SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
STOCKGROUP.COM HOLDINGS, INC.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
Definitive Proxy Materials
STOCKGROUP.COM HOLDINGS, INC.
500-750 West Pender Street
Vancouver, B.C. V6C 2T7 Canada
September 10, 1999
Dear Stockholder:
It is our pleasure to invite you to the Annual Meeting of Stockholders of
Stockgroup.com Holdings, Inc. to be held on October 7, 1999 at the Lakeway Inn,
714 Lakeway Drive, Bellingham, Washington, USA from 9:00am - 10:00am PST.
Whether or not you plan to attend, and regardless of the number of shares
you own, it is important that your shares be represented at the meeting. You are
accordingly urged to sign, date and return your proxy promptly in the enclosed
envelope.
We sincerely hope you will be able to join us at the meeting. The officers
and directors of the Company look forward to seeing you at that time.
Sincerely,
Marcus A. New
Chairman of the Board,
Chief Executive Officer
<PAGE>
Definitive Proxy Materials
STOCKGROUP.COM HOLDINGS, INC.
500-750 West Pender Street
Vancouver, B.C. V6C 2T7 Canada
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
(October 7, 1999)
The Annual Meeting of Stockholders of Stockgroup.com Holdings, Inc. (the
"Company") will be held at the Lakeway Inn, 714 Lakeway Drive, Bellingham,
Washington, USA from 9:00am - 10:00am PST on October 7, 1999 for the following
purposes:
1. To elect Directors of the Company for the ensuing year.
2. To ratify the appointment of Ernst & Young LLP as independent
accountants for the Company.
3. To transact such other business as may properly come before the
meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on September 10,
1999 as the record date for the determination of stockholders entitled to notice
and to vote at the meeting and any adjournments thereof.
IF YOU ARE UNABLE TO BE PRESENT PERSONALLY, PLEASE SIGN AND DATE THE
ENCLOSED PROXY WHICH IS BEING SOLICITED BY THE BOARD OF DIRECTORS, AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
JOHN H. DAWE, CFA
Secretary
September 10, 1999
<PAGE>
Definitive Proxy Materials
STOCKGROUP.COM HOLDINGS, INC.
500-750 West Pender Street
Vancouver, B.C. V6C 2T7 Canada
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
(October 7, 1999)
GENERAL INFORMATION
The accompanying proxy is solicited by and on behalf of the Board of
Directors of Stockgroup.com Holdings, Inc. (the "Company") to be used at the
Annual Meeting of Stockholders to be held at the Lakeway Inn, 714 Lakeway Drive,
Bellingham, Washington, USA from 9:00am - 10:00am PST on October 7, 1999 and any
adjournments thereof.
When the enclosed proxy is properly executed and returned, the shares of
Common Stock of the Company, no par value per share (the "Common Stock"), it
represents will be voted at the meeting in accordance with any directions noted
thereon and, if no direction is indicated, the shares it represents will be
voted: (i) FOR the election of the nominees for Directors set forth below; (ii)
FOR the ratification of the appointment of Ernst & Young LLP as independent
accountants for the Company; and (iii) in the discretion of the holders of the
proxy with respect to any other business that may properly come before the
meeting. Any stockholder signing and delivering a proxy may revoke it at any
time before it is voted by delivering to the Secretary of the Company a written
revocation or a duly executed proxy bearing a date later than the date of the
proxy being revoked. Any stockholder attending the meeting in person may
withdraw his or her proxy and vote his or her shares.
The cost of this solicitation of proxies will be borne by the Company.
Solicitations will be made only by mail; provided, however, that officers and
regular employees of the Company may solicit proxies personally or by telephone
or telegram. Such persons will not be specially compensated for such services.
The Company may reimburse brokers, banks, custodians, nominees and fiduciaries
holding stock in their names or in the names of their nominees for their
reasonable charges and expenses in forwarding proxies and proxy material to the
beneficial owners of such stock.
The approximate mailing date of this Proxy Statement and the accompanying
proxy is September 10, 1999.
<PAGE>
VOTING RIGHTS
Only stockholders of record at the close of business on September 10, 1999,
will be entitled to vote at the Annual Meeting of Stockholders. On that date,
there were 7,995,000 shares of Common Stock outstanding, the holders of which
are entitled to one vote per share on each matter to come before the meeting.
Voting rights with respect to the election of Directors are non-cumulative. A
majority of the outstanding shares entitled to vote at the Annual Meeting of the
Stockholders will constitute a quorum at the meeting and abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum for the transaction of business.
Directors are elected by plurality vote. The ratification of the
appointment of Ernst & Young LLP will require the affirmative vote of a majority
of the Common Stock voting on the proposal. Abstentions and broker non-votes
will not be counted in the election of directors or in determining whether such
ratification has been given.
NO DISSENTERS' RIGHTS
Under applicable provisions of the Colorado Corporations Code, shareholders
are not entitled to dissenters' rights or appraisal rights with respect to the
matter to be considered and voted upon at the Annual Meeting of Stockholders
PRINCIPAL STOCKHOLDERS
The following table sets forth as of September 10, 1999 the beneficial
ownership of Common Stock of each person known to the Company who owns more than
5% of the issued and outstanding Common Stock.
Unless otherwise indicated in the table, the business address of each
person listed below is c/o Stockgroup.com, Holdings, Inc., 500-750 W. Pender
Street, Vancouver, British Columbia, Canada V6C 2T7.
Amount and Nature Percent of
Name of Beneficial Owner of Beneficial Ownership Class
- ------------------------ ----------------------- ------
Marcus New 2,815,000(1)(2)(7) 35.21%
Craig Faulkner 915,000(1)(3)(7) 11.44%
Yvonne New 2,745,000(1)(4) 34.33%
518464 B.C. Ltd. 2,245,000(1)(5) 28.08%
569358 B.C. Ltd. 665,000(1)(6) 8.32%
2
<PAGE>
- ----------
(1) Pursuant to a Share Exchange and Share Purchase Agreement dated March 11,
1999 (the "SEA") by and among the Company, formerly called I-Tech Holdings
Group, Inc., 579818 B.C. Ltd., a British Columbia, Canada corporation
wholly-owned by the Company (the "Subsidiary"), Stock Research Group, Inc.,
a British Columbia, Canada corporation ("Stock Group") and all of the
shareholders of Stock Group, being nine persons (collectively, the "Stock
Group Shareholders"), the Company acquired (the "Acquisition") all of the
issued and outstanding common shares of Stock Group from the Stock Group
Shareholders in consideration of the issuance by (i) the Subsidiary to the
Stock Group Shareholders, on a pro-rata basis, of 3,900,000 Class A
Exchangeable Shares (the "Exchangeable Shares") and (ii) by the Company
issuing to Stocktrans, Inc., located at 7 East Lancaster Avenue, Ardmore,
PA 19003, as trustee for the Stock Group Shareholders (the "Trustee")
3,900,000 shares of Common Stock to be held under the terms of an Exchange
and Voting Agreement dated March 11, 1999 (the "Trust Agreement") by and
among the Company, the Trustee, the Subsidiary and the Stock Group
Shareholders. The Exchangeable Shares may be converted, at the option of
the holder into an equal number of the Company's Common Stock held by the
Trustee. Pending any such conversion, each holder of the Exchangeable
Shares may direct the Trustee to vote an equivalent number of Company's
Common Stock. The Trustee has no discretion as to voting or disposition of
the Company's Common Stock.
As a result of these transactions, each of the Stock Group Shareholders has
the right to vote, (or to direct the Trustee to vote on behalf of such
Stock Group Shareholder) a number of the Company's Common Stock equal to
the number of Exchangeable Shares held of record by such Stock Group
Shareholder. In the aggregate, the Company's Common Stock issued to the
Trustee represent approximately 49% of the Corporation's issued and
outstanding shares of Common Stock.
The Trust created by the SEA shall continue until the earliest to occur of
the following events: (a) no outstanding Exchangeable Non-Voting Shares are
held by any Stock Group Shareholder; (b) each of the Subsidiary and the
Company acts in writing to terminate the Trust and such termination is
approved by the holders of the Exchangeable Non-Voting Shares in accordance
with section 27.10 of the SEA; and (c) December 31, 2098.
(2) Of this amount, 49% (or 1,372,500 shares) are owned by Yvonne New, Mr.
New's wife.
Mr. Marcus New and his wife, Yvonne New, each own directly 250,000
Exchangeable Shares, and indirectly, through 518464 B.C. Ltd., a British
Columbia company owned by Mr. New as to 50% and his wife Yvonne New as to
50%, 2,245,000 Exchangeable Shares. Accordingly, Marcus and Yvonne New have
the right to direct the vote of 2,745,000 of the Company's Common Stock
which represent approximately 34.33% of the Company's issued and
outstanding Common Stock.
In addition, of this amount, 70,000 shares are held in trust for the
benefit of Mr. New. This trust is a non-voting trust. This holding in
combination with the 2,745,000 Exchangeable shares bring Mr. New's
beneficial ownership of shares of the Corporation to a total of
approximately 35.21% of the Corporation's issued and outstanding common
stock.
(3) Of this amount, Mr. Craig Faulkner owns directly 250,000 Exchangeable
Shares and indirectly, through 569358 B.C. Ltd., a British Columbia company
owned by Mr. Faulkner, 665,000 Exchangeable shares. Accordingly, Mr.
Faulkner has the right to direct the vote of 915,000 of the Company's
Common Stock which represent approximately 11.44% of the Company's issued
and outstanding Common Stock.
(4) Yvonne New is Marcus New's wife. Mrs. New owns 250,000 shares directly and
2,245,000 shares indirectly through her 50% ownership of 518464 B.C. Ltd.
(5) 518464 B.C. Ltd. is a private company owned 50% by Marcus New and 50% by
Yvonne New, his wife.
(6) 569358 B.C. Ltd. is a private company wholly-owned by Craig Faulkner.
3
<PAGE>
(7) Mr. New and Mr. Faulkner have been granted options to purchase 325,000 and
195,000 shares, respectively, of the Company's common stock at $2.50US per
share. The options have a 5 year term. These options were granted by the
Company as of March 11, 1999 in replacement of options (in equal number and
on the same terms and conditions as options granted by the Company's
wholly-owned subsidiary as at January 1, 1999 (the "date of grant")).
Twenty (20%) percent of the options granted by the Company will commence to
vest (and thereafter be exercisable) on each anniversary of the date of
grant. To date none of the options granted have been vested.
4
<PAGE>
DIRECTORS
PROPOSAL 1. ELECTION OF DIRECTORS
At the Annual Meeting of Stockholders, all five members of the Board of
Directors are to be elected. In the absence of instructions to the contrary, the
shares of Common Stock represented by a proxy delivered to the Board of
Directors will be voted FOR the five nominees named below. Four of the nominees
named below are presently serving as Directors of the Company. All of the
nominees are anticipated to be available for election and able to serve.
However, if any such nominee should decline or become unable to serve as a
Director for any reason, votes will be cast instead for a substitute nominee
designated by the Board of Directors or, if none is so designated, will be cast
according to the judgment in such matters of the person or persons voting the
proxy.
The tables below and the paragraphs that follow present certain information
concerning the nominees for Director and the executive officers of the Company.
Each elected Director will serve until the next Annual Meeting of Stockholders
and until his or her successor has been elected and qualified. Officers are
elected by and serve at the discretion of the Board of Directors. Mr. David
Caddey is Mr. Marcus New's wife's uncle. Other than this relationship, none of
the Company's Directors or executive officers has any family relationship with
any other Director or executive officer.
5
<PAGE>
<TABLE>
<CAPTION>
Executive Shares of Common
Officer/ Stock Beneficially Percent
Positions Director Owned as of Sept. 10, of Class
Name Age with Company Since 1999 (3)
- ------------------------------- ------ -------------------- ------------- ----------------------- ----------
<S> <C> <C> <C> <C> <C>
Nominees for Directors:
Marcus A. New 28 Chairman of the 3/11/99* 2,815,000(1)(2)(5) 35.21%
Board, Chief
Executive
Officer, Director
Craig D. Faulkner 28 Chief Technology 3/11/99* 915,000(1)(3)(5) 11.44%
Officer, Director
Leslie A. Landes 53 President, Chief 6/15/99* Nil(5) **
Operating Officer,
Director
Lee deBoer 47 Director n/a Nil **
David Caddey 49 Director 6/15/99 60,000(1)(4)(5) **
Executive Officers who are not Directors:
John H. Dawe, CFA 40 Vice President of 3/11/99* 800(5) **
Finance, Secretary
and Treasurer
All Directors and executive officers
as a group ................................................ 3,790,800(1)(2)(3)(4) 47.41%
(5)
</TABLE>
- ----------
* Prior to the acquisition which took place on March 11, 1999, such executive
served as a member of the management team of Stock Research Group, Inc.
** Less than one percent
(1) Pursuant to a Share Exchange and Share Purchase Agreement dated March 11,
1999 (the "SEA") by and among the Company, formerly called I-Tech Holdings
Group, Inc., 579818 B.C. Ltd., a British Columbia, Canada corporation
wholly-owned by the Company (the "Subsidiary"), Stock Research Group, Inc.,
a British Columbia, Canada corporation ("Stock Group") and all of the
shareholders of Stock Group, being nine persons (collectively, the "Stock
Group Shareholders"), the Company acquired (the "Acquisition") all of the
issued and outstanding common shares of Stock Group from the Stock Group
Shareholders in consideration of the issuance by (i) the Subsidiary to the
Stock Group Shareholders, on a pro-rata basis, of 3,900,000 Class A
Exchangeable Shares (the "Exchangeable Shares") and (ii) by the Company
issuing to Stocktrans, Inc., located at 7 East Lancaster Avenue, Ardmore,
PA 19003, as trustee for the Stock Group Shareholders (the "Trustee")
3,900,000 shares of Common Stock to be held under the terms of an Exchange
and Voting Agreement dated March 11, 1999 (the "Trust Agreement") by and
among the Company, the Trustee, the Subsidiary and the Stock Group
Shareholders. The Exchangeable Shares may be converted, at the option of
the holder into an equal number of the Company's Common Stock held by the
Trustee. Pending any such conversion, each holder of the Exchangeable
Shares may direct the Trustee to vote an equivalent number of Company's
Common Stock. The Trustee has no discretion as to voting or disposition of
the Company's Common Stock.
6
<PAGE>
As a result of these transactions, each of the Stock Group Shareholders has
the right to vote, (or to direct the Trustee to vote on behalf of such
Stock Group Shareholder) a number of the Company's Common Stock equal to
the number of Exchangeable Shares held of record by such Stock Group
Shareholder. In the aggregate, the Company's Common Stock issued to the
Trustee represent approximately 49% of the Corporation's issued and
outstanding shares of Common Stock.
The Trust created by the SEA shall continue until the earliest to occur of
the following events: (a) no outstanding Exchangeable Non-Voting Shares are
held by any Stock Group Shareholder; (b) each of the Subsidiary and the
Company acts in writing to terminate the Trust and such termination is
approved by the holders of the Exchangeable Non-Voting Shares in accordance
with section 27.10 of the SEA; and (c) December 31, 2098.
(2) Of this amount, 49% (or 1,372,500 shares) are owned by Yvonne New, Mr.
New's wife.
Mr. Marcus New and his wife, Yvonne New, each own directly 250,000
Exchangeable Shares, and indirectly, through 518464 B.C. Ltd., a British
Columbia company owned by Mr. New as to 50% and his wife Yvonne New as to
50%, 2,245,000 Exchangeable Shares. Accordingly, Marcus and Yvonne New have
the right to direct the vote of 2,745,000 of the Company's Common Stock
which represent approximately 34.33% of the Company's issued and
outstanding Common Stock.
In addition, of this amount, 70,000 shares are held in trust for the
benefit of Mr. New. This trust is a non-voting trust. This holding in
combination with the 2,745,000 Exchangeable shares bring Mr. New's
beneficial ownership of shares of the Corporation to a total of
approximately 35.21% of the Corporation's issued and outstanding common
stock.
(3) Of this amount, Mr. Craig Faulkner owns directly 250,000 Exchangeable
Shares and indirectly, through 569358 B.C. Ltd., a British Columbia company
owned by Mr. Faulkner, 665,000 Exchangeable shares. Accordingly, Mr.
Faulkner has the right to direct the vote of 915,000 of the Company's
Common Stock which represent approximately 11.44% of the Company's issued
and outstanding Common Stock.
(4) Of this amount, 50% (or 30,000 shares) are owned by Donna Caddey, Mr.
Caddey's wife.
Mr. David Caddey and his wife, Donna Caddey, each own directly 20,000
Exchangeable Shares. In addition, 20,000 shares of Common Stock are owned
jointly by David and Donna Caddey. Accordingly, David and Donna Caddey have
the right to direct the vote of 60,000 of the Company's Common Stock which
represents approximately 0.75% of the Company's issued and outstanding
Common Stock.
(5) Mr. New, Mr. Faulkner, Mr. Caddey and Mr. Dawe have been granted options to
purchase 325,000, 195,000, 20,000 and 15,000 shares, respectively, of the
Company's common stock at $2.50US per share. Mr. Leslie Landes has been
granted options to purchase 745,000 shares of the Company's common stock at
a price of $0.01US per share as to 105,000 shares and $0.94US per shares as
to the balance. The options have a 5 year term. These options were granted
by the Company as of March 11, 1999 in replacement of options (in equal
number and on the same terms and condition as options granted by the
Company's wholly-owned subsidiary as at August 1, 1998 as to Mr. Landes and
as at January 1, 1999 for all other grantees (the "date of grant")). 20%
percent of the options granted by the Company will commence to vest (and
thereafter be exercisable) on each anniversary of the date of grant.
However, as to Mr. Landes, the options may be exercised, to the extent
vested, only after 2 years from the date of grant. In addition, 106,800 of
Mr. Landes' options to purchase shares at a price of $0.94US will vest and
be exercisable only if the Company attains certain performance levels in
each of the fiscal years ending December 31, 2000 and 2001. To date none of
the options granted have vested.
7
<PAGE>
Business Experience of Nominees and Executive Officers
Marcus New has been Chairman of the Board and Chief Executive Officer of
the Company since March 11, 1999. He also serves as the Chairman of the Board,
Chief Executive Officer and Director of Stockgroup.com Media, Inc. and
Stockgroup.com, Ltd., the Company's wholly-owned Canadian and U.S. operating
Subsidiaries. Mr. New also serves as Director, President & Secretary of 579818
B.C. Ltd.; as Director and CEO of Stockgroup.com (Bahamas) Ltd.; and as Director
and President of Stockgroup.com International, Inc., all of which are wholly
owned subsidiaries of the Company. Mr. New is the founder, Chairman and CEO of
Stockgroup.com Media, Inc. (formerly Stock Research Group, Inc.) a British
Columbia, Canada corporation incorporated on May 4, 1995. 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. Marcus New is also a
director of Golden Maritime Resources (VSE: GDM) and Iwave.com (CDN-OTC: IWAV).
Craig Faulkner has been Chief Technology Officer and Director of the
Company since March 11, 1999. He also serves as Director, Vice President
Operations and Chief Technology Officer of Stockgroup.com Media, Inc. and
Stockgroup.com, Ltd., the Company's wholly-owned operating subsidiaries. Mr.
Faulkner also serves as Director and Secretary of Stockgroup.com (Bahamas) Ltd.
and Stockgroup.com International, Inc., both of which are wholly-owned
subsidiaries of the Company. Mr. Faulkner has been a computer programmer for
over 15 years and is one of the founding partners of Stockgroup.com Media, Inc.
(formerly Stock Research Group, Inc.) He brings extensive technical skills to
the Company and is responsible for the implementation and development of the
product side of the business.
Leslie Landes has been the Chief Operating Officer of the Company since
March 11, 1999. Since June 15, 1999 he has also served as Director and
President. He also serves as President and Chief Operating Officer of
Stockgroup.com Media, Inc. and as Director, President and Chief Operating
Officer of Stockgroup.com, Ltd., the Company's wholly-owned operating
subsidiaries. Mr. Landes previously directed 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, Mr. Landes spent 13
years as a senior executive with the Jim Pattison Group, Canada's third largest
private company with sales in excess of $3 billion and over 13,000 employees.
Mr. Landes served as President of the Jim Pattison Sign Group, Outdoor Group,
and The Communications Group, which included the Company's manufacturing and
leasing business. He ultimately served as President of Jim Pattison Industries
Ltd. and Senior VP of the Jim Pattison Group where he successfully initiated and
completed the acquisition of strategically important companies in a number of
diverse industries. Most notably, under Mr. Landes' presidency, the Sign Group
was built into the largest electronic sign company in the world. Leslie Landes
is also a director of TIR Systems Ltd. (VSE: TIY).
8
<PAGE>
David N.Caddey, B.Sc., M.Sc., is, and has been since 1990, Vice President
and General Manager of MacDonald Dettwiler and Assoc. ("MDA"), a leading
Canadian space and information technology company. MDA is a wholly owned
subsidiary of Orbital Science Corp. (NYSE:ORB). Mr. Caddey received a Bachelor
of Science degree from the Royal Military College in 1971 and a Master of
Science Degree from the Royal Military College in 1976.
Lee deBoer, is Principal of MediaFutures Mr. deBoer is President of
MediaFutures, Inc., a strategic consultancy with clients in New Media and
Cable/Broadcast. Mr. deBoer is former CEO of New Century Network, an online
company formed by a consortium of the nine leading US newspaper companies, and
past Executive Vice President, President of HBO International. While at HBO Mr.
deBoer was responsible for overseeing HBO's programming operations units as well
as its diversification and expansion efforts.
John H. Dawe, CFA has been the Vice President Finance, Secretary and
Treasurer of the Company since March 11, 1999. He also serves as Vice President
of Finance, Secretary and Treasurer of Stockgroup.com Media, Inc. and
Stockgroup.com, Ltd., the Company's wholly-owned operating subsidiaries. Mr.
Dawe has over 16 years experience in the investment brokerage and financial
services community. Prior to joining Stockgroup.com Media, Inc. (formerly Stock
Research Group, Inc.), 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.
Meetings of the Board of Directors and Committees
During 1998 the Company's Board of Directors did not have standing audit,
nominating or compensation committees or committees performing similar
functions. Currently the Company maintains a standing audit committee.
During the year ended December 31, 1998, the Company's Board of Directors
did not hold any meetings.
9
<PAGE>
Executive Compensation
The following summary compensation table sets forth individual compensation
information for the Chief Executive Officer and each of the Company's executive
officers whose aggregate compensation exceeded $100,000 during each of the years
ended December 31, 1996, 1997 and 1998 for services rendered to I-Tech Holdings
Group, Inc.
Summary Compensation Table
(I-Tech Holdings Group, Inc.)
All Other
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- -------- --------- ------------
Gerald H. Trumbule 1996 $ 0 $ 0 $ 0
Chief Executive Officer, 1997 $ 0 $ 0 $ 0
President and Director 1998 $ 0 $ 0 $ 0
The following summary compensation table sets forth individual compensation
information for the Chief Executive Officer and each of the Company's executive
officers whose aggregate compensation exceeded $100,000 during each of the years
ended December 31, 1996, 1997 and 1998 pertaining to services rendered to Stock
Research Group, Inc.
Summary Compensation Table
(Stock Research Group, Inc.)
<TABLE>
<CAPTION>
All Other
Name and Principal Position Year Salary Bonus Compensation
- --------------------------- ---- -------- --------- ------------
<S> <C> <C> <C> <C>
Marcus New 1996 $ 8,000 $ 0 $ 0
Chief Executive Officer, 1997 $ 66,647 $ 0 $ 0
Chairman and Director 1998 $ 63,666 $ 0 $ 0
Leslie Landes, 1996 n/a n/a n/a
President & Chief Operating Officer 1997 n/a n/a n/a
1998 $ 150,000* $ 0 $ 0
</TABLE>
*annualized
10
<PAGE>
The following tables present certain additional information concerning
stock options granted to or exercised by executive officers during 1998 for
services rendered to I-Tech Holdings Group, Inc.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total
Number of Securities Options/SARs
Underlying Options/SARs Granted to Employees Exercise or
Granted at December 31, 1998 in year ended Base price Expiration
---------------------------- December 31, 1998 per share Date
-------------------- ------------ ----------
Name Exercisable Unexerciseable
---- ----------- --------------
<S> <C> <C> <C> <C> <C>
Gerald H. Trumbule 0 0 0 0 0
</TABLE>
The following tables present certain additional information concerning stock
options granted to or exercised by executive officers during 1998 for services
rendered to Stock Research Group, Inc.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
% of Total
Number of Securities Options/SARs
Underlying Options/SARs Granted to Employees Exercise or
Granted at December 31, 1998 in year ended Base price Expiration
---------------------------- December 31, 1998 per share Date
Name Exercisable Unexerciseable
---- ----------- --------------
<S> <C> <C> <C> <C> <C>
Marcus New 0 325,000 22.55% US$2.50 3/11/06
Leslie Landes 0 105,000 7.29% US$0.01 8/1/05
640,800 44.46% US$0.94 8/1/05
</TABLE>
Directors' Compensation
The Company did have any standard arrangements pursuant to which the Directors
were compensated for services provided as a director.
11
<PAGE>
Employment Contracts and Termination of Employment and Change-In-Control
Arrangements.
The company signed an employment contract with Leslie Landes on August 4,
1998. This contract extends for five years and includes various termination and
renewal clauses. The company can terminate the contract without cause upon
thirty days written notice and payment of one year's salary.
Section 16(a) Beneficial Ownership Reporting Compliance
Messrs. Clark Burch and Gerald H. Trumbule who served as directors of the
Company failed to file on a timely basis a Form 3 as required by section 16(a)
of the Securities Exchange Act of 1934 (the "Exchange Act") during the most
recent fiscal year to reflect the acquisition by each of them of 50,000 shares
of the Common Stock.
However, each of Messrs. Burch and Trumbule filed a Form 4 with the
Securities and Exchange Commission on a timely basis to reflect a transactions
on March 11, 1999 by which they disposed of their respective shares of Common
Stock.
12
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ACCOUNTANTS
PROPOSAL 2. SELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends the ratification by the stockholders of
the appointment by the Board of Directors of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending December 31, 1999. In the
absence of instructions to the contrary, the shares of Common Stock represented
by a proxy delivered to the Board of Directors will be voted FOR the
ratification of the appointment of Ernst & Young LLP.
Representatives of Ernst & Young and/or Dale Matheson Carr-Hilton and/or Kish,
Leake & Associates, PC are not expected to be present at the Annual Meeting.
Background on Changes in the Company's Certifying Accountant
As part of the acquisition of Stock Research Group, Inc., on March 16,
1999, the Board of Directors of the Company approved the retention of the firm
of Dale Matheson Carr-Hilton, who had been the previous principal independent
accountant for Stock Research Group, Inc., 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 Kish, Leake &
Associates, P.C., the former independent accountant, which occurred on March 16,
1999. Kish, Leake & Associates, P.C. had been principal independent accountant,
having performed audit services for the two most recent fiscal years ended
December 31, 1998 and 1997, and had expressed unqualified opinions on such
financial statements. In connection with those audits and through March 16,
1999, there were no disagreements between the Company and Kish, Leake &
Associates, P.C. 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 Kish, Leake & Associates, P.C., would have
caused them to make reference in their reports to the subject matter of the
disagreements.
The Company requested Kish, Leake & Associates, P.C. to furnish it with a
letter addressed to the Securities and Exchange Commission (SEC) stating whether
such firm agrees with the statements made above and, if not, stating the
respects in which they do not agree. Such letter is on file with the SEC.
In the months following the Stock Research Group acquisition, as the result
of growth and expansion, the Company determined it required the services of an
international accounting firm and replaced its former certifying accountant,
Dale Matheson Carr-Hilton, effective July 8, 1999. The accountant's reports on
the financial statements of the Company for the past three years were
unqualified. The decision to change accountants was part of the Company's
overall strategic plan and was approved by the board of directors.
13
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During the three most recent fiscal years ended December 31, 1998, 1997,
1996 and through to 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 to the subject matter of the
disagreements. The Company requested Dale Matheson, Carr-Hilton to furnish it
with a letter addressed to the SEC stating whether such firm agrees with the
statements made above and, if not, stating the respects in which they do not
agree. Such letter is on file with the SEC.
14
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STOCKHOLDER PROPOSALS AND DIRECTOR NOMINEES
FOR 1999 ANNUAL MEETING
It is contemplated that the Company's 1999 Annual Meeting of Stockholders
will be held on or about June 15th. Stockholders of the Company who intend to
submit proposals or submit nominees for the election of Directors at the next
Annual Meeting of Stockholders must submit such proposals to the Company not
earlier than February 1st, 2000 nor later than March 31st, 2000. Stockholder
proposals should be submitted to Stockgroup.com Holdings, Inc., 500-750 West
Pender Street, Vancouver, British Columbia, Canada V6C 2T7, Attention: John H.
Dawe, CFA - Secretary.
ANNUAL REPORT
The Company's Annual Report for the year ended December 31, 1998, including
financial statements, is being mailed together with this Proxy Statement to the
Company's stockholders of record at the close of business on September 10, 1999.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS SOLICITED
BY THIS PROXY STATEMENT A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR
THE YEAR ENDED DECEMBER 31, 1998, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. A WRITTEN REQUEST FOR A COPY OF SUCH ANNUAL REPORT ON FORM 10-KSB
SHOULD BE DIRECTED TO STOCKGROUP.COM HOLDINGS, INC., 500-750 WEST PENDER STREET,
VANCOUVER, BRITISH COLUMBIA, CANADA V6C 2T7, ATTENTION: JOHN H. DAWE, CFA -
SECRETARY
OTHER BUSINESS
The Board of Directors does not know of any other business to be presented
to the meeting and does not intend to bring any other matters before the
meeting. However, if any other matters properly come before the meeting or any
adjournments thereof, it is intended that the persons named in the accompanying
proxy will vote thereon according to their best judgment in the interests of the
Company.
By Order of the Board of Directors
John H. Dawe, CFA
Secretary
September 10, 1999
STOCKHOLDERS ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN
IT IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. YOUR PROMPT RESPONSE WILL BE
HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED.
15
<PAGE>
Definitive Proxy Materials
STOCKGROUP.COM HOLDINGS, INC.
500-750 West Pender Street
Vancouver, B.C. V6C 2T7 Canada
PROXY
Solicited by the Board of Directors
for the Annual Meeting of Stockholders on
October 7, 1999
The undersigned hereby appoints Marcus New, with full power of
substitution, as proxy and hereby authorizes him to represent and to vote, as
designated below, all shares of Common Stock of Stockgroup.com Holdings, Inc.
held of record by the undersigned at the close of business on September 10, 1999
at the Annual Meeting of Stockholders to be held on October 7, 1999 and any
adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1, 2 and 3.
The Board of Directors recommends a vote FOR each of the proposals below.
1. ELECTION OF DIRECTORS
/ / FOR all nominees listed (except / / WITHHOLD AUTHORITY to
as marked to the contrary below) vote for all nominees listed below
Marcus New, Craig Faulkner, Leslie Landes, Lee deBoer, David Caddey,
(INSTRUCTION: To withhold authority to vote for my individual nominee, strike a
line through the nominee's name in the list above.)
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT
ACCOUNTANTS.
/ / FOR / / AGAINST / / ABSTAIN
16
<PAGE>
PROXY
Solicited by the Board of Directors
for the Annual Meeting of Stockholders on
October 7, 1999
3. IN THEIR DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON ANY OTHER
BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS
THEREOF.
/ / FOR / / AGAINST / / ABSTAIN
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
COMPANY, PLEASE SIGN IN FULL CORPORATE NAME BY THE PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AN AUTHORIZED
PERSON.
PLEASE RETURN IN THE ENCLOSED ENVELOPE.
_______________________________________
Signature
_______________________________________
Signature if held jointly
17
<PAGE>
STOCKGROUP.COM HOLDINGS, INC.
(Formerly I-Tech Holdings Group, Inc.)
ANNUAL REPORT
For Year Ended
December 31, 1998
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Chairman's Message
Dear Shareholders,
We are pleased to provide the Annual Report for Stockgroup.com Holdings,
Inc. for 1998. The results reported herein represent the consolidated
performance of Stockgroup.com Holdings, Inc. (formerly I-Tech Holdings Group,
Inc.) and Stock Research Group, Inc. which was acquired by the Company on March
11, 1999.
I would like to take this opportunity to thank our management and staff for
all their efforts during 1998. We place a high premium on developing and
maintaining an effective team of dedicated professionals and are pleased to
report that our efforts in this area have been successful. I would also like to
thank you for your continued support of Stockgroup.com Holdings, Inc. The
Management and staff of Stockgroup.com are committed to creating world class
products and services that empower the investment community to make better
informed investment decisions. We appreciate your shared belief in this mission
and we are committed to creating shareholder value.
We invite you to visit our web site at www.stockgroup.com for regular
updates on your Company.
Sincerely,
Marcus A. New
Chairman and Chief Executive Officer
2
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INDEX
Business of Stockgroup.com Holdings, Inc 4
Changes in the Company's Certifying Accountant 5
Directors and Executive Officers 6
Qualitative and Quantitative Disclosure about Market Risk 7
Market For Common Stock 26
Dividends 27
Management Discussion and Analysis 28
Financial Statements
1. I-Tech Holdings Group, Inc. Financial Statements:
> Auditors' Report 30
> Balance Sheet December 31, 1998, 1997 31
> Statement of Operations December 31, 1998, 1997, 1996 32
> Statement of Cash Flows December 31, 1998, 1997, 1996 33
> Statement of Shareholders' Equity December 1998 - 1994 34
> Notes to Financial Statements 36
2. Pro-Forma Consolidated Financial Statements combining Stock
Research Group, Inc. and I-Tech Holdings Group, Inc.:
> Accountants' Compilation Report 39
> Pro-Forma Consolidated Balance Sheet
December 31, 1998, 1997 40
> Pro-Forma Consolidated Statement of Income and Retained
Earnings (Deficit) December 31, 1998, 1997 42
> Pro-Forma Consolidated Statement of
Changes in Financial Position December 31, 1998, 1997 43
> Notes to Financial Statements 44
> Special Addendum - Informational translation
of Pro-Forma Consolidated Financial Statements
to U.S.Dollars 52
3
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Business of Stockgroup.Com Holdings, Inc.
On May 6, 1999, the Company changed its name from I-Tech Holdings Group,
Inc. to Stockgroup.com Holdings, Inc. (the "Company"). I-Tech Holdings Group,
Inc. was incorporated on December 6, 1994 (inception) and operated as a
development stage company from that date through March 11, 1999. On March 11,
1999, the Company, through its wholly owned British Columbia, Canada subsidiary,
purchased all of the issued and outstanding common shares of Stock Research
Group, Inc.
Stock Research Group, Inc. ("Stockgroup.com") was incorporated on May 4,
1995 and commenced operations on that date. Stockgroup.com is headquartered in
Vancouver and has offices in Calgary, Toronto and San Francisco. Stockgroup.com
is an investment information online Community with viewers in the United States,
Canada and abroad. Stockgroup.com focuses on business and financial news and
information for investors interested in micro and small capitalization
companies. Stockgroup.com's main website, www.stockgroup.com, acts as a portal
for investors researching, analyzing, and discussing micro and small cap stocks
and markets. This Community provides newsworthy micro and small cap information
to hundreds of thousands of investor viewers as well as disseminating
information about Stockgroup.com's corporate clients. This information includes
detailed profiles of companies, industry news, stock quotes, charts, daily
market reports, news releases and other investment tools. Stockgroup.com's
Community is multi-tier and includes both general interest and industry-specific
areas including technology, biotech, mining, oil & gas, etc. The Company
believes that it has become a primary provider of timely, accurate investment
information to micro and small cap investors.
Historically, Stockgroup.com has had three sources of revenue: (i)
advertising; (ii) financial products for public companies' Internet sites; and
(iii) marketing services.
In addition to web site creation and monthly maintenance for its corporate
clients, the Company offers other web services including private label quotes
and charts which allow viewers to see stock information without leaving the
public company's investment site. To assist small cap companies to gain greater
exposure, the Company markets the following services: placement of clients'
sites on the Company's proprietary financial Community, and access to the
Company's proprietary E-mail listing of over 26,230 persons. In addition, the
Company provides advertising management and design services.
4
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As of September, 1999 the Company currently employs 66 employees, of which
53 are full time employees.
The Company's business is characterized by rapid technological change, new
product development and evolving industry standards. Inherent in the Company's
business are various risks and uncertainties, including its limited operating
history, a new and unproven business model and the limited history of commerce
on the Internet. The Company's success may depend in part upon the emergence of
the Internet as a communications medium, prospective product development efforts
and the acceptance of the Company's products and services by the marketplace. As
part of its strategic development plans, the Company invests significant
resources in research and development of new products and services.
Changes in the Company's Certifying Accountant
As part of the acquisition of Stock Research Group, Inc., on March 16,
1999, the Board of Directors of the Company approved the retention of the firm
of Dale Matheson Carr-Hilton, who had been the previous independent accountant
for Stock Research Group, Inc., 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 Kish, Leake & Associates,
P.C., the former independent accountant, which occurred on March 16, 1999. Kish,
Leake & Associates, P.C. had been principal independent accountant, having
performed audit services for the two most recent fiscal years ended December 31,
1998 and 1997, and had expressed unqualified opinions on such financial
statements. In connection with those audits and through March 16, 1999, there
were no disagreements between the Company and Kish, Leake & Associates, P.C. 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 Kish, Leake & Associates, P.C., would have caused them to
make reference in their reports to the subject matter of the disagreements.
The Company requested Kish, Leake & Associates, P.C. to furnish it with a
letter addressed to the Securities and Exchange Commission (SEC) stating whether
such firm agrees with the statements made above and, if not, stating the
respects in which they do not agree. Such letter is on file with the SEC.
In the months following the Stock Research Group acquisition, as the result
of growth and expansion, the Company determined it required the services of an
international accounting firm and replaced its former certifying accountant,
Dale Matheson Carr-Hilton, effective July 8, 1999. The accountant's reports on
the financial statements of the Company for the past three years were
unqualified. The decision to
5
<PAGE>
change accountants was part of the Company's overall strategic plan and was
approved by the Board of Directors.
During the three most recent fiscal years ended December 31, 1998, 1997,
1996 and through to 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 to the subject matter of the
disagreements. The Company requested Dale Matheson, Carr-Hilton to furnish it
with a letter addressed to the SEC stating whether such firm agrees with the
statements made above and, if not, stating the respects in which they do not
agree. Such letter is on file with the SEC.
Directors and Executive Officers
(1) The following individuals are the current directors of the Company:
Marcus A. New is a director as well as the Chairman of the Board, and Chief
Executive Officer of the Company.
Leslie A. Landes serves as director, President and Chief Operating Officer.
Craig D. Faulkner serves as director and Chief Technology Officer of the
Company.
David N. Caddey, B.Sc., M.Sc., currently serves as a director of the
Company. Mr. Caddey is, and has been since 1990, Vice President and General
Manager of MacDonald Dettwiler and Assoc. ("MDA"), a leading Canadian space and
information technology company. MDA is a wholly owned subsidiary of Orbital
Science Corp. (NSYE:ORB). Mr. Caddey received a Bachelor of Science degree from
the Royal Military College in 1971 and a Master of Science Degree from the Royal
Military College in 1976.
Gerald H. Trumbule currently serves as a director of the Company. Since
1979, Mr. Trumbule has been, and currently is, the President of the Education
Centers of Colorado, a private company which supplies corporate computer
training and support.
(2) The following individuals are the executive officers of the Company:
Marcus A. New Chairman of the Board and CEO
Leslie A. Landes President and Chief Operating Officer
Craig D. Faulkner Chief Technology Officer
John H. Dawe, CFA Vice President Finance, Secretary and Treasurer
6
<PAGE>
Qualitative and Quantitative Disclosure about Market Risk
The following outlines some of the risk factors related to the Company and
its operations.
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 servers, 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.
7
<PAGE>
Fluctuating Rates of Revenue Growth
There can be no assurance that the Company's revenue growth in recent
periods will continue or increase. The Company's limited operating history makes
the 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 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
CDN$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.
8
<PAGE>
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
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
9
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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, online 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
or sponsor either a minimum view run time during which the ad will be seen by
users of
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Stockgroup.com; or, a minimum number of "impressions," or "click-throughs," or
times that a sponsorship or advertisement is seen by users of Stockgroup.com. To
the extent that minimum view run times, or impression or click-through 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.
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 salable 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.
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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
in 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."
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.
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Control by Management Group
In the aggregate, ownership of the Company's Shares by Management 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, editorial 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
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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 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 frequents 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
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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 servers, 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 online services necessary for access to the
site. In the past, users have occasionally experienced difficulties with
Internet and online 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 and software suppliers for prompt delivery, installation
and service of equipment used to deliver the Company's products and services.
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.
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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 or do other damage, 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 viewers 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
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companies currently operating other Communities or by Web directories, search
engines, shareware archives and content sites, and by commercial online 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 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
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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 viewers, and meet future milestones. The Company is also
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.
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 Requirements; Ability to Incur Debt; Expected Negative
Operating Cash Flow for the Foreseeable Future
The Company currently anticipates that its financing arrangements, together
with available funds and cash flows generated from its corporate clients and
advertising
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revenues, will be sufficient to meet its anticipated needs for working capital,
capital expenditures and business expansion for the next 12 months. The Company
expects that it will continue to experience negative operating cash flow for the
foreseeable future as a result of significant spending on advertising and
infrastructure. Accordingly, the Company may need to raise additional funds in a
timely manner in order to fund its 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. The Company does
not currently have any contractual restrictions on its ability to incur debt
and, accordingly, the Company could incur significant amounts of indebtedness to
finance its operations. Any such indebtedness could contain covenants, which
would restrict the Company's operations. There can be no assurance that
additional financing will be available on terms favorable to the Company, or at
all. If adequate funds are not available or are not available on acceptable
terms, the Company may not be able to fund its 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 issuance's 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
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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. 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 the Company has infringed upon the
proprietary rights of other 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
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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, online 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.
There can be no assurance that the United States, Canada or foreign nations
will 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
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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 servers are 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 online 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
online 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.
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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.
Even to the extent such claims does 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
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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
24
<PAGE>
could have a material adverse effect on the Company's business, results of
operations and financial condition.
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:
25
<PAGE>
As of June 30, 1999, of the shares of the Company's Common Stock
authorized, there were issued and outstanding 7,995,000 of which 4,100,000 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 Rule15c2-11 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 Employee Stock Options.
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.
Market For Common Stock
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 periods ending March 31, 1999 and 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
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.
26
<PAGE>
On June 30, 1999, the Company had 30 registered shareholders owning
7,995,000 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.
27
<PAGE>
Management Discussion and Analysis
Prior to its acquisition on March 11, 1999 of Stockgroup.com, the Company
achieved minimal success in the implementation of its marketing plan and the
operation of its business, the design of websites.
As a consolidated entity, the Company saw Pro-Forma gross revenues decrease
from US$968,441 in 1997 to US$857,929 in 1998; the Company's expenses totaled
US$830,571 which translated to a net loss of US$153,029 in 1998. This compared
to net income of US$76,859 for the year ended December 31, 1997. As a stand
alone entity, I-Tech Holdings Group, Inc.'s revenues increased from $0 in 1997
to $500 in 1998, while the Company's expenses totaled $6,611 which included
legal and accounting fees, office expenses, rent expenses and stock transfer
agent fees. As such, the Company incurred a loss of $6,611 in 1998.
The Company's acquisition of Stockgroup.com creates what management
believes is the largest publicly traded Internet destination site dedicated to
providing information to investors interested in micro and small capitalization
companies and markets. On May 6, 1999, the Company changed its name to
Stockgroup.com Holdings, Inc. as part of the acquisition arrangement.
Stockgroup.com has an established presence on the Internet and is an
award-winning provider of comprehensive business and financial information to
the small and micro cap markets (herein after collectively referred to as "small
cap").
As part of its viewer services, Stockgroup.com also produces "The Small Cap
Express", a free daily on-line investment market wire. This wire combines market
statistics and information about small cap companies and markets and includes
objective feature articles of interest to small cap investors. It is
distributed, on an "as requested basis", via e-mail to readers across North
America and is also available as part of the feature pages of
www.stockgroup.com.
Stockgroup.com is also a leading provider of Internet financial products
and marketing services to small cap companies, a market segment that
traditionally does not have the same coverage as larger public companies. These
products include private label quotes and charts, database tools for building
relationships with shareholders, management traffic reports, design services and
maintenance contracts.
The Company will devote all of its efforts to the development of the
business model of Stockgroup.com. Stockgroup.com's staff and management team are
implementing the strategic plan developed by Stockgroup.com.
The preceding discussion of the Company's financial condition and results of
operations should be read in conjunction with the financial statements and notes
related thereto included in this report.
28
<PAGE>
I-TECH HOLDINGS GROUP, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of I-Tech Holdings Group, Inc. (a
Developmental Stage Company), at December 31, 1998 and 1997, and the related
statement of operations, shareholders' equity, and cash flows for the year ended
December 31, 1998 and 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of I-Tech Holdings Group, Inc. at
December 31, 1998 and 1997 and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 4 to the financial
statements, the Company is in the development stage and has no operations as of
December 31, 1998. The lack of sufficient working capital to operate as of
December 31, 1998 raises substantial doubt about its ability to continue as a
going concern. Management's plans concerning these matters are also described in
Note 4. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Kish, Leake & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
January 22, 1999
30
<PAGE>
I-Tech Holdings Group, Inc.
(A Development Stage Company)
Balance Sheet
December December
31, 1998 31, 1997
-------- --------
ASSETS
Current Assets - Cash $ 3,272 $ 7,883
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES - Due To Related Entity For Rent $ 2,600 $ 1,100
-------- --------
SHAREHOLDERS' EQUITY
Preferred Stock, No Par Value,
Non Voting, Authorized 5,000,000 shares;
Issued and Outstanding 300,000 Shares 3,000 3,000
Issued and Outstanding 150,000 Series 2 Shares 9,150
Common Stock, No Par Value
Authorized 50,000,000 shares; Issued and
Outstanding 2,080,000 Shares 1,330 10,480
(Deficit) Accumulated During The Development Stage (12,808) (6,783)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 672 6,783
-------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 3,272 $ 7,883
======== ========
The Accompanying Notes Are An Integral Part Of These Financial Statements.
31
<PAGE>
I-Tech Holdings Group, Inc.
(A Development Stage Company)
Statement Of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December
6, 1994
(Inception)
Year Ended Year Ended Year Ended Through
December December December December
31, 1998 31, 1997 31, 1996 31, 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 500 $ 0 $ 0 $ 500
------------ ------------ ------------ ------------
Consulting 0 0 0 380
Fees 0 265 0 265
Legal & Accounting 2,850 3,750 0 6,600
Office 1,499 122 0 1,621
Rent 1,200 1,100 0 2,400
Stock Transfer 1,062 980 0 2,042
------------ ------------ ------------ ------------
Total Expenses 6,611 6,217 0 13,308
------------ ------------ ------------ ------------
Net (Loss) ($ 6,111) ($ 6,217) 0 (12,808)
============ ============ ============ ============
Basic (Loss) Per Common Share ($ 0.00) ($ 0.00) $ 0.00
============ ============ ============
Weighted Average Common Shares Outstanding 2,080,000 13,713,333 380,000
============ ============ ============
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements.
32
<PAGE>
I-Tech Holdings Group, Inc.
(A Development Stage Company)
Statement Of Cash Flow
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December
6, 1994
(Inception)
Year Ended Year Ended Year Ended Through
December December December December
31, 1998 31, 1997 31, 1996 31, 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net (Loss) ($ 6,111) ($ 6,217) $ 0 ($ 12,808)
----------- ----------- ----------- -----------
Plus Items Not Affecting Cash Flow: 0 0 0 0
Stock Issued For Services 0 380
Increase In Accounts Payable 1,500 1,100 0 2,600
----------- ----------- ----------- -----------
Net Cash Flows From Operations (4,611) (5,117) 0 (9,828)
----------- ----------- ----------- -----------
Cash Flows From Investing Activities:
Net Cash Flows From Investing: 0 0 0 0
----------- ----------- ----------- -----------
Cash Flows From Financing Activities:
Common Stock Issued For Cash 0 10,000 0 10,000
Contributed Capital 0 0 0 100
Preferred Stock Issued For Cash 0 3,000 0 3,000
----------- ----------- ----------- -----------
Net Cash Flows From Financing: 0 13,000 0 13,100
----------- ----------- ----------- -----------
Net Increase (Decrease) In Cash (4,611) 7,883 0 3,272
Cash At Beginning Of Period 7,883 0 0 0
----------- ----------- ----------- -----------
Cash At End Of Period $ 3,272 $ 7,883 $ 0 $ 3,272
=========== =========== =========== ===========
Summary Of Non-Cash Investing And Financing
Activities:
Common Stock Issued For Services $ 0 $ 0 $ 0 $ 380
=========== =========== =========== ===========
Series 2 Preferred Stock Issued in Exchange
For 18,300,000 Shares of Common Stock $ 9,150 $ 0 $ 0 $ 9,150
=========== =========== =========== ===========
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements.
33
<PAGE>
I-Tech Holdings Group, Inc.
(A Development Stage Company)
Statement Of Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number Of
Number Of Number Of Shares
Shares Shares Series 2 Common Preferred
Common Preferred Preferred Stock Stock
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance At December 6, 1994 0 0 0 $ 0 $ 0
June 15, 1995 issued
380,000 Shares Of No Par Value
Common Stock for services valued at
$380 or $.001 per share 380,000 380
Additional Capital Contribution 100
Net (Loss)
----------- ----------- ----------- ----------- -----------
Balance At December 31, 1995 380,000 0 0 480 0
Net (Loss)
----------- ----------- ----------- ----------- -----------
Balance At December 31, 1996 380,000 0 0 480 0
January 2, 1997 issued
300,000 Shares Of No Par Value
Preferred Stock for $3,000 or
$.01 per share 300,000 3,000
March & May, 1997 issued
20,000,000 Shares Of No Par Value
Common Stock for $10,000 or
$.0005 per share 20,000,000 10,000
Net (Loss)
----------- ----------- ----------- ----------- -----------
Balance At December 31, 1997 20,380,000 300,000 0 10,480 3,000
Series 2 Preferred Stock Exchanged
For Common Stock (18,300,000) 150,000 (9,150)
Net (Loss)
----------- ----------- ----------- ----------- -----------
Balance At December 31, 1998 2,080,000 300,000 150,000 $ 1,330 $ 3,000
=========== =========== =========== =========== ===========
</TABLE>
34
<PAGE>
I-Tech Holdings Group, Inc.
(A Development Stage Company)
Statement Of Shareholders' Equity (Continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net (Loss)
Accumulated
Series 2 During The
Preferred Development
Stock Stage Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance At December 6, 1994 $ 0 $ 0 $ 0
June 15, 1995 issued
380,000 Shares Of No Par Value
Common Stock for services valued at
$380 or $.001 per share 380
Additional Capital Contribution 100
Net (Loss) (380) (380)
----------- ----------- -----------
Balance At December 31, 1995 0 (380) 100
Net (Loss) (100) (100)
----------- ----------- -----------
Balance At December 31, 1996 0 (480) 0
January 2, 1997 issued
300,000 Shares Of No Par Value
Preferred Stock for $3,000 or
$.01 per share 3,000
March & May, 1997 issued
20,000,000 Shares Of No Par Value
Common Stock for $10,000 or
$.0005 per share 10,000
Net (Loss) (6,217) (6,217)
----------- ----------- -----------
Balance At December 31, 1997 0 (6,697) 6,783
Series 2 Preferred Stock Exchanged
For Common Stock 9,150 0
Net (Loss) (6,111) (6,111)
----------- ----------- -----------
Balance At December 31, 1998 $ 9,150 ($ 12,808) $ 672
=========== =========== ===========
</TABLE>
The Accompanying Notes Are An Integral Part Of These Financial Statements.
35
<PAGE>
I-Tech Holdings Group, Inc.
(A Development Stage Company)
Notes to Financial Statements
At December 31, 1998 and 1997
Note 1 - Organization and Summary of Significant Accounting Policies
Organization:
On December 6, 1994, I-Tech Holdings Group, Inc. ("the Company") was
incorporated under the laws of Colorado, to engage in the business of
environmental technologies of all types and manufacturing products related to
environmental technologies. The Company may also engage in any business which is
permitted by the Colorado Business Corporation Act, as designated by the board
of directors of the Company. In January 1997, the Company elected to engage in
the business of consulting services to develop web sites for business and
industry.
Developmental Stage:
The Company is currently in the developmental stage and has no significant
operations to date.
Income Taxes:
At December 31, 1998 and 1997, the company had net operating loss carry forwards
available for financial statement and Federal income tax purposes of
approximately $10,408 which, if not used, will expire beginning in the year
2008.
The Company follows Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" (SFAS #109), which requires, among other things,
an asset and liability approach to calculating deferred income taxes. As of
December 31, 1998, the Company has a deferred tax asset of $2,082 primarily for
its net operating loss carry forward which has been fully reserved through a
valuation allowance. The change in the valuation allowance from December 31,
1997 to December 31, 1998 was $1,004.
Statement of Cash Flows:
For purposes of the statement of cash flows, the Company considers demand
deposits and highly liquid-debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Cash paid for interest and taxes in the period ended December 31, 1998 and 1997
was $-0-.
Net (Loss) Per Common Share:
The net (loss) per common share is computed by dividing the net (Loss) for the
period by the weighted average number of shares outstanding at December 31, 1998
and 1997.
Note 2 - Capital Stock
Common Stock:
The Company initially authorized 50,000,000 shares of no par value common stock.
On June 15, 1995 380,000 shares of no par common stock were issued for services
valued at $380 or $.001 per share. In March and May 1997 the Company issued an
additional 20,000,000 shares of common stock for $10,000 or $.0005 per share.
Preferred Stock
The Company initially authorized 5,000,000 shares of no par value, non-voting
preferred stock.
On January 22, 1997, the Company issued 300,000 shares of its preferred stock
for $3,000 or $.01 per share. The Directors have assigned the following
preferences to the issued and outstanding shares of Preferred Stock: (I) the
Preferred Stock shall be non-voting, (ii) the holders of the stock as a group
have the right to receive, prorata, upon dissolution or winding up of the
Company, 10% of the assets of the Company prior to division and distribution of
assets to the holders of the Company's Common Stock.
36
<PAGE>
On December, 1998, the Company issued 150,000 shares of series 2 preferred stock
in exchange for the cancellation of 18,300,000 shares of its common stock. The
Directors have assigned the following preferences to the issued and outstanding
shares of Preferred Stock: (I) the Preferred Stock shall be non-voting, (ii) the
holders of the stock as a group have the right to receive, prorata, upon
dissolution or winding up of the Company, 10% of the assets of the Company prior
to division and distribution of assets to the holders of the Company's Common
Stock.
The Company has declared no dividends through December 31, 1998.
Note 3 - Related Party Events
The Company presently maintains its principal offices at an address provided by
a related party at a monthly rental of $100 per month, plus any expenses of
telephone, fax, and secretarial services, commencing February 1, 1997. The
office is located at 1629 York Street, Denver, Colorado 80206.
Note 4 - Basis Of Presentation
In the course of its development activities, the Company has sustained
continuing losses and expects such losses to continue in the foreseeable future.
The Company plans to continue financing its operations with stock sales and in
the longer term, revenues from its operations. The Company's ability to continue
as a going concern is dependent upon the successful completion of its offering
of common stock, additional financing and, ultimately, upon achieving profitable
operations.
37
<PAGE>
STOCK RESEARCH GROUP INC.
PRO-FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
38
<PAGE>
COMPILATION REPORT
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
To the Directors of
STOCK RESEARCH GROUP INC.
We have reviewed, as to compilation only, the accompanying pro-forma
consolidated balance sheet of Stock Research Group Inc. as at December 31, 1998
and the pro-forma consolidated statement of income and retained earnings and
changes in financial position for the year then ended.
In our opinion, the pro-forma consolidated balance sheet and pro-forma
consolidated statements of income and retained earnings and changes in financial
position have been properly compiled to give effect to the proposed transaction
and the assumptions described in Note 1 to these financial statements.
"DALE, MATHESON, CARR-HILTON"
Vancouver, B.C.
April 2, 1999 CHARTERED ACCOUNTANTS
39
<PAGE>
STOCK RESEARCH GROUP INC.
PRO-FORMA CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
1998 1997
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 3,272 45,325
Cash deemed received for share issuances
(Note 1(b)(vi)) 600,750 --
Short term investments (Note 6) 2,000 40,006
Accounts receivable, net 151,241 177,200
Prepaids and other current assets (Note 4) 58,596 10,302
Due from related company -- 56,000
------- -------
815,859 328,833
PROPERTY AND EQUIPMENT, NET (Note 3) 79,817 77,395
OTHER ASSETS (Note 4) 26,700 27,900
922,376 434,128
APPROVED BY THE DIRECTORS:
Marcus New Director
Craig Faulkner Director
- See Accompanying Notes -
40
<PAGE>
STOCK RESEARCH GROUP INC.
PRO-FORMA CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
1998 1997
$ $
LIABILITIES
CURRENT LIABILITIES
Bank line of credit (Note 8) 116,050 --
Accounts payable and accrued liabilities 105,983 49,917
Deferred revenue 63,825 116,750
Income taxes payable -- 285
Current portion of long-term debt (Note 8) 20,230 20,447
---------- ----------
306,088 187,399
LONG-TERM DEBT (Note 8) 31,061 51,891
SHAREHOLDER LOANS (Note 10) 18,471 8,658
---------- ----------
355,620 247,948
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (Note 5) 4,113,224 134
ACQUISITION ADJUSTMENT (Note 1) (3,505,557) --
---------- ----------
607,667 134
DEFICIT (40,911) 186,046
---------- ----------
566,756 186,180
922,376 434,128
- See Accompanying Notes -
41
<PAGE>
STOCK RESEARCH GROUP INC.
PRO-FORMA CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
YEAR ENDED DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
1998 1997
$ $
REVENUE
Revenues 1,272,394 1,340,613
Cost of revenues 255,602 190,337
---------- ----------
Gross profit 1,016,792 1,150,276
---------- ----------
EXPENSES
Operating expenses:
Sales and marketing 394,267 330,917
Product development 174,195 107,264
General and administrative 663,358 577,981
---------- ----------
1,231,820 1,016,162
---------- ----------
INCOME (LOSS) BEFORE OTHER ITEMS (215,028) 134,114
OTHER ITEMS, NET (Notes 7) (63,543) 3,896
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (278,571) 138,010
INCOME TAX PROVISION (RECOVERY) (51,614) 31,614
---------- ----------
NET INCOME (LOSS) (226,957) 106,396
RETAINED EARNINGS, beginning of year 186,046 79,650
DEFICIT, end of year (40,911) 186,046
EARNINGS (LOSS) PER SHARE (0.03) 0.02
- See Accompanying Notes -
42
<PAGE>
STOCK RESEARCH GROUP INC.
PRO-FORMA CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net income (loss) (226,957) 106,396
Add (deduct) non-cash items:
Write down of marketable securities 34,454 --
Amortization 24,860 18,860
-------- --------
(167,643) 125,256
-------- --------
Net changes in other non-cash operating accounts
Accounts receivable 25,959 (122,714)
Short term investments 2,920 (32,535)
Prepaid expenses and other current assts (47,379) (34,562)
Accounts payable 56,698 22,727
Deferred revenue (52,925) 76,775
-------- --------
(182,370) 34,947
-------- --------
FINANCING ACTIVITIES
Advances from shareholders 9,813 5,856
Long-term debt (21,047) 72,338
Share issue for acquisition, net of acquisition adjustment 6,783 --
Share issue deemed received (Note 1(b)(vi)) 600,000 --
-------- --------
595,549 78,194
-------- --------
INVESTING ACTIVITIES
Due to (from) related company 56,000 (56,000)
Purchase of property and equipment (27,282) (56,767)
-------- --------
28,718 (112,767)
-------- --------
INCREASE IN CASH 441,897 374
CASH, beginning of year 45,325 44,951
CASH, end of year 487,222 45,325
REPRESENTED BY:
Cash 3,272 45,325
Cash deemed received for share issuance (Note 1(b)(vi)) 600,000 --
Bank indebtedness (116,050) --
- --------------------------------------------------------------------------------------------
487,222 45,325
- --------------------------------------------------------------------------------------------
</TABLE>
- See Accompanying Notes -
43
<PAGE>
STOCK RESEARCH GROUP INC.
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
1. BASIS OF PRESENTATION
Under a share exchange agreement which became effective March 11, 1999, the
Company acquired all of the issued and outstanding shares of 579818 B.C.
Ltd., a newly incorporated Canadian subsidiary of I-Tech Holdings Group
Inc. ("I-Tech"), a N.A.S.D. Bulletin Board listed company.
These pro-forma consolidated financial statements reflect the combination
of Stock Research Group Inc. and I-Tech Holdings Group Inc., on a pro-forma
basis as if the share exchange had occurred on January 1, 1998.
The shares of the Canadian company are exchangeable for shares of the U.S.
parent company. The agreement provides for effective control of the U.S.
parent to pass to the shareholders of Stock Research Group Inc. ("SRG").
The share exchange is treated as a reverse takeover by Stock Research Group
Inc. Accordingly Stock Research Group Inc. is deemed to be the acquirer and
continuing entity.
These pro-forma financial statements are prepared using the purchase method
of business combination with Stock Research Group Inc. being the deemed
parent under reverse-takeover accounting. These pro-forma financial
statements reflect the consolidation as if Stock Research Group Inc. had
acquired I-Tech Holdings Group Inc. on January 1, 1998.
a) The application of reverse takeover accounting to these pro-forma
consolidated financial statements results in the following:
i) The pro-forma financial statements are issued under the name of
Stock Research Group Inc., as a continuation of the financial
statements of SRG.
ii) As SRG is deemed to be the acquirer for accounting purposes, its
assets and liabilities are included in the pro-forma consolidated
financial statements of the continuing entity at their historical
carrying value.
iii) The number and class of outstanding shares reported are those of
I-Tech Holdings Group Inc., after giving effect to the
transaction, while the dollar amounts of share capital and
deficit are those of SRG.
iv) The comparative figures reported are those of SRG, the continuing
entity.
v) The results of operations of I-Tech Holdings Inc. are included
from January 1, 1998 in these pro-forma consolidated financial
statements.
44
<PAGE>
STOCK RESEARCH GROUP INC.
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
1. BASIS OF PRESENTATION - CONT'D
b) Assumptions used in preparing these pro-forma consolidated financial
statements are as follows:
i) Changes to authorized capital of each of the entities had been
completed as at January 1, 1998.
ii) A share split of I-Tech shares of 1.5 shares for 1 as provided in
the agreement is deemed to have occurred at January 1, 1998.
iii) A share split of S.R.G. shares of 18,300 for 1 is deemed to have
occurred on January 1, 1998 with retroactive effect to 1997 for
comparative purposes.
iv) The deemed consideration for the acquisition of I-Tech Holdings
Group Inc. has been measured at $3,513,090 Cdn. being the diluted
value of the shares issued by S.R.G. to the shareholders of
I-Tech.
v) 450,000 I-Tech preference shares outstanding were cancelled as
required in the share exchange agreement, effective as at January
1, 1997.
vi) 240,000 shares of S.R.G. issued subsequent to December 31, 1998
at a cash price of $2.50 per share are deemed to be issued as at
January 1, 1998. 75,000 shares of I-Tech were issued subsequent
to December 31, 1998 but prior to the acquisition, for cash
proceeds of $750. The total cash proceeds of $600,750 have been
included as a deemed asset at the balance sheet date.
The cost of the acquisition is allocated as follows:
$
----------
Cost of acquisition
Issuance of 3,660,000 common shares 3,513,090
Net identifiable assets acquired
Cash 8,633
Accounts payable (1,100)
----------
7,533
----------
Excess purchase price (acquisition adjustment) 3,505,557
Less: adjustment for shares of S.R.G. issued
subsequent to year end included in exchange
of 240,000 shares 600,000
----------
2,905,557
----------
The excess purchase price represents the cost of acquiring the N.A.S.D.
Bulletin Board listing and access to capital markets. A reliable basis of
value is not available, no goodwill component has been recorded for this
transaction. The excess amount has been reported as an acquisition
adjustment as a separate component reducing shareholders' equity.
45
<PAGE>
STOCK RESEARCH GROUP INC.
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES
a) Amortization
Amortization is provided at the following annual rates. (Except in the
year of purchase in which the Company uses 1/2 the normal rate):
Computer equipment 30% Declining balance
Office furniture and equipment 20% Declining balance
Leasehold improvements 20% Straight line
b) Financial instruments
The Company's financial instruments consist of accounts receivable,
marketable securities, shareholder loans and associated company loans,
the fair value of which approximates their carrying value.
c) 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.
d) 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.
e) 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.
46
<PAGE>
STOCK RESEARCH GROUP INC.
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES - CONT'D
f) Uncertainty due to 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 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.
g) 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.
h) Research and development costs
The company expenses all market research and product development costs
as incurred.
3. PROPERTY AND EQUIPMENT
1998 1997
$ $
------------------
Accumulated
Cost Amortization Net Net
Computer equipment 103,890 43,386 60,504 57,988
Office furniture and equipment 27,985 9,167 18,818 19,407
Leasehold improvements 550 55 495 --
------- ------- ------- -------
132,425 52,608 79,817 77,395
======= ======= ======= =======
(Note 8)
47
<PAGE>
STOCK RESEARCH GROUP INC.
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
4. OTHER ASSETS
Other assets include a loan to an officer/employee for housing. This loan
is repayable over 25 years with interest at current interest rates. The
year end outstanding balances of the loan for the past three years are as
follows: 1998: 1998- $26,400; 1997 - $27,600; 1996 - $28,800. The current
portion of the loan, included in prepaids and other current assets, was
$1,200 in each of the past three years.
5. CAPITAL STOCK
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
# of # of
Shares $ Shares $
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Issued:
Balance, beginning of year 2,080,000 134 2,080,000 134
Adjusted for split 1.5 for 1 1,040,000 -- 1,040,000 -_
--------- --------- --------- ---------
Issued during year for: 3,120,000 134 3,120,000 134
I-Tech Holdings Group Inc. 75,000 -- -- --
S.R.G shareholders re: acquisition 3,660,000 3,513,090 -- --
Issued for cash 240,000 600,000 -- -_
--------- --------- --------- ---------
7,095,000 4,113,224 3,120,000 134
========= ========= ========= =========
</TABLE>
(See Note 1(b))
6. SHORT TERM INVESTMENTS
Marketable securities are recorded at lower of cost or market value. 1998
1997
$ $
------ ------
Cost 36,454 40,006
Market 2,000 40,006
------ ------
Write-down to market 34,454 --
====== ======
48
<PAGE>
STOCK RESEARCH GROUP INC.
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
7. OTHER ITEMS
1998 1997
$ $
------- -------
Writedown of marketable securities (Note 6) (34,454) --
Loan loss provision (36,568) --
Gain on sale of marketable securities 7,479 3,896
------- -------
(63,543) 3,896
======= =======
8. LONG-TERM DEBT
1998 1997
$ $
------ ------
Long-term debt consists of two separate bank loans
of $46,976 and $25,362 each bearing interest at prime
plus 1% 51,291 72,338
Less: current portion 20,230 20,447
------ ------
31,061 51,891
====== ======
Loan 1 - Repayable on demand, with monthly payments of $915 including
interest due November 30, 2002.
Loan 2 - Special term loan secured by a general security agreement on all
assets of the company, certain equipment and accounts receivable. The loan
is repayable at $1,183 per month including interest.
Estimated principal payments required in each of the next five years are:
1999 $20,370
2000 10,031
2001 9,603
2002 10,349
2003 938
The security in Loan 2 above includes the company's line of credit.
49
<PAGE>
STOCK RESEARCH GROUP INC.
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
9. LEASE COMMITMENTS
The Company has entered into lease commitments for office premises. The
lease commitments and expiry dates are as follows:
Estimated
Lease Lease Annual
# Expiry Payments
------ ---------- ----------
1 - Calgary July, 2000 $17,050
2 - Vancouver January, 2000 52,413
3 - Vancouver January, 2002 67,680
4 - Toronto March, 1999 13,012
Annual estimated lease commitments:
$
---------
1999 140,396
2000 80,573
2001 67,680
2002 5,640
10. RELATED PARTY TRANSACTIONS
i) By agreement dated August 1, 1999, the company contracted with a
previously unrelated company for the provision of comprehensive
operational management services. The contract extends for five years
and provides for monthly payments of $12,500. The contract includes
various termination and renewal clauses. The company can terminate the
contract without cause upon thirty days written notice and payment of
one year's contract fees.
ii) Included in accounts payable is an amount of $11,192 due to the
contracted company.
iii) Shareholder loans are non-interest bearing and have no fixed terms of
repayment.
50
<PAGE>
STOCK RESEARCH GROUP INC.
NOTES TO PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(IN CANADIAN DOLLARS)
11. SUPPLEMENTAL INCOME STATEMENT INFORMATION
Included in expenses are the following:
1998 1997
$ $
------- -------
Interest on long term debt 11,440 5,311
Amortization 24,860 18,860
51
<PAGE>
STOCK RESEARCH GROUP INC.
PRO-FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1998
(INFORMATIONAL TRANSLATION IN U.S. DOLLARS - unaudited)
52
<PAGE>
STOCK RESEARCH GROUP INC.
PRO-FORMA CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1998
(INFORMATIONAL TRANSLATION IN U.S. DOLLARS - unaudited)
1998 1997
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 2,206 32,742
Cash deemed received for share issuance 404,558 --
Short term investments 1,349 28,900
Accounts receivable, net 101,976 128,007
Prepaids and other current assets 39,509 7,442
Due from related company -- 40,454
---------- ----------
549,598 237,545
PROPERTY AND EQUIPMENT, NET 53,818 55,909
OTHER ASSETS 18,003 20,154
- --------------------------------------------------------------------------------
621,419 313,608
- --------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Bank line of credit 78,248 --
Accounts payable and accrued liabilities 71,460 36,059
Deferred revenue 43,036 84,339
Income taxes payable -- 206
Current portion of long-term debt 13,640 14,771
---------- ----------
206,384 135,375
LONG-TERM DEBT 20,944 37,485
SHAREHOLDER LOANS 12,454 6,254
---------- ----------
239,782 179,114
---------- ----------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (Note 5) 2,772,891 97
ACQUISITION ADJUSTMENT (Note 1) (2,363,669) --
---------- ----------
409,222 97
DEFICIT (27,585) 134,397
---------- ----------
381,637 134,494
- --------------------------------------------------------------------------------
621,419 313,608
- --------------------------------------------------------------------------------
53
<PAGE>
STOCK RESEARCH GROUP INC.
PRO-FORMA CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS (DEFICIT)
YEAR ENDED DECEMBER 31, 1998
(INFORMATIONAL TRANSLATION IN U.S. DOLLARS - unaudited)
1998 1997
$ $
REVENUE
Revenues 857,929 968,441
Cost of revenues 172,343 137,497
-------- --------
685,586 830,944
-------- --------
EXPENSES
Operating expenses:
Sales and marketing 265,840 239,050
Product development 117,453 77,486
General and administrative 447,278 417,526
-------- --------
830,571 734,062
-------- --------
INCOME (LOSS) BEFORE OTHER ITEMS (144,985) 96,882
OTHER ITEMS, NET (42,845) 2,815
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES (187,830) 99,697
INCOME TAX PROVISION (RECOVERY) (34,801) 22,838
-------- --------
NET INCOME (LOSS) (153,029) 76,859
RETAINED EARNINGS, beginning of year 134,397 57,538
FOREIGN CURRENCY FLUCTUATION
RETAINED EARNINGS, NET (8,953) --
-------- --------
125,444 57,538
DEFICIT, end of year (27,585) 134,397
54
<PAGE>
STOCK RESEARCH GROUP INC.
PRO-FORMA CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
YEAR ENDED DECEMBER 31, 1998
(INFORMATIONAL TRANSLATION IN U.S. DOLLARS - unaudited)
1998 1997
$ $
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net income (loss) (153,029) 76,859
Add (deduct) non-cash items:
Write down of marketable securities 23,231
Amortization 16,762 13,624
-------- --------
(113,036) 90,483
Net changes in other non-cash operating accounts
Accounts receivable 17,503 (88,647)
Short term investments 1,969 (23,503)
Prepaid expenses and other current assts (31,946) (24,967)
Accounts payable 38,229 16,418
Deferred revenue (35,685) 55,461
(122,966) 25,245
-------- --------
FINANCING ACTIVITIES
Advances from shareholders 6,617 4,230
Long-term debt (14,191) 52,256
Share issue for acquisition net of acquisition adjustment 4,574 --
Share issue deemed received (Note 1(b)(vi)) 404,558 --
-------- --------
401,558 56,486
-------- --------
INVESTING ACTIVITIES
Due to (from) related company 37,758 (40,453)
Purchase of capital assets (18,395) (41,008)
-------- --------
19,363 (81,461)
-------- --------
INCREASE IN CASH 297,955 270
CASH, beginning of year 32,742 32,472
FOREIGN CURRENCY ADJUSTMENT (2,181) --
-------- --------
30,561 32,472
CASH, end of year 328,516 32,742
REPRESENTED BY:
Cash 2,206 32,742
Cash deemed received for share issuance (Note 1(b)(vi)) 404,558 --
Bank indebtedness (78,248) --
- --------------------------------------------------------------------------------
328,516 32,742
- --------------------------------------------------------------------------------
55
