Form 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[X] Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999.
[ ] Transition report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______________ to _______________
Commission file number: 0-23687
Stockgroup.com Holdings, Inc.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1379282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 500 - 750 W PENDER STREET
VANCOUVER BRITISH COLUMBIA CANADA V6C 2T7 A2
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (604) 331-0995
Former address: Suite 1000 789 W Pender Street, Vancouver,
British Columbia, Canada V6C 1H2
(Former name or address, if changed since last report)
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes: _X_ No: ___
Applicable only to issuers involved in bankruptcy
proceedings during the preceding five years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes ___ No ___
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,195,000
Transitional Small Business Disclosure Format (check one); Yes: ___ No:_X_
<PAGE>
Stockgroup.com Holdings, Inc.
FORM 10-QSB
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Balance Sheets 3
Consolidated Statement of Loss and Deficit 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Qualitative and Quantitative Disclosure about Market Risk 19
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 33
Item 5. Other Events 33
Item 6. Exhibits and Reports on Form 8K 33
SIGNATURE PAGE 34
FINANCIAL DATA SCHEDULE 35
2
<PAGE>
2
Item 1. FINANCIAL STATEMENTS
Stockgroup.com Holdings, Inc.
CONSOLIDATED BALANCE SHEET
As at September 30, 1999
(UNAUDITED - Expressed in Canadian Dollars)
Unaudited Unaudited
September September
30, 1999 30, 1998
----------- -----------
(Unaudited) (Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,936,383 $ 81,078
Short term investments 16,489 32,478
Accounts receivable, net 1,217,986 187,198
Prepaids and other current assets 2,666,620 9,102
----------- -----------
$ 8,837,478 $ 309,856
LOAN RECEIVABLE $ -- 25,000
PROPERTY AND EQUIPMENT, NET $ 519,482 $ 89,258
OTHER ASSETS $ 27,900 $ 29,100
----------- -----------
$ 9,384,860 $ 453,214
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line of credit $ -- $ 51,814
Accounts payable and accrued liabilities 1,160,382 59,183
Deferred revenue 151,389 115,835
Current portion of long-term debt 10,474 15,887
----------- -----------
$ 1,322,245 $ 242,719
LONG-TERM DEBT $ 24,474 $ 40,580
----------- -----------
$ 1,346,719 $ 283,299
CAPITAL STOCK
COMMON STOCK
No Par Value, Authorized
100,000,000 shares; Issued and
Outstanding 8,195,000 Shares $10,033,136 134
RETAINED EARNINGS (DEFICIT) $(1,994,995) $ 169,781
----------- -----------
8,038,141 169,915
----------- -----------
$ 9,384,860 $ 453,214
=========== ===========
The Accompanying Notes Are An Integral Part
Of These Unaudited Financial Statements.
3
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENT OF LOSS AND DEFICIT for the Nine Months
Ended September 30, 1999
(UNAUDITED - Expressed in Canadian Dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE
Revenue $ 450,770 $ 313,213 $ 2,205,601 $ 947,686
Cost of revenues 290,389 57,875 1,519,733 153,074
----------- ----------- ----------- -----------
Gross profit $ 160,381 $ 255,338 $ 685,868 $ 794,612
EXPENSES
Operating expenses:
Sales and marketing $ 560,396 $ 100,608 $ 911,937 $ 266,120
Product development 205,758 32,612 309,950 86,261
General and administrative 540,476 175,730 1,428,093 464,815
----------- ----------- ----------- -----------
Total operating expenses $ 1,306,630 $ 308,950 $ 2,649,980 $ 817,196
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS $(1,146,249) $ (53,612) $(1,964,112) $ (22,584)
OTHER ITEMS, NET -- 1,719 $ 3,917 $ 6,319
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,146,249) $ (51,893) $(1,960,195) $ (16,265)
=========== =========== =========== ===========
RETAINED EARNINGS (DEFICIT)
- beginning of period (848,746) 221,674 (34,800) 186,046
----------- ----------- ----------- -----------
RETAINED EARNINGS (DEFICIT)
- end of period $(1,994,995) $ 169,781 $(1,994,995) $ 169,781
=========== =========== =========== ===========
Basic (Loss) Per Common Share $ (0.14) $ (0.01) $ (0.30) $ 0.00
=========== =========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 8,023,261 3,660,000 6,536,667 3,660,000
=========== =========== =========== ===========
</TABLE>
The Accompanying Notes Are An Integral Part
Of These Unaudited Financial Statements.
4
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Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1999
(UNAUDITED - Expressed in Canadian Dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income (Loss) $(1,146,249) $ (51,893) $(1,960,195) $ (16,265)
Add (deduct) non-cash items:
Amortization 40,160 15,845 59,725 18,645
----------- ---------- ----------- -----------
(1,106,089) (36,048) (1,900,470) 2,380
Net changes in other non-cash
operating accounts:
Accounts receivable 85,823 7,175 (1,066,745) (9,998)
Short term investments (15,111) 2,047 (14,489) 7,528
Prepaid expenses (2,641,840) 4,509 (2,608,024) 1,200
Other assets -- -- (1,200) (1,200)
Accounts payable 128,972 19,463 1,056,999 8,981
Deferred revenue 37,160 (15,675) 87,564 (915)
----------- ----------- ----------- -----------
$(3,511,085) $ (18,529) $(4,446,365) $ 7,976
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank line of credit -- 19,191 (116,050) 51,814
Advances from shareholders -- -- (18,471) (8,658)
Loan receivable 147,200 21,000 - (25,000)
Long-term debt (5,586) (5,300) (16,343) (15,871)
Issuance of common stock 1,766,640 -- 10,033,002 --
----------- ----------- ----------- -----------
$ 1,908,254 $ 34,891 $ 9,882,138 $ 2,285
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Due to(from) related company -- -- -- 56,000
Purchase of property and equip. (211,262) (4,866) (499,390) (30,508)
----------- ----------- ----------- -----------
$ (211,262) (4,866) $ (499,390) $ 25,492
----------- ----------- ----------- -----------
Net Increase (Decrease) In Cash (1,814,093) 11,496 4,936,383 35,753
Cash, Beginning Of Period 6,750,476 69,582 - 45,325
----------- ----------- ----------- -----------
Cash, End Of Period $ 4,936,383 $ 81,078 $ 4,936,383 $ 81,078
=========== =========== =========== ===========
</TABLE>
5
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Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarter Ended September 30, 1999
(UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) History of Company
Stockgroup.com Holdings, Inc. was incorporated under the laws of Colorado on
December 6, 1994 under the name of I-Tech Holdings Group, Inc. On March 11,
1999, we acquired Stock Research Group, Inc. ("our subsidiary") and underwent a
change in control. Through our subsidiary, we commenced our present business at
that time. Prior to that time we were engaged in the design and implementation
of websites. All descriptions concerning our business included in this Quarterly
Report incorporate our subsidiary. On May 6, 1999, we officially changed our
name from I-Tech Holdings Group, Inc. to Stockgroup.com Holdings, Inc.
Our subsidiary has been in operation since May 4, 1995 and historically, has had
three sources of revenue: (i) advertising; (ii) financial products for public
companies' Internet sites; and (iii) marketing services.
Our executive offices are located at Suite 500 - 750 West Pender Street,
Vancouver, British Columbia V6C 2T7. We also maintain offices in New York, San
Francisco, Toronto and Calgary. We are a reporting issuer under the Exchange
Act.
(b) Unaudited Interim Financial Information prepared in accordance with
Canadian GAAP
The unaudited interim financial statements of the Company for the nine months
ended September 30, 1999, included herein have been prepared in accordance with
Canadian Generally Accepted Accounting Principles (GAAP). All figures are
presented in Canadian dollars.
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
at September 30, 1999, and the results of its operations and its cash flows for
the nine months ended September 30, 1999 and 1998.
An addendum which translates these Statements at the current $US dollar exchange
rate appears as note (4) in these Statements.
6
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(c) Amortization
Amortization is provided at the following annual rates. (Except in the year of
purchase in which the Company uses 1/2 the annual rate):
Computer equipment 30% Declining balance
Office furniture and equipment 20% Declining balance
Leasehold improvements 20% Straight line
Amortization policies are reviewed on a regular basis to ensure the carrying
value of capital assets is equal to or greater than their net recoverable amount
with reference to the present value of future expected cash flows from such
assets. Adjustments, if any, to carrying value are recorded in the period of
determination of an impairment in value.
(d) Financial instruments
The Company's financial instruments consist of accounts receivable, short term
investments, shareholder loans and associated company loans, the fair value of
which approximates their carrying value.
(e) Deferred revenue
Deferred revenue consists of deposits paid in advance for future services. The
company regularly receives deposits for six months to twelve months in respect
of future services.
(f) Measurement uncertainty
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 and
the reported amounts of revenues and expenses during the reporting period.
Significant areas requiring the use of management estimates relate to the
determination of impairment of assets, useful lives for depreciation and
amortization and income taxes. Financial results as determined by actual events
could differ from those estimates.
(g) Risk management
The Company deals with numerous customers and is not exposed to concentrations
of credit or foreign exchange risk.
The Company is in the process of converting its internal software and data
management systems to be year 2000 compliant. Management does not anticipate
significant cost or down time resulting from the year 2000 issue.
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
7
<PAGE>
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
(h) Foreign exchange
Balance sheet items denominated in U.S. dollars are translated into Canadian
dollars at exchange rates prevailing at the balance sheet date for monetary
items and at exchange rates in effect at the transaction date for non-monetary
items.
Realized gains and losses from foreign currency transactions are charged to
income in the year.
(i) Research and development costs
The company expenses all market research and product development costs as
incurred.
8
<PAGE>
(2) CAPITAL STOCK
September December
30, 1999 31, 1998
# $ # $
---------- ---------- ---------- ----------
(Unaudited) (Audited)
Authorized
100,000,000 (1998 - 200)
Issued
Balance, beginning of year 200 $ 134 200 $ 134
Share split (18,300 for 1) 3,659,800 -- 3,659,800 --
---------- ---------- ---------- ----------
3,660,000 134 3,660,000 134
Issued during period
For cash 240,000 600,000 -- --
I-Tech acquisition 3,195,000 7,533 -- --
Private placement 900,000 7,658,829
Private placement 200,000 1,766,640
---------- ---------- ---------- ----------
4,535,000 10,033,002 -- --
---------- ---------- ---------- ----------
8,195,000 $10,033,136 3,660,000 $ 134
========== ========== ========== ==========
In addition to the noted changes, during the current fiscal period the Company's
authorized Class A common shares was also increased to 100,000,000 shares
following the stock split.
(3) SUBSEQUENT EVENTS
Subsequent to the end of the quarter, the following events occurred which have a
bearing on the activities of the Company:
1. On October 5, 1999 the Company launched its new on-line investment
information Community www.smallcapcenter.com. This event represents the
culmination of a significant investment of time and resources by the Company.
The launch of www.smallcapcenter.com and its national advertising campaign
subsequent to the third quarter marked two significant achievements in the
implementation of the Company's strategic plan. We believe the introduction of
www.smallcapcenter.com has solidified our position as a leading Internet content
provider of micro- and small-cap information. The look, feel, and functionality
of www.smallcapcenter.com represent a significant improvement in the features
offered on our previous www.stockgroup.com site and compare favorably with the
services offered by other Internet financial information sites now in operation.
In particular, the daily real time editorial and news reporting and increased
access to micro- and small-cap company information not previously available on
the Internet characterize some of the leading edge features on the site.
Additionally, our advertising campaign based around the slogan "Where to Find
The Next Big Thing" has significantly increased our profile with investors in
North America and is anticipated to drive increased levels of traffic to
www.smallcapcenter.com. To date, some of the prominent media purchases we have
made include full and partial page ads and/or commercials in U.S. News & World
Report, the Chicago Sun Times, the National Post, CNBC, and the Wall Street
Journal.
2. At the Corporation's 1998 Annual General Meeting on October 7, 1999
shareholders voted to ratify the Corporation's appointees for the Board of
Directors. Our Board of Directors is now composed of the following persons:
Marcus New - Chairman & CEO
Louis deBoer II - President of MediaFutures, Inc.
David N.Caddey, B.Sc., M.Sc., - Vice President of MacDonald Dettwiler and
Associates
Craig Faulkner - Chief Technology Officer
Leslie Landes - President & Chief Operating Officer
3. At the Corporation's 1998 Annual General Meeting on October 7, 1999
shareholders voted to ratify the Corporation's appointment of Ernst & Young LLP
as the Company's independent certifying accountant.
4. Subsequent to the end of the quarter we signed an agreement with Yahoo!
(Nasdaq: YHOO) to deliver daily and weekly broadcasts, which are accessible
through www.smallcapcenter.com. Yahoo! will broadcast smallcapcenter.com's daily
updates on the small and micro cap markets, called "Small Cap Snapshot," and
weekly interviews with executives from small and micro cap companies.
Additionally, through Yahoo!, Stockgroup.com clients will be able to broadcast
quarterly conference calls, special events, live interviews and question and
answer sessions. The content will be featured in several sections of the
Business area on Yahoo! Broadcast and will be archived for on-demand listening.
(4) Addendum - Translation of Financial Statements at U.S. Dollar Exchange Rate
at Quarter Ends
The Financial Statements included in this filing are presented in Canadian
Dollars and were prepared using Canadian Generally Accepted Accounting
Principles (Canadian GAAP). Canadian GAAP is highly similar, but not identical,
to U.S. GAAP. For information purposes the following information addendum
provides statements which are converted into U.S. Dollars at the exchange rates
prevailing at the end of each period. They are provided for information purposes
only and were not prepared using U.S. GAAP.
9
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED BALANCE SHEET
As at September 30, 1999
(UNAUDITED)
(Converted to U.S. Dollars at rates prevailing at period ends
- conversion table follows)
September September
30, 1999 30, 1998
----------- -----------
(unaudited) (unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,358,221 $ 53,139
Short term investments 11,217 21,286
Accounts receivable, net 828,596 122,690
Prepaids and other current assets 1,814,102 5,965
----------- -----------
$ 6,012,136 $ 203,080
LOAN RECEIVABLE $ -- $ 16,385
PROPERTY AND EQUIPMENT, NET $ 353,404 $ 58,500
OTHER ASSETS $ 18,980 $ 19,072
----------- -----------
$ 6,384,520 $ 297,037
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank line of credit $ -- $ 33,959
Accounts payable and accrued liabilities 789,408 38,789
Deferred revenue 102,990 75,918
Current portion of long-term debt 7,125 10,412
----------- -----------
$ 899,523 $ 159,078
LONG-TERM DEBT $ 16,650 $ 26,596
----------- -----------
$ 916,173 $ 185,674
CAPITAL STOCK
COMMON STOCK
No Par Value, Authorized
100,000,000 shares; Issued and
Outstanding 8,195,000 Shares $ 6,825,542 $ 88
RETAINED EARNINGS (DEFICIT) $(1,357,195) $ 111,275
----------- -----------
5,468,347 111,363
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,384,520 $ 297,037
=========== ===========
10
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Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENT OF LOSS AND DEFICIT For the Nine Months
Ended September 30, 1999
(UNAUDITED)
(Converted to U.S. Dollars at rates prevailing at period ends
- conversion table follows)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUE
Revenue $ 306,659 $ 205,280 $ 1,500,470 $ 621,114
Cost of revenues 197,552 37,931 1,033,874 198,760
--------- ---------- ----------- -----------
Gross profit $ 109,107 $ 167,349 $ 466,596 $ 422,354
EXPENSES
Operating expenses:
Sales and marketing $ 381,237 $ 65,938 $ 620,391 $ 136,104
Product development 139,977 21,374 210,859 28,632
General and administrative 367,687 115,174 971,532 272,419
----------- ----------- ----------- -----------
Total operating expenses $ 888,901 $ 202,486 $ 1,802,782 $ 437,155
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS $ (779,794) $ (35,137) $(1,336,186) $ (14,801)
OTHER ITEMS, NET $ -- $ 1,127 $ 2,665 $ 4,141
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES $ (779,794) $ (34,010) $(1,333,521) $ (10,660)
INCOME TAX PROVISION (RECOVERY) $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (779,794) $ (34,010) $(1,333,521) $ (10,660)
=========== =========== =========== ===========
RETAINED EARNINGS (DEFICIT)
- Beginning of period (576,553) 150,267 (23,464) 125,444
FOREIGN CURRENCY FLUCTUATION (848) (4,982) (210) (3,509)
----------- ----------- ----------- -----------
DEFICIT, NET (577,401) 145,285 (23,674) 121,935
DEFICIT - End of period $(1,357,195) $ 111,275 $(1,357,195) $ 111,275
=========== =========== =========== ===========
Fully diluted income (loss)
Per common share $ (0.08) $ (0.01) $ (0.14) $ 0.00
=========== =========== =========== ===========
</TABLE>
11
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Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1999
(UNAUDITED)
(Converted to U.S. Dollars at rates prevailing at period ends
- conversion table follows)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATIONS
Net Income (Loss) $ (779,794) $ (34,010) $(1,333,521) $ (10,660)
Add (deduct) non-cash items:
Amortization 27,322 10,384 40,631 12,220
----------- ----------- ----------- -----------
Net changes in other $ (752,472) $ (23,626) $(1,292,890) $ 1,560
non-cash operating accounts:
Short term investments $ (10,280) $ 1,342 $ (9,857) $ (6,553)
Accounts receivable 58,385 4,702 (725,707) 4,934
Prepaid expenses (1,797,244) 2,955 (1,774,239) 786
Other assets -- -- (816) (786)
Accounts payable 87,740 12,756 719,076 5,886
Deferred revenue 25,280 (10,273) 59,571 (600)
----------- ----------- ----------- -----------
$(2,388,591) $ (12,144) $(3,024,862) $ 5,227
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Bank line of credit $ -- $ 12,578 $ (78,949) $ 33,959
Advances from shareholders -- -- (12,566) (5,674)
Loan receivable 100,140 13,763 -- (16,385)
Long-term debt (3,800) (3,474) (11,118) (10,402)
Issuance of common stock 1,201,845 -- 6,825,451 --
----------- ----------- ----------- -----------
$ 1,298,185 $ 22,867 $ 6,722,818 $ 1,498
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Due to (from) related company $ -- $ -- $ -- $ 36,702
Purchase of property and equip. (143,722) (3,189) (339,735) (19,994)
----------- ----------- ----------- -----------
$ (143,722) $ (3,189) $ (339,735) $ 16,708
----------- ----------- ----------- -----------
Net Increase (Decrease) In Cash $(1,234,128) $ 7,534 $ 3,358,221 $ 23,433
Cash, Beginning Of Period $ 4,592,349 $ 45,605 $ -- $ 29,706
----------- ----------- ----------- -----------
Cash, End Of Period $ 3,358,221 $ 53,139 $ 3,358,221 $ 53,139
=========== =========== =========== ===========
</TABLE>
12
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HISTORIC EXCHANGE RATE CONVERSION TABLE
Conversion table for Canadian to U.S. Dollar Exchange
Value of Canadian
Dollar
Date in U.S. Dollars
----------------- ---------------
September 30, 1999 0.6803
December 31, 1998 0.6743
September 30, 1998 0.6554
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1999 (all figures in
Canadian Dollars)
During the quarter ended September 30, 1999, the Company generated revenues of
CDN$450,770 which represents a 49% increase over the CDN$313,213 generated in
the quarter ended September 30, 1998. For the nine month period ended September
30, 1999, revenues totaled CDN$2,205,601 versus CDN$947,686 for the same period
in 1998, or an improvement of 142% year over year. The growth in revenues was
primarily due to higher sales of Internet marketing services to corporations and
increased advertising sales. The Company also opened its second US office in New
York and hired more sales staff in its Vancouver office.
The Company incurred a net loss of CDN$(1,146,249) for quarter ended September
30, 1999. This compared with a net loss of CDN$(51,893) for the third quarter in
1998. For the nine month period ended September 30, 1999, the Company's net loss
increased from CDN$(16,265) in 1998 to CDN$(1,960,195) in 1999. These losses are
a function of implementation of the Company's strategic plans and had been
anticipated. During the period the introduction of new services and increased
sales of advertising caused our cost of revenues to increase and our gross
profit to decrease relative to the same period in 1998. This was due primarily
to the purchase of new data feeds and subcontracting costs related to
advertising purchases for clients. During the quarter the Company incurred
significant expenses related to development of www.smallcapcenter.com, its new
on-line Community. These included development expenses for a major advertising
campaign which will be undertaken in the fourth quarter to announce launch of
the new Community. One time development and new ongoing operating expenses
related to this project had a major bearing on financial results. As a result of
the development and launch of www.smallcapcenter.com, the company experienced
significant increases in: sales and marketing expenses which increased 457% for
the quarter and 243% for the nine month period and product development expenses
which increased 531% for the quarter and 259% for the nine month period.
Additionally, general and administrative expenses increased by 208% for the
quarter and 207% for the nine month period ended September 30, 1999.
Advertising development expenses related to site launch initiatives accounted
for a majority of the increase within sales and marketing. Items which accounted
for a majority of the increases in general and administrative were: higher
office rent expenses due to an expansion of our branch network, increased
staffing costs, costs related to temporary data entry staff used for site
development, and travel.
During the quarter we completed a private placement with Southam, Inc., a
subsidiary of Hollinger International (NYSE: HLR). Funds from this private
placement were used to purchase advertising in Southam newspapers. This
transaction significantly contributed to the increase in our prepaid assets.
13
<PAGE>
CORPORATE DEVELOPMENTS DURING THE PERIOD
Ernst & Young LLP named as new independent accountant
On July 7, 1999 the Board of Directors approved the appointment of Ernst & Young
LLP as the Company's new independent accountant. The Company selected Ernst &
Young due to its international branch network and expertise in the audit of
technology firms.
New York office opening
On September 1, 1999 we opened our New York branch. This office is home to both
sales staff and our New York news bureau. The Company is now actively recruiting
sales and editorial staff for this office.
Board of Directors
During the quarter the Company nominated Louis deBoer II for the position of
Director. This nomination was ratified by shareholders on October 7, 1999. Mr.
deBoer has over 20 years experience in the strategic development of national
media programming, advertising sales and content development. His extensive
background and knowledge of the on-line industry and start-up ventures, as well
as his marketing and research accomplishments, have helped nationally recognized
companies such as HBO, Inc., U.S. West (NYSE: USW), United News and Media (NASD:
UNEWY) and Court TV. Mr. deBoer spent 17 years at HBO culminating in the
positions of Executive Vice President of HBO Inc. and President of its
International division. Mr. deBoer played an instrumental role in helping
negotiate and broker deals that significantly increased the company's presence
in its International markets. His managerial and operational experience also
played a pivotal role in helping shape several of HBO's international start-up
ventures. Currently Mr. deBoer serves as President of MediaFutures, Inc. with
clients in the Internet and cable broadcasting industries.
Private Placement
In the second quarter the company completed a private placement with Southam,
Inc. totaling an aggregate of USD$1.2 million through the issuance of 200,000
common shares at USD $6.00 per share. Southam, Inc. is a subsidiary of Hollinger
International (NYSE: HLR), a leading newspaper publishing company. Funds from
this private placement are being used for advertising in Southam newspapers.
Increased revenues
During the third quarter we saw an increase in revenues of 49% over the same
period last year and an increase in revenues of 142% for the nine month period
ended September 30, 1999 versus the same period in 1998.
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CORPORATE OVERVIEW AND BACKGROUND
We are an investment information on-line Community with viewers in the United
States, Canada and abroad. The Community model is based on the creation and
fostering of an Internet site which provides members with a range of services
and content which are targeted toward a certain area of interest. Community
sites are generally designed to provide users with a stimulating interactive
experience which encourages them to return to the Community on a frequent basis.
The essence of the Community model is to provide an on-line home which wins the
loyalty of viewer members. Content is usually based around themes of interest
such as News, Business, Investing, Career Information, Travel, Medical & Life
Issues, Technology, Sports & Entertainment, etc. Generally, a Community's
revenue rely on the sale of advertising, e-mail commerce arrangements and the
sale of membership subscriptions for premium content or other special services.
We focus on business and financial news and information for investors interested
in micro and small capitalization companies. These are companies that have
market capitalization (defined as shares outstanding times the market price per
share) of less than USD$750 million in the case of "small capitalization"
companies or USD$50 million in the case of "micro capitalization" companies.
Our main website, www.smallcapcenter.com, acts as a portal for investors
researching, analyzing, and discussing micro and small cap stocks and markets.
This website provides newsworthy micro and small cap information to hundreds of
thousands of investor viewers as well as disseminating information about our
corporate clients. This information includes detailed profiles of companies,
industry news, stock quotes, charts, daily market reports, news releases and
other investment tools. Our Community is multi-tiered and includes both general
interest and industry-specific areas including: Computers/Telcomm; Consumer
Goods; Energy; Finance/Real Estate; Food & Beverage; Healthcare; Internet;
Manufacturing; Natural Resources; Services; and Transportation. We believe that
we have become a primary provider of timely, accurate investment information to
micro and small cap investors.
We are also a leading provider of website design and Internet financial products
and marketing services for small and micro cap companies, a market segment that
traditionally has not had the same market profile as larger public companies.
Some of the specialty products we produce include private label quotes and
charts, database tools for building relationships with shareholders, "traffic"
reports which allow a company's management to assess the impact of website use
by its viewers, and design services and maintenance contracts.
Our business is characterized by rapid technological change, new product
development and evolving industry standards. Inherent in our business are
various risks and uncertainties, including a limited operating history, a new
and unproven business model and the limited history of commerce on the Internet.
Our success may depend in part upon the emergence of the Internet as a
communications medium, prospective product development efforts and the
acceptance of our products and services by the marketplace. As part of our
strategic development plans, we invest significant resources in research and
development of new products and services.
As of September 30, 1999 we had 52 employees, of which 48 were full time.
MANAGEMENT
Marcus New is the founder, Chairman and Chief Executive Officer of
Stockgroup.com. Mr. New is an acknowledged authority on investing on the
Internet. He has been an invited guest speaker to the New York Society of
Security Analysts where his speech was transmitted on NBC's Private Financial
Network. He has also appeared on national media broadcasts including CNBC,
Bloomberg Radio, CNNfn, Investors On Line and Money Hunt. Mr. New is also a
director of IRI Inc., the "for profit" company for the Investor Research
Institute headquartered in New York.
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Leslie Landes, President and Chief Operating Officer, has been with the Company
since August 1998 and has been an advisor to the Company since inception. Mr.
Landes previously founded Landes Enterprises Limited, a privately held interim
turnaround management consulting company that advised and counseled clients in
several industries including telecommunications and technology on issues ranging
from mergers and acquisitions to international marketing campaigns. Prior to
founding Landes Enterprises in 1992, Les Landes served as a senior executive of
The Jim Pattison Group, Canada's third largest private company with sales in
excess of $3 billion and over 13,000 employees. In these capacities, Mr. Landes
successfully initiated and completed the acquisition of strategically important
companies in a number of diverse industries. Mr. Landes also had active
management responsibilities and under his presidency, the Jim Pattison Group's
Sign Group Division was built into the largest electronic sign company in the
world.
Craig Faulkner, Vice President Operations and Chief Technology Officer, has been
a computer user and programmer for over 15 years and is one of the founding
partners of Stockgroup.com. He brings extensive technical skills to the
Stockgroup.com team and is responsible for the implementation and development of
the product side of the business. Prior to joining Stockgroup.com, he was a
computer consultant at Construction Select Software specializing in database
applications. Among other accomplishments, under his direction, Stockgroup.com
was a pioneer in the usage of on-the-fly page generation. This technology allows
for dynamic data presentation to investors as it is generated.
John Dawe, CFA, Vice President Finance, Secretary and Treasurer, has been with
the Company since November 1998 and has over 16 years experience in the
investment brokerage and financial services community. Prior to joining
Stockgroup.com, Mr. Dawe was the proprietor of a successful consulting practice
that specialized in providing strategic analysis and marketing services to the
financial services industry. During his career he has also held senior
marketing, treasury and business development positions with Pemberton
Securities, Pacific Coast Savings Credit Union, and The Pacific Corporate Trust
Company.
DESCRIPTION OF BUSINESS MODEL
The Company's business model is based on serving two complementary target
markets.
Target Market One - Small Cap Investors Seeking Reliable Information
Investors have difficulty obtaining timely, accurate investment information on
small and micro cap companies due to a lack of objective news sources. Most
media organizations, investment firms and brokerage houses tend to focus a
significant majority of their attention on larger public companies. As a result,
small and micro cap investors have not had access to the level of non-biased
third party information or traditional sources of company research reports they
desire. This lack of information is coupled with the increasing shift of
investors from traditional retail brokerages to discount and on-line
alternatives. This shift has created an increased interest in personal
investment research on the part of individual investors. However, investor
interest in the small and micro cap sectors has not been accompanied by an
increased coverage of the small and micro cap sectors by traditional media,
traditional brokerage firms or alternative on-line and discount investment
service providers. As a result, investors have turned to other resources on the
Internet as a method of obtaining the timely financial information needed to
make small cap investment decisions.
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Target Market Two - Small Cap Companies Seeking Better Exposure to Investors
As described above, small and micro cap companies do not receive the same
coverage as large public companies. Over the last few years, the Internet has
become a cost-effective solution to enhance their profile, but many small and
micro cap companies have lacked the skills and knowledge to take full advantage
of this opportunity. This had led to the outsourcing of Internet related
services. Requirements of small and micro cap companies are broad and range from
the design, development and maintenance of investor relations oriented websites
to the creation of effective on-line advertising campaigns. Stockgroup.com has
become a significant provider of these types of services.
Stockgroup.com does not act as a public relations or investor relations firm.
The smallcapcenter.com Internet Investment Information Community
To meet the needs of its two complementary target markets, Stockgroup.com has
created www.smallcapcenter.com, an Internet information Community which provides
a wide range of services to investors interested in small and micro cap
companies and markets. A significant feature which differentiates
smallcapcenter.com from other financial websites is its on-line news reporting.
Stockgroup.com employs a staff of professional journalists who produce breaking
stories throughout the trading day on topics of interest to small and micro cap
investors. A major component of our business model is to develop and expand this
news service into a world class news organization with bureaus and contributors
throughout North America. Services on the site are currently offered on a free
trial basis and we are projecting future revenues will arise from the conversion
of viewers of the site into purchasers of subscription based services.
In addition to its news coverage features, the smallcapcenter.com Community is
multi-tier and provides general interest and industry-specific areas including:
Computers/Telcomm; Consumer Goods; Energy; Finance/Real Estate; Food & Beverage;
Healthcare; Internet; Manufacturing; Natural Resources; Services; and
Transportation. Overall the Community provides investors with a wide range of
information, investment tools and interactive features. Along with news and
original content articles, the Community features detailed profiles of
companies, news releases, industry news, discussion forums, stock quotes,
charts, and portfolio management and other investor research tools.
By satisfying its viewers' investment information needs, Stockgroup.com seeks to
become the dominant single source of small and micro cap information on the
Internet.
STOCKGROUP.COM'S SOURCES OF REVENUE
Historically, Stockgroup.com has had three sources of revenue: (i) advertising;
(ii) financial products for public companies' Internet sites; and (iii)
marketing services.
Advertising
Stockgroup.com derives revenue from corporate advertisers who see benefit in
presenting their products and services to smallcapcenter.com's Internet
audience. Advertisers seek and are willing to pay premium rates to advertise on
smallcapcenter.com, due to its highly specific demographics and heavy traffic.
The investor demographic profile, which consists of well educated, technically
savvy, mid to high-income level earners and higher risk investors is very
attractive to numerous advertisers. Corporate advertisers have included such
companies as IBM, Microsoft, VISA, Solomon Smith Barney, Datek Securities,
Standard & Poors, CIBC, Bank of America, Charles Schwab, Intel, Ameritrade,
Quicken, The Toronto Stock Exchange, and Discover Brokerage.
Financial Products for Public Companies' Internet Sites
The Company offers monthly maintenance for websites and other web services such
as private label quotes and charts, database tools for building relationships
with shareholders and management "traffic" reports to track investor usage of
websites and inquiries. In addition, unlike other web hosting and design
companies, Stockgroup.com develops web sites with the investment community in
mind.
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Stockgroup.com offers packages which can be tailored to include some or all of
its services and graphic design levels, depending on the needs and budget of
each client.
Marketing Services
As a means of providing small cap companies with greater exposure,
Stockgroup.com markets services such as placement of links to clients' sites on
Stockgroup.com's proprietary information Community and `rental' access to
Stockgroup.com's proprietary Email listing of over 27,500 investors. In
addition, Stockgroup.com provides advertising management services, essentially
acting as an on-line advertising agency providing advertisement design and
placement services for its clients. Stockgroup.com also places ads, as a
function of client budgets, on other web sites it believes will provide the
client with the greatest exposure to the investment community.
Forward-looking statements
Certain statements contained herein constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These forward-looking statements can be identified
by the use of predictive, future-tense or forward-looking terminology, such as
"believes," "anticipates," "expects," "estimates," "plans," "may," "intends,"
"will," or similar terms. These statements appear in a number of places in this
report and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) trends affecting the Company's financial condition or
results of operations, (ii) the Company's business and growth strategies, (iii)
the Internet and Internet commerce and (iv) the Company's financing plans.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors set
forth under "Risk Factors" and elsewhere in this report. The preceding
discussion of the financial condition and results of operations of the Company
should be read in conjunction with the financial statements and notes related
thereto included elsewhere in this report.
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Additionally, the following outlines some of the risk factors related to the
Company.
Item 3. QUALITATIVE AND QUANTATIVE DISCLOSURE ABOUT MARKET RISK
Limited Operating History
The Company was founded in May 1995. Accordingly, the Company has a limited
operating history upon which an evaluation of the Company, its current business
and its prospects can be based, each of which must be considered in light of the
risks, expenses and problems frequently encountered by all companies in the
early stages of development, and particularly by such companies entering new and
rapidly developing markets like the Internet. Such risks include, without
limitation, the lack of broad acceptance of the Community model on the Internet,
the possibility that the Internet will fail to achieve broad acceptance as an
advertising and commercial medium, the inability of the Company to attract or
retain viewers, the inability of the Company to generate significant advertising
revenues or subscription service revenues from its corporate clients, a new and
relatively unproven business model, the Company's ability to anticipate and
adapt to a developing market, the failure of the Company's network
infrastructure (including its server, hardware and software) to efficiently
handle its Internet traffic, changes in laws that adversely affect the Company's
business, the ability of the Company to manage effectively its rapidly expanding
operations, including the amount and timing of capital expenditures and other
costs relating to the expansion of the Company's operations, the introduction
and development of different or more extensive Communities by direct and
indirect competitors of the Company, including those with greater financial,
technical and marketing resources, the inability of the Company to maintain and
increase levels of traffic on its Web site, the inability of the Company to
attract, retain and motivate qualified personnel and general economic
conditions. To address these risks, the Company must, among other things,
attract and retain viewers, maintain its customer base and attract a significant
number of new advertising customers, respond to competitive developments,
develop and extend its brand, continue to attract, retain and motivate qualified
personnel, and continue to develop and upgrade its technologies and
commercialize its services incorporating such technologies. There can be no
assurance that the Company will be successful in addressing such risks, and any
failure to do so could have a material adverse effect on the Company's business,
results of operations and financial condition.
Fluctuating Rates of Revenue Growth
There can be no assurance the Company's revenue growth in recent periods will
continue or increase. The Company's limited operating history makes the
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prediction of future results difficult or impossible and, therefore, the
Company's recent revenue growth should not be taken as an indication of any
growth that can be expected in the future. Furthermore, its limited operating
history leads the Company to believe that period-to-period comparisons of its
operating results are not meaningful and that the results for any period should
not be relied upon as an indication of future performance. To the extent that
revenues do not grow at anticipated rates, the Company's business, results of
operations and financial condition would be materially and adversely affected.
Anticipated Losses for the Foreseeable Future
The Company has not achieved profitability in the current period or for the
preceding year and the Company anticipates that it will continue to incur net
losses for the foreseeable future. The extent of these losses will depend, in
part, on the amount of growth in the Company's revenues from advertising sales,
client product and marketing services and sales revenues and subscription fees
from new services. As of December 31, 1998, the Company had an accumulated
deficit of $35 thousand. The Company expects that its operating expenses will
increase significantly during the next several years, especially in the areas of
product development and general and administrative expenses. Thus, the Company
will need to generate increased revenues to achieve profitability. To the extent
that increases in its operating expenses precede or are not subsequently
followed by commensurate increases in revenues, or that the Company is unable to
adjust operating expense levels accordingly, the Company's business, results of
operations and financial condition would be materially and adversely affected.
There can be no assurance that the Company will ever achieve or sustain
profitability or that the Company's operating losses will not increase in the
future.
Dependence on Continued Growth in Use and Commercial Viability of the Internet
The Company's future success is substantially dependent upon continued growth in
the use of the Internet. To support advertising sales, and product and marketing
services sales revenues on Stockgroup.com, the Internet's recent and rapid
growth must continue, and use of the Internet must become widespread. None of
these can be assured. The Internet may prove not to be a viable information
communications medium and information marketplace. Additionally, due to the
ability of consumers to easily compare prices of similar products or services on
competing Web sites, gross margins for the services marketed by the Company may
narrow in the future and, accordingly, the Company's revenues may be materially
negatively impacted. If use of the Internet does not continue to grow, the
Company's business, results of operations and financial condition would be
materially and adversely affected.
Additionally, to the extent that the Internet continues to experience
significant growth in the number of users and the level of use, there can be no
assurance that its technical infrastructure will continue to be able to support
the demands placed upon it. The necessary technical infrastructure for
significant increases in electronic news dissemination and e-commerce related to
it, such as a reliable network backbone, may not be timely and adequately
developed. In addition, performance improvements, such as high-speed modems, may
not be introduced in a timely fashion. Furthermore, security and authentication
concerns with respect to transmission over the Internet of confidential
information, such as credit card numbers, may remain. Issues like these could
lead to resistance against the acceptance of the Internet as a viable commercial
marketplace. Also, the Internet could lose its viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of activity, or due to increased governmental regulation.
Changes in or insufficient availability of telecommunications services could
result in slower response times and adversely affect usage of the Internet. To
the extent the Internet's technical infrastructure does not effectively support
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the growth that may occur, the Company's business, results of operations and
financial condition would be materially and adversely affected.
Unproven Business Model; Developing Market; Unproven Acceptance of the Company's
Products
The Company's business model is new and relatively unproven. The model depends
upon the Company's ability to generate multiple revenue streams by leveraging
its Community platform. To be successful, the Company must, among other things,
develop and market products and services that achieve broad market acceptance by
its users, advertisers and client subscriber companies. There can be no
assurance that any Internet Community, including Stockgroup.com, will achieve
broad market acceptance. Accordingly, no assurance can be given that the
Company's business model will be successful or that it can sustain revenue
growth or be profitable.
The market for the Company's products and services is new, rapidly developing
and characterized by an increasing number of market entrants. As is typical of
any new and rapidly evolving market, demand and market acceptance for recently
introduced products and services are subject to a high level of uncertainty and
risk. Moreover, because this market is new and rapidly evolving, it is difficult
to predict its future growth rate, if any, and its ultimate size. If the market
fails to develop, develops more slowly than expected or becomes saturated with
competitors, or if the Company's products and services do not achieve or sustain
market acceptance, the Company's business, results of operations and financial
condition would be materially and adversely affected.
Brand Identity Is Critical to the Company; Risks Associated with Brand
Development
The Company believes that establishing and maintaining brand identity is a
critical aspect of efforts to attract and expand its viewer base, Internet
traffic and advertising and commerce relationships. Furthermore, the Company
believes that the importance of brand recognition will increase as low barriers
to entry encourage the proliferation of Internet sites. In order to attract and
retain viewers, advertisers and subscriber clients, and in response to
competitive pressures, the Company intends to increase its financial commitment
to the creation and maintenance of brand loyalty among these groups. The Company
plans to accomplish this, although not exclusively, through advertising
campaigns in several forms of media, including television, print, on-line media,
and other marketing and promotional efforts. If the Company does not generate a
corresponding increase in revenue as a result of its branding efforts or
otherwise fails to promote its brand successfully, or if the Company incurs
excessive expenses in an attempt to promote and maintain its brand, the
Company's business, results of operations and financial condition would be
materially and adversely affected.
Promotion and enhancement of the Stockgroup.com brand will also depend, in part,
on the Company's success in providing a high-quality "Community experience."
Such success cannot be assured. If viewers, users, advertisers and commerce
vendors do not perceive Stockgroup.com's Community experience to be of high
quality, or if the Company introduces new services or enters into new business
ventures that are not favorably received by such parties, the value of the
Company's brand could be diluted. Such brand dilution could decrease the
attractiveness of Stockgroup.com to such parties, and could materially and
adversely affect the Company's business, results of operations and financial
condition.
Significant Reliance on Advertising Revenues; Short-term Nature of Advertising
Contracts; Company Guarantee of Minimum Impression Levels
The Company derives a significant portion of its revenues from the sale of
advertisements on its site, and expects to continue to do so for the foreseeable
future. The Company's business model therefore is highly dependent on the amount
of "traffic" on Stockgroup.com, which has a direct effect on the Company's
advertising revenues. The Company is in the early stages of implementing its
international branch network and its advertising sales programs which, if not
successful, could materially and adversely affect the Company's business,
results of operations and financial condition.
To date, substantially all of the Company's advertising contracts have been for
terms averaging one to three months in length, with relatively few longer-term
advertising contracts. Many of the Company's advertising customers have limited
experience with Internet advertising, have not devoted a significant portion of
their advertising expenditures to Internet advertising and may not believe
Internet advertising to be effective relative to traditional advertising media.
There can be no assurance that the Company's current advertisers will continue
to purchase advertisements on Stockgroup.com.
The Company's contracts with advertisers typically guarantee the advertiser a
minimum number of "impressions," or times that an advertisement is seen by users
of Stockgroup.com. To the extent that minimum impression levels are not achieved
for any reason, the Company may be required to "make good" or provide additional
impressions after the contract term, which may adversely affect the availability
of advertising inventory and which could have a material adverse effect on the
Company's business, results of operations and financial condition.
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Additionally, the process of managing advertising within a large, high-traffic
Web site such as the Company's is an increasingly important and complex task. If
the Company does not manage this task in an efficient and appropriate manner,
its financial performance may be impaired. Also to the extent that the Company
encounters system failures or material difficulties in the operation of its
systems, the Company could be unable to deliver banner advertisements and
sponsorships through its site. Any extended failure of, or material difficulties
encountered in connection with, the Company's advertising management system may
expose the Company to "make good" obligations with its advertisers, which, by
displacing saleable advertising inventory, among other consequences, would
reduce revenues and could have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company's ability to generate significant advertising revenues will depend,
in part, on its ability to create new advertising programs without diluting the
perceived value of its existing programs. The Company's ability to generate
advertising revenues will depend also, in part, on advertisers' acceptance of
the Internet as an attractive and sustainable medium, the development of a large
base of users of the Company's products and services, the effective development
of Web site content that provides user demographic characteristics that will be
attractive to advertisers, and government regulation. The adoption of
Internet-based advertising, particularly by those advertisers that have
historically relied upon traditional advertising media, requires the acceptance
of a new way of conducting business and exchanging information. There can be no
assurance that the market for Internet advertising will continue to emerge or
become sustainable. If the market develops more slowly than expected, the
Company's business, results of operations and financial condition could be
materially and adversely affected.
The Internet as an advertising medium has not been available for a sufficient
period of time to gauge its effectiveness as compared with traditional
advertising media. No standards have been widely accepted for the measurement of
the effectiveness of Internet-based advertising, and there can be no assurance
that any such standards will become widely accepted in the future. Additionally,
no standards have been widely accepted to measure the number of unique users or
page views related to a particular site. Internet advertising rates are based in
part on third-party estimates of users of an Internet site. Such estimates are
often based on sampling techniques or other imprecise measures, and may
materially differ from Company estimates. There can be no assurance that
advertisers will accept the Company's or other parties' measurements of
impressions. The rejection by advertisers of such measurements could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The sale of Internet advertising is subject to intense competition that has
resulted in a wide variety of pricing models, rate quotes and advertising
services. This has made it difficult to project future levels of advertising
revenues and rates. It is also difficult to predict which pricing models, if
any, will achieve broad acceptance among advertisers. As described above, to
date, the Company has based its advertising rates on providing advertisers with
a guaranteed number of impressions, and any failure of the Company's advertising
model to achieve broad market acceptance, would have a material adverse effect
on the Company's business, results of operations and financial condition.
"Filter" software programs that limit or remove advertising from an Internet
user's desktop are available to consumers. Widespread adoption or increased use
of such software by users or the adoption of such software by certain Internet
access providers could have a material adverse effect upon the viability of
advertising on the Internet and on the Company's business, results of operations
and financial condition.
Potential Fluctuations in Operating Results; Quarterly Fluctuations
The Company's operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's control.
See "--Limited Operating History" and "--Fluctuating Rates of Revenue Growth."
As a strategic response to changes in the competitive environment, the Company
may from time to time make certain pricing, service or marketing decisions or
acquisitions that could have a material short-term or long-term adverse effect
on the Company's business, results of operations and financial condition. See
"--Brand Identity Is Critical to the Company; Risks Associated with Brand
Development."
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The Company derives a significant portion of its revenues from the sale of
advertising under short-term contracts, averaging one to three months in length.
As a result, the Company's quarterly revenues and operating results are, to a
significant extent, dependent on advertising revenues from contracts entered
into within the quarter, and on the Company's ability to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. See
"--Significant Reliance on Advertising Revenues; Short-term Nature of
Advertising Contracts; Company Guarantee of Minimum Impression Levels."
The foregoing factors, in some future quarters, may lead the Company's operating
results to fall below the expectations of securities analysts and investors. In
such event, the trading price of the Common Stock would likely be materially and
adversely affected.
Control by Management Group
In the aggregate, direct and beneficial ownership of the Company's Shares by
Management and Directors represent approximately 46% of the Company's issued and
outstanding shares of common stock. Hence, the Management Group has effective
control of the corporation.
Dependence on Key Personnel
The Company's performance is substantially dependent on the performance of its
senior management and key technical personnel. In particular, the Company's
success depends on the continued efforts of its senior management team,
especially its Chief Executive Officer Marcus New and its President Leslie
Landes. The loss of the services of any of its executive officers or other key
employees could have a material adverse effect on the business, results of
operations and financial condition of the Company. Although several senior
management personnel have substantial share and/or stock options interests in
the Company, at present, the Company does not have agreements in place which
bind its senior management to the Company.
The Company's future success also depends on its continuing ability to retain
and attract highly qualified technical and managerial personnel. The Company
anticipates that the number of its employees will increase significantly in the
next 12 months. Wages for managerial and technical employees are increasing and
are expected to continue to increase in the foreseeable future due to the
competitive nature of this job market. There can be no assurance that the
Company will be able to retain its key managerial and technical personnel or
that it will be able to attract and retain additional highly qualified technical
and managerial personnel in the future. The Company has experienced difficulty
from time to time in attracting the personnel necessary to support the growth of
its business, and there can be no assurance that the Company will not experience
similar difficulty in the future. The inability to attract and retain the
technical and managerial personnel necessary to support the growth of the
Company's business, due to, among other things, a large increase in the wages
demanded by such personnel, could have a material adverse effect upon the
Company's business, results of operations and financial condition.
Management of Growth; Inexperienced Management
The Company's recent growth has placed, and is expected to continue to place, a
significant strain on its managerial, operational and financial resources. To
manage its potential growth, the Company must continue to implement and improve
its operational and financial systems, and must expand, train and manage its
employee base. The Company's President and Vice President Finance joined the
Company during August and November 1998, respectively. In addition, the Company
has yet to fill several key senior management posts. Furthermore, the members of
the Company's current senior management (other than the President) have not had
any previous experience managing a public company or a large operating company.
There can be no assurance that the Company will be able to effectively manage
the expansion of its operations, that the Company's systems, procedures or
controls will be adequate to support the Company's operations or that Company
management will be able to achieve the rapid execution necessary to fully
exploit the market opportunity for the Company's products and services. Any
inability to manage growth effectively could have a material adverse effect on
the Company's business, results of operations and financial condition.
Need to Enhance and Develop Stockgroup.com to Remain Competitive
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of Stockgroup.com and develop other
products and services. Enhancements of or improvements to the Web site may
contain undetected programming errors that require significant
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design modifications, resulting in a loss of customer confidence and user
support and a decrease in the value of the Company's brand name recognition.
The Company plans to develop and introduce new features and functions, such as
increased capabilities for user personalization and interactivity. This will
require the development or licensing of increasingly complex technologies. There
can be no assurance that the Company will be successful in developing or
introducing such features and functions or that such features and functions will
achieve market acceptance or enhance the Company's brand name recognition. Any
failure of the Company to effectively develop and introduce new features and
functions, or the failure of such new features and functions to achieve market
acceptance, could have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company also plans to develop and introduce new products and services. There
can be no assurance that the Company will be successful in developing or
introducing such products and services or that such products and services will
achieve market acceptance or enhance the Company's brand name recognition. Any
failure of the Company to effectively develop and introduce these products and
services, or the failure of such products and services to achieve market
acceptance, could have a material adverse effect on the Company's business,
results of operations and financial condition.
Internet Industry Is Characterized by Rapid Technological Change
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and customer demands,
and frequent new product introductions and enhancements. These market
characteristics are exacerbated by the emerging nature of the market and the
fact that many companies are expected to introduce new Internet products and
services in the near future. The Company's future success will depend in
significant part on its ability to continually improve the performance, features
and reliability of the site in response to both evolving demands of the
marketplace and competitive product and service offerings, and there can be no
assurance that the Company will be successful in doing so. In addition, the
widespread adoption of developing multimedia enabling technologies could require
fundamental and costly changes in the Company's technology and could
fundamentally affect the nature, viability and measurability of Internet-based
advertising, which could adversely affect the Company's business, results of
operations and financial condition.
Risk of Capacity Constraints and Systems Failures
A key element of the Company's strategy is to generate a high volume of user
traffic. The Company's ability to attract advertisers and to achieve market
acceptance of its products and services, and its reputation, depend
significantly upon the performance of the Company and its network infrastructure
(including its server, hardware and software). Any system failure that causes
interruption or slower response time of the Company's products and services
could result in less traffic to the Company's Web site and, if sustained or
repeated, could reduce the attractiveness of the Company's products and services
to advertisers and licensees. An increase in the volume of user traffic could
strain the capacity of the Company's technical infrastructure, which could lead
to slower response time or system failures, and could adversely affect the
delivery of the number of impressions that are owed to advertisers and thus the
Company's advertising revenues. In addition, as the number of users of
Stockgroup.com increase, there can be no assurance that the Company and its
technical infrastructure will be able to grow accordingly, and the Company faces
risks related to its ability to scale up to its expected viewer levels while
maintaining superior performance. Any failure of the Company's server and
networking systems to handle current or higher volumes of traffic would have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company is also dependent upon third parties to provide potential users with
Web browsers and Internet and on-line services necessary for access to the site.
In the past, users have occasionally experienced difficulties with Internet and
on-line services due to system failures, including failures unrelated to the
Company's systems. Any disruption in Internet access provided by third parties
could have a material adverse effect on the Company's business, results of
operations and financial condition. Furthermore, the Company is dependent on
hardware suppliers for prompt delivery, installation and service of equipment
used to deliver the Company's products and services.
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The Company's operations are dependent in part upon its ability to protect its
operating systems against damage from human error, fire, floods, power loss,
telecommunications failures, break-ins and similar events. The Company does not
presently have redundant, multiple-site capacity in the event of any such
occurrence. The Company's servers are also vulnerable to computer viruses,
break-ins and similar disruptions from unauthorized tampering with the Company's
computer systems. The occurrence of any of these events could result in the
interruption, delay or cessation of service, which could have a material adverse
effect on the Company's business, results of operations and financial condition.
In addition, the Company's reputation and the Stockgroup.com brand could be
materially and adversely affected.
Security Risks
Experienced programmers ("hackers") have attempted on occasion to penetrate the
Company's network security. The Company expects that these attempts, some of
which have succeeded, will continue to occur from time to time. Because a hacker
who is able to penetrate the Company's network security could misappropriate
proprietary information or cause interruptions in the Company's products and
services, the Company may be required to expend significant capital and
resources to protect against or to alleviate problems caused by such parties.
Additionally, the Company may not have a timely remedy against a hacker who is
able to penetrate its network security. Such purposeful security breaches could
have a material adverse effect on the Company's business, results of operations
and financial condition. In addition to purposeful security breaches, the
inadvertent transmission of computer viruses could expose the Company to a
material risk of loss or litigation and possible liability.
In offering certain payment services for some products and services, the Company
could become increasingly reliant on encryption and authentication technology
licensed from third parties to provide the security and authentication necessary
to effect secure transmission of confidential information, such as customer
credit card numbers. Advances in computer capabilities, discoveries in the field
of cryptography and other discoveries, events, or developments could lead to a
compromise or breach of the algorithms that the Company's licensed encryption
and authentication technology used to protect such confidential information. If
such a compromise or breach of the Company's licensed encryption authentication
technology occurs, it could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company may be
required to expend significant capital and resources and engage the services of
third parties to protect against the threat of such security, encryption and
authentication technology breaches or to alleviate problems caused by such
breaches. Concerns over the security of Internet transactions and the privacy of
users may also inhibit the growth of the Internet generally, particularly as a
means of conducting commercial transactions.
Intense Competition
The market for viewers, corporate subscribers and Internet advertising is new
and rapidly evolving, and competition for members, users and advertisers, as
well as competition in the information dissemination market, is intense and is
expected to increase significantly. Barriers to entry are relatively
insubstantial and the Company may face competitive pressures from many
additional companies both in the United States, Canada and abroad.
The Company believes that the principal competitive factors for companies
seeking to create Communities on the Internet are critical mass, functionality
of the Web site, brand recognition, viewer affinity and loyalty, broad
demographic focus and open access for visitors. In the future, Internet
communities may be developed or acquired by companies currently operating other
Communities or by Web directories, search engines, shareware archives and
content sites, and by commercial on-line service providers ("OSPs"), Internet
service providers ("ISPs") and other entities, certain of which may have more
resources than the Company. The Company competes for users and advertisers with
other content providers and with thousands of Web sites operated by individuals,
the government and educational institutions. In addition, the Company could face
competition in the future from traditional media companies, such as newspaper,
magazine, television and radio companies, a number of which, including The Walt
Disney Company ("Disney"), CBS Corporation ("CBS") and The National Broadcasting
Company ("NBC"), have recently made significant acquisitions of or investments
in Internet companies.
The Company believes that the principal competitive factors in
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attracting advertisers include the amount of traffic on its Web site, brand
recognition, customer service, the demographics of the Company's members and
users, the Company's ability to offer targeted audiences and the overall cost
effectiveness of the advertising medium offered by the Company. The Company
believes that the number of Internet companies relying on Internet-based
advertising revenue, as well as the number of advertisers on the Internet and
the number of users, will increase substantially in the future. Accordingly, the
Company will likely face increased competition, resulting in increased pricing
pressures on its advertising rates, which could have a material adverse effect
on the Company.
Many of the Company's existing and potential competitors, including companies
operating Web directories and search engines, and traditional media companies,
have longer operating histories in the Internet market, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than the Company. Such competitors may be able
to undertake more extensive marketing campaigns for their brands and services,
adopt more aggressive advertising pricing policies and make more attractive
offers to potential employees, distribution partners, e-commerce companies,
advertisers and third-party content providers. Furthermore, the Company's
existing and potential competitors may develop Communities that are equal or
superior in quality to, or that achieve greater market acceptance than,
Stockgroup.com. There can be no assurance that the Company will be able to
compete successfully against its current or future competitors or that
competition will not have a material adverse effect on the Company's business,
results of operations and financial condition.
Additionally, the Internet information market is new and rapidly evolving, and
competition among information providers is expected to increase significantly.
There can be no assurance that Web sites maintained by the Company's existing
and potential competitors will not be perceived by advertisers as being more
desirable for placement of advertisements than Stockgroup.com. In addition, many
of the Company's current advertising customers and some of its corporate clients
have established relationships with certain of the Company's existing or
potential competitors. There can be no assurance that the Company will be able
to retain or grow its viewer base, traffic levels and advertising customer base
at historical levels, or that competitors will not experience better retention
or greater growth in these areas than the Company. Accordingly, there can be no
assurance that any of the Company's advertising customers or corporate client
companies will not sever or will elect not to renew their agreements with the
Company, the result of which could have a material adverse effect on the
Company's business, results of operations and financial condition.
Dependence on Third-Party Relationships
The Company is and will continue to be significantly dependent on a number of
third-party relationships to increase traffic on Stockgroup.com and thereby
generate advertising revenues, maintain the current level of service and variety
of content for its members, and meet future milestones. The Company is generally
dependent on other Web site operators that provide links to Stockgroup.com.
Most of the Company's arrangements with third-party Internet sites and other
third-party service providers do not require future minimum commitments to use
the Company's services or to provide access or links to the Company's services
or products, are not exclusive and are short-term or may be terminated at the
convenience of the other party. Moreover, the Company does not have agreements
with the majority of other Web site operators that provide links to
Stockgroup.com, and such Web site operators may terminate such links at any time
without notice to the Company. There can be no assurance that third parties
regard their relationship with the Company as important to their own respective
businesses and operations, that they will not reassess their commitment to the
Company at any time in the future or that they will not develop their own
competitive services or products.
There can be no assurance that the Company will be able to maintain
relationships with third parties that supply the Company with software or
products that are crucial to the Company's success, or that such software or
products will be able to sustain any third-party claims or rights against their
use. Furthermore, there can be no assurance that the software, services or
products of those companies that provide access or links to the Company's
services or products will achieve market acceptance or commercial success.
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Failure of one of these third parties could have a material adverse effect on
the Company's business, results of operations and financial condition. In
particular, the elimination of a pre-installed bookmark on a Web browser that
directs traffic to the Company's Web site could significantly reduce traffic on
the Company's Web site, which would have a material adverse effect on the
Company's business, results of operations and financial condition.
Additional Financing May Be Required
Additional financing may be required by us as we expect negative operating cash
flow for the next fiscal year. Such financing may result in the issuance of
additional securities and/or may not be available on terms favorable to us. We
expect that we will continue to experience negative operating cash flow for the
foreseeable future as a result of significant spending on advertising and
infrastructure. Accordingly, we may need to raise additional funds in a timely
manner in order to fund our anticipated expansion and new enhanced services or
products, respond to competitive pressures or acquire complementary products,
businesses or technologies. If additional funds are raised through the issuance
of equity or convertible debt securities, the percentage ownership of the
stockholders of the company will be reduced, stockholders may experience
additional dilution and such securities may have rights, preferences or
privileges senior to those of the holders of the common stock. We do not have
any contractual restrictions on our ability to incur debt and, accordingly, we
could incur significant amounts of indebtedness to finance our operations. Any
such indebtedness could contain covenants, which would restrict its operations.
There can be no assurance that additional financing if and when needed will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, it would have a material
adverse effect on our ability to fund our expansion, take advantage of
acquisition opportunities, develop or enhance services or products or respond to
competitive pressures.
Risks Associated with Potential Acquisitions
As part of its business strategy, the Company expects to review acquisition
prospects that would complement its existing business, augment the distribution
of its Community or enhance its technological capabilities. Future acquisitions
by the Company could result in potentially dilutive issuances of equity
securities, large and immediate write-offs, the incurrence of debt and
contingent liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could materially and adversely affect the
Company's business, results of operations and financial condition.
Furthermore, acquisitions entail numerous risks and uncertainties, including
difficulties in the assimilation of operations, personnel, technologies,
products and information systems of the acquired companies, the diversion of
management's attention from other business concerns, the risks of entering
geographic and business markets in which the Company has no or limited prior
experience and the potential loss of key employees of acquired organizations.
The Company has not made any acquisitions in the past. No assurance can be given
as to the ability of the Company to successfully integrate any businesses,
products, technologies or personnel that might be acquired in the future, and
the failure of the Company to do so could have a material adverse effect on the
Company's business, results of operations and financial condition.
Reliance on Intellectual Property and Proprietary Rights
The Company regards substantial elements of its Web site and underlying
technology as proprietary and attempts to protect them by relying on
intellectual property laws, including trademark, service mark, copyright and
trade secret laws and restrictions on disclosure and transferring title and
other methods. The Company also generally enters into confidentiality agreements
with its employees and consultants and in connection with its license agreements
with third parties and generally seeks to control access to and distribution of
its technology, documentation and other proprietary information.
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Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Company's proprietary information without
authorization or to develop similar technology independently. The Company is
pursuing the registration of its trademarks in the United States and
internationally. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which the Company's services
are distributed or made available through the Internet, and policing
unauthorized use of the Company's proprietary information is difficult.
Legal standards relating to the validity, enforceability and scope of protection
of certain proprietary rights in Internet-related businesses are uncertain and
still evolving, and no assurance can be given as to the future viability or
value of any of the Company's proprietary rights. There can be no assurance that
the steps taken by the Company will prevent misappropriation or infringement of
its proprietary information, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
Litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation might
result in substantial costs and diversion of resources and management attention.
Furthermore, there can be no assurance that the Company's business activities
will not infringe upon the proprietary rights of others, or that other parties
will not assert infringement claims against the Company, including claims that
by directly or indirectly providing hyperlink text links to Web sites operated
by third parties. Moreover, from time to time, the Company may be subject to
claims of alleged infringement by the Company of the trademarks, service marks
and other intellectual property rights of third parties. Such claims and any
resultant litigation, should it occur, might subject the Company to significant
liability for damages, might result in invalidation of the Company's proprietary
rights and, even if not meritorious, could result in substantial costs and
diversion of resources and management attention and could have a material
adverse effect on the Company's business, results of operations and financial
condition.
The Company currently licenses from third parties certain technologies
incorporated into Stockgroup.com. As the Company continues to introduce new
services that incorporate new technologies, it may be required to license
additional technology from others. There can be no assurance that these
third-party technology licenses will continue to be available to the Company on
commercially reasonable terms, if at all. Additionally, there can be no
assurance that the third parties from which the Company currently licenses its
technology will be able to defend their proprietary rights successfully against
claims of infringement. As a result, any inability of the Company to obtain any
of these technology licenses could result in delays or reductions in the
introduction of new services or could adversely affect the performance of its
existing services until equivalent technology can be identified, licensed and
integrated.
Government Regulation and Legal Uncertainties Associated with the Internet
A number of legislative and regulatory proposals under consideration by federal,
state, provincial, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, on-line content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain as to
how existing laws will be applied by the judiciary to the Internet. The adoption
of new laws or the application of existing laws may decrease the growth in the
use of the Internet, which could in turn decrease the demand for the Company's
services, increase the Company's cost of doing business or otherwise have a
material adverse effect on the Company's business, results of operations and
financial condition.
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There can be no assurance that the United States, Canada or foreign nations will
not enact legislation or seek to enforce existing laws prohibiting or
restricting certain content from the Internet. Prohibition and restriction of
Internet content could dampen the growth of Internet use, decrease the
acceptance of the Internet as a communications and commercial medium, expose the
Company to liability, and/or require substantial modification of Stockgroup.com,
and thereby have a material adverse effect on the Company's business, results of
operations and financial condition.
Internet user privacy has become an issue both in the United States, Canada and
abroad. The Company cannot predict the exact form of the regulations that the
FTC may adopt. There can be no assurance that the United States, Canada or
foreign nations will not adopt additional legislation purporting to protect such
privacy. Any such action could affect the way in which the Company is allowed to
conduct its business, especially those aspects that involve the collection or
use of personal information, and could have a material adverse effect on the
Company's business, results of operations and financial condition.
The tax treatment of the Internet and e-commerce is currently unsettled. A
number of proposals have been made at the federal, state and local level and by
certain foreign governments that could impose taxes on the sale of goods and
services and certain other Internet activities. Recently, the Internet Tax
Freedom Act was signed into law, placing a three-year moratorium on new state
and local taxes on certain aspects of Internet commerce. However, there can be
no assurance that future laws imposing taxes or other regulations on commerce
over the Internet would not substantially impair the growth of e-commerce and as
a result have a material adverse effect on the Company's business, results of
operations and financial condition.
Certain local telephone carriers have asserted that the growing popularity and
use of the Internet has burdened the existing telecommunications infrastructure,
and that many areas with high Internet use have begun to experience
interruptions in telephone service. These carriers have petitioned the Federal
Communications Commission (the "FCC") to impose access fees on ISPs and OSPs. If
such access fees are imposed, the costs of communicating on the Internet could
increase substantially, potentially slowing the growth in use of the Internet,
which could in turn decrease demand for the Company's services or increase the
Company's cost of doing business, and thus have a material adverse effect on the
Company's business, results of operations and financial condition.
Although the Company's server is located in the Province of British Columbia,
the governments of other provinces, states and foreign countries might attempt
to take action against the Company for violations of their laws. There can be no
assurance that violations of such laws will not be alleged or charged by
provincial, state or foreign governments and that such laws will not be
modified, or new laws enacted, in the future. Any of the foregoing could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Liability for Information Retrieved from or Transmitted over the Internet;
Liability for Products Sold over the Internet
Because materials may be downloaded by the on-line or Internet services operated
or facilitated by the Company or the Internet access providers with which it has
relationships and may be subsequently distributed to others, there is a
potential that claims will be made against the Company for defamation,
negligence, copyright or trademark infringement or other theories based on the
nature and content of such materials. Such claims have been brought against
on-line services in the past. Such claims could be material in the future. In
addition, the increased attention focused upon liability issues and legislative
proposals could materially impact the overall growth of Internet use.
The Company could also be exposed to liability with respect to third-party
information that may be accessible through the Company's Web sites, or through
content and materials that may be posted by viewers on discussion forums offered
by the Company. Such claims might include, among others, that, by directly or
indirectly providing hyperlink text links to Web sites operated by third parties
or by providing discussion forums for viewers, the Company is liable for
copyright or trademark infringement or other wrongful actions by such third
parties through such Web sites. It is also possible that, if any third-party
content information provided on the Company's Web site contains errors, third
parties could make claims against the Company for losses incurred in reliance on
such information.
The Company offers e-mail service, which is provided by a third party. See
"--Dependence on Third-Party Relationships." Such service may expose the Company
to potential risk, such as liabilities or claims resulting from unsolicited
e-mail ("spamming"), lost or misdirected messages, illegal or fraudulent use of
e-mail or interruptions or delays in e-mail service.
The Company also enters into agreements with advertisers and commerce partners
under which the Company is entitled to receive a commission or share of any
revenue from the purchase of goods and services through direct links from the
Company's Web site. Such arrangements may expose the Company to additional legal
risks and uncertainties, including pursuant to regulation by local, provincial,
state, federal and foreign authorities and potential liabilities to consumers of
such products and services, even if the Company does not itself provide such
products or services. There can be no assurance that any indemnification
provided to the Company in its agreements with these parties, if available, will
be adequate.
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Even to the extent such claims do not result in liability to the Company, the
Company could incur significant costs in investigating and defending against
such claims. The imposition on the Company of potential liability for
information carried on or disseminated through its systems could require the
Company to implement measures to reduce its exposure to such liability, which
may require the expenditure of substantial resources and limit the
attractiveness of the Company's services to members and users.
The Company's general liability insurance may not cover all potential claims to
which it is exposed or may not be adequate to indemnify the Company for all
liability 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 the Company's business, results of operations and financial condition.
Risks Associated with International Operations and Expansions
A part of the Company's strategy is to expand its sales offices network
throughout the United States, Canada and international markets. There can be no
assurance that the Company's products or services will become widely accepted
for corporate clients, advertising in the U.S., Canada or any international
markets. In addition, the Company expects that the success of any additional
foreign operations it initiates in the future will also be dependent upon local
service providers and/or partners. If revenues from international ventures are
not adequate to cover the investments in such activities, the Company's
business, results of operations and financial condition could be materially and
adversely affected. The Company may experience difficulty in managing
international operations as a result of difficulty in locating an effective
foreign service providers and/or partners, competition, technical problems,
local laws and regulations, distance and language and cultural differences, and
there can be no assurance that the Company or its international partners will be
able to successfully market and operate in foreign markets. The Company also
believes that, in light of substantial anticipated competition, it will be
necessary to aggressively market its products and services into the United
States and international markets in order to effectively obtain market share,
and there can be no assurance that the Company will be able to do so. There are
certain risks inherent in doing business on an international level, such as
unexpected changes in regulatory requirements, trade barriers, difficulties in
staffing and managing foreign operations, fluctuations in currency exchange
rates, longer payment cycles in general, problems in collecting accounts
receivable, difficulty in enforcing contracts, political and economic
instability, seasonal reductions in business activity in certain other parts of
the world and potentially adverse tax consequences. There can be no assurance
that one or more of such factors will not have a material adverse effect on the
Company's future international operations and, consequently, on the Company's
business, results of operations and financial condition.
Impact of the Year 2000
The Year 2000 issue is the potential for system and processing failures of
date-related data and the result of computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the Year 2000. This could result in system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
The Company may be affected by Year 2000 issues related to non-compliant
information technology ("IT") systems or non-IT systems operated by the Company
or by third parties. The Company has substantially completed assessment of its
internal and external (third-party) IT systems and non-IT systems. At this point
in its assessment, the Company is not currently aware of any Year 2000 problems
relating to systems operated by the Company or by third parties that would have
a material effect on the Company's business, results of operations or financial
condition, without taking into account the Company's efforts to avoid such
problems. Based on its assessment to date, the Company does not anticipate that
costs associated with remediating the Company's non-compliant IT systems or
non-IT systems will be material, although there can be no assurance to such
effect.
To the extent that the Company's assessment is finalized without identifying any
additional material non-compliant IT systems operated by the Company or by third
parties, the most reasonably likely worst case Year 2000 scenario is the failure
of one or more of the Company's vendors of hardware or software or one or more
providers of non-IT systems to the Company to properly identify any Year 2000
compliance issues and remediate any such issues prior to December 31, 1999. The
Company believes that the primary business risks, in the event of such failure,
would include, but not be limited to, lost advertising revenues, increased
operating costs, loss of customers or persons accessing the Company's Web site,
or other business interruptions of a material nature, as well as claims of
mismanagement, misrepresentation, or breach of contract, any of which could have
a material adverse effect on the Company's business, results of operations and
financial condition.
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Impact of General Economic Conditions
Time spent on the Internet by individuals, purchases of new computers and
purchases of membership subscriptions to Internet sites are typically
discretionary for consumers and may be particularly affected by adverse trends
in the general economy. The success of the Company's operations depends to a
significant extent upon a number of factors relating to discretionary consumer
spending, including economic conditions (and perceptions of such conditions by
consumers) affecting disposable consumer income such as employment, wages and
salaries, business conditions, interest rates, availability of credit and
taxation, for the economy as a whole and in regional and local markets where the
Company operates. There can be no assurance that consumer spending will not be
adversely affected by general economic conditions, which could negatively impact
the Company's results of operations or financial condition. Any significant
deterioration in general economic conditions or increases in interest rates may
inhibit consumers' use of credit and cause a material adverse effect on the
Company's revenues and profitability. In addition, the Company's business
strategy relies on advertising by and agreements with other Internet companies.
Any significant deterioration in general economic conditions that adversely
affected these companies could also have a material adverse effect on the
Company's business, results of operations and financial condition.
Possible Volatility of Stock Price
The trading price of the Company's Common Stock has been volatile and may
continue to be subject to wide fluctuations in response to quarterly variations
in operating results, announcements of technological innovations or new products
and services by the Company or its competitors, changes in financial estimates
by securities analysts, the operating and stock price performance of other
companies that investors may deem comparable to the Company and other events or
factors. In addition, the stock market in general, and the market prices for
Internet-related companies in particular, have experienced extreme volatility
that often has been unrelated to the operating performance of such companies.
These broad market and industry fluctuations may adversely affect the trading
price of the Company's Common Stock, regardless of the Company's operating
performance. In the past, following periods of volatility in the market price of
a company's securities, securities class action litigation has often been
instituted against such company. Such litigation, if instituted, whether or not
successful, could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business, results of operations and financial condition.
Shares Eligible for Future Sale; Limited Trading Market
Potential Future 144 Sales
As of September 30, 1999, of the shares of the Company's Common Stock
authorized, there were issued and outstanding 8,195,000 of which 5,000,000 are
"restricted shares" as that term is defined under the Act, and in the future may
be sold in compliance with Rule 144 of the Act, or pursuant to a Registration
Statement filed under the Act. Rule 144 provides, in essence, that a person
holding restricted securities for a period of 1 year may sell those securities
in unsolicited brokerage transactions or in transactions with a market maker, in
an amount equal to 1% of our outstanding common stock every 3 months.
Additionally, Rule 144 requires that an issuer of securities make available
adequate current public information with respect to the issuer. Such information
is deemed available if the issuer satisfies the reporting requirements of
Sections 13 or 15(d) of the Exchange Act and of Rule 15c2-11 thereunder. Rule
144 also permits, under certain circumstances, that sale of shares by a person
who is not an affiliate of the Company and who has satisfied a (3) three year
holding period without any quantity limitation and whether or not there is
adequate current public information available. The Company has reserved
2,000,000 shares for issuance upon exercise of Options authorized in its 1999
Incentive Stock Option Plan.
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Possible Issuance of Additional Shares
The Company's Articles of Incorporation, authorizes the issuance of common
stock.
No information is currently available and no prediction can be made as to the
timing or amount of future sales of such shares or the effect, if any, that
future sales of shares, or the availability of shares for future sale, will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock (including shares issuable upon the exercise
of stock options), or the perception that such sales could occur, could
materially adversely affect prevailing market prices for the Common Stock and
the ability of the Company to raise equity capital in the future.
The Company's Common Stock has been quoted for trading on the OTC Bulletin Board
since March 17, 1999. The following table sets forth high and low bid prices for
the Common Stock for the six month period ending June 30, 1999. These prices
represent quotations between dealers without adjustment for retail markup,
markdown or commission and may not represent actual transactions.
Quarter Ending: High Low Volume
March 31, 1999 $ 10.25 $ 6.00 3,339,000
June 30, 1999 $ 9.00 $ 3.125 4,859,200
September 30, 1999 $ 5.00 $ 2.125 3,297,500
No assurance can be given that a market for the Company's Common Stock will be
sustained or that the Common Stock will continue to be quoted on the OTC
Bulletin Board.
On September 30, 1999, the Company had 26 registered shareholders owning
8,195,000 shares.
Dividends
The Company has not declared any dividends since inception, and has no present
intention or paying any cash dividends on its Common Stock in the foreseeable
future. The payment by the Company of dividends, if any, in the future, rests
with the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors.
32
<PAGE>
PART II - Other Information
Item 2. Changes in Securities and Use of Proceeds
During the quarter the Company completed a private placement of 200,000 common
shares at USD$6.00 per share for aggregate proceeds of USD$1,200,000. These
shares are deemed "restricted shares" as that term is defined under U.S.
securities law.
Planned use of proceeds from the private placement:
Funds from this private placement are being used for advertising in Southam
newspapers.
Item 5. Other Events.
1. On July 7, 1999, the Board of Directors of the Company approved the retention
of the firm of Ernst & Young LLP as principal independent accountant to perform
the examination of its financial statements as of December 31, 1999, and for the
year then ended, effective with the resignation of Dale Matheson, Carr-Hilton,
the former independent accountant, which occurred on July 8, 1999. Dale
Matheson, Carr-Hilton had been principal independent accountant for Stock
Research Group, Inc., which was acquired by the Company on March 11, 1999. Dale
Matheson, Carr-Hilton had performed audit services for the three most recent
fiscal years ended December 31, 1998, 1997 and 1996, and had expressed
unqualified opinions on such financial statements. In connection with those
audits and through July 8, 1999, there were no disagreements between the Company
and Dale Matheson, Carr-Hilton on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreement, if not resolved to the satisfaction of Dale Matheson, Carr-Hilton
would have caused them to make reference in their reports to the subject matter
of the disagreements. The decision to change auditors was based on a
determination by the Company that it requires the services of an international
accounting firm. The appointment of Ernst & Young was subsequently ratified at
Company's 1998 Annual General Meeting on October 7, 1999.
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K - July 9, 1999
Reporting information on Item 4 - Change in Registrant's Certifying
Accountant
33
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
STOCKGROUP.COM HOLDINGS, INC.
(Registrant)
Date: November 8, 1999 By: /s/ Marcus A. New
----------------------------------
Marcus A. New, Chairman & CEO
34
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule (reported in Canadian Dollars)</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,936,383
<SECURITIES> 16,489
<RECEIVABLES> 1,217,986
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,837,478
<PP&E> 519,482
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,384,860
<CURRENT-LIABILITIES> 1,160,382
<BONDS> 0
0
0
<COMMON> 10,033,136
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,384,860
<SALES> 2,205,601
<TOTAL-REVENUES> 2,205,601
<CGS> 1,519,733
<TOTAL-COSTS> 2,649,980
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,960,195)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,960,195)
<EPS-BASIC> (0.30)
<EPS-DILUTED> (0.20)
</TABLE>
