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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-QSB (Mark One) x
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to Commission file number 0-27751 WORLDQUEST NETWORKS, INC.  Delaware
(State or other jurisdiction of
Incorporation or organization)
    
    75-2838415
(I.R.S. Employer
Identification No.)
 14911 Quorum Drive, Suite 140, Dallas, Texas
(Address of principal executive offices)
    
    75254
(Zip Code)
 Issuers telephone number, including area code:
    
    (972) 361-1980
 Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YESx  NOo At July 31, 2004, the registrant had outstanding 6,789,382 shares of par value
$.01 common stock. Transitional Small Business Disclosure Format (check one): Yes
o  No  x -1-




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TABLE OF CONTENTS  PART IFINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONITEM 3. CONTROLS AND PROCEDURESPART II-OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGSITEM 2. CHANGES IN SECURITIESITEM 3. DEFAULTS UPON SENIOR SECURITIESITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSITEM 5. OTHER INFORMATIONITEM 6. EXHIBITS AND REPORTS ON FORM 8-KSIGNATURESStock Purchase AgreementPromissory NoteStock Pledge AgreementStock Purchase WarrantCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  WORLDQUEST NETWORKS, INC. 
 PART IFINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS. 
 WORLDQUEST NETWORKS, INC.
CONSOLIDATED BALANCE SHEETS June 30,
    
    December 31,2004
    
    2003(unaudited)Current assets:Cash and cash equivalents
    
    $
    14,094,170
    
    
    $
    17,931,820Accounts receivable, net
    
    
    610,469
    
    
    
    553,251Note receivable and accrued interest
    
    
    2,041,461
    
    
    
    Prepaid expenses and other current assets
    
    
    573,092
    
    
    
    557,577Total current assets
    
    
    17,319,192
    
    
    
    19,042,648Property and equipment, net
    
    
    777,115
    
    
    
    1,039,783Other assets, net
    
    
    901,688
    
    
    
    101,192Total assets
    
    $
    18,997,995
    
    
    $
    20,183,623Current liabilities:Accounts payable
    
    $
    1,059,668
    
    
    $
    1,108,152Accrued expenses
    
    
    935,714
    
    
    
    471,746Deferred revenue
    
    
    396,452
    
    
    
    254,121Total current liabilities
    
    
    2,391,834
    
    
    
    1,834,019Promissory note
    
    
    300,000
    
    
    
    300,000Commitments and contingenciesStockholders equity:Preferred stock, par value $0.01 per share;Authorized shares10,000,000; none issued and
outstanding at June 30, 2004 and December 31, 2003
    
    
    
    
    
    
    Common stock, par value $0.01 per share;Authorized shares50,000,000; issued
outstanding shares 6,600,232 at June 30, 2004
and 6,386,199 at December 31, 2003
    
    
    66,002
    
    
    
    63,862Additional capital
    
    
    42,623,470
    
    
    
    41,994,594Accumulated deficit
    
    
    (26,383,311
    )
    
    
    (24,008,852
    )Total stockholders equity
    
    
    16,306,161
    
    
    
    18,049,604Total liabilities and stockholders equity
    
    $
    18,997,995
    
    
    $
    20,183,623
 The accompanying notes are an integral part of these condensed consolidated financial statements. -2-




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WORLDQUEST NETWORKS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) Three months ended June 30,
    
    Six months ended June 30,2004
    
    2003
    
    2004
    
    2003Revenue
    
    $
    2,786,572
    
    
    $
    2,495,508
    
    
    $
    4,799,718
    
    
    $
    4,781,788Cost of revenue
    
    
    2,251,031
    
    
    
    1,864,963
    
    
    
    3,793,334
    
    
    
    3,615,179Gross profit
    
    
    535,541
    
    
    
    630,545
    
    
    
    1,006,384
    
    
    
    1,166,609Operating expenses:Selling, general and administrative
    
    
    666,072
    
    
    
    1,307,424
    
    
    
    1,768,175
    
    
    
    2,471,283Merger expenses
    
    
    40,844
    
    
    
    
    
    
    
    1,208,084
    
    
    
    Depreciation and amortization
    
    
    195,497
    
    
    
    226,616
    
    
    
    362,890
    
    
    
    498,552Total operating expenses
    
    
    902,413
    
    
    
    1,534,040
    
    
    
    3,339,149
    
    
    
    2,969,835Operating loss
    
    
    (366,872
    )
    
    
    (903,495
    )
    
    
    (2,332,765
    )
    
    
    (1,803,226
    )Interest income, net
    
    
    73,097
    
    
    
    53,382
    
    
    
    114,906
    
    
    
    115,472Loss from continuing operations
    
    
    (293,775
    )
    
    
    (850,113
    )
    
    
    (2,217,859
    )
    
    
    (1,687,754
    )Loss from discontinued operations
    
    
    (69,036
    )
    
    
    (105,488
    )
    
    
    (156,600
    )
    
    
    (222,023
    )Net loss
    
    $
    (362,811
    )
    
    $
    (955,601
    )
    
    $
    (2,374,459
    )
    
    $
    (1,909,777
    )Net loss per
share - basic and diluted:Continuing operations
    
    $
    (0.04
    )
    
    $
    (0.13
    )
    
    $
    (0.34
    )
    
    $
    (0.26
    )Discontinued operations
    
    
    (0.01
    )
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.04
    )Net loss per
share - basic and diluted.
    
    $
    (0.05
    )
    
    $
    (0.15
    )
    
    $
    (0.36
    )
    
    $
    (0.30
    )Weighted average common shares
outstanding  basic and diluted
    
    
    6,596,880
    
    
    
    6,386,199
    
    
    
    6,507,156
    
    
    
    6,386,199
 The accompanying notes are an integral part of these condensed consolidated financial statements. -3-




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WORLDQUEST NETWORKS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(UNAUDITED) Common
    
    Stock
    
    Additional
    
    AccumulatedShares
    
    Amount
    
    Capital
    
    Deficit
    
    TotalBalance at December 31, 2003
    
    
    6,386,199
    
    
    $
    63,862
    
    
    $
    41,994,594
    
    
    $
    (24,008,852
    )
    
    $
    18,049,604Exercise of employee stock
options
    
    
    214,033
    
    
    
    2,140
    
    
    
    628,876
    
    
    
    
    
    
    
    631,016Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,374,459
    )
    
    
    (2,374,459
    )Balance at June 30, 2004
    
    
    6,600,232
    
    
    $
    66,002
    
    
    $
    42,623,470
    
    
    $
    (26,383,311
    )
    
    $
    16,306,161
 The accompanying notes are an integral part of these condensed consolidated financial statements. -4-




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WORLDQUEST NETWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) Six months ended June 30,2004
    
    2003Operating ActivitiesNet loss from continuing operations
    
    $
    (2,217,859
    )
    
    $
    (1,687,754
    )Adjustments to reconcile net loss to net cash used in operating activities:Loss from discontinued operations
    
    
    (156,600
    )
    
    
    (222,023
    )Depreciation and amortization
    
    
    454,801
    
    
    
    569,071Loss on disposition of property and equipment and asset write-downs
    
    
    76,522
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (98,679
    )
    
    
    (175,391
    )Accounts payable and accrued expenses
    
    
    (334,516
    )
    
    
    170,878Deferred revenue
    
    
    142,331
    
    
    
    35,631Other assets
    
    
    (167,998
    )
    
    
    (252,494
    )Net cash used in operating activities
    
    
    (2,301,998
    )
    
    
    (1,562,082
    )Investing ActivitiesAdditions to property and equipment
    
    
    (166,668
    )
    
    
    (156,111
    )Loan to Ntera Holdings, Inc.
    
    
    (2,000,000
    )
    
    
    Net cash used in investing activities
    
    
    (2,166,668
    )
    
    
    (156,111
    )Financing ActivitiesProceeds from exercise of stock options
    
    
    631,016
    
    
    
    Decrease in cash and cash equivalents
    
    
    (3,837,650
    )
    
    
    (1,718,193
    )Cash and cash equivalents at beginning of period
    
    
    17,931,820
    
    
    
    20,721,207Cash and cash equivalents at end of period
    
    $
    14,094,170
    
    
    $
    19,003,014Supplemental Disclosure of Cash Flow InformationInterest paid
    
    $
    2,625
    
    
    $
    2,315Non-cash increase in ValuCom assets and accrued liabilities
    
    $
    750,000
    
    
    $
    
 The accompanying notes are an integral part of these condensed consolidated financial statements. -5-




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WORLDQUEST NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of
WorldQuest Networks, Inc. and subsidiaries (collectively, the Company) have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for annual financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. The results for the interim periods presented
are not necessarily indicative of the results that may be expected for any
future period. The balance sheet at December 31, 2003 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements in this Form 10-QSB
should be read in conjunction with the financial statements and notes thereto
included in the Companys Annual Report on Form 10-KSB for the year ended
December 31, 2003. 2. Discontinued Operations In July 2004, the Company sold all of the outstanding capital stock of its
wholly-owned subsidiary buyindiaonline.com, Inc. (Cash2India) to a private
company for approximately $1,552,000. The Cash2India business comprised the
Companys previously reported financial services segment and is accounted for
as a discontinued operation in the accompanying condensed consolidated
financial statements. Under the terms of the transaction, the Company received
$852,000 in cash, a promissory note for $700,000, and a warrant to purchase
common stock in the acquiring company. The cash payment included consideration
for $352,000 in working capital associated with Cash2India at the time of the
sale. The promissory note bears interest at 5% per annum, is secured by the
capital stock of Cash2India, and is to be repaid in twenty-four consecutive
monthly payments of $29,167 plus accrued interest. As a result of the
transaction the Company will record a pre-tax gain on the disposition of Cash2India of
approximately $787,000 in the third quarter of 2004. Operating results from discontinued operations are as follows: Three months ended June 30,
    
    Six months ended June 30,2004
    
    2003
    
    2004
    
    2003Revenue
    
    $
    144,791
    
    
    $
    140,683
    
    
    $
    299,733
    
    
    $
    276,608Cost of revenue
    
    
    (59,770
    )
    
    
    (45,036
    )
    
    
    (119,071
    )
    
    
    (87,685
    )Gross profit
    
    
    85,021
    
    
    
    95,647
    
    
    
    180,662
    
    
    
    188,923Operating expenses
    
    
    (154,057
    )
    
    
    (201,135
    )
    
    
    (337,262
    )
    
    
    (410,946
    )Net loss
    
    $
    (69,036
    )
    
    $
    (105,488
    )
    
    $
    (156,600
    )
    
    $
    (222,023
    )
 The components of net assets of discontinued operations are as follows: June 30,
    
    December 31,2004
    
    2003Cash and cash equivalents
    
    $
    386,771
    
    
    $
    514,635Accounts receivable
    
    
    446,297
    
    
    
    409,717Prepaid expenses and other current assets
    
    
    
    
    
    
    71,988Property and equipment, net
    
    
    168,562
    
    
    
    236,308Accounts payable and accrued expenses
    
    
    (232,913
    )
    
    
    (210,658
    )Net assets of discontinued operations
    
    $
    768,717
    
    
    $
    1,021,990
 -6-




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WORLDQUEST NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(UNAUDITED) 3. Net Loss Per Share Stock options and warrants convertible into 1,644,856 and 1,775,947 shares
of the Companys common stock at June, 30, 2004 and 2003, respectively, are
excluded from the calculation of net loss per share as their effect would be
antidilutive. 4. Related Party 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 June 30,
2004. A consulting company managed by one of the Companys directors holds
warrants outstanding 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. 5. Merger Agreement with Ntera Holdings On March 16, 2004, the Company entered into an Agreement and Plan of
Merger with Ntera Holdings, Inc., a Delaware corporation (Ntera), providing
for transactions that, once completed, will result in a change of control of
WorldQuest. The transaction will be accounted for as a reverse merger, and
under the terms of the Merger Agreement, Ntera will be merged with and into
WorldQuest, with WorldQuest as the surviving company (the Merger).
Stockholders of Ntera at the effective time of the Merger will be entitled to
receive 80% of the common stock of the combined company, with existing
WorldQuest stockholders owning the remaining 20%. The Merger has been
unanimously approved by the Boards of Directors of both WorldQuest and Ntera,
and is subject to various conditions to closing, including approval by the
holders of not less than a majority of WorldQuests outstanding common stock,
approval of continued listing of WorldQuests common stock on the Nasdaq Stock
Market, completion of audited financial statements for Nteras fiscal year
ended December 31, 2003, receipt of a bring-down of the fairness opinion
rendered to the Board of Directors of WorldQuest, WorldQuests approval of
Nteras financial performance and certain other conditions. In connection with the merger agreement, WorldQuest has also extended to
Ntera a bridge loan in the principal amount of $2 million bearing interest of
7% per annum. If the merger agreement is terminated for any reason, the full
amount of the loan and accrued interest will become due and payable within six
months of such termination. Ntera and certain of its subsidiaries have granted
WorldQuest a security interest in their assets to secure repayment of the loan. 6. Promissory Note The Company has borrowed $300,000 from a financial institution under a
term promissory note agreement (the Note). The Note bears interest at the
financial institutions prime rate as adjusted from time to time (4.00% at June
30, 2004) less 2.25% per annum. The Note is due in October 2005 and is
collateralized by a $300,000 certificate of deposit bearing interest of .95%
per annum. 7. Value Communications Transaction In April 2004, the Company purchased from Value Communications Corporation
(ValuCom), a wholly owned subsidiary of Rediff.com India Limited, certain
assets consisting primarily of ValuComs customer list, brand, trademarks, web
sites, internally built software, and certain hardware for $500,000. The
Company paid $200,000 of the total consideration at closing with the remaining

$300,000 to be paid in twelve monthly installments of $25,000 commencing May
2004. In addition, the Company entered into an advertising agreement with
Rediff.com, Inc. (Rediff) entitling WorldQuest to marketing services
including exclusive rights to prominent online advertising space on the
Rediff.com U.S website, the premier online destination for Indians in North
America. Under the terms of the advertising agreement, the Company will pay
Rediff $50,000 for twelve consecutive months commencing in May 2004 for the
advertising services. The Company provided both ValuCom and Rediff irrevocable
letters of credit for the Companys remaining obligation under the agreements.
The letters of credit are secured by deposits in money market funds and the
amount of the letters of credit and the security deposits are reduced as the
monthly installments are paid. At June 30, 2004, the Companys obligation under
both the agreements totaled $750,000. Substantially, all of the ValuCom
purchase consideration was allocated to customer lists, which is included in
other long-term assets. -7-




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WORLDQUEST NETWORKS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(UNAUDITED) 8. Stock-Based Compensation The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees, in the primary financial
statements and has provided supplemental disclosures required by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation and by Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation  Transition and Disclosure an
amendment of FASB Statement No. 123. Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation, (SFAS 123)
requires the disclosure of pro forma net loss and loss per share computed as if
the Company had accounted for its employee stock options under the fair value
method set forth in SFAS 123. The following table illustrates the effect on
net loss and earnings per share as if the Company had applied the fair value
recognition provisions of SFAS 123. Three months ended June 30,
    
    Six months ended June 30,2004
    
    2003
    
    2004
    
    2003Net loss as reported
    
    $
    (362,811
    )
    
    $
    (955,601
    )
    
    $
    (2,374,459
    )
    
    $
    (1,909,777
    )Less stock-based employee
compensation expense
    
    
    (23,060
    )
    
    
    (35,168
    )
    
    
    (130,860
    )
    
    
    (97,036
    )Pro forma net loss
    
    $
    (385,871
    )
    
    $
    (990,769
    )
    
    $
    (2,505,319
    )
    
    $
    (2,0006,813
    )Earnings per share:As reported  basic and diluted
    
    $
    (0.5
    )
    
    $
    (0.15
    )
    
    $
    (0.36
    )
    
    $
    (0.30
    )Pro forma  basic and diluted
    
    $
    (0.6
    )
    
    $
    (0.16
    )
    
    $
    (0.39
    )
    
    $
    (0.31
    )
 9. Legal Matters In December 1996, the Company applied to the United States Patent and
Trademark Office to register the trademarks: WorldQuest and WorldQuest
Networks. We received a registration for the trademark WorldQuest from the
U.S. Patent and Trademark Office on November 23, 1999. In October 1997, the
Patent and Trademark Office issued a notice of publication regarding our
application to register WorldQuest Networks as a trademark. In response to
that notice, Qwest Communications filed a notice of opposition in September
1998. Qwest Communications instituted a cancellation proceeding in the Patent
and Trademark Office for the registered trademark WorldQuest. In December
2001, a judgment was made in the Companys favor whereby Qwests motion to
cancel our WorldQuest trademark was dismissed, however, Qwest filed a motion
appealing the judgment. In December 2002, Qwest filed a separate complaint
stating that the Companys prepaid cash card product infringes on the Qwest
trademark. In February 2003, the companies settled all outstanding claims
whereby WorldQuest received a cash payment and telecommunication services
(primarily long distance termination) from Qwest and Qwest retained all rights
to the trademarks in question. WorldQuest has approximately three months from
June 30, 2004 to cease using the name WorldQuest. We are currently evaluating
potential corporate names and anticipate that a decision will be made within
the next few months. The Company is a defendant from time to time in lawsuits and disputes
arising in the ordinary course of business. The Company believes that
resolution of all known contingencies is uncertain, and there can be no
assurance that future costs related to such litigation would not be material to
the Companys financial position or results of operations. -8-




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion of the financial condition and results of
operations of WorldQuest Networks, Inc. should be read in conjunction with the
Managements Discussion and Analysis or Plan of Operation (including Risk
Factors That May Affect Results of Operations and Financial Condition) and the
Consolidated Financial Statements and the Notes thereto included in the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2003. Forward-Looking Statements Certain statements in this report, including statements of WorldQuests
and managements expectations, intentions, plans and beliefs, including those
contained in or implied by Managements Discussion and Analysis or Plan of
Operation and the Notes to Condensed Consolidated Financial Statements, are
forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act), that are
subject to certain events, risks and uncertainties that may be outside
WorldQuests control. These forward-looking statements include statements of
managements plans and objectives for WorldQuests future operations and
statements of future economic performance, information regarding our expansion
and possible results from expansion, our expected growth, our capital budget
and future capital requirements, the availability of funds and our ability to
meet future capital needs, the realization of our deferred tax assets, and the
assumptions described in this report underlying such forward-looking
statements. Actual results and developments could differ materially from those
expressed in or implied by such statements due to a number of factors,
including, without limitation, those described in the context of such
forward-looking statements, our expansion and acquisition strategy, our ability
to achieve operating efficiencies, our dependence on network infrastructure,
capacity, telecommunications carriers and other suppliers, industry pricing and
technology trends, evolving industry standards, domestic and international
regulatory matters, general economic and business conditions, the strength and
financial resources of our competitors, our ability to find and retain skilled
personnel, the political and economic climate in which we conduct operations
and the risk factors described from time to time in our other documents and
reports filed with the Securities and Exchange Commission. Overview We are an international Internet telephony company. Our customers utilize
our networks of Internet gateways and other traditional networks to place
long-distance calls online at discounted rates. We also sell virtual calling
cards processed through other companies platforms including prepaid wireless
and prepaid Internet and from time to time we sell our excess capacity to other
long distance carriers. As of June 30, 2004, Eagle Venture Capital, LLC (Eagle Venture) owned
approximately 2.6 million, or 41%, of our outstanding shares of common stock.
Eagle Venture is primarily owned by B. Michael Adler, our founder and Chief
Executive Officer. Our primary source of revenue is the fees that we receive from our
telephony customers for completing calls over our network. Our Internet
telephony revenue is dependent on the volume of voice traffic carried over the
network, which is measured in terms of minutes of voice traffic and the fees
per minute of traffic we charge our customers. We recognize this revenue in the
period in which the call is completed. We bill our retail customers on a
prepaid basis through credit cards. Cost of telephony revenue consists primarily of data communication and
telecommunication expenses to terminate long distance traffic over our
networks, which vary proportionately with the volume of traffic carried over
our network. These costs include Internet related expenses to send voice
traffic over the Internet, fees we pay to terminate calls, fees we pay to
utilize the traditional telephone network to terminate our calls and expenses
incurred to connect our customers to our network. Selling, general and administrative expenses consist of advertising and
promotional expenditures, payroll and related expenses for executive and
administrative personnel, facilities expenses, professional services expenses,
travel and other general corporate expenses. Discontinued Operations In July 2004, the Company sold all of the outstanding capital stock in its
wholly-owned subsidiary buyindiaonline.com, Inc. (Cash2India) to a private
company for approximately $1,552,000. Under the terms of the transaction, the
Company received $852,000 in cash, a promissory note for $700,000, and a
warrant to purchase common stock in the acquiring company. The cash payment
included consideration for $352,000 in working capital associated with
Cash2India at the time of the sale. The promissory note bears interest at 5%
per annum, is secured by the capital stock of Cash2India, and is to be repaid
in twenty-four consecutive monthly payments of $29,167 plus accrued interest.
Cash2India is accounted for as a discontinued operation in the accompanying
consolidated financial statements. -9-




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Merger Agreement with Ntera Holdings On March 16, 2004 the Company and Ntera Holdings, Inc., a Delaware
corporation (Ntera), entered into an Agreement and Plan of Merger dated as of
that date (the Merger Agreement), providing for transactions that, once
completed, will result in a change of control of WorldQuest. Under the terms of the Merger Agreement, Ntera will be merged with and
into WorldQuest, with WorldQuest as the surviving company (the Merger).
Stockholders of Ntera at the effective time of the Merger will be entitled to
receive 80% of the common stock of the surviving company, with existing
WorldQuest stockholders owning the remaining 20% of the common stock of the
surviving company. After consummation of the Merger, Mr. Engin Yesil, Nteras
controlling stockholder, will own approximately 35% of the outstanding shares
of the merged entity. The Merger has been unanimously approved by the Boards of Directors of
both WorldQuest and Ntera, and is subject to various conditions to closing,
including approval by the holders of not less than a majority of WorldQuests
outstanding common stock, approval of continued listing of WorldQuests common
stock on the Nasdaq Stock Market, completion of audited financial statements
for Nteras fiscal year ended December 31, 2003, receipt of a bring-down of
the fairness opinion rendered to the Board of Directors of WorldQuest,
WorldQuests approval of Nteras financial performance and certain other
conditions. Michael Adler, who, as sole shareholder of Eagle Venture Capital,
LLC, beneficially owns approximately 42% of WorldQuests stock, has executed a
Voting Agreement and Irrevocable Proxy, dated as of March 16, 2004 (the Voting
Agreement), whereby he has agreed to vote his shares in favor of the Merger so
long as the Merger Agreement has not been terminated. The stockholders of
Ntera have already approved the Merger. Under the terms of the Merger Agreement, the Board of Directors of the
surviving company will consist of WorldQuests four current directors (or their
successors), and three new directors named by Ntera. In addition, Mr. Yesil
has agreed in the Merger Agreement not to exercise his voting rights with
respect to any shares of the surviving company to alter the composition of its
Board of Directors until the earlier of WorldQuests 2005 annual meeting of
stockholders or June 30, 2005. In connection with the Merger, WorldQuest intends to relocate its
executives to Nteras headquarters in Miami, Florida. On March 16, 2004, R.
Stephen Polley resigned as President, Chief Executive Officer and a director of
WorldQuest because of his desire to not relocate to Miami. Gary W. Fiedler
also notified WorldQuest of his resignation from his position as a director of
WorldQuest, effective as of March 10, 2004. As a result, B. Michael Adler,
formerly Chairman of the Board of WorldQuest, was elected President and Chief
Executive Officer of WorldQuest, and Robert A. Farmer, an existing member of
WorldQuests Board, was elected Chairman of the Board of WorldQuest and also
chairman of WorldQuests Audit Committee. Under the terms of the Merger
Agreement, both gentlemen will continue in those roles after completion of the
Merger. Also under the terms of the Merger Agreement, Mr. Yesil will serve as
President of Business Development of the surviving company but will not serve
on its Board of Directors and Victor E. Grijalva, Vice President and Chief
Financial Officer of WorldQuest, will continue as Vice President and Chief
Financial Officer of the surviving company. Nteras VoIP network currently interconnects 100 cities in the United
States, 100 cities in Mexico, and 23 Canadian cities along with other major
cities around the world through a 300,000-port TDM and 75,000-port VoIP
switching platform that is controlled through proprietary soft-switch
intelligence with current network capacity in excess of 4 billion minutes a
month. Value Communications Transaction In April 2004, the Company purchased from Value Communications Corporation
(ValuCom), a wholly owned subsidiary of Rediff.com India Limited, certain
assets consisting primarily of ValuComs customer list, brand, trademarks, web
sites, internally built software, and certain hardware for $500,000. The
Company paid $200,000 of the total consideration at closing with the remaining
$300,000 to be paid in twelve monthly installments of $25,000 commencing May
2004. In addition, the Company entered into an advertising agreement with
Rediff.com, Inc. (Rediff) entitling WorldQuest to marketing services
including exclusive rights to prominent online advertising space on the
Rediff.com U.S website, the premier online destination for Indians in North
America. Under the terms of the advertising agreement, the Company will pay
Rediff $50,000 for twelve consecutive months commencing in May 2004 for the
advertising services. The Company provided both ValuCom and Rediff irrevocable
letters of credit for the Companys remaining obligation under the agreements.
The letters of credit are secured by deposits in money market funds and the
amount of the letters of credit and the security deposits are reduced as the
monthly installments are paid. At June 30, 2004, the Companys obligation under
both the agreements totaled $750,000. Substantially, all of the ValuCom
purchase consideration was allocated to customer lists, which is included in
other long-term assets. -10-




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Critical Accounting Policies The Companys significant accounting policies are summarized in Note 2 of
its consolidated financial statements included in the Companys Annual Report
on Form 10-KSB for the year ended December 31, 2003. While all these
significant accounting policies impact its financial condition and results of
operations, the Company views certain of these policies as critical. Policies
determined to be critical are those policies that have the most significant
impact on the Companys financial statements and require management to use a
greater degree of judgment and/or estimates. Actual results may differ from
those estimates. The Company believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would cause a material effect on the Companys
consolidated results of operations, financial position or liquidity for the
periods presented in this report. The accounting policies identified as
critical are as follows: Revenue Recognition The Company recognizes revenues in accordance with generally accepted
accounting principles as outlined in SAB No. 101 which requires that four basic
criteria be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists, (2) product delivery, including customer acceptance, has
occurred or services have been rendered, (3) the price is fixed or determinable
and (4) collectibility is reasonably assured. We bill our telephony calling
card customers on a prepaid basis through credit cards and recognize the
revenue in the period in which the call is completed. A substantial portion of
the Companys revenues is derived from the sale of prepaid phone cards that
terminate in India. Money transfer fees are recognized upon transfer of funds
to the recipient. Cash card fees are recognized upon usage of the cash card. Property and Equipment Property and equipment are depreciated over their useful lives. Useful
lives are based on managements estimates of the period that the assets will
generate revenue. Any change in conditions that would cause management to
change its estimate as to the useful lives of a group or class of assets may
significantly impact the Companys depreciation expense on a prospective basis. Web Site Development Costs Our products and services are sold predominantly through our web sites. We
incur costs to maintain and add new functionality to our existing web sites and
to develop new web sites. Costs related to the planning and post
implementation phases of our web site development efforts are expensed. Direct
costs incurred in the development phase are capitalized and amortized over the
products estimated useful life of one to three years, which is included in
depreciation expense. Costs associated with minor enhancements and maintenance
for web sites are expensed. Income Taxes As of June 30, 2004, we had approximately $25,134,000 of net operating
loss carry forwards for federal income tax purposes, which expire beginning in
2011. We have not recognized an income tax benefit for our losses because of
uncertainty regarding future realizability and we have provided a full
valuation allowance on our deferred tax assets. Results of Operations Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003 Revenue Revenue increased approximately 12% to $2,787,000 for the three months
ended June 30, 2004 from $2,496,000 for the three months ended June 30, 2003.
The increase in revenue is attributable to the addition of $712,000 in revenue
from the ValuCom transaction partially offset by a $421,000 decrease in
non-ValuCom revenue. Approximately 79% of the ValuCom revenue, or $566,000, is
attributable to the sale of virtual calling cards processed through other
companies platforms. We expect the percentage of ValuCom revenue from
reselling products from other companies will decrease as we migrate the ValuCom
business over our network and platform. The decrease in non-ValuCom revenue is
primarily attributable to a decrease in the average rate per minute charged to
our customers. Overall, our minutes of use have increased to 14.4 million
minutes for the three months ended June 30, 2004, up 2% from 14.1 million
minutes for the three months ended June 30, 2003, and sequentially up 17% from
the first quarter of 2004. The increase in the minutes of use in the 2004
second quarter is primarily attributable to the addition of the ValuCom
business. -11-




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A substantial portion of our customers are calling from the United States
to India. The Indian international telephony market continues to experience
downward pricing pressures and it is unlikely that this trend will reverse in
the near future. Cost of Revenue Cost of revenue increased approximately 21% to $2,251,000 for the three
months ended June 30, 2004 from $1,865,000 for the three months ended June 30,
2003. This $386,000 increase is attributable to a net increase in revenue and to a
decrease in our gross profit percentage to approximately 19% during the second
quarter of this year from approximately 25% in the year ago quarter. The
decrease in gross profit percentage during the quarter was partially due to the
addition of lower margin ValuCom revenue. ValuCom was a reseller of other
carriers products and accordingly, had a lower gross profit margin. During the
second quarter we substantially completed the integration of ValuCom and we now
expect the ValuCom gross-profit margin will improve as we migrate the business
over our VoIP network. During this quarter, we also experienced an increase in
certain international termination rates from our carriers for which we have
correspondingly increased the rates we charge our customers for calling these
destinations. Selling, General and Administrative Selling, general and administrative expenses decreased approximately 49%
to $666,000 for the three months ended June 30, 2004 from $1,307,000 for the
three months ended June 30, 2003. This $641,000 decrease is due primarily to
lower personnel costs associated with the reduction in staffing levels from 33
full-time employees as of June 30, 2003 to 19 full-time employees at June 30,
2004, and the Companys efforts to concentrate on its core Internet telephony
business. Selling, general and administrative expenses for the 2004 second
quarter also include a benefit of $167,000 in connection with the settlement of
vendor disputes. Merger Expenses During the second quarter of 2004 we incurred merger related expenses of
approximately $41,000 primarily for legal fees associated with the previously
announced Ntera Holdings, Inc. merger agreement (see Part I, Item 2  Merger
Agreement with Ntera Holdings). Depreciation and Amortization Depreciation and amortization decreased approximately 14% to $195,000 for
the three months ended June 30, 2004 from $227,000 for the three months ended
June 30, 2003. The decrease in depreciation and amortization is primarily
attributable to certain depreciable assets becoming fully depreciated in 2003.
Also, effective January 1, 2004 the Company changed its estimated useful life
from 3 years to 5 years for certain switching and Internet gateway equipment
which had a remaining life of 1.3 years and a net book value of $135,000 at the
date of the change in estimate. Interest Income, Net Interest income, net consists of interest earned on cash and cash
equivalents less interest expense on borrowings. Interest earned on cash and
cash equivalents increased to $75,000 for the three months ended June 30, 2004
from $54,000 for the three months ended June 30, 2003. The increase is due
primarily to interest income earned on the bridge loan made to Ntera Holdings,
Inc. in March 2004. Interest expense for the 2004 second quarter totaled
approximately $2,000 compared to $1,000 in the comparable 2003 quarter. Loss From Continuing Operations We incurred a net loss from continuing operations of $294,000 for the
three months ended June 30, 2004 compared to a net loss of $850,000 for the
three months ended June 30, 2003. The decrease in net loss from continuing
operations for the 2004 second quarter is primarily attributable to an increase
in revenues of $291,000 offset by an increase in cost of revenues of $386,000
and to a decrease in selling, general and administrative expenses due to the
reduction in staffing levels and the Companys efforts to concentrate on its
core Internet telephony business. -12-




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Loss From Discontinued Operations The loss from discontinued operations is due to the sale of the Companys
financial services subsidiary, which comprised the financial services segment
(see Discontinued Operations in notes to the financial statements). For the
periods presented, the loss from discontinued operations were attributable to
the loss from operations of the entity. As a result of this transaction, which
was completed in July 2004, the Company will record a pre-tax gain on the disposition
of approximately $787,000 in the third quarter of 2004. Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003 Revenue Revenue increased slightly to $4,800,000 for the six months ended June 30,
2004 from $4,782,000 for the six months ended June 30, 2003. The increase is a
result of the addition of $712,000 in revenue from the ValuCom transaction
offset by a $694,000 decrease in non-ValuCom revenue. Approximately 79% of the
ValuCom revenue, or $566,000, is attributable to the sale of virtual calling
cards processed through other companies platforms. We expect the percentage of
ValuCom revenue from reselling products from other companies will decrease as
we migrate the ValuCom business over our network and platform. The decrease in
non-ValuCom revenue is primarily attributable to a decrease in the average rate
per minute charged to our customers. Overall, our minutes of use have
increased to 26.7 million minutes for the six months ended June 30, 2004, up
approximately 8% from 24.8 million minutes for the six months ended June 30,
2004. A substantial portion of our customers are calling from the United States
to India. The Indian international telephony market continues to experience
downward pricing pressures and it is unlikely that this trend will reverse in
the near future. Cost of Revenue Cost of revenue increased approximately 5% to $3,793,000 for the six
months ended June 30, 2004 from $3,615,000 for the six months ended June 30,
2003. This $178,000 increase is due primarily to a decrease in our gross profit
percentage to approximately 21% during the second quarter of this year from
approximately 24% in the year ago period. The decrease in gross profit
percentage was partially due to the addition of lower margin ValuCom revenue.
ValuCom was a reseller of other carriers products and accordingly, had a lower
gross profit margin. During the second quarter we substantially completed the
integration of the ValuCom business and we expect the ValuCom gross-profit
margin to improve as we migrate the business over our VoIP network. Also during
the second quarter we experienced an increase in certain international
termination rates from our carriers which negatively impacted our gross profit
margin for which we have correspondingly increased the rates we charge our
customers for calling these destinations. Selling, General and Administrative Selling, general and administrative expenses decreased approximately 28%
to $1,768,000 for the six months ended June 30, 2004 from $2,471,000 for the
six months ended June 30, 2003. This $703,000 decrease is due primarily to
lower personnel costs associated with the reduction in staffing levels from 33
full-time employees at June 30, 2003 to 19 full-time employees at June 30,
2004, and the Companys efforts to concentrate on its core Internet telephony
business. Selling, general and administrative expenses for the six months ended
June 30, 2004 include a benefit of $167,000 in connection with the settlement
of vendor disputes and an impairment charge of approximately $60,000 related to
certain stored value equipment that is no longer in use. Selling, general, and
administrative expenses for the six months ended June 30, 2003 include a
benefit of $125,000 in connection with the Companys Qwest settlement (see Item
1  Legal Proceedings in Part II of this Report). Merger Expenses For the six months ended June 30, 2004 we incurred merger expenses of
approximately $1,208,000 primarily for: legal fees ($415,000), investment
banking fees ($134,000), severance and other personnel cost ($574,000),
accounting fees ($27,000), and other administrative expenses ($58,000)
associated with the previously announced Ntera Holdings, Inc. merger agreement
(see Part I, Item 2  Merger Agreement with Ntera Holdings). Depreciation and Amortization Depreciation and amortization decreased approximately 27% to $363,000 for
the six months ended June 30, 2004 from $499,000 for the six months ended June
30, 2003. This $136,000 decrease in depreciation and amortization is primarily
attributable to certain depreciable assets becoming fully depreciated in 2003. -13-




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Interest Income, Net Interest income, net consists of interest earned on cash and cash
equivalents less interest expense on borrowings. Interest earned on cash and
cash equivalents was $118,000 for the six months ended June 30, 2004 and
$117,000 for the six months ended June 30, 2003. Interest income for the six
months ended June 30, 2004 includes interest earned on the Ntera Holdings, Inc.
bridge loan commencing March 17, 2004 offset by lower interest income due to a
decrease in the average cash balance invested. Interest expense for the 2004
period totaled $3,000 compared to $2,000 in the comparable 2003 period. Loss From Continuing Operations We incurred a net loss from continuing operations of $2,218,000 for the
six months ended June 30, 2004 compared to a net loss of $1,688,000 for the six
months ended June 30, 2003. The increase in net loss from continuing operations
in the 2004 period is primarily attributable to Ntera Holdings, Inc. merger
expenses of approximately $1,208,000 partially offset by a decrease in selling,
general and administrative expenses due to the reduction in staffing levels and
the Companys efforts to concentrate on its core Internet telephony business. Loss From Discontinued Operations The loss from discontinued operations is due to the sale of the Companys
financial services subsidiary, which comprised the financial services segment
(see Discontinued Operations in Note 2 to the financial statements). For the
periods presented, the loss from discontinued operations were attributable to
the loss from operations of the entity. As a result of this transaction, which
was completed in July 2004, the Company will be recording a
pre-tax gain on the
disposition of approximately $787,000 in the third quarter of 2004. Liquidity and Capital Resources As of June 30, 2004, we had approximately $14,094,000 of cash and cash
equivalents and working capital of approximately $14,927,000. We generated
negative cash flow from operating activities of approximately $2,302,000 during
the six months ended June 30, 2004, compared with negative cash flow from
operating activities of approximately $1,562,000 during the six months ended
June 30, 2003. Net cash used in operating activities for the 2004 and 2003
periods primarily consisted of net operating losses as well as changes in
working capital. The $740,000 increase in cash used in operating activities in
the 2004 period from the 2003 period is due primarily to expenses incurred in
connection with the Ntera Holdings, Inc. merger agreement. Cash used in investing activities was $2,167,000 for the six months ended
June 30, 2004 and $156,000 for the six months ended June 30, 2003. Cash used
in investing activities for the six months ended June 30, 2004 includes a
$2,000,000 loan made to Ntera Holdings, Inc. in connection with the merger
agreement. The loan bears interest at 7% per annum and Ntera Holdings, Inc.
and certain of its subsidiaries have granted WorldQuest a security interest in
their assets to secure repayment of the loan. If the merger agreement is
terminated for any reason, the full amount of the loan and accrued interest
will become due and payable within six months of such termination. For the six months ended June 30, 2004, the Company has generated cash
from financing activities of $631,000 related to the exercise of stock options. In 2001, we borrowed $300,000 from a financial institution under a term
promissory note agreement (the Note). The Note bears interest at the
financial institutions prime rate as adjusted from time to time (4.00% at June
30, 2004) less 2.25% per annum. The Note is due in October 2005 and is
collateralized by a $300,000 certificate of deposit bearing interest of 0.95%
per annum. The Company provided ValuCom and Rediff irrevocable letters of credit in
connection with the Companys purchase of certain assets from ValuCom and the
Companys advertising agreement with Rediff. The letters of credit are secured
by deposits in a money market fund and the amount of the letters of credit and
security deposits are reduced as the monthly installments are paid. At June
30, 2004, the Companys obligation under both agreements was $750,000. We currently anticipate that our existing cash resources will be
sufficient to meet our anticipated needs for working capital and capital
expenditure requirements through at least the next 24 months. We may need to
raise additional funds prior to the expiration of such period if, for example,
we pursue business or technology acquisitions or experience operating losses
that exceed our current expectations. If we raise additional funds through the
issuance of equity, equity-related or debt securities, such securities may have
rights, preferences or privileges senior to those of the rights of our common
stock and our stockholders may experience additional dilution. We cannot be
certain that additional financing will be available to us on favorable terms
when required, or at all. -14-




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Income Taxes As of June 30, 2004, we had approximately $25,134,000 of net operating
loss carry forwards for federal income tax purposes, which expire beginning in
2011. We have not recognized an income tax benefit for our losses as we have
provided a full valuation allowance on our deferred tax assets, which consists
primarily of net operating loss carry forwards, because of uncertainty
regarding future realizability. Limitations on the utilization of these carry
forwards may result if we experience a change of control, as defined in the
Internal Revenue Code of 1986, as amended, as a result of changes in the
ownership of our common stock. 
 ITEM 3. CONTROLS AND PROCEDURES In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Report on Form 10-QSB. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of June 30, 2004 to
provide reasonable assurance that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commissions rules and forms. There has been no change in our internal controls over financial reporting
that occurred during the three months ended June 30, 2004 that has materially
affected, or is reasonably likely to materially affect, our internal controls
over financial reporting. -15-




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PART II-OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS In December 1996, the Company applied to the United States Patent and
Trademark Office to register the trademarks: WorldQuest and WorldQuest
Networks. We received a registration for the trademark WorldQuest from the
U.S. Patent and Trademark Office on November 23, 1999. In October 1997, the
Patent and Trademark Office issued a notice of publication regarding our
application to register WorldQuest Networks as a trademark. In response to
that notice, Qwest Communications filed a notice of opposition in September
1998. Qwest Communications instituted a cancellation proceeding in the Patent
and Trademark Office for the registered trademark WorldQuest. In December
2001, a judgment was made in the Companys favor whereby Qwests motion to
cancel our WorldQuest trademark was dismissed, however, Qwest filed a motion
appealing the judgment. In December 2002, Qwest filed a separate complaint
stating that the Companys prepaid cash card product infringes on the Qwest
trademark. In February 2003, the companies settled all outstanding claims
whereby WorldQuest received a cash payment and telecommunication services
(primarily long distance termination) from Qwest and Qwest shall retain all
rights to the trademarks in question. WorldQuest has approximately three
months from June 30, 2004 to cease using the name WorldQuest. We are
currently evaluating potential corporate names and anticipate that a decision
will be made within the next few months. The Company is a defendant from time to time in lawsuits and disputes
arising in the ordinary course of business. We are not involved in any other
material legal proceedings at this time. 
 ITEM 2. CHANGES IN SECURITIES The effective date of our first registration statement, filed on Form SB-2
under the Securities Act of 1933 (no. 333-93019) relating to our initial public
offering of our Common Stock, was February 4, 2000. A total of 3,162,500
shares of our Common Stock were sold at a price of $13.00 per share. Net
proceeds to WorldQuest were approximately $36.3 million. From the time of
receipt through June 30, 2004, the net proceeds were applied toward:  -
    
    Repayment of indebtedness, $4,498,000;-
    
    Equipment purchases including additional back-up systems, $4,456,000;-
    
    Merger and acquisition related, $3,175,000;-
    
    Software development, $848,000; and-
    
    General corporate purposes, including operating losses, payment of
outstanding payables, payoffs of capital leases, liability insurance
premiums, development of strategic relationships and research and
development of new products, $9,229,000. The remaining proceeds are being used as working capital or are being held
in high quality, short-term investment instruments such as short-term corporate
investment grade or United States Government interest-bearing securities. Of the $4,498,000 paid for repayment of indebtedness, $1,440,000 was paid
to Eagle Venture Capital, LLC, which owns approximately 41% of our Common Stock
and is controlled by B. Michael Adler, our Chief Executive Officer and
President. -16-




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ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 
 ITEM 5. OTHER INFORMATION Not applicable. 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.  (a)
    
    The following exhibits are filed as a part of this Report on
Form 10-QSB pursuant to Item 601 of regulation S-B: ExhibitNumber
    
    Description of Exhibits2.1
    
    Agreement and Plan of Merger, dated as of March 16, 2004, among WorldQuest, Ntera Holdings, Inc.
and Engin Yesil, filed as exhibit 2.1 to WorldQuests Current Report on Form 8-K/A dated March 19,
2004, as amended, and incorporated herein by this reference.2.2*
    
    Stock Purchase Agreement dated as of July 26, 2004, by and among Xoom Corporation, Inc., WorldQuest
Networks, Inc., and WQN Mercury Inc., filed as exhibit 2.2 to WorldQuests Quarterly Report as
Form 10-QSB
for the quarter ended June 30, 2004.2.3*
    
    Promissory Note dated as of July 26, 2004, by and between Xoom Corporations, Inc. and WorldQuest
Networks,
Inc. filed as exhibit 2.3 to WorldQuests Quarterly Report as Form 10-QSB for the quarter ended
June 30, 2004.2.4*
    
    Stock Pledge Agreement dated as of July 26, 2004 by and between Xoom Corporation, Inc. and
WorldQuest Networks, Inc., filed as exhibit 2.5 to WorldQuests Quarterly Report as Form 10-QSB
for the quarter ended June 30, 2004.2.5*
    
    Stock Purchase Warrant dated as of July 26, 2004 by and between Xoom Corporation, Inc. and
WorldQuest Networks, Inc., filed as exhibit 2.5 to WorldQuests Quarterly Report as Form 10-QSB
for the quarter ended June 30, 2004.3.1
    
    Certificate of Incorporation of WorldQuest, filed as Exhibit 3.1 to WorldQuests Form SB-2
Registration Statement, File No. 333-82721 (the Prior Registration Statement), and incorporated
herein by reference.3.2
    
    Bylaws of WorldQuest, filed as Exhibit 3.2 to the Prior Registration Statement, and incorporated
herein by this reference.4.1
    
    Specimen common stock certificate, filed as Exhibit 4.1 to the Prior Registration Statement, and
incorporated herein by this reference.4.2.1
    
    Representatives Warrant dated February 4, 2000 granted to John G. Kinnard and Company
Incorporated for 68,750 shares of common stock, filed as Exhibit 4.3.1 to WorldQuests Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1999, and incorporated herein by
reference.4.2.2
    
    Representatives Warrant dated February 4, 2000 granted to Kaufman Bros., L.P. for 178,750 shares
of common stock, filed as Exhibit 4.3.2 to WorldQuests Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1999, and incorporated herein by reference.4.2.3
    
    Representatives Warrant dated February 4, 2000 granted to WestPark Capital, Inc. for 27,500
shares of common stock, filed as Exhibit 4.3.3 to WorldQuests Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1999, and incorporated herein by reference.4.3
    
    Form of Unsecured Subordinated Convertible Promissory Note issued in the private placement closed
in December 1999 (the Private Placement), filed as Exhibit 4.5 to WorldQuests Form SB-2
Registration Statement, file no. 333-93019 (the Second Registration Statement), and incorporated
herein by this reference.4.4
    
    Form of Warrant issued in the Private Placement, filed as Exhibit 4.5 to the Second Registration
Statement, and incorporated herein by this reference.4.5
    
    Warrant to purchase 50,000 shares of common stock granted to Advanced Multimedia Group, Inc. on
March 16, 2000, filed as Exhibit 4.7 to WorldQuests Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2000, and incorporated herein by this reference.4.6
    
    Warrant to purchase 50,000 shares of common stock granted to Advanced Multimedia Group, Inc. on
April 26, 2000, filed as Exhibit 4.8 to WorldQuests Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2000, and incorporated herein by this reference.
 -17-




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ExhibitNumber
    
    Description of Exhibits10.1
    
    Amended 1997 Stock Option Plan, filed as Exhibit 10.2 to the Prior Registration Statement, and
incorporated herein by this reference.10.2
    
    Stock Option Agreement dated December 7, 1998 granted to Michael R. Lanham by WorldQuest, filed as
Exhibit 10.3 to the Prior Registration Statement, and incorporated herein by this reference.10.3
    
    Form of Registration Rights Agreement executed in connection with the Private Placement, filed as
Exhibit 10.6 to the Second Registration Statement, and incorporated herein by this reference.10.4
    
    2001 Stock Option Plan, filed as Exhibit 4.8 to WorldQuests Form S-8 Registration Statement, File
No. 333-54498, and incorporated herein by this reference.10.5
    
    Employment agreement by and between WorldQuest Networks, Inc. and B. Michael Adler effective as of
April 14, 2003 filed as exhibit 10.10 to WorldQuests Quarterly Report as Form 10-QSB for the
quarter ended June 30, 2003.10.6
    
    Employment agreement by and between WorldQuest Networks, Inc. and Victor E. Grijalva effective as
of April 14, 2003 filed as exhibit 10.12 to WorldQuests Quarterly Report as Form 10-QSB for the
quarter ended June 30, 2003.*31.1
    
    Certification of the Companys Chief Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of the Companys Chief Financial Officer, pursuant to Rule 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of the Companys Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of the Companys Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   *
    
    Filed herewith.  (b)
    
    Reports on Form 8-KThe Company filed a Current report on Form 8-K dated April 12, 2004
to furnish in accordance with Securities Exchange Commission Release
No. 33-8126 under item 5, Other Events the Companys press release
announcing that it had acquired the business of ValuCom, a premier
South Asian long distance company. The Company filed a Current
report on Form 8-K dated May 17, 2004 to furnish in accordance with
Securities Exchange Commission Release No. 33-8126 under item 12,
Results of Operations and Financial Condition, the Companys press
release announcing its financial results for the quarter ended March
31, 2004. The Company filed a Current report on Form 8-K dated July
28, 2004 to furnish in accordance with Securities Exchange
Commission Release No. 33-8126 under item 5, Other Events the
Companys press release announcing the sell of its Cash2India
subsidiary. 
 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
there-unto duly authorized. WORLDQUEST NETWORKS, INC.
 August 12, 2004
    By:
    /s/ Victor E. GrijalvaVictor E. GrijalvaVice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer) -18-