Form 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[X] Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2000.
[ ] Transition report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _______________ to _______________
Commission file number: 0-23687
Stockgroup.com Holdings, Inc.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1379282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 500 - 750 W PENDER STREET
VANCOUVER BRITISH COLUMBIA CANADA V6C 2T7 A2
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (604) 331-0995
Former address: Suite 1000 789 W Pender Street, Vancouver,
British Columbia, Canada V6C 1H2
(Former name or address, if changed since last report)
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes: _X_ No: ___
Applicable only to issuers involved in bankruptcy
proceedings during the preceding five years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes ___ No ___
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 8,195,000
Transitional Small Business Disclosure Format (check one); Yes: ___ No:_X_
<PAGE>
Stockgroup.com Holdings, Inc.
FORM 10-QSB
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Balance Sheets 3
Consolidated Statement of Loss and Deficit 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8K 15
SIGNATURE PAGE 15
FINANCIAL DATA SCHEDULE 16
2
<PAGE>
Item 1. FINANCIAL STATEMENTS
Stockgroup.com Holdings, Inc.
CONSOLIDATED BALANCE SHEET
As at June 30, 2000
(UNAUDITED - Expressed in U.S. Dollars)
Unaudited Unaudited
June 30, December 31,
2000 1999
----------- -----------
ASSETS
CURRENT
Cash and cash equivalents $ 2,636,307 $ 1,658,822
Accounts receivable, net 706,343 855,170
Due from shareholder 31,604 31,973
Prepaid expenses 348,430 887,223
----------- -----------
TOTAL CURRENT ASSETS $ 3,722,684 $ 3,433,188
Property and equipment, net $ 612,547 $ 440,368
Investments and advances 499,932 --
----------- -----------
$ 4,835,163 $ 3,873,556
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness $ 17,523 $ 21,004
Accounts payable 806,960 732,392
Accrued payroll liabilities 79,032 126,566
Deferred revenue 266,918 230,545
Notes payable 2,790,167 0
----------- -----------
TOTAL CURRENT LIABILITIES $ 3,960,600 $ 1,110,507
----------- -----------
TOTAL LIABILITIES $ 3,960,600 $ 1,110,507
----------- -----------
SHAREHOLDERS' EQUITY
COMMON STOCK, No Par Value
Authorized shares - 75,000,000
Issued and Outstanding shares - 8,195,000 $ 6,761,483 6,761,483
PREFERRED STOCK, non-voting, no par value
Authorized shares - 5,000,000
Issued and outstanding - nil -- --
ADDITIONAL PAID-IN CAPITAL 789,395 261,277
ACCUMULATED DEFICIT $(6,676,315) $(4,259,711)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY $ 874,563 $ 2,763,049
----------- -----------
$ 4,835,163 $ 3,873,556
=========== ===========
The Accompanying Notes Are An Integral Part
Of These Unaudited Financial Statements.
3
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000
(UNAUDITED - Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Unaudited Unaudited Unaudited Unaudited
Three Months Three Months Six Months Six Months
Ended June Ended June Ended June Ended June
30, 2000 30, 1999 30, 2000 30, 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE
Revenues $ 1,305,951 $ 980,924 $ 2,547,158 $ 1,160,118
Cost of revenues 465,649 772,728 862,715 833,120
----------- ----------- ----------- -----------
Gross profit $ 840,302 $ 208,196 $ 1,684,443 $ 326,998
EXPENSES
Sales and marketing $ 400,129 $ 198,713 $ 1,582,765 $ 254,421
Product development 461,740 38,979 623,380 69,934
General and administrative 1,071,979 547,245 1,945,403 1,216,777
----------- ----------- ----------- -----------
$ 1,933,848 $ 784,937 $ 4,151,547 $ 1,541,132
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS $(1,093,546) $ (576,741) $(2,467,105) $(1,214,134)
Interest income 32,727 26,691 49,716 26,691
Other income (expense) 228 2,422 784 2,654
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES $(1,060,591) $ (547,628) $(2,416,604) $(1,184,789)
Income tax provision (recovery) -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,060,591) $ (547,628) $(2,416,604) $(1,184,789)
=========== =========== =========== ===========
Basic and diluted earnings (loss)
Per share (0.13) (0.08) (0.29) (0.21)
=========== =========== =========== ===========
Weighted average shares used in
the calculation of basic and
diluted net loss per share 8,195,000 7,213,681 8,195,000 5,739,725
=========== =========== =========== ===========
</TABLE>
4
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2000
(UNAUDITED - Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Unaudited Unaudited Unaudited Unaudited
Three Months Three Months Six Months Six Months
Ended June Ended June Ended June Ended June
30, 2000 30, 1999 30, 2000 30, 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $(1,060,591) $ (547,628) $(2,416,604) $(1,184,789)
Add (deduct) non-cash items
Depreciation and amortization 38,085 6,398 66,889 13,121
Amortization of deferred debt costs 35,694 -- 35,694 --
Provision for doubtful accounts (10,533) -- (10,646) --
Common stock issued for services -- -- -- 450,000
Compensation expense on
stock options 36,286 117,960 72,572 157,280
----------- ----------- ----------- -----------
(961,059) (423,270) (2,252,095) (564,388)
Net changes in non-cash
working capital
Accounts receivable 440,366 (872,631) 159,473 (886,852)
Due from shareholder 612 10,071 369 (919)
Prepaid expenses 86,494 29,531 788,655 22,172
Accounts payable 186,698 514,474 (360,432) 646,325
Accrued liabilities 49,734 -- (47,534) (15,837)
Income taxes payable -- -- -- --
Interest on note payable 90,167 -- 90,167 --
Deferred revenue (498,256) 33,632 (463,627) 35,894
----------- ----------- ----------- -----------
CASH FROM (FOR) OPERATIONS $ (605,243) $ (708,192) $(2,085,025) $ (763,606)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Issuance of common stock (net) -- 5,232,263 -- 5,634,714
Deposits on common stock (net) -- -- 435,000 --
Issuance of convertible debt and
Warrants (net) 2,869,990 -- 2,869,990 --
Bank indebtedness (net) (124,261) (12,989) (3,481) (73,542)
Long-term debt (net) -- -- -- (8,260)
Shareholder debt (net) -- -- -- (12,069)
Due to (from) related company -- -- -- --
----------- ----------- ----------- -----------
CASH FROM (FOR) FINANCING $ 2,745,729 $ 5,219,274 $ 3,301,509 $ 5,540,843
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Property and equipment (net) (113,456) (124,509) (239,068) (193,975)
Investments 68 -- 68 --
Net cash from reverse acquisition -- -- -- 3,272
----------- ----------- ----------- -----------
CASH FROM (FOR) INVESTING $ (113,388) $ (124,509) $ (239,000) $ (190,703)
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,027,099 4,386,573 977,485 4,586,534
Cash and cash equivalents,
beginning of period 609,208 199,961 1,658,822 --
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 2,636,307 $ 4,586,534 $ 2,636,307 $ 4,586,534
=========== =========== =========== ===========
</TABLE>
5
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Six Months
Ended June 30, 2000
(UNAUDITED)
1. NATURE OF BUSINESS
Stockgroup.com Holdings, Inc. is an Internet based media and technology company
that provides business to business services, application service solution (ASP)
enterprise website development services, financial news and information
services, and advertising and media services. Stockgroup.com is incorporated
under the laws of Colorado and is publicly traded on the NASD OTC Bulletin
Board.
2. BASIS OF PRESENTATION AND COMPARATIVE AMOUNTS
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that no
disclosures have been omitted that would make the information presented
misleading. These condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1999.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) which
are, in the opinion of management, necessary to state fairly the results for the
six month period ended June 30, 2000. The results for the six-month period ended
June 30, 2000 are not necessarily indicative of the results expected for the
full fiscal year.
These consolidated financial statements are presented in U.S. dollars and are
prepared in accordance with accounting principles generally accepted in the
United States ("U.S. GAAP"). Prior to year-end 1999, the Company reported its
financial results using Canadian GAAP and Canadian Dollars. In this report
comparative figures have been retroactively restated to conform to the U.S. GAAP
presentation and have been recast into U.S. dollars in accordance with FASB
Statement No. 52, Foreign Currency Translation.
3. REVENUE RECOGNITION
Revenues generated by the Company are recognized when all or substantially all
of the effort required to generate the revenue has been completed and the
collection of any remaining payments is relatively certain. For revenues
generated from longer term website design and development arrangements requiring
significant production, modification and customization, the Company follows the
percentage of completion method of contract accounting in accordance with SOP
81-1, Accounting for Performance of Construction-Type and Certain
Production-Type Contracts.
6
<PAGE>
4. NOTES PAYABLE AND WARRANTS
On April 3, 2000, Stockgroup.com entered into a Convertible Note Purchase
Agreement pursuant to which it obtained $3 million in a financing led by
Deephaven Capital Management LLC, a subsidiary of Knight/Trimark. Amro
International S.A., managed by Rhino Advisors was an additional lender in the
funding. Jesup and Lamont Securities Corporation served as the placement agent
for the transaction.
The funding included $3 million of 8% Convertible Notes (the "Notes"), and
5-year Callable Warrants (the "Warrants"). The Notes mature on March 31, 2002
and are convertible into Stockgroup.com common shares only after July 31, 2000.
The Notes may only be converted if Stockgroup.com does not make payment on a
Noteholder's prepayment request, or if Stockgroup.com seeks to prepay the Notes.
The initial conversion price (the "Initial Conversion Price") for the Notes is
$3.72, and the exercise price (the "Exercise Price") of the Warrants is $3.30.
The Initial Conversion Price and the Exercise Price are subject to adjustment
upon the happening of certain events, such as the payment of a stock dividend,
or the issuance of warrants at a below market price or at a price below the
conversion price. Prepayments on the Notes are subject to a tiered prepayment
schedule that increases as the number of days between the closing date and the
prepayment date increases, being 105%, 110%, and 115% of principal from days
1-60, 61-120, and after 120 days, respectively. Interest accrues on the Notes at
the rate of 8% per annum, and is payable on each conversion date and at
maturity. Interest may be paid in the form of cash or registered stock, at
Stockgroup.com's option. The lenders have the right to put back to
Stockgroup.com up to 25% of the unconverted amount of the Notes during any
30-day period after July 31, 2000. Upon the lenders' exercise of such right,
Stockgroup.com has the option of prepaying the portion of the Notes sought to be
converted, such prepayment to be in accordance with the tiered prepayment
schedule set forth above. If Stockgroup.com does not make such a prepayment
within 10 days after its receipt of a "put" notice, the conversion rate of the
Notes changes to the lesser of (a) the Initial Conversion Price, and (b) 88% of
the average of the 5 lowest closing prices of Stockgroup.com's common shares
during the 30 trading days prior to the date of conversion.
The Warrants permit the holders to acquire up to 181,818 common shares.
Stockgroup.com filed a registration statement covering these shares, and the
shares underlying the Notes. The Warrants may be called by Stockgroup.com, at a
purchase price of $.01 per underlying share, if Stockgroup.com's common shares
trade at the level of 175% of the Warrant exercise price of $3.30 for any 20
consecutive trading days after the effective date of the registration statement,
provided that the holders have the right to exercise the warrants within 30 days
after their receipt of such a call.
The convertible notes and callable warrants have been accounted for in
accordance with APB 14, Accounting for Convertible Debt and Debt Issued with
Stock Purchase Warrants and EITF 98-5, Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios. APB 14 requires that the gross proceeds be allocated to the notes and
warrants based on the relative fair value of each security at the time of
issuance. Accordingly, $2.7 million of the gross proceeds was allocated to the
notes and $300,000 was allocated to the 181,818 warrants. The financing costs,
consisting of $130,000 in cash and the fair value of additional warrants to
purchase 90,909 common shares granted to the placement agent on the same terms
as the warrants issued to the lenders, were allocated to the notes and 181,818
warrants in the same relative fair value manner.
7
<PAGE>
5. SHAREHOLDERS' EQUITY
The Company is authorized to issue up to 75,000,000 shares of common stock and
5,000,000 shares of preferred stock. On April 3, 2000, the Company issued
warrants to purchase 272,727 common shares as described in Note 4. The fair
value of the warrants issued, net of financing costs, amounted to $455,546 and
was recorded as an increase to additional paid-in capital. During the six months
ended June 30, 2000, the Company recorded $72,572 of stock compensation expense
in accordance with APB 25, Accounting for Stock Issued to Employees, on stock
options previously issued to an employee with an exercise price less than the
prevailing market price at the date of grant. This expense is accounted for as
an increase to additional paid-in capital.
6. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed based on the weighted average number
of common shares outstanding during each year. Diluted earnings (loss) per share
is computed based on the weighted average number of common shares outstanding
during each year, plus the dilutive potential of convertible securities during
the year, in accordance with FASB Statement No. 128, Earnings Per Share.
For the six months ended June 30, 2000, all of the Company's common shares
issuable upon the exercise of stock options, convertible debentures, or warrants
were excluded from the determination of diluted earnings (loss) per share as
their effect would be anti-dilutive.
7. COMPREHENSIVE INCOME
The Company follows FASB Statement No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and displaying comprehensive income
and its components in the consolidated financial statements. For the six months
ended June 30, 2000 and June 30, 1999, the Company did not have any components
of comprehensive income.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes new standards for
recording derivatives in interim and annual financial statements. This statement
requires recording all derivative instruments as assets or liabilities, measured
at fair value. Statement No. 133, as amended by FASB Statement No. 137, is
effective for fiscal years beginning after June 15, 2000. Management has not
determined the impact, if any, that the adoption of the new statement will have
on the consolidated results of operations or financial position of the Company.
On March 31, 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25. The interpretation
clarifies guidance for certain issues that arose in the application of APB
Opinion No. 25, Accounting for Stock Issued to Employees. The Interpretation is
applied prospectively to all new awards, modifications to outstanding awards,
and changes in employee status after July 1, 2000 with certain exceptions
requiring earlier adoption. The Company is presently evaluating the impact, if
any, that FIN No. 44 will have on the company's financial position or results of
operations.
On December 3, 1999, the SEC staff released Staff Accounting Bulletin (SAB) No.
101 - Revenue Recognition in Financial Statements, which provides guidance on
the recognition, presentation, and disclosure of revenue in financial
statements. The SAB required adoption for the first fiscal quarter of fiscal
years beginning after December 15, 1999, however, based on requests for
additional time to consider the implications, the SEC has issued SAB 101A and
SAB 101B that further delays the effective date of SAB 101 until no later than
the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The
Company is presently evaluating the impact, if any, that SAB No. 101 will have
on the company's financial position or results of operations.
8
<PAGE>
9. SEGMENTED INFORMATION
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, requires a public business enterprise to report financial and
descriptive information about its reportable operating segments. The Company has
concluded that its business activities fall into one identifiable industry
segment with the following sources of revenue:
For the six months ended
June 30, 2000 June 30, 1999
Business to Business Internet products $ 832,845 $ 129,587
Advertising and media services 248,909 911,602
Financial news and information services 182,851 118,849
ASP Enterprise Financial Website development 1,282,553 --
---------- ----------
$2,547,158 $1,160,118
========== ==========
During the first six months 2000, the Company had two customers from whom
revenue received by the Company represented 50% of total revenue. No other
customers represented greater than 10% of revenue.
10. SUBSEQUENT EVENTS
On August 2, 2000, Deephaven Capital Management LLC exercised their right to put
25% of their portion, or US$500,000. The Company paid this put in cash on August
10, 2000, with the total amount paid equal to US$500,000 plus the 15% prepayment
penalty and accrued interest, for a total of US$589,889.
On August 10, 2000, Amro International, S.A. exercised their right to put 25% of
their portion, or US$250,000. The Company will pay this put in cash on August
17, 2000, with the total amount paid equal to US$250,000 plus the 15% prepayment
penalty and accrued interest, for a total of US$294,950.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2000
During the six months ended June 30, 2000, the Company generated revenues of
$2,547,158 that represents a 120% increase over the $1,160,118 generated in the
six months ended June 30, 1999. The growth in revenues was primarily due to
major Website development projects in Singapore and Texas, and higher sales of
Internet marketing services to corporations. The Company also significantly
increased its sales force from 5 in quarter two 1999 to 20 in quarter two 2000.
Growth in sales staff was spread across all offices.
The Company incurred a net loss of $(2,416,604) for the six months ended June
30, 2000. This compared with a net loss of $(1,184,789) for the first six months
of 1999. These losses are a function of implementation of the Company's
strategic plans and had been anticipated. The Company expects that quarterly
losses will be lower going forward, as the major expenditures of the current
strategic plans have been incurred.
Sales and marketing expenses increased from $254,421 in the first six months of
1999 to $1,582,765 in the same period in 2000. The factors that contributed to
this increase are increased advertising purchases and an increase in sales
staff. During the period there were also several large advertising purchases.
Advertising purchases were for the purpose of establishing brand in the
marketplace and are expected to have long-term residual effects. The size of the
staff, particularly in sales, increased significantly quarter over quarter in
line with our strategic plans to position the company for future growth. The
additional cost of this staff is reflected in the increased expense numbers.
General and administrative expenses increased from $1,216,777 in the first half
of 1999 to $1,945,403 over the first half of 2000. Items accounting for a
majority of the increases in general and administrative included legal expenses,
higher office rent expenses due to an expansion of our branch network, increased
staffing costs, costs related to temporary data entry staff used for site
development, and travel. Much of the costs incurred under legal and accounting
were with respect to the Convertible Debenture and the related regulatory
filings, and are not expected to recur going forward. Other costs related to
expansion are not expected to grow as rapidly in the future, as the Company
believes sales growth can now be achieved without a further significant
investment in infrastructure.
CORPORATE DEVELOPMENTS DURING THE PERIOD
Expansion into Asia
On January 18th, 2000, Stockgroup.com began its global expansion by entering
into an arrangement with two Singapore publicly listed companies to build an
enterprise financial site for Asia Exchange Information Service Pte Ltd., called
www.asiaXIS.com. This site was launched on June 28, 2000, and all significant
work on the site was complete by that time. All but $40,000 of the revenue from
this project has been recognized as at June 30, 2000, with the balance held back
in recognition of efforts undertaken in July to complete documentation. These
documentation efforts have been completed as of the date of this filing.
Vice President Sales hired
On January 3rd Tim Bush, a seasoned sales and marketing management professional,
joined the Company as Vice President of Sales. Mr. Bush comes to Stockgroup.com
from Ingram Micro Inc., one of the world's largest wholesale providers of
technology products and services, where he was the Regional Sales Director.
During his time at Ingram Micro Inc., Mr. Bush's team averaged over 30% annual
sales growth with sales in excess of Cdn$400 million.
10
<PAGE>
Chief Financial Officer hired
On May 19th Lindsay Moyle joined the Company as Chief Financial Officer,
Secretary and Treasurer. Mr. Moyle is a Certified General Accountant with
experience in managing a publicly listed company and managing rapid growth. He
was previously the CFO of NTS Computer Systems Ltd, a Toronto Stock Exchange
listed company with annual revenues of Cdn$35 million, 200 employees worldwide,
and offices in Canada, the United States, Ireland and England. During his time
at NTS, he managed all aspects of accounting and finance as the company grew
from Cdn$1 million to Cdn$35 million in revenue in a four-year period.
Syndication strategy launched
During the first half of the year, Stockgroup.com began the implementation of
its syndication strategy, signing agreements with web content distributors. The
major syndication agreements established so far this year include I-Syndicate,
which reaches over 600,000 web users; audiobasket.com, which disseminates
Stockgroup.com audio content; Cybersurf, an Internet Service Provider (ISP)
which features data feeds exclusively from our website to its extensive base of
subscribers; Screaming Media, a content syndicator; and AvantGo, a wireless
application provider.
CORPORATE OVERVIEW AND BACKGROUND
Stockgroup.com has offices in New York, San Francisco, Toronto, Calgary, and
Dallas and maintains its corporate headquarters in Vancouver. Stockgroup.com is
a provider of Business-to-business corporate services, Application Service
Provider solutions, and unbiased, comprehensive financial information on small
cap and micro cap stocks on the Internet. Revenues from these segments comprise
service fees, ongoing licensing fees for the Company's technology and news
products, maintenance fees, advertising fees, royalties on transactions, and
enterprise financial website development fees.
There are thousands of financial services companies that require enterprise
solutions to interact and display information over the Internet for their
customers. Stockgroup.com provides a full ASP solution and licenses its
proprietary enterprise financial web sites. There are an estimated 28 million
small cap investors in North America and another 22 million worldwide who
receive their smallcap financial information from a variety of news sources. The
market place is highly fragmented, consisting of newsletters, specialty
publications, brokerage research reports, and limited coverage by the large
media companies. Stockgroup.com offers these investors the ability to receive
real time, unbiased, detailed information on thousands of small cap and micro
cap companies. The Company also provides online business to business services to
hundreds of publicly traded companies, from New York Stock Exchange companies to
Bulletin Board companies, that enable them to provide current, detailed
financial information and effectively reach current and prospective shareholders
efficiently.
In addition, smallcapcenter.com provides unbiased original financial news
content on small cap companies and markets. These news features are produced
throughout the trading day by Stockgroup.com's staff of professional financial
journalists and editors and this News Service is a significant draw for the
investor viewers who use smallcapcenter.com. Smallcapcenter.com also
disseminates information about Stockgroup.com's corporate clients but does not
make any recommendations or provide special news coverage related to these
clients.
We are also a provider of website design, Internet financial products and
marketing services for Small Cap companies, a market segment that traditionally
has not had the same market profile as larger public companies. Some of the
specialty products we produce include private label quotes and charts, database
tools for building relationships with shareholders, traffic reports that allow a
company's management to assess the impact of website use by its viewers, design
services and maintenance contracts.
11
<PAGE>
Rapid technological change, new product development and evolving industry
standards characterize our industry. Inherent in our business are various risks
and uncertainties, including a limited operating history, a new and unproven
business model and the limited history of commerce on the Internet. Our success
may depend in part upon the emergence of the Internet as a communications
medium, prospective product development efforts and the acceptance of our
products and services by the marketplace. As part of our strategic development
plans, we invest significant resources in research and development of new
products and services.
As of June 30, 2000 we had 86 employees, all of which were full time.
DESCRIPTION OF BUSINESS MODEL
Business to Business Services to Corporations
Stockgroup.com provides investor disclosure products that automate the updating
of a company's important financial information on its web site, including stock
quotes, charts, and news releases. Customers license this application from
Stockgroup.com. Stockgroup.com also provides Internet marketing services to
these customers. Stockgroup.com does not act as a public relations or investor
relations firm but rather provides a suite of products and services. As a means
of providing small cap companies with greater exposure, Stockgroup.com offers to
link clients' sites to Stockgroup.com's proprietary information Community and
offer access to Stockgroup.com's proprietary Email listing of smallcap
investors.
Applications Solutions and Enterprise Website Development
Stockgroup.com develops, sells, and maintains private label news and financial
web sites. Target companies include: brokerage firms, financial services
companies, media companies, and entrepreneurial firms. Stockgroup.com is
expanding through sales of its expertise in the development of enterprise
financial website platforms.
Editorial Products
Stockgroup.com is a proprietary developer and distributor of professional,
unbiased, on-line news and information focused on small cap and micro-cap
stocks. Investors have historically had difficulty obtaining timely, accurate
investment information on Small Cap companies due to a lack of objective news
sources. Most other media organizations, investment firms and brokerage houses
tend to focus a significant majority of their attention on larger public
companies. As a result, Small Cap investors have not had access to the level of
non-biased third party information or traditional sources of company research
reports they desire. This lack of information is coupled with the increasing
shift of investors from traditional retail brokerages to discount and on-line
alternatives. This shift has created an increased interest in personal
investment research on the part of individual investors. However, investor
interest in the Small Cap sectors has not been accompanied by an increased
coverage of the small and micro cap sectors by traditional media, traditional
brokerage firms or alternative on-line and discount investment service
providers. As a result, investors have turned to other resources on the Internet
as a method of obtaining the timely financial information needed to make small
cap investment decisions. The Company licenses and sells content to other
financial sites.
12
<PAGE>
Advertising and Media Services
Stockgroup.com also derives revenue from corporate advertisers who see benefit
in presenting their products and services to smallcapcenter.com's Internet
audience. Many advertisers seek and are willing to pay premium rates to
advertise on smallcapcenter.com due to its highly specific demographics. The
investor demographic profile, which consists of well-educated, technically
savvy, mid to high-income level earners and higher risk investors, is very
attractive to numerous advertisers. In addition, as a part of Stockgroup.com's
business to business product offering, Stockgroup.com provides advertising
management services, essentially acting as an on-line advertising agency
providing advertisement design and placement services for its clients.
Stockgroup.com also places ads, as a function of client budgets, on other web
sites it believes will provide the client with the greatest exposure to the
investment community.
CORPORATE GROWTH STRATEGY
Stockgroup.com intends to grow revenues through internal growth of its existing
businesses, including b2b services, application service provider solutions
(ASP), and small cap financial news and information. The Company also intends to
grow internationally throughout Europe and Asia, through strategic acquisitions,
and by taking equity positions in certain companies to which Stockgroup.com
licenses its proprietary technology. Stockgroup.com currently owns 19.4% of
Asiaxis.com in Asia.
THE SMALLCAPCENTER.COM INTERNET INVESTMENT INFORMATION COMMUNITY
Stockgroup.com has created www.smallcapcenter.com, an Internet information
Community which provides a wide range of services to investors interested in
Small Cap companies and markets. A significant feature that differentiates
smallcapcenter.com from other financial Websites is its on-line news reporting.
Stockgroup.com employs a staff of professional journalists who produce breaking
stories throughout the trading day on topics of interest to Small Cap investors.
A major goal of our business model is to license this news service to media and
financial services firms. By satisfying its viewers' investment information
needs, Stockgroup.com seeks to become the dominant single source of Small Cap
information on the Internet.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These forward-looking statements can be identified
by the use of predictive, future-tense or forward-looking terminology, such as
"believes," "anticipates," "expects," "estimates," "plans," "may," "intends,"
"will," or similar terms. These statements appear in a number of places in this
report and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) trends affecting the Company's financial condition or
results of operations, (ii) the Company's business and growth strategies, (iii)
the Internet and Internet commerce and (iv) the Company's financing plans.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors set
forth under "Risk Factors" and elsewhere in this report. The preceding
discussion of the financial condition and results of operations of the Company
should be read in conjunction with the financial statements and notes related
thereto included elsewhere in this report.
13
<PAGE>
SHARE PRICE AND VOLUME DATA
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 three-month periods ending March 31, 2000 and June 30,
2000. 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, 2000 $ 5.031 $ 1.562 2,623,600
June 30, 2000 $ 4.000 $ 0.719 1,737,100
On March 31, 2000, the Company had 29 registered shareholders owning 8,195,000
shares. On June 30, 2000, the Company had 34 registered shareholders owning
8,195,000 shares.
DIVIDENDS
The Company has not declared any dividends since inception, and has no intention
of 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.
14
<PAGE>
Part II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On April 3, 2000, Stockgroup.com entered into a Convertible Note Purchase
Agreement pursuant to which it obtained $3 million in a financing led by
Deephaven Capital Management LLC, a subsidiary of Knight/Trimark. Amro
International S.A., managed by Rhino Advisors was an additional lender in the
funding. Jesup and Lamont Securities Corporation served as the placement agent
for the transaction.
The funding included $3 million of 8% Convertible Notes (the "Notes"), and
5-year Callable Warrants (the "Warrants"). The Notes mature on March 31, 2002
and are convertible into Stockgroup.com common shares only after July 31, 2000.
The Warrants permit the holders to acquire up to 181,818 common shares.
Stockgroup.com has filed a registration statement covering these shares, and the
shares underlying the Notes. A more complete discussion of the Convertible Notes
and Warrants can be found in Note 4 to the financial statements, included
herein. Funds from this Convertible Loan arrangement will be used for ongoing
working capital purposes.
On August 2, 2000, Deephaven Capital Management LLC exercised their right to put
25% of their portion, or US$500,000. The Company paid this put in cash on August
10, 2000, with the total amount paid equal to US$500,000 plus the 15% prepayment
penalty and accrued interest, for a total of US$589,889. On August 10, 2000,
Amro International, S.A. exercised their right to put 25% of their portion, or
US$250,000. The Company will pay this put in cash on August 17, 2000, with the
total amount paid equal to US$250,000 plus the 15% prepayment penalty and
accrued interest, for a total of US$294,950.
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K - April 18, 2000
Reporting information on Item 5 - Other information
Reporting issuance of $3 million Convertible Debenture to Deephaven Capital
Management LLC and Amro International, S.A.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
This report to be signed on its behalf by the undersigned, thereunto duly
authorized.
STOCKGROUP.COM HOLDINGS, INC.
(Registrant)
Date: August 13, 2000 By: /s/ Lindsay Moyle, CGA
----------------------------------------------
Chief Financial Officer, Secretary & Treasurer
15
