions:
Sale (purchase) of trading securities, net ............................. 14,907,879 (27,822,148)
Accounts receivable .................................................... (158,108) (227,904)
Deposits receivable .................................................... -- 1,533,632
Prepaid expenses ....................................................... 195,597 (4,502,480)
Other assets ........................................................... (6,816,377) (58,308)
Accounts payable ....................................................... (2,190,065) 2,440,132
Provision for legal disputes ........................................... -- 400,000
Accrued liabilities .................................................... (826,949) 2,828,421
Amortization of deferred advertising credit ............................ 766,666 156,250
Deferred revenue ....................................................... (64,167) --
------------ ------------
Net cash used in operating activities ............................. (11,762,679) (41,422,347)
------------ ------------
Cash flows from investing activities:
Forgivable loans, net .................................................... -- (42,490)
Cash paid for acquisitions ............................................... (238,793) --
Cash received in acquisition ............................................. 578,730 --
Purchase of fixed assets ................................................. (239,516) (1,617,292)
------------ ------------
Net cash (used in) provided by
investing activities ............................................ 100,421 (1,659,782)
------------ ------------
Cash flows from financing activities:
Stock subscription receivable ............................................ -- 125,000
Net proceeds from issuance of stock ...................................... 9,000,000 48,655,173
Proceeds from the exercise of stock options .............................. 367,801 --
Proceeds from draws on line of credit .................................... 12,286 --
Issuance (payment) of notes payable ...................................... (2,382,669) 2,245,082
Accrued commissions ...................................................... -- (215,233)
Stock subscription ....................................................... -- (337,500)
------------ ------------
Net cash provided by financing activities ......................... 6,997,418 50,472,522
------------ ------------
Net increase (decrease) in cash and cash equivalents ....................... (4,664,840) 7,390,393
Cash and cash equivalents, beginning of period ........................... 6,961,592 2,199,172
------------ ------------
Cash and cash equivalents, end of period ................................. $ 2,296,752 $ 9,589,565
============ ============
Supplemental disclosure of non-cash operating, financing and investing
activities:
Interest paid ........................................................... $ 32,175 $ 212,587
============ ============
Barter transactions ..................................................... $ 1,153,633 $ --
============ ============
Notes payable assumed in acquisitions ................................... $ 2,370,383 $ --
============ ============
Stock issued for advertising credits .................................... $ -- $ 5,234,375
============ ============
Issuance of stock in acquisitions ....................................... $ 20,073,032 $ --
============ ============

See accompanying notes to condensed consolidated financial statements.

QUEPASA.COM, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999

(1) THE COMPANY

quepasa.com, inc. (the "Company"), a Nevada Corporation, was
incorporated in June 1997. The Company is a Bilingual Internet portal and
on-line community focused on the United States Hispanic market. quepasa.com
offers a number of services in both Spanish and English such as a search engine,
news feeds, free Web pages, chat, games, maps, message boards and free e-mail.
The Company's portal draws viewers to its Web site by providing a one-stop
destination for identifying, selecting and accessing resources, services,
content and information on the Web. Because the language preference of many U.S.
Hispanics is English, it also offers users the ability to access information and
services in the English language.

To date the Company's expenses have significantly exceeded revenue and
there is no assurance that the Company will earn profits in the future.

(2) BASIS OF PRESENTATION

Our accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for a complete financial statement presentation. In our opinion, such unaudited
interim information reflects all adjustments, consisting only of normal
recurring adjustments, necessary to present our financial position and results
of operations for the periods presented. Our results of operations for interim
periods are not necessarily indicative of the results to be expected for a full
fiscal year. Our Condensed Consolidated Balance Sheet as of December 31, 1999
was derived from our audited financial statements as of that date but does not
include all the information and footnotes required by generally accepted
accounting principles. We suggest that these condensed consolidated financial
statements be read in conjunction with the audited financial statements included
in our Annual Report on Form 10-K/A for the year ended December 31, 1999.

(3) SIGNIFICANT TRANSACTIONS

On January 28, 2000, the Company acquired eTrato.com, an on-line
trading community developed especially for the Spanish language or bilingual
Internet user for

an aggregate purchase price of $10.85 million, consisting of 681,818 shares of
common stock valued at $14.09 per share and assumption of a $1.25 million
promissory note. The note payable is due in whole on January 28, 2002 and has a
stated interest rate at the greater of 6% per annum or the federal rate then in
effect with respect to debt instruments having a 2-year term. An additional
681,818 shares will be held in escrow pending the outcome of certain revenue
and web site contingencies over the six-month period following the acquisition.
The value of the stock was determined using the average stock price between the
date of the merger agreement and the date the merger was publicly announced, or
$14.09 per share. The Company accounted for the acquisition using the purchase
method of accounting. Accordingly, the purchase price was allocated to the
assets purchased and the liabilities assumed based upon the estimated fair
values on the date of the acquisition. The excess of the purchase price over
the fair value of the net assets acquired was approximately $10.1 million and
was recorded as goodwill, which is being amortized on a straight-line basis
over a 3-year period.

On January 28, 2000, the Company acquired credito.com, an on-line
credit company targeted to the U.S. Hispanic population for a purchase price of
$8.4 million consisting of 681,818 shares of common stock valued at $11 per
share and assumption of an $887,000 note payable. The Company included the
681,818 shares of common stock issued unconditionally in determining the cost
of credito.com recorded at the date of acquisition. Contingent consideration
consisted of warrants to purchase 681,818 shares of common stock exercisable
upon credito.com's achievement of certain performance objectives related to
gross revenue as of January 2001 and January 2002. The value of the stock was
determined using the average stock price between the date of the merger
agreement and the date the merger was publicly announced, or $11 per share. The
Company accounted for the acquisition using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets purchased and the
liabilities assumed based upon the estimated fair values on the date of the
acquisition. The excess of the purchase price over the fair value of the net
assets acquired was approximately $7.8 million and was recorded as goodwill,
which is being amortized on a straight-line basis over a 3-year period.

On March 9, 2000, the Company acquired RealEstateEspanol.com, a real
estate services site providing the Hispanic-American community with bilingual
home buying services for an aggregate purchase price of $3.3 million. The
purchase price for RealEstateEspanol.com consisted of 335,925 shares of the
Company's common stock valued at $3.0 million and the assumption of $300,000 in
debt paid immediately following the closing of the acquisition. Contingent
consideration consisted of 248,834 shares of common stock

which were held in escrow pending RealEstateEspanol.com's achievement of gross
revenue targets within 12 months of the date of the agreement. The value of the
stock was determined using the average stock price between the date of the
merger agreement and the date the merger was publicly announced, or $8.83 per
share. The Company accounted for the acquisition using the purchase method of
accounting. Accordingly, the purchase price was allocated to the assets
purchased and the liabilities assumed based upon the estimated fair values on
the date of the acquisition. The excess of the purchase price over the fair
value of the net assets acquired was approximately $3.2 million and was
recorded as goodwill, which is being amortized on a straight-line basis over a
3-year period.

The following summary, prepared on a pro forma basis, combines the
consolidated results of operations (unaudited) as if the acquisitions had taken
place on January 1, 1999. Amortization of goodwill related to the acquisition
of credito.com, eTrato.com and RealEstateEspanol.com has been recorded for the
period of inception, August 17, 1999, June 16, 1999 and August 30, 1999,
respectively, through December 31, 1999, based on an estimated useful life of 3
years. Such pro forma amounts are not necessarily indicative of what the actual
results of operations might have been if the acquisitions had been effective on
January 1, 1999, including $5,257,000 and $1,387,000 amortization of goodwill
during the nine months ended September 30, 2000 and September 30, 1999,
respectively (in thousands, except per share amounts):

Nine months ended September 30,
2000 1999

Gross revenue $ 2,567 $ 170
Net revenue 2,382 136
Operating expenses 35,495 23,649
Net loss (32,210) (23,130)
Net loss per share, basic and diluted (1.88) (2.08)

While issuance of the contingent shares of common stock held in escrow
is believed to be remote, the contingent shares of common stock held in escrow
as a result of the acquisitions, if subsequently issued, would increase the
purchase price of the entities by $7,500,000, $9,607,000, and $2,197,000, for
credito.com, eTrato.com, and RealEstateEspanol.com, respectively, assuming the
same fair value for the contingent shares of common stock as that which was used
for the shares of common stock that were issued as a result of the transaction
on the respective acquisition dates. In addition, pro forma operating expenses
for the third quarter of 2000 would increase to $40,321,000, from $35,495,000,
and would increase to $24,951,000, from $23,649,000, for the third quarter of
1999, net loss for the third quarter of 2000 would increase to $37,036,000, from
$32,210,000, and would increase to $24,431,000, from $23,130,000, for the third
quarter of 1999, and net loss per share for the third quarter of 2000 would
increase to $2.14, from $1.88, and would increase to $2.20, from $2.08, for the
third quarter of 1999.

On March 30, 2000, Gateway, Inc. invested $9.0 million (restated) in
exchange for 1,428,571 shares of common stock representing 7.6% of quepasa.com's

outstanding common stock. The amount attributable to common stock and additional
paid-in capital was $7,685,712, the value of the 1,428,571 shares of common
stock on the date issued ($5.38 per share). Additionally, quepasa granted a
60-day warrant to acquire 483,495 shares of common stock at $7 per share. The
warrants were valued at $386,000 using the Black-Scholes option-pricing model.
The assumptions used for the Gateway warrants are as follows: expected dividend
yield 0%, risk-free interest rate of 5.67%, expected volatility of 147% and
expected life of two months. In the event that there was a change in ownership
of quepasa in excess of 30% prior to September 30, 2000, for a price per share
less than $7.00, Gateway had the right to be reimbursed for the differential in
the per share amount. quepasa also committed itself to use a substantial portion
of the proceeds of Gateway's investment to further its community and educational
initiative program, which includes distributing computers purchased from Gateway
accompanied with Spanish language technical support, providing Internet access,
and training for quepasa's subscribers. The Company purchased $5.8 million
(restated) of computers pursuant to this agreement to be used for promotional
activities which are included in other current assets as of September 30, 2000.
The Company took title to the computers upon the close of the transaction. Since
the Company has no warehousing facilities, the computers were segregated from
Gateway's inventory in third party warehouse locations and the Company is
responsible for the payment of warehouse storage charges. These computers will
be amortized as they are donated.

In September 1999, the Company entered into an agreement with Estefan
Enterprises, Inc. whereby Gloria Estefan would act as spokesperson for the
Company through December 31, 2000 and the Company would sponsor her United
States 2000 concert tour. Ms. Estefan's tour was subsequently postponed, and
consequently the original terms of the spokesperson agreement have been
renegotiated. The revised spokesperson agreement calls for the return of the
156,863 shares of redeemable common stock to the Company, cancellation of the
put option for those shares and cancellation of the final installment. The
Company obtained the right of first refusal for the sponsorship of Ms. Estefan's
next United States and Latin America tours. As of September 30, 2000, the
remaining prepaid expense and deferred advertising credit and the issuance of
the 156,863 shares of redeemable common stock have been reversed. The Company
recognized $0 and $2.3 million of amortization in relation to the Estefan
agreement during the three and nine months ended September 30, 2000,
respectively.

On May 9, 2000, the Company announced that it would reduce its
workforce as part of management's effort to further enhance the Company's
competitive position and utilize its assets more efficiently. The Company
recognized $40,000 in employee severance and termination costs for the three
months ended June 30, 2000 relating to the reduction in workforce of
approximately 30 employees which is primarily classified in production and
content development expense.

On May 26, 2000, the Company announced it had retained Friedman,
Billings, Ramsey & Company to explore alternatives including strategic
alliances, significant equity investments in the Company or a merger or the sale
of the Company or significant portions of its business. To date, the Company has
not executed a merger or sale of a portion or all of the business.

The Company also announced that it is now actively pursuing the sale of
one or more of its subsidiaries: RealEstateEspanol.com, eTrato.com and
credito.com.

(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USES OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Additionally, such estimates and assumptions affect the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.

RECLASSIFICATIONS

Certain reclassifications have been made to prior financial statement
amounts to conform to current period presentation.

CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments which potentially subject the Company to
concentrations of credit risk are principally accounts receivable, cash and cash
equivalents and trading securities. The Company maintains ongoing credit
evaluations of its customers and generally does not require collateral. The
Company provides reserves for potential credit losses and such losses have not
exceeded management expectations. Periodically during the year the Company
maintains cash and investments in financial institutions in excess of the
amounts insured by the federal government. During the three months ended
September 30, 2000, one customer accounted for 20% of gross revenue, and during
the nine months ended September 30, 2000, two customers accounted for 17% and
13% of gross revenue. No other single advertiser utilizing banner ads or
sponsorship agreements amounted to or exceeded 10% of total gross revenues.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and highly liquid debt
instruments with original maturities of three months or less.

SECURITIES

The Company classifies its securities in one of three categories:
trading, available-for-sale, or held-to-maturity. Trading securities are bought
and held principally for the purpose of selling them in the near term.
Held-to-maturity securities are those securities in which the Company has the
ability and intent to hold the security until maturity. All other securities not
included in trading or held-to-maturity are classified as available-for-sale.
Trading securities at September 30, 2000 and December 31, 1999 consist of
corporate debt securities.

Trading and available-for-sale securities are recorded at market value.
Held-to-maturity securities are recorded at amortized cost, adjusted for the
amortization or accretion of premiums or discounts. Unrealized holding gains and
losses on trading securities are included in operations. Unrealized holding
gains and losses, net of the related tax effect, on available-for-sale
securities are excluded from operations and are reported as a separate component
of other comprehensive income until realized. Realized gains and losses for
trading securities are included in operations and are derived using the specific
identification method for determining the cost of securities. All securities
held at September 30, 2000 and December 31, 1999 are categorized as trading.

REVENUE RECOGNITION

The Company's revenue is derived principally from the sales of banner
advertisements and sponsorships. The Company sells banner advertising primarily
on a cost-per-thousand impressions, or "CPM" basis, under which advertisers and
advertising agencies receive a guaranteed number of "impressions," or number of
times that an advertisement appears in pages viewed by users of the Company's
Web site, for a fixed fee. The Company's contracts with advertisers and
advertising agencies for these types of contracts cover periods ranging from one
to twelve months. Advertising revenues are recognized ratably based on the
number of impressions displayed, provided that the Company has no obligations
remaining at the end of a period and collection of the resulting receivable is
probable. Company obligations typically include guarantees of a minimum number
of impressions. To the extent that minimum guaranteed impressions are not met,
the Company defers recognition of the corresponding revenues until the remaining
guaranteed impression levels are achieved. Payments received from advertisers
prior to displaying their advertisements on the Company's Web site are recorded
as deferred revenue.

The Company also derives revenue from the sale of sponsorships for
certain areas or a sponsorship exclusivity for certain areas within its Web
site. These

sponsorships are for periods up to one year. The Company recognizes revenue
during the initial setup, if required under the unique terms of each
sponsorship agreement (e.g. co-branded Web site), to the extent that actual
costs are incurred. The balance of the sponsorship is recognized ratably over
the period of time of the related agreement. Payments received from sponsors
prior to displaying their advertisements on the Company's Web site are
recorded as deferred revenue.

The Company also derives revenue from slotting fees and commissions.
Slotting fees revenue is recognized ratably over the period the services are
provided. Setup fees revenue is recognized during the initial setup to the
extent that direct costs are incurred. The remaining revenue derived from setup
fees is deferred and amortized ratably over the term of the applicable
agreement. Commission revenue related to X:Drive is recognized in the month in
which a new account is established (i.e. services are provided). Commission
revenue and expenses related to Net2Phone are recognized during the month in
which the service is provided.

The Company in the ordinary course of business enters into reciprocal
service arrangements (barter transactions) whereby the Company provides
advertising service to third parties in exchange for advertising services in
other media. Revenue and expenses from these agreements are recorded at the fair
value of services provided. The fair value represents market prices negotiated
on an arms' length basis. Revenue from reciprocal service arrangements is
recognized as income when advertisements are delivered on the Company's Web
site. Expense from reciprocal service arrangements is recognized when the
Company's advertisements are run in other media, which are typically in the same
period when the reciprocal service revenue is recognized. Related expenses are
classified as advertising and marketing expenses in the accompanying statements
of operations. During the three months ended September 30, 2000 and 1999
revenues attributable to reciprocal services totaled approximately $428,000
(restated) and $0, respectively, and related expenses totaled approximately
$428,000 (restated) and $0, respectively. During the nine months ended September
30, 2000 and 1999 revenues attributable to reciprocal services totaled
approximately $1.2 million (restated) and $0, respectively, and related expenses
totaled approximately $1.2 million (restated) and $0, respectively.

COMPUTER PROMOTIONS INVENTORY

Computer promotions inventory is recorded at cost and included in Other
Current Assets. Amortization expense is provided on an individual basis as each
computer is donated.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation and
amortization expense is generally provided on a straight-line basis using
estimated useful lives of the assets, which range from two to five years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the lease term or the estimated useful lives of the

related improvements. Expenditures for repairs and maintenance are charged to
operations as incurred and improvements which extend the useful lives of the
assets are capitalized.

PRODUCT AND CONTENT DEVELOPMENT

Costs incurred in the classification and organization of listings
within the Company's Web site are charged to expense as incurred. In accordance
with SOP 98-1, material software development costs, costs of development of new
products and costs of enhancements to existing products incurred during the
application development stage are capitalized. Based upon the Company's product
development process, and the constant modification of the Company's Web site,
costs incurred by the Company during the application development stage have been
insignificant.

In March 2000, EITF No. 00-02, ACCOUNTING FOR WEB SITE DEVELOPMENT
COSTS, was issued which addresses how an entity should account for costs
incurred in web site development. EITF 00-02 distinguishes between those costs
incurred during the development, application and infrastructure development
stage and those costs incurred during the operating stage. EITF 00-02 is
effective on and after June 30, 2000, although early adoption is encouraged. The
adoption of EITF No. 00-02 did not have a material impact on the Company's
consolidated financial statements.

INCOME TAXES

The Company utilizes the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long-lived assets and certain identifiable
intangibles for impairment whenever events or changes in circumstances indicate
the carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value of the assets less costs to sell.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the Company's financial instruments, which
principally include cash and cash equivalents, trading securities, accounts
receivable, forgivable loans, accounts payable, and accrued liabilities,
approximates fair market value because of the short term nature of the
instruments.

STOCK-BASED COMPENSATION

The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board "APB" Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. The Company has adopted the
disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
which permits entities to provide pro forma net earnings (loss) and pro forma
earnings (loss) per share disclosures for employee stock option grants as if the
fair-value-based method as defined in SFAS No. 123 had been applied.

The Company uses one of the most widely used option pricing models, the
Black-Scholes model ("Model"), for purposes of valuing its stock option grants.
The Model was developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. In addition, it
requires the input of highly subjective assumptions, including the expected
stock price volatility, expected dividend yields, the risk free interest rate,
and the expected life. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the value determined by the Model is not necessarily
indicative of the ultimate value of the granted options.

Stock based compensation totaled $20,546 and $43,462 for the three
months ended September 30, 2000 and September 30, 1999, respectively, and is
primarily classified in production and content development expense.

Stock based compensation totaled $61,638 and $4,907,732 for the nine
months ended September 30, 2000 and September 30, 1999, respectively, and is
primarily classified in production and content development expense for the nine
months ended September 30, 2000, and is classified for the nine months ended
September 30, 1999 as follows: $168,348 in production and content development
expense, $55,675 in advertising and marketing expense, and $4,683,709 in general
and administrative expense.

NET LOSS PER SHARE

Basic loss per share is computed by dividing net loss by the
weighted-average number of common shares outstanding for the period. Diluted
loss per share reflects the potential dilution that could occur if securities or
contracts to issue common stock were

exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. Stock options and
warrants are excluded because they are anti-dilutive.

ADVERTISING COSTS

Advertising costs are expensed as incurred in accordance with Statement
of Position 93-7, "Reporting on Advertising Costs". The Company recognizes the
advertising expense in a manner consistent with how the related advertising is
displayed or broadcast. Advertising production costs are expensed as incurred.

SEGMENT REPORTING

The Company utilizes the management approach in designating business
segments. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. The Company's one segment
provides Internet Portal and On-Line Community services in both Spanish and
English to the Hispanic market. The Company's initial focus is on the U.S.
Hispanic market, with substantially all of the Company's assets in and revenues
originating from the United States.

(5) COMMITMENTS

ADVERTISING CONTRACTS

In April 1999, the Company entered into an agreement with Telemundo
Network Group LLC ("Telemundo"). A director of the Company serves as the Chief
Operating Officer of Telemundo. Under this agreement, the Company issued
Telemundo 600,000 shares of its common stock and warrants to purchase 1,000,000
shares of its common stock exercisable up to and including June 25, 2001 at
$14.40 per share. In exchange, the Company received a $5.0 million advertising
credit on the Telemundo television network at the rate of $1.0 million for each
of the next five years. As of September 30, 2000, the Company's unused
advertising credit amounted to $4.2 million.

The Company has a sponsorship agreement with the Arizona Diamondbacks
major league baseball team. A director of the Company serves as the Arizona
Diamondbacks' Chief Executive Officer and General Manager. Under this agreement,
the Company receives English and Spanish television and radio broadcast time,
ballpark signage, and Internet and print promotions for an annual sponsorship
fee of $1.5 million

which is payable during each season. The $1.5 million annual sponsorship fee
is recognized as expense ratably over the baseball season. The Company
recognized $649,000 and $1.5 million in expense related to this agreement
during the three and nine months ended September 30, 2000, respectively.

INTERNET ACCESS AGREEMENT

On December 14, 1999, the Company entered into a one-year agreement
with NetZero, Inc. ("NetZero"), where they will provide free internet access
along with the Company's content to the U.S. Hispanic market. According to the
terms of this agreement, the Company is obligated to pay a fee for their
subscribers who access the Company's Web site. This fee ranges from $.10 to $.15
per user session. The Company also committed to spend at least $1 million for
the production and distribution of CD's containing the customized NetZero
service. This commitment was fulfilled in the first quarter of 2000.

(6) CONTINGENCIES

LEGAL PROCEEDINGS

The Company from time to time is involved in various legal proceedings
incidental to the conduct of its business. The Company believes, based on advice
of legal counsel, that the outcome of all such pending legal proceedings will
not in the aggregate have a material adverse effect on the Company's business,
financial condition, results of operations or liquidity.

(7) LOSS PER SHARE

The following table sets forth a summary of the reconciliation from
basic loss per share to diluted loss per share for the three and nine months
ended September 30, 2000 and 1999.

THREE MONTHS NINE MONTHS
ENDED SEPT. 30, ENDED SEPT. 30,
2000 1999 2000 1999
(restated) (restated)
----------- ----------- ------------ ------------

Loss available to
common stockholders $(8,077,361) $(8,296,441) $(26,669,760) $(21,742,548)
=========== =========== ============ ============
Basic EPS-weighted
average shares outstanding 17,763,290 14,352,093 17,146,753 11,115,254
=========== =========== ============ ============
Basic and diluted
loss per share $ (0.45) $ (0.58) $ (1.56) $ (1.96)
=========== =========== ============ ============
Stock options not included

in diluted EPS since
antidilutive 3,105,475 2,999,000 3,105,475 2,999,000
=========== =========== ============ ============
Warrants not included in diluted
EPS since antidilutive 2,081,818 1,400,000 2,081,818 1,400,000
=========== =========== ============ ============

Contingent shares not included in basic and diluted EPS total 930,652 and 0 for
the three and nine months ended September 30, 2000 and September 30, 1999,
respectively.

(8) SUBSEQUENT EVENTS

On October 4th, 2000, RealEstateEspanol.com entered into an agreement
with Freddie Mac, the National Counsel of La Raza ("NCLR"), and the National
Association of Hispanic Real Estate Professionals ("NAHREP"). As part of the
agreement, RealEstateEspanol.com will donate 200 Gateway computers to the NCLR
housing counseling offices which will result in approximately $158,000 in
promotional expense when donated. RealEstateEspanol.com will receive a $250,000
sponsorship fee.

As previously discussed under note 3, on November 14, 2000, the Company
announced a further reduction of its workforce.

(9) RESTATEMENT

The Company has restated its September 30, 2000 financial statements to
appropriately reflect the classification of prepaid marketing services of
$4,239,011 as an asset, reclassified from deferred advertising services, and an
increase in the value assigned to the issuance of common stock and warrants
related to the Telemundo agreement in the amount of $5,120,192, amounts of which
are both reflected as prepaid marketing services on the balance sheet. The
increase in amortization associated with the prepaid marketing services was
$256,010 and $768,030, respectively, during the three and nine months ended
September 30, 2000. Additionally, the Company recorded $682,695 of amortization
expense (included in the advertising and marketing expenses line item on the
statement of operations) in the first quarter of 2000 related to the 1999
amortization of prepaid marketing services. The Company did not adjust the
amortization of these costs in its 1999 Form 10-K/A due to the immaterial impact
on its results of operations. Prepaid marketing services were reduced by the
total of $1,450,725 in amortization for the nine months ended September 30,
2000.

Furthermore, the Company originally recorded the issuance of 1,428,571
shares of common stock in the Gateway transaction at $7.00 per share and
immediately expensed a $1,000,000 marketing payment to Gateway. Management has
determined that the issuance of shares of common stock should be valued at $5.38
per share representing the closing price of the Company's common stock on the
execution date of the transaction. The difference in the price per share noted
above has been reflected as a reduction of additional paid-in capital in the
amount of $1,928,499, elimination of the $1.0 million advertising expense, and a
reduction of $928,499 in other current assets

representing a discount assigned to the value of computer promotions inventory
purchased as part of the transaction.

The Company has restated its barter revenue and barter expenses for the
three and nine months ended September 30, 2000 to comply with limitations
identified in EITF 99-17. As a result, gross revenues and advertising and
marketing expenses were both reduced by $190,000 and $663,000, for the three and
nine months ended September 30, 2000. Barter revenue for the three and nine
months ended September 30, 2000, after the restatement, was $428,000 and
$1,153,000, respectively, while advertising and marketing expenses related to
barter transactions was $428,000 and $1,153,000, respectively.

Therefore, the quarterly financial information as of and for the three
and nine months ended September 30, 2000, has been restated to properly record
these matters in accordance with generally accepted accounting principles. The
net loss of the Company for the three-month period ended September 30, 2000,
increased from $7.9 million to $8.1 million with no effect on basic and diluted
net loss per share. The net loss of the Company for the nine-month period ended
September 30, 2000, increased from $26.3 million to $26.7 million causing an
increase in basic and diluted net loss per share of $.02 for the nine months
ended September 30, 2000.

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - RISK FACTORS

This Quarterly Report on Form 10-Q/A and the information incorporated
by reference may include "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. In
particular, we direct your attention to Item 1., Financial Statements, Item 2.,
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors and Item 3, Quantitative and Qualitative Disclosures
about Market Risk. We intend the forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements in these sections. All
statements regarding our expected financial position and operating results, our
business strategy, our financing plans and the outcome of any contingencies are
forward-looking statements. These statements can sometimes be identified by our
use of forward-looking words such as "may," "believe," "plan," "will,"
"anticipate," "estimate," "expect," "intend" and other phrases of similar
meaning. Known and unknown risks, uncertainties and other factors could cause
the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions.

Although we believe that our expectations expressed in these
forward-looking statements are reasonable, we cannot promise that our
expectations will turn out to be correct. Our actual results could be materially
different from our expectations, including the following:

o we may not be able to enter into a strategic alliance, obtain
a significant equity investment in the Company or arrange a
merger or sale of the Company or significant portions of its
business;

o we may lose members or fail to grow our member base;

o we may not successfully integrate new members or assets
obtained through acquisitions;

o we may fail to compete with existing and new competitors;

o we may not be able to sustain our current growth;

o we may not adequately respond to technological developments
impacting the Internet;

o we may fail to identify and correct problems associated with
system migration; and

o we may not be able to find needed financing.

This list is intended to identify some of the principal factors that
could cause actual results to differ materially from those described in the
forward-looking statements included elsewhere in this report. These factors are
not intended to represent a complete list of all risks and uncertainties
inherent in our business, and should be read in conjunction with the more
detailed cautionary statements included in this Quarterly Report on Form 10-Q/A
included in this section and "Item 3, Quantitative and Qualitative Disclosures
about Market Risk" and our other SEC filings and our press releases.

The following discussion of our financial condition and results of
operations for the three and nine months ended September 30, 2000 and 1999
should be read in conjunction with our condensed consolidated financial
statements, the notes related thereto, and the other financial data included
elsewhere in this Form 10-Q/A.

OVERVIEW

We commenced operations on June 25, 1997. The operations for the
period June 25, 1997 through May 1998 were limited to organizing quepasa.com,
raising operating capital, hiring initial employees and drafting a business
plan. From May 1998 to present, we were engaged primarily in content
development and acquisition. In May 1999, we launched our first media-based
branding and advertising campaign in the United States. Significant revenues
did not commence until the fourth quarter of 1999. For these reasons, we
believe that period-to-period comparisons of our operating results are not
meaningful and the results for any period should not be relied upon as an
indication of

future performance. We expect to continue to incur significant losses on a
quarterly and annual basis for the foreseeable future.

THE QUEPASA.COM COMMUNITY

quepasa.com is a Bilingual (Spanish/English) Internet portal and online
community launched in November of 1998, focused on the U.S. Hispanic market. We
provide users with information and interactive content centered around the
Spanish language. Because the language preference of many acculturated U.S.
Hispanics is English, we also offer our users the ability to access information
and services in the English language. We draw viewers to our Web site by
providing a one-stop destination for identifying, selecting and accessing
resources, services, content and information on the Web. Our online community
includes, in both Spanish and English, a search engine, free e-mail, news feeds,
chat rooms, message boards, auction and e-commerce sites. We anticipate that our
principal source of revenue will be fees paid by third parties for advertising
their products and services on our Web site, sponsorship revenue for specific
areas within our Web site, auction revenue from our recent acquisition of
eTrato.com, e-commerce revenues from our recent acquisitions of credito.com and
realestateespanol.com and through other acquisitions and partnerships.

The quepasa.com Web site currently offers a number of categories of
topical interest, including the following:

Noticias (News)
Etretenimiento (Entertainment)
Salud (Health)
Mundo Latino (Latino World)
Recetario (Recipe Box)
Compras (Shopping)
Negocios y Finanzas (Business & Finance)
Deportes (Sports)
Computadoras y Tecnologia (Science & Technology)
Empleo (Employment)
Educacion (Education)
Temas de Sociedad (People & Society)
Subastas (Auctions)

Search Engine. The quepasa.com search engine helps users find
information on the Web by searching through quepasa.com's index of Web
documents. Our search technology is provided by Inktomi which enables us to
provide customers with a variety of online search services.

Free E-Mail, Chat and Message Board Features. quepasa.com offers free
e-mail and free Web community services that consist of chat services and message
boards.

These features enable users to discuss topics of mutual interest by
participating in ongoing discussions or by creating their own topics for
discussion.

24-Hour Real-time News, Maps and Games. quepasa.com offers worldwide
news coverage from Associated Press, Reuters and Hispanic Business Magazine
including worldwide editorialized, topical news covering areas of special
interest to Hispanic users (in Spanish and English), as well as a Spanish and
English-language news feed that we format and edit internally to provide broad
coverage of news that is of special interest to Hispanic users. Our users are
also able to search a database of archived news stories over the prior 30-day
period. We were the first to offer maps and door-to-door driving directions in
both Spanish and English in connection with a partnership with MapQuest Global
Corporation and a bilingual "yellow-pages" directory through a partnership with
MapQuest.com Inc. We also offer several internally developed games on our Web
site for free.

Other Services. We offer our members unified messaging, PC-to-phone and
calling card services as part of an agreement with Net2Phone. Through an
agreement with GlobalEnglish Corporation we offer English language online
learning to our members, and through an agreement with X:Drive, we offer free
Internet hard drive space. The Company has entered into a partnership with
Insight Guides, providing quepasa.com users with online resources to learn more
about the rich U.S. Latino ethnic heritage. quepasa.com members will have online
access, in both English and Spanish, to Insight Guide's unique historical,
cultural and travel related content for many Latin American destinations. The
Company has also entered into a revenue generating alliance with StarTravel
Group, who operates a full service travel portal, StarTravel.com. Through this
agreement quepasa.com users can access StarTravel.com in both English and
Spanish. StarTravel.com is an e-commerce Internet travel portal specializing in
the delivery of travel services to the U.S. Hispanic and Latin American online
markets. Quepasa.com entered into a partnership with Telemundo Network Group and
the Los Angeles Police Department. Through this agreement, the Company will
feature content dedicated to creating awareness among the Latino community and
to solving crime.

ON-LINE AUCTIONS

On January 28, 2000 we acquired eTrato.com, an online trading community
developed especially for the Spanish language or bilingual Internet user, for an
aggregate purchase price of $10.85 million consisting of 681,818 shares of
common stock valued at $9.6 million, and assumption of a $1.25 million
promissory note. An additional 681,818 shares will be held in escrow pending the
outcome of certain revenue and website contingencies during the 6-month period
following the acquisition. eTrato.com is an online, auction community that:

o facilitates transactions from consumer-to-consumer,
business-to-consumer and business-to-business;

o links Hispanic buyers and sellers of goods and services;

o aids transactions with online tools for payment and
fulfillment; and

o provides a secure and easy to understand environment for
conducting e-business.

Members of the eTrato.com community can list products or services in
the site's online auction or classifieds section in Spanish, English or both. If
users request, eTrato.com will translate to either language, for a small fee.
Some of the features of the site include escrow payment services, customs and
shipping estimates and options, currency conversion tools, chat and discussion
forums, a trading resource center and directory, advanced auction functions such
as image hosting, user ratings and bulk item uploading and specialized
business-to-business areas with sealed bid and reverse auction formats.
eTrato.com has live online customer service in order to help users have a
positive first experience. We expect online auction revenue from the following
sources:

o revenue splits on the sale of value-added trading services
(e.g. escrow and freight forwarding);

o premium service fees and premium listing upgrades providing
the seller with more prominent ad space;

o the auctioning of our own products through the site;

o fees paid by third parties for advertising their products and
services on the site; and

o translation services.

ON-LINE FINANCING AND REAL ESTATE SERVICES

On January 28, 2000 we acquired credito.com, an online credit company
targeted to the U.S. Hispanic population for a purchase price of $8.4 million
consisting of 681,818 shares of common stock valued at $11 per share and
assumption of an $887,000 note payable. Contingent consideration consisted of
warrants to purchase 681,818 shares of common stock exercisable upon
credito.com's achievement of certain objectives related to gross revenue
targets.

Credito.com will provide our members with information, interactive
tools and resources to help them build and manage their credit needs and will
provide a secure and easy process to apply for a wide variety of credit products
and services. The site will also provide lenders with the opportunity to
communicate with credit educated customers using its consumer profiling and
marketing technologies. We will offer our members the

ability to apply for mortgage loans, credit cards, auto finance loans, home
equity loans and student loans.

On March 9, 2000, we acquired RealEstateEspanol.com, a real estate
services site providing the Hispanic-American community with bilingual home
buying services, for 335,925 shares of the Company's common stock valued at $3.0
million and assumption of $300,000 in debt paid immediately following the
closing of the acquisition. Contingent consideration consisted of 248,834 shares
of common stock which were held in escrow pending RealEstateEspanol.com's
achievement of gross revenue targets within 12 months of the date of the
agreement. RealEstateEspanol.com has been designated the official internet site
of the National Association of Hispanic Real Estate Professionals.
RealEstateEspanol.com's functionality has been incorporated into the quepasa.com
site and once fully developed will allow members to search for a real estate
agent, access school information, take virtual tours, apply for a mortgage, and
view homes for sale among the more than 800,000 online listings provided through
a partnership with homeseekers.com.

RESULTS OF OPERATIONS

INTRODUCTION

The Company derives its net revenues from three principal sources:
advertising on our Website; sales of sponsorships for different areas within our
Website; and e-commerce related revenue. The Company's principle expenses are:
Product and Content Development; Marketing and Advertising; General and
Administrative; and Amortization of Goodwill.

THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999 AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE
NINE MONTHS ENDED SEPTEMBER 30, 1999.

Our results of operations for the three and nine months ended September
30, 2000 and 1999 were characterized by increased expenses that more than offset
revenue growth during these periods. We reported a net loss of $8.1 million
(restated) for the three months ended September 30, 2000, compared to a net loss
of $8.3 million for the three months September 30, 1999 and reported a net loss
of $26.7 million (restated) for the nine months ended September 30, 2000,
compared to a net loss of $21.7 million for the nine months ended September 30,
1999. During the three and nine months ended September 30, 2000, we have
continued to enter into strategic partnerships, develop our content and
capitalize on our branding efforts and newly created sales force. As a result of
our marketing initiatives, including the NetZero partnership, our number of
registered users increased 23.5% to approximately 568,000 as of September 30,
2000 from 460,000 as of June 30, 2000. Approximately 45% of total user sessions
during the three months ended September 30, 2000 originated from the
quepasa.com/NetZero co-branded service. Advertising impressions increased 14%
during the three months ended September 30, 2000 to 190.3 million from 167.0
million for the three months ended June

30, 2000. As a result of the acquisitions of credito.com, eTrato.com and
RealEstateEspanol.com, the Company realized nominal revenue ($350) but incurred
approximately $505,000 in expenses during the third quarter 2000.

NET REVENUES

Net Revenue increased 508% to $776,368 (restated) for the three months
ended September 30, 2000 from $127,684 for the three months ended September 30,
1999. For the nine months ended September 30, 2000, net revenues increased 1663%
to $2.4 million (restated) from $136,127 for the nine months ended September 30,
1999. We launched our Web site in the fourth quarter 1998 and first generated
revenue during the second quarter 1999. During the nine months ended September
30, 2000, revenue was principally derived from two sources: 1) banner
advertising arrangements under which we receive revenue based on cost per
thousand ad impressions "CPM" and on cost per clicks and 2) sponsor agreements
which allow advertisers to sponsor an area or receive exclusivity on an area
within our Web site. For the three and nine months ended September 30, 2000,
approximately, 72% and 57% of the gross revenue was generated from banner
advertising and 28% and 43% was generated from sponsorship agreements. With the
exception of NewsSurfer.com, representing 20% of gross revenue for the three
months ended September 30, 2000, and Folgers and Star Travel representing 17%
and 13%, respectively, for the nine months ended September 30, 2000, no other
single advertiser utilizing banner ads or sponsorship agreements amounted to or
exceeded 10% of total gross revenue. During the three and nine months ended
September 30, 2000, we recognized $428,239 (restated) and $1.2 million
(restated) of barter revenue respectively, which is included in the amounts
noted above.

OPERATING EXPENSES

Product and Content Development Expenses. Our product and content
development expenses increased 100% to $1.6 million for the three months ended
September 30, 2000 from $799,000 for the three months ended September 30, 1999.
For the nine months ended September 30, 2000, Product and Content Development
Expenses increased 292% to $5.1 million from $1.3 million for the nine months
ended September 30, 1999. For the three and nine months ended September 30, 2000
and 1999, the period-to-period increase was principally attributable to an
increase in personnel costs relating to the development of content and
technological support, an increase in expenses for telecommunications links, and
an increase in third-party content and development expenses.

Advertising and Marketing Expenses. Our advertising and marketing
expenses decreased 32% to $4.2 million (restated) for the three months ended
September 30, 2000 from $6.2 million for the three months ended September 30,
1999. For the nine months ended September 30, 2000, Advertising and Marketing
Expenses increased 36% to $15.4 million (restated) from $11.3 million for the
nine months ended September 30, 1999. For the nine months ended September 30,
2000 and 1999, the

period-to-period increase was principally attributable to an increase in
marketing and sales personnel costs, an increase in the amortization of
advertising agreements and the initial expenditures related to the NetZero
campaign comprised of production expenses, CD distribution and other related
expenses.

General and Administrative Expenses. Our general and administrative
expenses decreased 26% to $1.4 million for the three months ended September 30,
2000 from $1.9 million for the three months ended September 30, 1999. For the
nine months ended September 30, 2000, General and Administrative Expense
decreased 51% to $4.8 million from $9.7 million (restated) for the nine months
ended September 30, 1999. The period-to-period decreases were principally
attributable to a decrease in stock based compensation and the reduction in
workforce partly offset by increases in professional fees, depreciation, and
increase in other office and related expenses.

Amortization of Goodwill. During the nine months ended September 30,
2000, the Company completed the acquisition of eTrato.com, credito.com and
RealEstateEspanol.com. These three acquisitions were accounted for using the
purchase method of accounting. The Company recorded approximately $21 million of
goodwill in relation to these acquisitions, which is being amortized over a
period of three years. Amortization of goodwill amounted to $1.8 and $4.6
million for the three and nine months ended September 30, 2000.

Other income (expense), which primarily consists of interest income,
unrealized gains or losses and short-term gains or losses on trading securities,
offset by interest expense, decreased 58% to $189,000 for the three months ended
September 30, 2000 from $449,000 for the three months ended September 30, 1999.
For the nine months ended September 30, 2000, other income (expense) increased
170% to $903,000 from $335,000 for the nine months ended September 30, 1999.
This change resulted primarily from interest income and short-term gains on
trading securities purchased with the remaining proceeds of the June 1999
initial public offering.

On May 9, 2000 the Company announced that it would reduce its workforce
by approximately one third as part of management's effort to further enhance the
Company's competitive position and utilize its assets more efficiently. The
Company's workforce was 104 as of March 31, 2000, and has been reduced to 59 as
of the end of September 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

We have substantial liquidity and capital resource requirements, but
limited sources of liquidity and capital resources. We have generated net losses
and negative cash flows from our inception and anticipate that we will
experience substantial and increasing net losses and negative cash flows for at
least the next several years. As we implement our strategy, we anticipate that
our liquidity and capital resource requirements will increase significantly.

From our inception to date, we have relied principally upon equity
investments to support the development of our business. We have retained the
investment banking firm of Friedman, Billings, Ramsey & Co., Inc. to explore
alternatives including strategic alliances, significant equity investments in
the Company or a merger or the sale of the Company or significant portions of
its business. To date the Company has not executed a merger or sale of a portion
or all of its business.

As of September 30, 2000, we had $2.3 million in cash and cash
equivalents and $7.2 million in short-term investments. These resources are
principally the remaining funds generated from our June 24, 1999 Initial Public
Offering, which raised approximately $42.4 million, net of offering costs and an
additional $6.3 million, net of offering costs, from the exercise in July 1999
of an option granted to our underwriters to cover overallotments from the IPO.
In March 2000, Gateway purchased a 7.6% equity stake in the Company for $9
million (restated).

Net cash used in operating activities was $11.8 million (restated) for
the nine months ended September 30, 2000 as compared to $41.4 million for the
nine months ended September 30, 1999. The decrease in net cash used by
operations for the nine months ended September 30, 2000 was primarily due to the
sale of trading securities of $14.9 million during the nine months ended
September 30, 2000 versus the net purchase of securities of $27.8 million
(restated) during the nine month period ended September 30, 1999, partially
offset by, an increase in other assets principally due to the purchase of
computers pursuant to the Gateway agreement, and a decrease in stock based
compensation.

Net cash provided by investing activities increased by $1.8 million to
$100,000 (restated) for the nine months ended September 30, 2000 as compared to
the nine months ended September 30, 1999. The increase is primarily attributed
to a decrease in the purchase of fixed assets of $1.4 million and the net cash
received from acquisitions during the nine month period ended September 30, 2000
as compared to the nine month period ended September 30, 1999.

Net cash provided by financing activities was $7.0 million (restated)
for the nine months ended September 30, 2000 and $50.5 million for the nine
months ended September 30, 1999. The decrease is primarily attributed to the
proceeds generated from our June 24, 1999 Initial Public Offering, which raised
approximately $42.4 million, net of offering costs. During the nine months ended
September 30, 2000, Gateway purchased a 7.6% equity stake in the Company, which
was partially offset by the repayment of long-term notes payable and accrued
interest.

Currently, we have commitments under non-cancelable operating leases
for office facilities and equipment requiring payments of $177,000 for the
remainder of 2000. We are required to pay $125,000 for the remainder of 2000
pursuant to the terms of our search technology licensing agreement with Inktomi
which extends through September 2001. The Inktomi agreement may require
additional payments based upon the level of

use; however, we believe the additional payments, if any, will not be material.
Including the Inktomi agreement, we are obligated to pay approximately $619,000
for the remainder of 2000 for technology and content used on our Web site
portal furnished by service providers such as Reuters, Zacks, Associated Press,
STATS, Inc., EFE News Services. We have paid an annual fee of $1.5 million
under our sponsorship agreement with the Arizona Diamondbacks for the 2000
baseball season. In addition, the Company entered into a one-year agreement
with NetZero, Inc. ("NetZero"), where they will provide free internet access
along with our content to the U.S. Hispanic market. According to the terms of
this agreement, we are obligated to pay a fee for their subscribers who access
our Web site. This fee ranges from $.10 to $.15 per user session. We also
committed to spend at least $1.0 million for the production and distribution of
CD's containing the customized NetZero service. This commitment was fulfilled
in the first quarter of 2000. We recognize the expense related to advertising,
content and technology agreements in a manner consistent with the timing of the
services provided for under the terms of the respective agreements. Generally,
the services are received evenly over the terms of the agreements.

We expect to continue to incur costs, particularly sales, marketing and
advertising costs, product content and development costs, general and
administrative costs and technology and equipment purchase costs during the
fourth quarter of 2000 in order to execute our strategic objectives. We expect
to expend the largest portion of our existing capital on sales, marketing and
advertising expenses and product content and development costs and do not expect
sufficient revenue to be realized to offset these costs. We believe that our
cash on hand, along with our planned cost cutting measures, will be sufficient
to meet our working capital and capital expenditure needs through the second
quarter of 2001, however, we believe it will be necessary for us to raise
additional capital to ensure our continued operations beyond the second quarter
of 2001. In the event we are not able to raise capital our ability to continue
operations will be severely impacted and could include a significant reduction
in our advertising spending, a reduction in our personnel and other spending
cuts which could have an adverse effect on the Company. On May 9, 2000 the
Company announced that it would reduce its workforce by approximately one third
as part of management's effort to further enhance the Company's competitive
position and utilize its assets more efficiently. Our workforce was 104 as of
March 31, 2000 and was reduced to 59 as of September 30, 2000. On November 14,
2000, the Company announced a further reduction of its workforce in order to
conserve its remaining cash as it continues to consider its strategic
alternative. The Company's workforce has been reduced from 58 to 20 employees.
There can be no assurance that we will be successful in raising the necessary
funds or that these funds will be on terms which are beneficial to us.

SYSTEM ISSUES

We have successfully completed our migration from a Windows NT-based
platform to a Sun Solaris-based platform in March of 2000. We depend on the
delivery of information over the Internet, a medium that depends on information
contained primarily in electronic format, in databases and computer systems
maintained by third parties and

us. A disruption of third-party systems or our systems interacting with these
third party systems could prevent us from delivering search results or other
services in a timely manner, which could materially adversely affect our
business and results of operations.

ACCOUNTING MATTERS

The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin (SAB) 101, Revenue Recognition in Financial Statements, in December
1999. The SAB summarizes certain of the SEC staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In June 2000, the SEC issued SAB 101B, which delays the implementation date of
SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning
after December 15, 1999. The Company does not believe that adoption of this SAB
will have a material impact on its financial statements.

RISK FACTORS

You should carefully consider the risks described below.

OUR OPERATING HISTORY IS EXTREMELY LIMITED

We were incorporated in June 1997 and have generated no significant
revenue to date. Accordingly, we have no operating history upon which an
investor can evaluate us, and our prospects are subject to the risks and
uncertainties encountered by companies that are in the early stages of operation
and particularly companies which operate in the new and rapidly evolving
Internet market.

These risks include, among others, our ability to:

o enter into a strategic alliance, obtain a significant equity
investment in the Company or arrange a merger or sale of the
Company or significant portions of its business;

o expand the contents and services on our Web site;

o maintain and increase levels of traffic on our Web site;

o increase awareness of our quepasa.com brand;

o attract advertisers and sponsors to our Web site;

o generate significant revenues from e-commerce;

o respond effectively to competitive pressure;

o maintain our current, and develop new, strategic
relationships;

o recruit and retain personnel, including sales, content and
technology personnel; o anticipate and adapt to developing
markets;

o upgrade and develop our systems and infrastructure;

o respond to any failure of our network and to handle
efficiently our Web traffic; and

o manage our rapidly expanding operations.

If we are unsuccessful in addressing these and other risks, our
business, financial condition and results of operations will be materially and
adversely affected.

WE EXPECT FUTURE LOSSES AND WILL NEED MORE CAPITAL

We have never been profitable. As of September 30, 2000, we had an
accumulated deficit of approximately $62.4 million (restated). Our limited
operating history and the uncertainty of the Internet market in which we operate
our business make any prediction of our future results of operations difficult
or impossible. We expect to make significant expenditures in marketing and
advertising and content development. We also expect our expenses to increase
from the acquisitions of eTrato.com, credito.com and realestateespanol.com. We
do not expect that our revenue will cover our expenses in the foreseeable
future. As a result, we will continue to incur significant losses and will need
to raise additional capital. In addition, because we have generated negligible
revenue and have incurred significant operating losses to date we have reduced
our workforce by approximately 80% in order to utilize our limited capital and
assets more efficiently. As a result of the reduction in our workforce, our
ability to execute our business plan and our business may be materially and
adversely affected. Further, in the event we fail to generate improved revenue
in the near future, we may be required to further reduce our workforce, curtail
our operations and raise additional capital. We cannot assure that we will be
able to raise additional capital and we do not know what the terms of such
capital raising would be. Any future sale of our equity securities would dilute
the ownership and control of our stockholders.

IF WE FAIL TO CONSUMMATE A STRATEGIC BUSINESS TRANSACTION, OUR BUSINESS AND OUR
CONTINUED VIABILITY MAY BE ADVERSELY AFFECTED

We have retained the investment banking firm of Friedman, Billings,
Ramsey & Co. Inc. to consider strategic business alternatives in an effort to
further enhance our competitive position and maximize shareholder value.
Friedman, Billings, Ramsey & Co., has been authorized to consider a number of
strategic alternatives including strategic alliances, significant equity
investments in our company, and a merger or the sale of our company or
significant portions of our business. To date, the Company has not executed a
merger or sale of a portion or all of the business. There is no assurance that
any

transaction will be consummated or that any transaction that is approved and
consummated will effectively enhance our competitive position or maximize
shareholder value. If we are unable to consummate an acceptable strategic
business transaction, our business and our continued viability may be
materially and adversely affected.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH ACQUISITIONS

In the first quarter of 2000, we acquired the stock of three companies.
As part of our long-term business strategy, we continually evaluate strategic
acquisitions of businesses. Acquisitions often involve a number of special
risks, including the following:

o we may experience difficulty integrating acquired operations
and personnel;

o we may be unable to retain acquired subscribers;

o the acquisition may disrupt our ongoing business;

o we may not be able to successfully incorporate acquired
technology and rights into our offerings and maintain uniform
standards, controls, procedures, and policies;

o the businesses we acquire may fail to achieve the revenues and
earnings we anticipated;

o we may ultimately be liable for contingent and other
liabilities, not

o previously disclosed to us, of the companies that we acquire;
and

o our resources may be diverted in asserting and defending our
legal rights.

We may not successfully overcome problems encountered in connection
with our recent and potential future acquisitions. In addition, an acquisition
could materially adversely affect our operating results by:

o causing us to incur additional debt;

o forcing us to accelerate amortization of expenses related to
goodwill and other intangible assets; and

o diluting our stockholders' ownership interest.

OUR STOCK PRICE IS HIGHLY VOLATILE

In the past, our common stock has traded at volatile prices and it has
closed below $1.00 since September 27, 2000. We believe that the market price of
our common stock will continue to be subject to significant fluctuations due to
various factors and events that may be unrelated to our performance. If the
market value of our common stock continues to close below $1.00, we could be
delisted from the Nasdaq National Market. Consequently, you could find it
difficult or impossible to sell your stock or to determine the value of your
stock.

In addition, the stock market has from time to time experienced
significant price and volume fluctuations, which have particularly affected the
market prices of the stocks of Internet-sector companies and which may be
unrelated to the operating performance of such companies. Furthermore, our
operating results and prospects from time to time may be below the expectations
of public market analysts and investors. Any such event could result in a
material decline in the price of your stock.

WE WILL BE UNABLE TO GENERATE SUFFICIENT REVENUE IF OUR TARGET AUDIENCE DOES NOT
ACCEPT OUR PRODUCTS AND SERVICES

We have been promoting our site for less than two years and we cannot
give assurances that the Spanish-speaking population will accept our products
and services or that we will attract repeat users to our Web site. Because the
market for our products and services is new and evolving, it is difficult to
predict the future growth rate, if any, and the size of the market we have
targeted. If the market develops more slowly than we expect or becomes saturated
with competitors, or if our products and services are not accepted by the
market, we will be unable to generate enough revenue to offset our expenses and
to earn profits.

OUR INABILITY TO MAINTAIN THE QUEPASA.COM BRAND WILL SIGNIFICANTLY REDUCE OUR
REVENUE

We believe that maintaining the quepasa.com brand is of critical
importance to our efforts to attract and expand our user base and our
advertising, sponsorships and e-commerce revenues. We also believe that brand
recognition will become more important due to the increasing number of Internet
sites. Promotion and enhancement of the quepasa.com brand will depend largely on
our success in providing high quality products and services and Web site content
that is of interest to the worldwide Spanish-speaking population. We cannot
assure that success. Failure to develop brand loyalty among our users could
result in our being unable to generate enough revenue to offset our expenses and
to earn profits.

WE WILL BE ADVERSELY AFFECTED IF THE INTERNET DOES NOT BECOME A MORE WIDELY
ACCEPTED MEDIUM FOR ADVERTISING AND E-COMMERCE

We will need revenue from the sale of advertisements and sponsorships
on our Web pages and from e-commerce transactions to offset expenses. At the
present time,

Web advertisers generally enter into only short-term advertising contracts.
Because Web site advertising is a new phenomenon, few advertisers have
significant experience with the Web as an advertising medium. Consequently,
many advertisers have not devoted a substantial portion of their advertising
expenditures to Web-based advertising, and may not find Web-based advertising
to be effective for promoting their products and services as compared to
traditional print and broadcast media.

No standards have yet been widely accepted for the measurement of the
effectiveness of Web-based advertising, and we can give no assurance that such
standards will be developed or adopted sufficiently to sustain Web-based
advertising as a significant advertising medium. We cannot give assurances that
banner advertising, the predominant revenue producing mode of advertising
currently used on the Web, will be accepted as an effective advertising medium
or that we can effectively transition to any other forms of Web-based
advertising, should they develop. Software programs are available that limit or
remove advertisements from an Internet user's desktop. This software, if
generally adopted by users, may materially and adversely affect Web-based
advertising.

OUR WEB SITE OPERATIONS COULD BE IMPAIRED IF WE LOSE THE SERVICES OF THIRD PARTY
TECHNOLOGY AND CONTENT PROVIDERS

Our business depends upon third parties, including providers of
technology, infrastructure, content and features.

We supplement our Web site directory listings with Web search results
provided by Inktomi under a non-exclusive agreement. We depend upon Inktomi for
ongoing maintenance and technical support to ensure accurate and rapid
presentation of search results to users of our Web site. Termination of our
relationship with Inktomi or Inktomi's failure to renew our agreement upon
expiration could result in substantial additional costs to us in developing or
replacing technology. We also rely on GTE for our Internet and Critical Path for
our e-mail connections. Any interruption in the Internet access provided by GTE
or any other provider of access could disrupt our Web site operations and impair
relations with our users.

We license content, including technology and related databases, from
third parties for portions of our quepasa.com Web site, including news from
Associated Press, Reuters, Hispanic Business and EFE News Services, stock quotes
and other stock information from Zacks Investment Research and sports scores and
statistics from STATS, Inc. Any errors, delays or failures experienced in
connection with these third party technologies and services could have a
negative effect on our relationship with users of our Web site, could materially
and adversely affect our brand and our business and could subject us to
liability to third parties for business negligence such as defamation or libel.

SYSTEM FAILURE COULD DISRUPT OUR WEB SITE OPERATIONS

The continued and uninterrupted performance of our hardware and
software is critical to our reputation and our success in attracting traffic to
our Web site. Users of our site and our services, such as our e-mail services,
may become dissatisfied by system failures that may limit our Web site services.
Sustained or repeated system failures could significantly reduce the traffic on
our Web site and may impair our reputation and brand name. Our operations depend
on our ability to protect our computer systems from damage from fire, power
loss, water damage, telecommunications failures, vandalism and other malicious
acts, and similar unexpected adverse events. The number of pages of information
transmitted over our network, commonly referred to as "page views," has
continued to increase over time. We are actively trying to increase our level of
page views. As a result, our network must accommodate a high volume of traffic,
often at unexpected times. We have experienced periodic capacity constraints in
terms of our ability to serve our increasing user volumes. We have migrated our
platform and our applications to a Unix platform using Sun Microsystems servers.
Any break in the continuous operations of our network could have a material
adverse effect on our operating expenses, our brand and our business.

We may, from time to time, experience interruptions due to several
factors including hardware failures, unsolicited bulk e-mail and operating
system failures. Because our revenues depend on the number of users of our
network, we will be adversely affected if we experience frequent or long system
delays or interruptions. If delays or interruptions continue to occur our users
could perceive our network as being unreliable, traffic on our Web site could
deteriorate and our brand could be adversely affected. Any failure on our part
to minimize or prevent capacity constraints or system interruptions could have
an adverse effect on our brand and our business.

We may not carry enough business interruption insurance to compensate
for losses that may occur as a result of any of these adverse events. We also
depend upon Internet browsers and Internet service providers that provide users
with access to the Internet and our Web site. Users may experience difficulties
due to system failures unrelated to our systems. Any disruption in Internet
access by Internet service providers and other third party access providers, or
any failure of such providers to handle higher volumes of user traffic, could
disrupt our Web site operations and impair relations with our users.

OUR MANAGEMENT IS INEXPERIENCED AND MAY NOT BE ABLE TO MANAGE OUR GROWTH

Several executive officers and members of our board of directors joined
us in 1999, and none of our executive officers has extensive experience managing
a rapidly growing business enterprise prior to joining the company. Any growth
we experience will place a significant strain on our management and financial
resources. Any inability of our management to manage growth effectively could
increase our operating expenses, impair our marketing efforts and limit the
development of our Web site.

GROWTH OF OUR WEB SITE MAY BE LIMITED BY GOVERNMENTAL REGULATIONS

Government regulation has not materially restricted use of the Internet
in our markets to date. However, the legal and regulatory environment pertaining
to the Internet remains relatively undeveloped and may change. New laws and
regulations could be adopted, and existing laws and regulations could be applied
to the Internet and, in particular, to e-commerce. New laws and regulations may
be adopted with respect to the Internet covering, among other things, sales and
other taxes, user privacy, pricing controls, characteristics and quality of
products and services, consumer protection, cross-border commerce, libel and
defamation, intellectual property matters and other claims based on the nature
and content of Internet materials. Any laws or regulations adopted in the future
affecting the Internet could subject us to substantial liability. Such laws or
regulations could also adversely affect the growth of the Internet generally,
and decrease the acceptance of the Internet as a communications and commercial
medium. In addition, the growing use of the Internet has burdened the existing
telecommunications infrastructure. Areas with high Internet use relative to the
existing telecommunications structure have experienced interruptions in phone
service leading local telephone carriers to petition regulators to govern
Internet service providers and impose access fees on them. Such regulations, if
adopted in the United States or other places, could increase significantly the
costs of communicating over the Internet, which could in turn decrease the
demand for our products and services. The adoption of various proposals to
impose additional taxes on the sale of goods and services through the Internet
could also reduce the demand for Web-based commerce.

WE MAY FACE LIABILITY FOR INFORMATION CONTENT AND COMMERCE-RELATED ACTIVITIES

Because materials may be downloaded by the services that we operate or
facilitate and the materials may subsequently be distributed to others, we could
face claims for errors, defamation, negligence, or copyright or trademark
infringement based on the nature and content of such materials. We could also be
exposed to liability because of the listings that we select and make available
through our Web site, or through content and materials posted by users in chat
room and message board services that we provide. We could face personal injury
or other product liability claims arising from the use of products sold through
our Web site. We offer e-mail services, which expose us to potential liabilities
or claims resulting from unsolicited e-mail, lost or misdirected messages,
illegal or fraudulent use of e-mail or interruptions or delays in e-mail
service. Even to the extent that claims made against us do not result in
liability, we may incur substantial costs in investigating and defending such
claims.

Although we carry general liability insurance, our insurance may not
cover all potential claims to which we are exposed or may not be adequate to
indemnify us for all liabilities that may be imposed. Any imposition of
liability that is not covered by insurance or is in excess of insurance coverage
could have a material adverse effect on our financial condition. In addition,
the increased attention focused on liability issues as a result of these
lawsuits and legislative proposals could impact the overall growth of Internet
use.

CONCERNS ABOUT SECURITY OF E-COMMERCE TRANSACTIONS AND CONFIDENTIALITY OF
INFORMATION ON THE INTERNET MAY REDUCE THE USE OF OUR WEB SITE AND IMPEDE OUR
GROWTH

A significant barrier to e-commerce and confidential communications
over the Internet has been the need for security. Internet usage could decline
if any well-publicized compromise of security occurred. We may incur significant
costs to protect against the threat of security breaches or to alleviate
problems caused by these breaches. Unauthorized persons could attempt to
penetrate our network security. If successful, they could misappropriate
proprietary information or cause interruptions in our services. As a result, we
may be required to expend capital and resources to protect against or to
alleviate these problems. Security breaches could have a material adverse effect
on our business, financial condition and results of operations.

COMPETITION FOR INTERNET USERS MAY LIMIT TRAFFIC ON, AND THE VALUE OF, OUR WEB
SITE

The market for Internet products and services and the market for
Internet advertising and electronic commerce arrangements are extremely
competitive, and we expect that competition will continue to intensify. There
are many companies that provide Web sites and online destinations targeted to
Spanish-language Internet users. Competition for visitors, advertisers and
e-commerce partners is intense and is expected to increase significantly in the
future because there are no substantial barriers to entry in our market. We
believe that the principal competitive factors in these markets are name
recognition, distribution arrangements, functionality, performance, ease of use,
the number of services and features provided and the quality of support. Our
primary competitors are other companies providing portal or other online
services, especially to Spanish-language Internet users such as StarMedia, Terra
Network, El Sitio, Yahoo! Espanol, America Online Latin America, Yupi, Prodigy
and Microsoft networks in Latin America, Mexico and Spain. Most of our
competitors, as well as a number of potential new competitors, have
significantly greater financial, technical and marketing resources than we do.
Our competitors may offer Internet products and services that are superior to
ours or that achieve greater market acceptance. There can be no assurance that
competition will not limit traffic on, and the value of, our Web site.

TECHNOLOGICAL CHANGES COULD IMPAIR OUR ABILITY TO COMPETE AND SUBJECT US TO
SIGNIFICANT EXPENDITURES

The market for Internet products and services is characterized by rapid
technological developments, frequent new product and service introductions and
evolving industry standards. The emerging character of these products and
services and their rapid evolution will require that we continually improve the
performance, features and reliability of our Internet content, particularly in
response to competitive offerings. There can be no assurance that we will be
successful in responding quickly, cost effectively and sufficiently to these
developments. In addition, the widespread adoption of new Internet technologies
or standards could require substantial expenditures by us to modify or adapt our
Web site and services and could fundamentally affect the character, viability
and

frequency of Web-based advertising, either of which could have a material
adverse effect on our business. In addition, new Internet services or
enhancements offered by us may contain design flaws or other defects that could
require costly modifications or result in a loss of consumer confidence.

WE HAVE NO INTENTION TO PAY DIVIDENDS

We have never paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in our business and do not
expect to pay any dividends in the foreseeable future.

FUTURE SALES OF OUR COMMON STOCK OR SHARES ISSUABLE UPON EXERCISE OF STOCK
OPTIONS COULD ADVERSELY AFFECT OUR STOCK PRICE AND OUR ABILITY TO RAISE FUNDS IN
NEW STOCK OFFERINGS

As of the date of the original filing, we had 18,693,942 shares of
common stock outstanding. Sale of substantial amounts of common stock, or the
perception that sales could occur, could reduce the market price of the common
stock. At that time, there were outstanding stock options or common stock
purchase warrants to acquire 5,187,293 shares of common stock at exercise prices
ranging from $1 to $16.65 per share, including 2,081,818 common stock purchase
warrants subject to demand and piggy-back registration rights.

EMPLOYEES

As of September 30, 2000, we had 59 employees, including our four
executive officers.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We do not have any derivative financial instruments as of September 30,
2000. Our interest income is sensitive to changes in the general level of
interest rates. In this regard, changes in interest rates can affect the
interest earned on our cash equivalents. To mitigate the impact of fluctuations
in interest rates, we generally enter into fixed rate investing arrangements. As
a result, we believe that the market risk arising from holdings of our financial
instruments is not material.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 5. OTHER INFORMATION

On November 14, 2000, the Company announced a further reduction of its
workforce in order to conserve its remaining cash as it continues to consider
its strategic alternatives. The Company's workforce has been reduced from 58 to
20 employees. The Company also announced that it is now actively pursuing the
sale of one or more of its subsidiaries: RealEstateEspanol.com, Etrato.com and
Credito.com. For more information, see Exhibit 99.1 to this Report on Form 10-Q.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. The exhibits listed in the accompanying Index to Exhibits are filed
as part of this Report on Form 10-Q/A.

b. Reports on Form 8-K: None.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of
Phoenix, state of Arizona, on August 15, 2001.

quepasa.com, inc.

By: /s/ Gary L. Trujillo
-----------------------------------------

Name: Gary L. Trujillo
Title: President, Chief Executive Officer

and Chairman of the Board of Directors

(Principal Executive Officer)

By: /s/ Robert J. Taylor
-----------------------------------------

Name: Robert J. Taylor

Title: Chief Financial Officer

EXHIBIT INDEX

EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS

10.1 Third Amended and Restated Employment Agreement with Juan C.
Galan (1)

27.1 Financial Data Schedule (1)

99.1 Press Release dated November 14, 2000 (1)

(1) Previously filed with the Registrant's Quarterly Report on Form 10-Q
dated November 14, 2000.