##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-KSB/A (Amendment No. 1)
 (Mark One) þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period  to Commission file number 0-27751 WQN, INC.  Delaware
    
    75-2838415(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 14911 Quorum Drive, Suite 140, Dallas, Texas
    
    75254(Address of principal executive offices)
    
    (Zip Code)
 Issuers telephone number, including area code: (972) 361-1980 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the
issuer was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES þ NO Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B
contained herein, and none will be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. o The issuers revenues for its most recent fiscal year were: $15,263,806. The aggregate market value of the voting common stock held by non-affiliates of the issuer, based
on the closing sales price of $3.08 per share, was $9,354,413 as of December 31, 2004. At March 31, 2005, the registrant had outstanding 6,878,062 shares of par value $.01 common stock. DOCUMENTS INCORPORATED BY REFERENCE There are no documents incorporated by reference herein Transitional
Small Business Disclosure Format (check one):
Yes o       No þ EXPLANATORY NOTE The Registrant is filing this Amendment No. 1 to its Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission on March 31, 2005 solely for the purpose of providing
information required by Part III of Form 10-KSB. Unless otherwise expressly stated, this Amendment
No. 1 does not reflect events occurring after the filing of the original Form 10-KSB, or modify or
update in any way disclosures contained in the original Form 10-KSB.




---



##### Table of Contents



TABLE OF CONTENTS PART III Item
    
    
    
    Page9.
    
    Directors and Executive Officers of the Registrant; Compliance with Section 16(a) of the Exchange Act
    
    310.
    
    Executive Compensation
    
    611.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    812.
    
    Certain Relationship and Related Transactions
    
    914.
    
    Principal Accountant Fees and Services
    
    9Certification of CEOCertification of CFO
 2




---



##### Table of Contents



ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT. The following table provides information as of April 29, 2004, with respect to our directors
and executive officers: Served as ExecutiveOfficer orName
    
    Age
    
    Position
    
    Director SinceDirector NomineesB. Michael Adler
    
    
    57
    
    
    Director, President
and Chief Executive
Officer
    
    
    1996Robert A. Farmer(1) (2) (3)
    
    
    66
    
    
    Chairman of the Board
    
    
    2000E. Denton Jones(1)(3)
    
    
    53
    
    
    Director
    
    
    1999Elizabeth H. Buchler(1) (2) (3)
    
    
    55
    
    
    Director
    
    
    2000Hal H. Bibee(2) (3)
    
    
    52
    
    
    Director
    
    
    2004Executive OfficersVictor E. Grijalva
    
    
    40
    
    
    Vice President,
Chief Financial
Officer, Secretary
and Treasurer
    
    
    2001
   (1)
    
    Member of the Compensation Committee.(2)
    
    Member of the Audit Committee.(3)
    
    Member of the Nominating Committee. B. Michael Adleris the founder of WQN and was our Chairman of the Board from our inception in
1996 through March 2004. Mr. Adler has been our Chief Executive Officer and President since March
2004. Mr. Adler also served as our Chief Executive Officer from 1996 to 2001. Mr. Adler was a
director of Intellicall, Inc., a publicly traded public access communications company, until its
merger with Wireless WebConnect!, Inc. on March 30, 2001. Mr. Adler founded Intellicall in 1984
and served as Chairman or Vice Chairman of the Board from its inception until November 1993. From
November 1993 until July 1999, Mr. Adler was the Chairman of the Board of The Payphone Company
Limited, a company that installs and owns a wireless pay phone network in Sri Lanka. For
approximately the last eight years, he has been the Chief Executive Officer of Eagle Venture
Capital, LLC, a Delaware limited liability company, formerly known as WorldQuest Networks, LLC. Robert A. Farmerhas been our Chairman of the Board since March 2004. Mr. Farmer has been
Chief Executive Officer and Chairman of the Board of Advanced Multimedia Group, Inc., a privately
held Internet incubator and consulting firm, since November 1999. From August 1994 until March
1999 he was Consul General of the United States to Bermuda. Mr. Farmer has been a director of WQN
since August 2000. E. Denton Joneshas been a private investor since August 2002. Prior to that, Mr. Jones was
Chairman of the Board and Chief Executive Officer of New York City Telecommunications Company,
Inc., a privately held telecommunications company, since he co-founded it in June 1993. Mr. Jones
has been involved in the telecommunications industry since 1984 and owned or operated several
privately held telecommunications companies during that time prior to co-founding New York City
Telecommunications. These companies were Altus Communications, Inc., MSC Services, Inc., MSC
National, Inc. and NYLT, Inc. (formerly known as New York Local Telephone, Inc.). He has been a
director of WQN since July 1999. 3




---



##### Table of Contents



Elizabeth H. Buchlerhas been the owner and principal broker of Real Estate Showcase, a real
estate sales and management firm since 1985. She has been active in the real estate business since
1971 and has served as an officer for the
Louisiana Real Estate Commission and various state and local realtor boards. She has been a
director of WQN since December 2000. Hal H. Bibeehas been our chairman of the audit committee since October 2004. He has been
involved with telecommunications since 1984. Since 2003, Mr. Bibee has been chief financial officer
and partner of Parkway Properties, which develops and operates state-of-the art storage facilities.
In 2000, he became chief executive officer of INTELLICAD, LLC, an engineering, design, drafting,
and consulting telecommunications firm that specializes in the design of hybrid fiber/coax and
fiber to the unit telecommunications systems. In 1998, Mr. Bibee became a general partner of ASETZ,
a diversified real estate development and investment company. Additionally, in 1998 he served as
chief executive officer for FiberLink, LLC, an engineering, construction, and consulting
telecommunications firm that specializes in constructing telecommunications systems to compete with
existing CATV providers. From 1995 to 2000, Mr. Bibee was chief executive officer Better Choice
TV, Inc., which was formed to pursue the acquisition and development of wireless telecommunications
systems. He has been a director of WQN since October 2004. Executive Officers Victor E. Grijalvajoined WQN in June 2001 as the Vice President, Chief Financial Officer,
Secretary and Treasurer. From May 2000 to February 2002, he served as Vice President and Chief
Financial Officer of Trinity e-Ventures, Inc., a wholly-owned subsidiary of Trinity Industries,
Inc., which launched companies to develop innovative technology and internet solutions for the
industrial sector. From May 1999 to May 2000, he served as Senior Vice President and Chief
Financial Officer of MH2 Technologies, Ltd., a leading provider of technology solutions and
wireless applications designed to manage the residential and light commercial construction process.
Prior to May 1999, he held various management positions at PricewaterhouseCoopers, LLP, where he
served in the Houston, London, Denver and Dallas offices providing management and business advisory
services. Board of Directors and Committees of the Board Our Board of Directors has a Compensation Committee, an Audit Committee and a Nominating
Committee. During 2004, the Board of Directors held twelve meetings, the Audit Committee held five
meetings, the Compensation Committee held one meeting and the Nominating Committee held one
meeting. No director attended fewer than 75 percent of the meetings held by the Board or the
committees on which he or she served during the 2004 fiscal year. Compensation Committee. The Compensation Committee is responsible for recommending to the
Board of Directors all officer salaries, management incentive programs and bonus payments. Its
current members are Messrs. Jones and Farmer and Ms. Buchler. Audit Committee. The Audit Committee recommends the firm to be appointed as independent
public accountants to audit WQNs financial statements and to perform services related to the
audit; reviews the scope and results of the audit with the independent public accountants; reviews
the Companys year-end operating results with management and the independent public accountants;
considers the adequacy of WQNs internal accounting and control procedures; reviews the non-audit
services to be performed by the independent public accountants, if any; and evaluates the
accountants independence. The Audit Committee is governed by a written charter approved by the
Board. Its members are Mr. Farmer, Mr. Bibee and Ms. Buchler. Mr. Bibee is an independent director
(as defined in the Nasdaq Market Rules and in Item 7(d)(3)(iv) of Schedule 14A under the Exchange
Act) and a financial expert within the meaning of Item 401(e) of Regulation S-B. Nominating Committee. The Nominating Committee identifies and recommends director
nominees to be elected by the Companys stockholders in connection with each annual meeting. The
Nominating Committee is also responsible for recommending to the Board membership on standing Board
committees and for identifying and recommending director appointees to take office between annual
meetings. 4




---



##### Table of Contents



The Nominating Committee evaluates each candidate, including incumbents, based on the same
criteria. In reviewing potential candidates for the Board, the committee considers each nominees
personal and professional integrity, experience, skills, ability and willingness to devote the time
and effort necessary to be an effective Board member. The Nominating Committee will also consider
the Boards having an appropriate mix of backgrounds, skills and qualifications, the qualities and
skills that the committee believes are necessary for one or more of the Companys directors to
possess and standards for the overall structure and composition of the Companys Board. The Nominating Committee is governed by a written charter approved by the Board which is
attached as Appendix B. Its current members are Messrs. Jones, Bibee and Farmer and Ms. Buchler.
Each member of the Nominating Committee is independent for purposes of the Nasdaq Marketplace
Rules. Director Compensation. We pay our non-employee directors annual compensation of $20,000 for
their services. We pay our Chairman of the Board annual compensation of $35,000 for his services.
In addition, non-employee directors receive a fee of $1,000 for each meeting attended.
Non-employee directors attending any committee meeting receive an additional fee of $1,000 for each
committee meeting attended, unless the committee meeting is held on the day of a meeting of the
Board of Directors, in which case they receive no additional compensation for attending the
committee meeting. Non-employee directors are also reimbursed for reasonable costs and expenses
incurred for attending any director or committee meetings. Our officers who are directors are not
paid any director fees. Each new non-employee director will be granted options to purchase 25,000
shares of common stock under our stock option plans concurrently with his or her initial election
to the Board. Each director shall automatically receive an option to purchase up to 10,000 shares
following each annual meeting of the stockholders of the Company, if immediately after such
meeting, he or she will continue to serve on the Board and has served on the Board for at least the
preceding six months. Communications with Directors The Board maintains a process for stockholders to communicate with the Board of Directors or
any Board member. Stockholders who desire to communicate with the Board should send any
communication to the Companys Secretary, c/o WQN, Inc., 14911 Quorum Drive, Suite 140, Dallas,
Texas 75254. Any communication must state the number of shares of Common Stock beneficially owned
by the stockholder making the communication. The Secretary will forward such communication to the
full Board of Directors or to any individual director or directors to whom the communication is
directed, unless the communication is threatening or illegal, uses inappropriate expletive language
or is similarly inappropriate, in which case the Secretary has the authority to discard the
communication or take appropriate legal action regarding the communication. Section 16(a) Beneficial Ownership Reporting Compliance Based solely upon a review of Forms 3, 4 and 5 and amendments thereto furnished to us pursuant
to Rule 16a-3(e) promulgated under the Securities Exchange Act of 1934 (the Exchange Act), or
upon written representations received by us, we are not aware of any failure by any officer,
director or beneficial owner of more than 10% of our common stock to timely file with the
Securities and Exchange Commission any Form 3, 4 or 5 relating to 2004, except for B. Michael Adler
who filed one of his Form 4s late. 5




---



##### Table of Contents



ITEM 10. EXECUTIVE COMPENSATION Summary Compensation Table The following table sets forth information concerning the annual and long-term compensation
earned by our Chief Executive Officer and each executive officer who had an annual salary and bonus
during fiscal 2004 exceeding $100,000. We refer to these individuals collectively as the Named
Executive Officers. Long TermCompensation AwardsAnnual Compensation

    
    Securities
    
    Payouts andOther annual
    
    Underlying
    
    All OtherName and principal position
    
    Year
    
    Salary ($)
    
    
    Bonus $
    
    Compensation ($)
    
    Options
    
    Compensatation ($)B. Michael Adler, President
    
    2004
    
    
    175,000
    
    
    125,000
    
    
    
    
    
    Chief Executive Officer
    
    2003
    
    
    175,000
    
    
    
    
    
    
    
    
    2002
    
    
    175,000
    
    
    
    
    
    
    
    
    R. Stephen Polley, President
    
    2004
    
    
    63,654
    
    
    
    
    
    
    
    
    300,000Chief Executive Officer (1)
    
    2003
    
    
    300,000
    
    
    
    
    
    
    
    
    2002
    
    
    300,000
    
    
    
    
    
    
    
    
    Victor E. Grijalva, Vice
    
    2004
    
    
    150,000
    
    
    75,000
    
    
    
    75,000
    
    President, Chief Financial
    
    2003
    
    
    150,000
    
    
    
    
    
    
    
    
    Officer, Secretary and
    
    2002
    
    
    150,000
    
    
    25,000
    
    
    
    
    
    Treasurer
   (1)
    
    Mr. Polley resigned from the Company effective March 16, 2004. In connection with
Mr. Polleys employment and separation agreement, Mr. Polley received $300,000, which is
reported as payouts and all other compensation. Employment Agreements WQN has entered into an employment agreement with Mr. Adler, a director and the Companys
President and Chief Executive Officer. The agreement expires on April 13, 2006. Under the
agreement, Mr. Adler is entitled to receive a base salary of $175,000 per annum, and annual bonuses
as determined by the Compensation Committee. In the event of a change in control of WQN, Mr. Adler
would be entitled to a lump sum payment equal to his annual base salary and all of his outstanding
options would immediately vest. WQN has also entered into an employment agreement with Mr. Grijalva, the Companys Vice
President, Chief Financial Officer, Secretary and Treasurer. The agreement expires on April 13,
2006. Under the agreement, Mr. Grijalva is entitled to receive a base salary of $150,000 per annum,
and annual bonuses as determined by the Compensation Committee. In the event of a change of
control of WQN, Mr. Grijalva would be entitled to continue to receive his regular base salary for a
period of six months regardless of whether he serves as an employee of the Company during such
period. In addition, upon a change of control, the Companys stock plan committee may, in its sole
discretion, automatically vest any or all of Mr. Grijalvas outstanding options. 6




---



##### Table of Contents



Option Grants The following table provides certain summary information concerning shares of common stock
represented by stock options granted to each of the Named Executive Officers during fiscal year
2004. Percentage of TotalNumber of Securities
    
    Options Granted to
    
    Exercise
    
    ExpirationUnderlying Options
    
    Employees in Fiscal Year
    
    Price
    
    DateB. Michael Adler
    
    
    
    
    
    
    
    R. Stephen Polley
    
    
    
    
    
    
    
    Victor E. Grijalva
    
    75,000
    
    28%
    
    $3.08
    
    2010
 Fiscal Year-End Option Values The following table provides information concerning the shares of common stock represented by
outstanding stock options held by each of the Named Executive Officers on December 31, 2004. B.
Michael Adler exercised 5,000 shares and R. Stephen Polley exercised 196,850 shares during fiscal
year 2004. No other options were exercised by the Named Executive Officers during fiscal year 2004. Number of SecuritiesUnderlying Unexercised
    
    
    Value of UnexercisedOptions at
    
    
    In-the-Money Options at
    
    
    SharesDecember 31, 2004
    
    
    December 31, 2004(1)
    
    
    Acquired on
    
    
    ValueExercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercise
    
    
    RealizedB. Michael Adler
    
    
    20,000
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    5,000
    
    
    $
    11,050R. Stephen Polley
    
    
    228,150
    
    
    
    
    
    
    $
    219,024
    
    
    $
    
    
    
    
    196,850
    
    
    $
    200,109Victor E. Grijalva
    
    
    110,000
    
    
    
    25,000
    
    
    $
    50,800
    
    
    $
    
    
    
    
    
    
    
    $
    
   (1)
    
    Value is based on the closing sales price of $3.08 per share on December 31, 2004, the last
trading day in 2004. 7




---



##### Table of Contents



ITEM 11. PRINCIPAL STOCKHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT AND RELATED STOCKHOLDER
MATTERS The table below provides certain information regarding the ownership of our common stock as of
March 31, 2005, by each stockholder known to us to own beneficially more than five percent of our
outstanding common stock, each current director and nominee, and all executive officers, directors
and nominees as a group, based on information provided to us by such persons. Except as otherwise
stated, each such person has sole investment and voting power with respect to the shares set forth
in the table. The address for all our Executive Officers and Directors is 14911 Quorum Drive,
Suite 140, Dallas, Texas 75254. Eagle Venture Capital, LLC is the record and beneficial owner of 2,526,478 shares. B. Michael
Adler owns a controlling interest in Eagle Venture and is deemed to beneficially own these shares.
The share ownership for Mr. Adler also includes vested options to purchase 25,000 shares and
100,000 shares owned by Adler Family Trust. WorldQuest Communications, Inc. is the record and
beneficial owner of 300,000 shares. WorldQuest Communications, Inc. is owned 100% by the E. Denton
Jones Family Trust and E. Denton Jones is deemed to beneficially own these shares. The ownership
for Mr. Jones also reflects 1,000 shares owned by a company with respect to which he shares
investment and dispositive power, as well as a vested option to purchase 35,000 shares and unvested
options to purchase 10,000 shares. The share ownership for Robert A. Farmer includes vested options
to purchase 35,000 shares and unvested options to purchase 35,000 shares. Elizabeth H. Buchlers
beneficial ownership includes vested options to purchase 35,000 shares, unvested options to
purchase 10,000 shares, vested options to purchase 30,000 shares from Eagle Venture and 1,000
shares owned by Ms. Buchlers spouse. Hal H. Bibees beneficial ownership includes unvested options
to purchase 25,000 shares. Victor E. Grijalvas beneficial ownership includes vested options to
purchase 110,000 shares and unvested options to purchase 25,000 shares. Sharesbeneficially
    
    
    Percentage ofName
    
    owned
    
    
    shares ownedExecutive Officers and Directors:B. Michael Adler
    
    
    2,651,478
    
    
    
    38.5
    %E. Denton Jones
    
    
    346,000
    
    
    
    5.0Robert A. Farmer
    
    
    121,500
    
    
    
    1.8Elizabeth H. Buchler
    
    
    77,369
    
    
    
    1.1Hal H. Bibee
    
    
    25,000
    
    
    
    *Victor E. Grijalva
    
    
    138,050
    
    
    
    2.0All executive officers and Directors as a group (5)
    
    
    3,359,397
    
    
    
    48.8
   *
    
    Less than 1% 8




---



##### Table of Contents



Summary of Equity Compensation Plan Shown below is information concerning all equity compensation plans and individual
compensation arrangements in effect as of the end of the last fiscal year. Equity Compensation Plan InformationNumber ofSecuritiesNumber of
    
    
    
    
    
    
    RemainingSecurities To Be
    
    
    Weighted
    
    
    Available ForIssued Upon
    
    
    Average Exercise
    
    
    Future IssuanceExercise of
    
    
    Price of
    
    
    Under EquityOutstanding
    
    
    Outstanding
    
    
    CompensationPlan Category
    
    Options
    
    
    Options
    
    
    PlansEquity compensation
plans approved by
security
holders
    
    
    852,984
    
    
    $
    4.11
    
    
    
    611,020
 
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Companys founder, Chief Executive Officer and President holds a controlling interest in
Eagle Venture Capital, which owns approximately 2.6 million outstanding shares of the common stock
of the Company as of December 31, 2004. A consulting company managed by one of the Companys directors holds warrants to acquire
100,000 shares of the Companys common stock. The warrants have an exercise price of $6.00 per
share and expire in 2005. In November 2004, the Company invested $3 million in a partnership managed by an affiliate of
E. Denton Jones, a member of the Board of Directors of the Company. Certain other company directors
and officers have also invested separately in the partnership. The affiliate of Mr. Jones is
entitled to certain annual fees in connection with its management of investments made by the
partnership. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees The aggregate fees billed for each of the fiscal years 2004 and 2003 for professional services
rendered by Grant Thornton LLP, the Companys principal accountant for the Companys annual
financial statements and review of financial statements included in the Companys Form 10-QSB for
the fiscal years then ended, including fees for services that are normally provided by Grant
Thornton in connection with statutory and regulatory filings or engagements for each such fiscal
year, were $97,000 and $94,000, respectively. Audit-Related Fees Grant Thornton LLP did not bill the Company any fees for assurance and related services, which
are reasonably related to the performance of the audit or review of the Companys financial
statements and are not reported in under the caption Audit Fees above, in either of the fiscal
years 2004 and 2003. Tax Fees The aggregate fees billed for each of the fiscal years 2004 and 2003 for professional services
rendered by Grant Thornton LLP for tax compliance, tax advice and tax planning were $11,000 and
$10,000, respectively. These fees consisted of tax compliance services and tax advice provided to
the Company in connection with the preparation of its tax returns. 9




---



##### Table of Contents



All Other Fees The aggregate fees billed for each of the fiscal years 2004 and 2003 for products and services
provided by Grant Thornton LLP, other than fees reported under the categories above, were $11,000
and $24,000, respectively. These fees consisted primarily of business advisory services to evaluate
potential acquisitions and other transactions. Prior to engagement, the Audit Committee pre-approves these services by category of service.
The fees are budgeted and the Audit Committee requires the independent auditor and management to
report actual fees versus the budget periodically throughout the year by category of service.
During the year, circumstances may arise when it may become necessary to engage the independent
auditor for additional services not contemplated in the original pre-approval. In those instances,
the Audit Committee requires specific pre-approval before engaging the independent auditor. The Audit Committee may delegate pre-approval authority to one or more of its members. The
member to whom such authority is delegated must report, for informational purposes only, any
pre-approval decisions to the Audit Committee at its next scheduled meeting. 10




---



##### Table of Contents



SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WQN, INC.April 29, 2005
    
    /s/ B. Michael AdlerB. Michael Adler
President and Chief Executive Officer(Principal Executive Officer)April 29, 2005
    
    /s/ Victor E. GrijalvaVictor E. Grijalva
Vice President, Chief Financial Officer,
Secretary and Treasurer (Principal Financial
and Accounting Officer)
 11