AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 25, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
STOCKGROUP.COM HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
COLORADO 6282 84-1379282
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code) Identification Number)
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SUITE 500 - 750 WEST PENDER STREET
VANCOUVER, BRITISH COLUMBIA, CANADA V6C 2T7 (604) 331-0995
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Executive Offices)
JOSEPH SIERCHIO, ESQ.
SIERCHIO & ALBERT, P.C.
150 EAST 58TH STREET
NEW YORK, NEW YORK 10155
(212) 446-9500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
--------------------
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462 to Rule 426(b) under the Securities Act of 1933, check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
Registration Statement number of the earlier Registration Statement for the same
offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
Registration Statement number of the earlier Registration Statement for the same
offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
Page 1 of ___ pages.
Exhibit Index appears on Page___
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CALCULATION OF REGISTRATION FEE
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Title Of Each Class Of Securities Number of Shares To Be Proposed Maximum Proposed Maximum Amount of
To Be Registered Registered Offering Price Per Aggregate Offering Price Registration
Share Fee
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Common Stock,
no par share 5,487,630(1) $2.00 (2) $ 10,975,260 $2,897.47
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(1) The shares of common stock being registered can be received by the
holders of convertible notes and warrants when and if they elect to
convert such notes and exercise such warrants. The number of shares
being registered represents our good faith estimate of the maximum
number of shares we may issue upon conversion of the notes and
exercise of the warrants.
(2) Calculated in accordance with Rule 457(c) under the Securities Act of
1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND
EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted. .
Subject to Completion, May 26, 2000
STOCKGROUP.COM HOLDINGS, INC.
5,487,630 SHARES
COMMON STOCK
--------------------------
We have prepared this prospectus to allow Deephaven Private Placement
Trading Ltd., Amro International, S.A., Jesup and Lamont Securities Corporation,
or their pledgees, donees, transferees or other successors in interest, to use a
"shelf" registration process to sell up to 5,487,630 shares of our common stock
which they have acquired or may acquire upon conversion of convertible notes and
exercise of warrants previously acquired in a private placement. We will receive
no proceeds from the sale of these shares, with the exception of the proceeds
from the exercise of the warrants.
Our common stock is listed on the NASD O-T-C Market Bulletin Board under
the symbol "SWEB." On May 23, 2000, the closing price of our common stock was
$2.00 per share.
--------------------
SEE "RISK FACTORS" BEGINNING ON PAGE ___ FOR A DISCUSSION OF
MATERIAL ISSUES TO CONSIDER BEFORE PURCHASING OUR COMMON STOCK.
--------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is ________________, 2000.
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TABLE OF CONTENTS
Prospectus Summary..............................................................
Risk Factors....................................................................
Cautionary Note Regarding Forward-Looking Statements ...........................
Use of Proceeds.................................................................
Price Range of Common Stock and Dividend Policy.................................
Capitalization .................................................................
Selected Financial Data.........................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................................
Business .......................................................................
Management......................................................................
Related Party Transactions .....................................................
Selling Shareholders ...........................................................
Principal Shareholders .........................................................
Description of Capital Stock....................................................
Shares Eligible for Future Sale.................................................
Plan of Distribution ...........................................................
Legal Matters...................................................................
Experts.........................................................................
Where You Can Find Additional Information.......................................
Index to Financial Statements...................................................
"smallcapcenter.com" and "InvestorMarketPlace" are trademarks and service
marks of Stockgroup.com. All other trademarks, service marks or tradenames
referred to in this prospectus are the property of their respective owners.
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read the entire prospectus, including
"Risk Factors" and our financial statements and the related notes, before
deciding to invest in our common stock.
STOCKGROUP.COM
Focusing on news and information for small cap and micro cap investors, we
have created an Internet investor information community which brings together
small cap investors and companies and provides information on small cap market
developments. In October 1999, we launched our next generation Internet
Community, www.smallcapcenter.com, which acts as a portal for investors
researching, analyzing, and discussing small cap stocks and markets. `Small cap'
companies are defined as those which have a market capitalization of $750
million or less and `micro cap' companies are defined as those with a market cap
of $50 million or
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less. In this prospectus, small cap and micro cap are referred to collectively
above and below as `small cap'.
In addition, smallcapcenter.com provides extensive information on North
American publicly traded companies and showcases unbiased original financial
news content on small cap companies and markets. These news features are
produced throughout the trading day by our 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 is a
comprehensive resource for investors and provides detailed profiles of
companies, industry news, stock quotes and charts, daily market reports, news
releases and other investment research tools.
We also specialize in providing public companies with Internet marketing
solutions and have developed a strong position as a niche marketer of specialty
investor relations oriented products. Smallcapcenter.com also disseminates
information about our corporate clients but does not make any recommendations or
provide special news coverage related to these clients.
Stockgroup.com has offices in New York, San Francisco, Toronto, and
Calgary, in addition to its corporate headquarters at Suite 500 - 750 Pender
Street, Vancouver, British Columbia, Canada V6C 2T7. Our telephone number at our
corporate headquarters is (604) 331-0995.
THE OFFERING
Common stock offered by selling 5,487,630 shares(1)
shareholders
Common stock to be outstanding 13,682,630 shares(1)(2)
after this offering
Use of proceeds Other than the proceeds from the
exercise of the warrants, none of
the proceeds from the sale of the
common stock offered by this
prospectus will be received by us.
Any proceeds received by us will be
utilized for working capital and
general corporate purposes.
OTC Market Bulletin Board Symbol: SWEB
(1) Includes all shares issuable, upon conversion of the convertible notes and
exercise of the warrants, assuming that the notes were fully convertible on the
date of this prospectus. Pursuant to our registration rights agreement with
Deephaven and Amro, we are required to register twice as many shares of common
stock as are issuable upon conversion of the convertible notes, and all of the
shares that are issuable upon exercise of the warrants, which number is
reflected in the table above.
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(2) Does not include 2,000,000 shares reserved for issuance upon exercise of
outstanding stock options.
The selling shareholders, together with any affiliate thereof, may not
beneficially own shares of common stock in excess of 4.999% and 9.999%,
respectively, of the outstanding shares of common stock following a conversion
of notes and/or exercise of warrants. Such restrictions may be waived by a
selling shareholder as to itself upon not less than 61 days notice to us.
SUMMARY FINANCIAL DATA
Set forth below are summary statements of operations data for the three
months ended March 31, 2000 and 1999, and years ended December 31, 1999 and
1998, and summary balance sheet data as of March 31, 2000 and 1999, and December
31, 1999 and 1998. This information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations", appearing
elsewhere in this prospectus.
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Three Months Ended For the Years Ended
March 31 December 31
2000 1999 1999 1998
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STATEMENT OF OPERATIONS DATA:
REVENUE
Revenues 1,241,207 179,194 1,920,052 857,591
Cost of revenues 397,066 60,392 1,208,033 172,343
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Gross profit 844,141 118,802 712,019 685,248
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EXPENSES
Sales and marketing 1,182,636 55,708 2,454,473 265,840
Product development 161,639 30,955 415,108 117,453
General and administrative 873,424 669,532 2,209,192 443,201
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Total expenses 2,217,699 756,195 5,078,773 826,494
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Loss from operations (1,373,557) (637,393) (4,366,754) (141,246)
Interest income 16,989 -- 123,260 --
Other income (expense) 554 232 961 (42,845)
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Loss before income taxes (1,356,014) (637,161) (4,242,533) (184,091)
Income tax provision (recovery) -- -- -- (34,802)
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Net loss (1,356,014) (637,161) (4,242,533) (149,289)
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Basic and diluted loss per share (0.17) (0.15) (0.60) (0.04)
BALANCE SHEET DATA:
Total assets 2,999,838 508,852 3,873,556 213,576
Total liabilities 1,556,518 270,650 1,110,507 230,657
Total shareholders' equity 1,443,321 238,201 2,763,049 (17,081)
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RISK FACTORS
You should consider carefully the following risks before you decide to buy
our common stock. Our business, financial condition or results of operations
could be materially and adversely affected by any of the following risks.
OUR LIMITED OPERATING HISTORY MAKES THE EVALUATION OF OUR CURRENT BUSINESS AND
THE FORECASTING OF OUR FUTURE RESULTS DIFFICULT.
We have a limited operating history upon which an evaluation of us, our
current business and our 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.
RISKS RELATED TO THE INTERNET MAY AFFECT OUR SUCCESS.
There are many risks associated with operations on the Internet that may
adversely affect our success. Such risks include, without limitation, the
following:
o the lack of broad acceptance of the Community model on the Internet;
o the possibility that the Internet will fail to achieve broad acceptance as
an advertising and commercial medium;
o our inability to attract or retain viewers or to generate significant
advertising revenues or subscription service revenues;
o a new and relatively unproven business model;
o our ability to anticipate and adapt to a developing market;
o the failure of our network infrastructure (including its servers, hardware
and software) to efficiently handle its Internet traffic;
o changes in laws that adversely affect our business;
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o our ability to manage effectively our rapidly expanding operations,
including the amount and timing of capital expenditures and other costs
relating to the expansion of our operations;
o the introduction and development of different or more extensive Communities
by our direct and indirect competitors of, including those with greater
financial, technical and marketing resources;
o our inability to maintain and increase levels of traffic on our Web site;
o our inability to attract, retain and motivate qualified personnel.
OUR RECENT REVENUE GROWTH MAY NOT CONTINUE IN THE FUTURE.
There can be no assurance that the revenue growth we have experienced in
recent periods will continue or increase. Our limited operating history makes
the prediction of future results difficult or impossible and, therefore, our
recent revenue growth should not be taken as an indication of any growth that
can be expected in the future. Furthermore, our limited operating history leads
us to believe that period-to-period comparisons of our operating results may 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, our business, results of operations and financial condition
would be materially and adversely affected.
WE ANTICIPATE LOSSES FOR THE FORESEEABLE FUTURE.
We have not achieved profitability in the current period and we anticipate
that we will continue to incur net losses for the foreseeable future. The extent
of these losses will depend, in part, on the amount of our growth in revenues
from advertising sales, client product and marketing services and sales revenues
and subscription fees from our news services. As of December 31, 1999, we had an
accumulated deficit of $(4,259,711). We expect that our operating expenses will
increase significantly during the next several years, especially in the areas of
sales and marketing, product development and general and administrative
expenses. Thus, we will need to generate increased revenues to achieve
profitability. To the extent that increases in our operating expenses precede or
are not subsequently followed by corresponding increases in revenues, or that we
are unable to adjust operating expense levels accordingly, our business, results
of operations and financial condition would be materially and adversely
affected. There can be no assurance that we will ever achieve or sustain
profitability or that our operating losses will not increase in the future.
OUR FUTURE SUCCESS IS DEPENDENT ON CONTINUED GROWTH IN USE OF AND COMMERCIAL
VIABILITY OF THE INTERNET.
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Our 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 www.smallcapcenter.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 us may narrow in
the future and, accordingly, our revenues may be materially negatively impacted.
If use of the Internet does not continue to grow, our business, results of
operations and financial condition would be materially and adversely affected.
Additionally, there are several issues that could lead to resistance
against the acceptance of the Internet as a viable commercial marketplace. 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. 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, our business, results of
operations and financial condition would be materially and adversely affected.
OUR BUSINESS MODEL AND ACCEPTANCE OF OUR PRODUCTS IS UNPROVEN IN THE DEVELOPING
MARKET IN WHICH WE OPERATE.
Our business model is new and relatively unproven. The model depends upon
our ability to generate multiple revenue streams by diversifying our product
offerings. To be successful, we 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 www.smallcapcenter.com, will achieve broad market
acceptance. Accordingly, no assurance can be given that our business model will
be successful or that it can sustain revenue growth or be profitable. The market
for our 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
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if our products and services do not achieve or sustain market acceptance, our
business, results of operations and financial condition would be materially and
adversely affected.
OUR LONG TERM LIQUIDITY AND CAPITAL RESOURCES ARE UNCERTAIN
There can be no assurance that we will be successful in raising a
sufficient amount of additional capital or in internally generating a sufficient
amount of capital to meet our long term requirements. If we are unable to
generate the required amount of additional capital, our ability to meet our
obligations and to continue our operations may be adversely affected.
IF OUR EFFORTS TO ACHIEVE A STRONG BRAND IDENTITY ARE NOT SUCCESSFUL, OUR
BUSINESS AND OPERATING RESULTS WILL BE MATERIALLY ADVERSELY AFFECTED.
We believe that establishing and maintaining brand identity is a critical
aspect of efforts to attract and expand our viewer base, Internet traffic and
advertising and commerce relationships. Furthermore, we believe 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, we
intend to increase our financial commitment to the creation and maintenance of
brand loyalty among these groups. We plan 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
we do not generate a corresponding increase in revenue as a result of our
branding efforts or otherwise fail to promote our brand successfully, or if we
incur excessive expenses in an attempt to promote and maintain our brand, our
business, results of operations and financial condition would be materially and
adversely affected.
Promotion and enhancement of the smallcapcenter.com brand will also depend,
in part, on our success in providing a high-quality "Community experience." Such
success cannot be assured. If viewers, users, advertisers and commerce vendors
do not perceive smallcapcenter.com's Community experience to be of high quality,
or if we introduce new services or enter into new business ventures that are not
favorably received by such parties, the value of our brand could be diluted.
Such brand dilution could decrease the attractiveness of smallcapcenter.com to
such parties, and could materially and adversely affect our business, results of
operations and financial condition.
WE RELY SIGNIFICANTLY ON ADVERTISING REVENUES, THE LEVEL OF WHICH IS DIFFICULT
TO PREDICT, AND WILL DEPEND ON THE AMOUNT OF "TRAFFIC" ON OUR WEB SITE AND
ADVERTISERS' ACCEPTANCE OF THE INTERNET - BASED ADVERTISING MEDIUM.
We derive a significant portion of our revenues from the sale of
advertisements on our site, and expect to continue to do so for the foreseeable
future. Our business model therefore is highly dependent on the amount of
"traffic" on smallcapcenter.com, which has a
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direct effect on our advertising revenues. We are in the early stages of
implementing our international branch network and our advertising sales
programs, which, if not successful, could materially and adversely affect our
business, results of operations and financial condition.
Our ability to generate significant advertising revenues will depend, in
part, on our ability to create new advertising programs without diluting the
perceived value of our existing programs. Our 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 our 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, our 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 our estimates. There can be no
assurance that advertisers will accept our or other parties' measurements of
impressions. The rejection by advertisers of such measurements could have a
material adverse effect on our 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, we have based our advertising rates on providing advertisers with a
guaranteed number of impressions, and any failure of our advertising model to
achieve broad market acceptance, would have a material adverse effect on our
business, results of operations and financial condition.
A MAJORITY OF OUR ADVERTISING CONTRACTS ARE OF A SHORT-TERM NATURE AND THE LEVEL
OF ADVERTISING PURCHASES IN THE FUTURE IS UNCERTAIN.
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To date, substantially all of our advertising contracts have been for terms
averaging one to three months in length, with relatively few longer-term
advertising contracts. Many of our 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 our current advertisers will continue to purchase
advertisements on www.smallcapcenter.com.
IF THE ADVERTISERS' GUARANTEED MINIMUM VIEW RUN TIMES ON OUR WEB SITE ARE NOT
MET, WE WILL BE REQUIRED TO PROVIDE ADDITIONAL RUN TIMES FOLLOWING THE CONTRACT
TERMS WHICH MAY LIMIT OUR ADVERTISING INVENTORY.
Our 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 smallcapcenter.com; or, a minimum number of "impressions," or
"click-throughs," or times that a sponsorship or advertisement is seen by users
of smallcapcenter.com. To the extent that minimum view run times, or impression
or click-through levels are not achieved for any reason, we 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 our business, results of operations and financial
condition.
Specifically, the process of managing advertising within a large Web site
such as ours is an increasingly important and complex task. If we do not manage
this task in an efficient and appropriate manner, our financial performance may
be impaired. To the extent that we encounter system failures or material
difficulties in the operation of our systems, we could be unable to deliver
banner advertisements and sponsorships through our site. Any extended failure
of, or material difficulties encountered in connection with, our advertising
management system may expose the company to further "make good " obligations
with our advertisers, which, by displacing salable advertising inventory, among
other consequences, would reduce revenues and could have a material adverse
effect on our business, results of operations and financial condition.
THE INCREASED USE BY CONSUMERS OF SOFTWARE PROGRAMS WHICH REMOVE ADVERTISING
FROM THEIR DESKTOPS COULD HAVE AN ADVERSE AFFECT ON OUR ADVERTISING REVENUES.
"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, as we rely significantly on
advertising revenues, on our business, results of operations and financial
condition.
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POTENTIAL FLUCTUATIONS IN OUR OPERATING RESULTS AND QUARTERLY FLUCTUATIONS MAY
ADVERSELY AFFECT OUR TRADING PRICE.
Our operating results may fluctuate significantly in the future as a result
of a variety of factors, many of which are outside our control. See "Our Limited
Operating..." and "Our Recent Revenue Growth...". As a strategic response to
changes in the competitive environment, we 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 our business, results of
operations and financial condition. See "If our efforts to achieve a strong
brand identity..."
We derive a significant portion of our revenues from the sale of
advertising under short-term contracts, averaging one to three months in length.
As a result, our quarterly revenues and operating results are, to a significant
extent, dependent on advertising revenues from contracts entered into within the
quarter, and on our ability to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. See "We rely significantly on advertising
revenues..."; "A majority of our advertising contracts..."; "If the advertisers'
guaranteed minimum view run times...".
The foregoing factors, in some future quarters, may lead our operating
results to fall below the expectations of securities analysts and investors. In
such event, the trading price of our common stock would likely be materially and
adversely affected.
WE ARE CONTROLLED BY OUR OFFICERS, DIRECTORS AND ENTITIES AFFILIATED WITH THEM.
In the aggregate, ownership of our shares by management represents
approximately 46% of our issued and outstanding shares of common stock. These
shareholders, if acting together, will be able to significantly influence all
matters requiring approval by our shareholders, including the election of
directors and the approval of mergers or other business combinations
transactions.
OUR FUTURE PERFORMANCE IS DEPENDENT ON KEY PERSONNEL.
Our performance is substantially dependent on the performance of our senior
management and key technical personnel. In particular, our success depends on
the continued efforts of our senior management team, especially our Chief
Executive Officer, Marcus New and our President, Leslie Landes. The loss of the
services of any of our executive officers or other key employees could have a
material adverse effect on our business, results of operations and financial
condition. Although several senior management personnel have a substantial share
and/or stock options interests, with the exception of our President Leslie
Landes, we do not have employment agreements in place with our senior management
or employees.
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Our future success also depends on our continuing ability to retain and
attract highly qualified technical, editorial and managerial personnel. We
anticipate that the number of our 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 we will be
able to retain our 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. We have experienced difficulty from time to time in
attracting the personnel necessary to support the growth of our business, and
there can be no assurance that we 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 our business, due to, among other
things, a large increase in the wages demanded by such personnel, could have a
material adverse effect upon our business, results of operations and financial
condition.
A MAJORITY OF OUR SENIOR MANAGEMENT IS INEXPERIENCED IN MANAGING A PUBLIC
COMPANY.
Our recent growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources. To
manage our potential growth, we must continue to implement and improve our
operational and financial systems, and must expand, train and manage our
employee base. Furthermore, the members of our 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 we will be
able to effectively manage the expansion of our operations, that our systems,
procedures or controls will be adequate to support our operations or that our
management will be able to achieve the rapid execution necessary to fully
exploit the market opportunity for our products and services. Any inability to
manage growth effectively could have a material adverse effect on our business,
results of operations and financial condition.
WE MUST ENHANCE AND DEVELOP WWW.SMALLCAPCENTER.COM TO REMAIN COMPETITIVE.
To remain competitive, we must continue to enhance and improve the
responsiveness, functionality and features of www.smallcapcenter.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 our brand name recognition.
We plan 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 we will be successful in developing or introducing such
features and functions or that such features and functions will achieve market
acceptance or enhance our brand name recognition. Any failure to effectively
develop and introduce new features and functions, or the failure of
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such new features and functions to achieve market acceptance, could have a
material adverse effect on our business, results of operations and financial
condition.
We also plan to develop and introduce new products and services. There can
be no assurance that we will be successful in developing or introducing such
products and services or that such products and services will achieve market
acceptance or enhance our brand name recognition. Any failure on our part 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 our business, results of operations and financial condition.
THE INTERNET INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE WHICH MAY
AFFECT OUR ABILITY TO RESPOND TO THE EVOLVING DEMANDS OF OUR MARKET PLACE.
The market for Internet products and services is characterized by rapid
technological developments, evolving industry standards and customer demands,
and frequent new product introductions and enhancements. These market
characteristics are exacerbated by the emerging nature of the market and the
fact that many companies are expected to introduce new Internet products and
services in the near future. Our 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 we
will be successful in doing so. In addition, the widespread adoption of
developing multimedia enabling technologies could require fundamental and costly
changes in our technology and could fundamentally affect the nature, viability
and measurability of Internet-based advertising, which could adversely affect
our business, results of operations and financial condition.
WE MAY BE UNABLE TO ACCOMMODATE INCREASED CONSUMER TRAFFIC ON OUR WEB SITE,
WHICH WOULD LIMIT OUR ABILITY TO INCREASE ADVERTISING SALES AND ACHIEVE MARKET
ACCEPTANCE.
A key element of our strategy is to generate a high volume of user traffic.
Our ability to attract advertisers and to achieve market acceptance of our
products and services, and our reputation, depend significantly upon our
performance and our network infrastructure (including our servers, hardware and
software). Any system failure that causes interruption or slower response time
of our products and services could result in less traffic to the Web site and,
if sustained or repeated, could reduce the attractiveness of our products and
services to advertisers and licensees. An increase in the volume of user traffic
could strain the capacity of our 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 our
advertising revenues. In addition, as the number of users of
www.smallcapcenter.com increase, there can be no assurance that our technical
infrastructure will be able to grow accordingly, and we face risks related to
our ability to scale up to the expected viewer levels while maintaining superior
performance. Any failure of our server
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and networking systems to handle current or higher volumes of traffic would have
a material adverse effect on our business, results of operations and financial
condition.
WE MAY SUFFER SYSTEM FAILURES ON OUR WEB SITE WHICH COULD RESULT IN NEGATIVE
PUBLICITY, REDUCE VOLUME OF OUR ADVERTISING SALES AND ADVERSELY AFFECT OUR
MARKET ACCEPTANCE.
We are 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 our
systems. Any disruption in Internet access provided by third parties could have
a material adverse effect on our business, results of operations and financial
condition. Furthermore, we are dependent on hardware and software suppliers for
prompt delivery, installation and service of equipment used to deliver our
products and services.
Our operations are dependent in part upon our ability to protect our
operating systems against damage from human error, fire, floods, power loss,
telecommunications failures, break-ins and similar events. We do not presently
have redundant, multiple-site capacity in the event of any such occurrence. Our
servers are also vulnerable to computer viruses, break-ins and similar
disruptions from unauthorized tampering with our 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 our
business, results of operations and financial condition. In addition, our
reputation and the smallcapcenter.com brand could be materially and adversely
affected.
THERE ARE SECURITY RISKS TO OUR NETWORK.
Experienced programmers ("hackers") have attempted on occasion to penetrate
our network security. We expect that these attempts, some of which have
succeeded, will continue to occur from time to time. Because a hacker who is
able to penetrate our network security could misappropriate proprietary
information or cause interruptions in our products and services or do other
damage, we may be required to expend significant capital and resources to
protect against or to alleviate problems caused by such parties. Additionally,
we may not have a timely remedy against a hacker who is able to penetrate our
network security. Such purposeful security breaches could have a material
adverse effect on our business, results of operations and financial condition.
In addition to purposeful security breaches, the inadvertent transmission of
computer viruses could expose us to a material risk of loss or litigation and
possible liability.
In offering certain payment services for some products and services, we
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
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developments could lead to a compromise or breach of the algorithms that our
licensed encryption and authentication technology used to protect such
confidential information. If such a compromise or breach of our licensed
encryption authentication technology occurs, it could have a material adverse
effect on our business, results of operations and financial condition. We 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.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY AGAINST CURRENT AND FUTURE
COMPETITORS.
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 news and information dissemination market, is intense and
is expected to increase significantly. Barriers to entry are relatively
insubstantial and we may face competitive pressures from many additional
companies both in the United States, Canada and abroad.
We believe that the principal competitive factors for companies seeking to
create Communities on the Internet are critical mass (i.e., depth of content and
range of features of interest to viewers), functionality of the Web site, brand
recognition, viewer affinity and loyalty, broad demographic focus and open
access for visitors. In the future, Internet Communities may be developed or
acquired by companies currently operating other Communities or by Web
directories, search engines, shareware archives and content sites, and by
commercial online service providers, Internet Service Providers and other
entities, certain of which may have more resources than us. We compete for users
and advertisers with other content providers and with thousands of Web sites
operated by individuals, the government and educational institutions. In
addition, we 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, CBS Corporation and The National
Broadcasting Company, have recently made significant acquisitions of or
investments in Internet companies.
We believe that the principal competitive factors in attracting advertisers
include the amount of traffic on our Web site, brand recognition, customer
service, the demographics of the Community's members and users, our ability to
offer targeted audiences and the overall cost effectiveness of the advertising
medium offered by us. We believe 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, we will likely face increased competition, resulting in increased
pricing pressures on its advertising rates, which could have a material adverse
effect on us.
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Many of our 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 ours. 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, our existing and
potential competitors may develop Communities that are equal or superior in
quality to, or that achieve greater market acceptance than,
www.smallcapcenter.com. There can be no assurance that we will be able to
compete successfully against its current or future competitors or that
competition will not have a material adverse effect on our 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 our
existing and potential competitors will not be perceived by advertisers as being
more desirable for placement of advertisements than smallcapcenter.com. In
addition, many of our current advertising customers and some of its corporate
clients have established relationships with certain of our existing or potential
competitors. There can be no assurance that we will be able to retain or grow
our viewer base, traffic levels and advertising customer base at historical
levels, or that competitors will not experience better retention or greater
growth in these areas than us. Accordingly, there can be no assurance that any
of our advertising customers or corporate client companies will not sever or
will elect not to renew their agreements with us, the result of which could have
a material adverse effect on our business, results of operations and financial
condition.
WE HAVE A STRONG DEPENDENCE ON RELATIONSHIPS WITH SUPPLIERS AND CARRIERS. IF
THESE RELATIONSHIPS ARE NOT MAINTAINED, OUR BUSINESS AND FINANCIAL CONDITION
WILL BE ADVERSELY AFFECTED.
We are and will continue to be significantly dependent on a number of
third-party relationships to increase traffic on www.smallcapcenter.com and
thereby generate advertising revenues, maintain the current level of service and
variety of content for our viewers, and meet future milestones. We are also
dependent on other Web site operators that provide links to smallcapcenter.com.
Most of our arrangements with third-party Internet sites and other
third-party service providers do not require future minimum commitments to use
our services or to provide access or links to our services or products, are not
exclusive and are short-term or may be terminated at the convenience of the
other party. Moreover, we do not have agreements with the majority of other Web
site operators that provide links to smallcapcenter.com, and such Web site
operators may terminate such links at any time without notice to us. There can
be no assurance that third parties regard their relationship
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with us as important to their own respective businesses and operations, that
they will not reassess their commitment to us at any time in the future or that
they will not develop their own competitive services or products.
There can be no assurance that we will be able to maintain relationships
with third parties that supply us with software or products that are crucial to
our 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 our services or products will achieve market
acceptance or commercial success. Failure of one of these third parties could
have a material adverse effect on our business, results of operations and
financial condition. In particular, the elimination of a pre- installed bookmark
on a Web browser that directs traffic to our Web site could significantly reduce
traffic on our Web site, which would have a material adverse effect on our
business, results of operations and financial condition.
Additional financing will be required by us as we expect negative operating
cash flow for the next fiscal year. Such financing if obtained by us will result
in the issuance of additional securities and may not be available on terms
favorable to us.
We expect that we will continue to experience negative operating cash flow
for the foreseeable future as a result of significant spending on advertising
and infrastructure. Accordingly, we will need to raise additional funds in a
timely manner in order to fund our anticipated expansion and new enhanced
services or products, respond to competitive pressures or acquire complementary
products, businesses or technologies. Additional funds will have to be raised
through the issuance of equity or convertible debt securities, the percentage
ownership of our current shareholders will be reduced, shareholders will
experience additional dilution and such securities may have rights, preferences
or privileges senior to those of the holders of the common stock. We do not have
any contractual restrictions on our ability to incur debt and, accordingly, we
could incur significant amounts of indebtedness to finance our operations. Any
such indebtedness could contain covenants, which would restrict our operations.
There can be no assurance that additional financing if and when needed will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, it would have a material
adverse effect on our ability to fund our expansion, take advantage of
acquisition opportunities, develop or enhance services or products or respond to
competitive pressures.
FUTURE ACQUISITIONS OF OTHER BUSINESS ENTITIES BY US WOULD ENTAIL NUMEROUS RISKS
AND UNCERTAINTIES WHICH COULD HAVE AN ADVERSE AFFECT ON OUR OPERATIONS AND
FINANCIAL CONDITION.
As part of our business strategy, we expect to review acquisition prospects
that would complement our existing business, augment the distribution of our
Community or enhance our technological capabilities. Future acquisitions by us
could result in potentially dilutive issuance's of equity securities, large and
immediate write-offs, the incurrence of debt and
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contingent liabilities or amortization expenses related to goodwill and other
intangible assets, any of which could materially and adversely affect our
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 we have no or limited prior
experience and the potential loss of key employees of acquired organizations.
We have not made any acquisitions in the past. No assurance can be given as
to our ability to successfully integrate any businesses, products, technologies
or personnel that might be acquired in the future, and our failure to do so
could have a material adverse effect on our business, results of operations and
financial condition.
WE MAY BE UNABLE TO PROTECT THE INTELLECTUAL PROPERTY RIGHTS UPON WHICH OUR
BUSINESS RELIES, WHICH COULD HARM OUR COMPETITIVENESS AND CAUSE CUSTOMER
CONFUSION.
We regard substantial elements of our Web site and underlying technology as
proprietary and attempt 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. We also
generally enter into confidentiality agreements with our employees and
consultants and in connection with our license agreements with third parties. We
seek to control access to and distribution of our technology, documentation and
other proprietary information. Despite these precautions, it may be possible for
a third party to copy or otherwise obtain and use our proprietary information
without authorization or to develop similar technology independently. We are
pursuing the registration of our 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 our services are
distributed or made available through the Internet, and policing unauthorized
use of our 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 our proprietary rights. There can be no assurance
that the steps taken by us will prevent misappropriation or infringement of our
proprietary information, which could have a material adverse effect on our
business, results of operations and financial condition.
Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our 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
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and management attention. Furthermore, there can be no assurance that our
business activities will not infringe upon the proprietary rights of others, or
that other parties will not assert infringement claims against us, including
claims that by directly or indirectly providing hyperlink text links to Web
sites operated by third parties, we have infringed upon the proprietary rights
of other third parties. Moreover, from time to time, we may be subject to claims
of alleged infringement by us of the trademarks, service marks and other
intellectual property rights of third parties. Such claims and any resultant
litigation, should it occur, might subject us to significant liability for
damages, might result in invalidation of our 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 our business,
results of operations and financial condition.
We currently license from third parties certain technologies incorporated
into www.smallcapcenter.com. As we continue to introduce new services that
incorporate new technologies, we may be required to license additional
technology from others. There can be no assurance that these third-party
technology licenses will continue to be available to us on commercially
reasonable terms, if at all. Additionally, there can be no assurance that the
third parties from which we currently license our technology will be able to
defend their proprietary rights successfully against claims of infringement. As
a result, any inability on our part 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 our existing services until equivalent
technology can be identified, licensed and integrated.
IT IS UNCLEAR HOW ANY EXISTING AND FUTURE LAWS ENACTED WILL BE APPLIED TO THE
INTERNET INDUSTRY AND WHAT EFFECT SUCH LAWS WILL HAVE ON US.
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 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
our services, increase our cost of doing business or otherwise have a material
adverse effect on our 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 us
to liability, and/or require substantial modification of smallcapcenter.com, and
thereby have a material adverse effect on our business, results of operations
and financial condition.
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Internet user privacy has become an issue both in the United States, Canada
and abroad. We cannot predict the exact form of the regulations that the Federal
Trade Commission 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 we are
allowed to conduct our business, especially those aspects that involve the
collection or use of personal information, and could have a material adverse
effect on our 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, provincial and local
level and by certain foreign governments that could impose taxes on the sale of
goods and services and certain other Internet activities. Recently, the Internet
Tax Freedom Act was signed into law, placing a three-year moratorium on new
state and local taxes on certain aspects of Internet commerce. However, there
can be no assurance that future laws imposing taxes or other regulations on
commerce over the Internet would not substantially impair the growth of
e-commerce and as a result have a material adverse effect on our 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
internet service providers and on-line service providers. 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 our services or increase our cost of doing
business, and thus have a material adverse effect on our business, results of
operations and financial condition.
Although our servers are located in the Province of British Columbia, the
governments of other provinces, states and foreign countries might attempt to
take action against us 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 our business, results of operations and financial condition.
WE MAY BE EXPOSED TO LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED
OVER OUR WEB SITE OR FOR PRODUCTS SOLD OVER OUR WEB SITE.
Because materials may be downloaded by the online or Internet services
operated or facilitated by us or the Internet access providers with which we
have relationships and that material may be subsequently distributed to others,
there is a potential that claims will be made against us 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
providers of online services in the past. Such claims could be material in the
future.
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In addition, the increased attention focused upon liability issues and
legislative proposals could materially impact the overall growth of Internet
use.
We could also be exposed to liability with respect to third-party
information that may be accessible through our Web site, or through content and
materials that may be posted by viewers on discussion forums offered by us. Such
claims might include, among others, that, by directly or indirectly providing
hyperlink text links to Web site operated by third parties or by providing
discussion forums for viewers, we are liable for copyright or trademark
infringement or other wrongful actions by such third parties through such Web
site. It is also possible that, if any third-party content information provided
on our Web site contains errors, third parties could make claims against us for
losses incurred in reliance on such information.
We offer e-mail service, which is provided by a third party. See "We have a
strong dependence on...". Such service may expose us 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.
We also enter into agreements with advertisers and commerce partners under
which we are entitled to receive a commission or share of any revenue from the
purchase of goods and services through direct links from our Web site. Such
arrangements may expose us 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 we do not ourselves provide such products or services. There
can be no assurance that any indemnification provided to us in our agreements
with these parties, if available, will be adequate.
Even to the extent such claims do not result in liability to us, we could
incur significant costs in investigating and defending against such claims. The
imposition on us of potential liability for information carried on or
disseminated through our systems could require us to implement measures to
reduce its exposure to such liability, which may require the expenditure of
substantial resources and limit the attractiveness of our services to members
and users.
Our general liability insurance may not cover all potential claims to which
we are exposed or may not be adequate to indemnify us 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 our
business, results of operations and financial condition.
OUR STRATEGY TO COMMENCE INTERNATIONAL OPERATIONS AND OTHER EXPANSIONS EXPOSES
US TO SEVERAL RISKS THAT COULD HAVE AN ADVERSE AFFECT ON OUR BUSINESS, RESULTS
OF OPERATIONS AND FINANCIAL CONDITION.
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A part of our strategy is to expand our sales offices network throughout
the United States, Canada and international markets. There can be no assurance
that our products or services will become widely accepted for corporate clients,
advertising in the U.S., Canada or any international markets. In addition, we
expect that the success of any additional foreign operations we initiate 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, our business, results of operations and financial condition
could be materially and adversely affected. We may experience difficulty in
managing international operations as a result of difficulty in locating
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 we or our international partners
will be able to successfully market and operate in foreign markets. We also
believe that, in light of substantial anticipated competition, it will be
necessary to aggressively market our products and services into the United
States and international markets in order to effectively obtain market share,
and there can be no assurance that we 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 our future
international operations and, consequently, on our business, results of
operations and financial condition.
YEAR 2000 ISSUES MAY MATERIALLY AFFECT OUR BUSINESS.
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 failures 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.
We may be affected by Year 2000 issues related to non-compliant information
technology systems or non-information technology systems operated by us or by
third parties. We have substantially completed assessment of our internal and
external (third party) information technology systems and non-information
technology systems. At this point in our assessment, we are not currently aware
of any Year 2000 problems relating to systems operated by us or by third parties
that would have a material effect on our business, results of operations or
financial condition, without taking into account our efforts to avoid such
problems. Based on our assessment to date, we do not anticipate that costs
associated with remediating our non-compliant information technology systems or
non-information
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technology systems will be material, although there can be no assurance to such
effect.
To the extent that our assessment is finalized without identifying any
additional material non-compliant information technology systems operated by us
or by third parties, the most reasonably likely worst case Year 2000 scenario is
the failure of one or more of our vendors of hardware or software or one or more
providers of non-information technology systems to us to properly identify any
Year 2000 compliance issues. We believe 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 our
Web site, or other business interruptions of a material nature, as well as
claims of is management, misrepresentation, or breach of contract, any of which
could have a material adverse effect on our business, results of operations and
financial condition.
ANY SIGNIFICANT DETERIORATION IN THE GENERAL ECONOMIC CONDITIONS WOULD HAVE AN
ADVERSE EFFECT ON OUR BUSINESS, RESULT OF OPERATIONS OR FINANCIAL CONDITION.
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 our 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 we operate. There
can be no assurance that consumer spending will not be adversely affected by
general economic conditions, which could negatively impact our 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 our revenues and profitability. In
addition, our 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 our business, results of operations and financial condition.
IF THE TRADING PRICE OF OUR COMMON STOCK REMAINS VOLATILE, THE LONG-TERM TRADING
PRICE MAY BE ADVERSELY AFFECTED REGARDLESS OF OUR PERFORMANCE AND A CLASS ACTION
LITIGATION MAY BE INSTITUTED AGAINST US WHICH WOULD HAVE AN ADVERSE EFFECT ON
OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
The trading price of our 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 us or our competitors, changes in financial estimates by securities analysts,
the operating and stock price performance of other
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companies that investors may deem comparable to ours 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 our common stock, regardless of our 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 our business, results of
operations and financial condition.
THE VALUE AND TRANSFERABILITY OF OUR SHARES MAY BE ADVERSELY IMPACTED BY THE
LIMITED TRADING MARKET FOR OUR SHARES, THE PENNY STOCK RULES AND FUTURES SHARE
ISSUANCE. THERE IS A LIMITED MARKET FOR OUR COMMON STOCK.
No assurance can be given that a market for our common stock will be
sustained or that the common stock will continue to be quoted on the NASD's Over
the Counter Bulletin Board.
THE SALE OR TRANSFER OF OUR COMMON STOCK BY SHAREHOLDERS MAY BE SUBJECT TO THE
SO-CALLED "PENNY STOCK RULES."
Under Rule 15g-9 of the Exchange Act, a broker or dealer may not sell a
"penny stock" (as defined in Rule 3a51-1) to or effect the purchase of a penny
stock by any person unless:
(a) such sale or purchase is exempt from Rule 15g-9;
(b) prior to the transaction the broker or dealer has (1) approved the
person's account for transaction in penny stocks in accordance with Rule 15g-9,
and (2) received from the person a written agreement to the transaction setting
forth the identity and quantity of the penny stock to be purchased; and
(c) the purchaser has been provided an appropriate disclosure statement as
to penny stock investment.
The Securities and Exchange Commission adopted regulations that generally
define a penny stock to be any equity security other than a security excluded
from such definition by Rule 3a51-1. Such exemptions include, but are not
limited to (1) an equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000, if such issuer has been in continuous operations
for at least three years, (ii) net tangible assets of at least $5,000,000, if
such issuer has been in continuous operation for less than three years, or (iii)
average revenue of at least $6,000,000 for the preceding three years; (2) except
for purposes of Section 7(b) of the Exchange Act and Rule 419, any security that
has a price of
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$5.00 or more; and (3) a security that is authorized or approved for
authorization upon notice of issuance for quotation on the NASDAQ Stock Market,
Inc.'s Automated Quotation System. It is likely that shares of common stock,
assuming a market were to develop therefore, will be subject to the regulations
on penny stocks; consequently, the market liquidity for the common stock may be
adversely affected by such regulations limiting the ability of broker/dealers to
sell our common stock and the ability of shareholders to sell their securities
in the secondary market.
Moreover, our shares may only be sold or transferred by our shareholders in
those jurisdictions in which an exemption for such "secondary trading" exists or
in which the shares may have been registered.
WE HAVE NOT DECLARED ANY DIVIDENDS SINCE INCEPTION, AND HAVE NO PRESENT
INTENTION OF PAYING ANY CASH DIVIDENDS ON OUR COMMON STOCK IN THE FORSEEABLE
FUTURE. THE PAYMENT BY US OF DIVIDENDS, IF ANY, IN THE FUTURE, RESTS WITH THE
DISCRETION OF OUR BOARD OF DIRECTORS AND WILL DEPEND, AMONG OTHER THINGS, UPON
OUR EARNINGS, OUR CAPITAL REQUIREMENTS AND OUR FINANCIAL CONDITION, AS WELL AS
OTHER RELEVANT FACTORS.
IF ISSUED, THE SHARES RESERVED FOR FUTURE ISSUANCE WILL CAUSE THE CURRENT
SHAREHOLDERS TO SUFFER AN EQUITY DILUTION.
In addition to the shares being offered by this prospectus, we have
reserved, 2,000,000 shares of common stock for issuance upon the exercise of
non-qualified stock options. The total amount of shares covered by this
prospectus plus the shares reserved for such options, would represent 91.4% of
the number of our outstanding shares on the date of this prospectus (taking into
account that we are registering 200% of the number of shares that could be
obtained by certain of the selling shareholders if their notes were fully
convertible on the date of this prospectus). Furthermore, we may enter into
commitments in the future which would require the issuance of additional shares
and may grant additional stock options or warrants. Issuance of additional
shares would be subject to certain regulatory approvals and compliance with
applicable securities legislation. We currently have no plans to issue preferred
shares and no plans to issue additional shares other than for the purposes of
raising funds for general working capital requirements which issuance would be
subject to regulatory approval.
POTENTIAL FUTURE 144 SALES MAY IMPACT THE VALUE OF OUR STOCK.
As of April 28, 2000, of the shares of our common stock authorized, there
were issued and outstanding 8,195,000 of which 5,000,000 are "restricted shares"
as that term is defined under the Securities Act, and may be sold in compliance
with Rule 144 of the Securities Act, or pursuant to a Registration Statement
filed under the Securities 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 the greater of (i) 1% of our outstanding common stock or (ii)
the average weekly trading volume for the four week period prior to the proposed
date of sale, every 3 months. Additionally, Rule 144 requires that an issuer of
securities make available
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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 (and has not been an affiliate for the 90 day period
preceding the proposed sale) of the company and who has satisfied a 2 year
holding period without any quantity limitation and whether or not there is
adequate current public information available.
THE POSSIBLE ISSUANCE OF ADDITIONAL SHARES MAY IMPACT THE VALUE OF OUR STOCK.
Our Articles of Incorporation authorize the issuance of up to 75,000,000
shares of common stock. It is our intention to issue more shares. Sales of
substantial amounts of common stock (including shares issuable upon the exercise
of stock options, the conversion of the notes and the exercise of the warrants),
or the perception that such sales could occur, could materially adversely affect
prevailing market prices for the common stock and our ability to raise equity
capital in the future.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains "forward-looking statements." In some cases, you
can identify forward-looking statements by terminology such as "may," "will,"
"should," "could," "expects," "plans," "intends," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
and other comparable terminology.
These forward-looking statements include, without limitation, statements
about:
- our market opportunity;
- our strategies;
- competition;
- expected activities and expenditures as we pursue our business plan,
and
- the adequacy of our available cash resources.
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. Although we believe that the
expectations reflected in the forward-looking statement are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.
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The accompanying information contained in this prospectus, including,
without limitation, the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" identify important factors that could adversely
affect actual results and performance. All forward-looking statements
attributable to us are expressly qualified in their entirety by the foregoing
cautionary statement.
USE OF PROCEEDS
Other than the proceeds from the exercise of the warrants, none of the
proceeds from the sale of the common stock offered by this prospectus will be
received by us. The holders of the warrants are not obligated to exercise their
warrants, and there can be no assurance that we will receive any additional
proceeds. If, however, all the warrants are exercised, the gross proceeds to us
would be $899,999. We currently intend to use the proceeds for working capital
and general corporate purposes.
Pending these uses, the net proceeds will be invested in short-term,
investment grade instruments, certificates of deposit or direct or guaranteed
obligations of the United States.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been quoted for trading on the OTC BB since March 17,
1999. Accordingly, there has been a limited public market for our common stock.
The following table sets forth high and low bid prices for the common stock for
the periods ending March 31, 1999, June 30, 1999, September 30, 1999, December
31, 1999 and March 31, 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, 1999 $ 10.25 $ 6.00 3,339,000
June 30, 1999 $ 9.00 $ 3.125 4,859,200
September 30, 1999 $ 5.00 $ 2.125 3,297,500
December 31, 1999 $ 3.625 $ 1.312 1,927,700
March 31, 2000 $ 5.031 $ 1.562 2,623,600
On April 28, 2000, Stockgroup.com had 32 registered shareholders owning
8,195,000 shares.
We have not declared, and do not foresee declaring, any dividends now or
into the foreseeable future.
We have reserved, as of April 28, 2000, 2,000,000 shares of common stock
for issuance upon the exercise of non-qualified stock options.
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SELECTED FINANCIAL DATA
Set forth below are summary statements of operations data for the three
months ended March 31, 2000 and 1999, and the years ended December 31, 1999 and
December 31, 1998, and summary balance sheet data as of March 31, 2000 and 1999,
and December 31, 1999 and 1998. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Three Months Ended For the Years ended
March 31 December 31,
2000 1999 1999 1998
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
REVENUE
Revenues 1,241,207 179,194 1,920,052 857,591
Cost of revenues 397,066 60,392 1,208,033 172,343
---------- ---------- ---------- ----------
Gross profit 844,141 118,802 712,019 685,248
---------- ---------- ---------- ----------
EXPENSES
Sales and marketing 1,182,636 55,708 2,454,473 265,840
Product development 161,639 30,955 415,108 117,453
General and administrative 873,424 669,532 2,209,192 443,201
---------- ---------- ---------- ----------
Total expenses 2,217,699 756,195 5,078,773 826,494
---------- ---------- ---------- ----------
Loss from operations (1,373,557) (637,393) (4,366,754) (141,246)
Interest income 16,989 -- 123,260 --
Other income (expense) 554 232 961 (42,845)
---------- ---------- ---------- ----------
Loss before income taxes (1,356,014) (637,161) (4,242,533) (184,091)
Income tax provision (recovery) -- -- -- (34,802)
---------- ---------- ---------- ----------
Net loss (1,356,014) (637,161) (4,242,533) (149,289)
---------- ---------- ---------- ----------
Basic and diluted loss per share (0.17) (0.15) (0.60) (0.04)
BALANCE SHEET DATA:
Total assets 2,999,838 508,852 3,873,556 213,576
Total liabilities 1,556,518 270,650 1,110,507 230,657
Total shareholders' equity 1,443,321 238,201 2,763,049 (17,081)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of Stockgroup.com should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this prospectus.
This discussion contains forward-looking
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statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including but not limited to, those set forth under
"Risk Factors" and elsewhere in this prospectus.
Stockgroup.com Holdings, Inc. was incorporated under the laws of Colorado
on December 6, 1994 under the name I-Tech Holdings Group, Inc., a United States
non-operating company registered on the NASD OTC Bulletin Board. The financial
statements and supporting information in this prospectus refer to Stockgroup.com
but are a continuation of the financial statements of Stock Research Group,
Inc., a British Columbia corporation which was incorporated on May 4, 1995. On
March 11, 1999, pursuant to a reverse acquisition, Stock Research Group acquired
the net assets of I-Tech. This transaction is considered a recapitalization of
Stock Research Group for accounting purposes and an acquisition of
Stockgroup.com by Stock Research Group. Accordingly, the transaction has been
accounted for as a purchase of the net assets of Stockgroup.com by Stock
Research Group, however Stockgroup.com continues as the legal parent. Prior to
the reverse acquisition, between 1995 and 1999, Stock Research Group had carried
on active operations based on the business model described below.
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Results of Operations
The Company incurred a net loss of USD$(1,356,015) for quarter ended March
31, 2000. This compared with a net loss of USD$(637,161) for the first quarter
of 1999. These losses are a function of implementation of the Company's
strategic plans and had been anticipated.
Revenue
During the first quarter, the Company generated revenues of $1,241,207
which represents a 593% increase over the $179,194 generated in the quarter
ended March 31, 1999. The growth in revenues was primarily due to major Website
development projects in Singapore and Texas, higher sales of Internet marketing
services to corporations, and increased advertising sales. The Company also
significantly increased its sales force from 5 in quarter one 1999 to 15 in
quarter one 2000. Growth in sales staff was spread across all offices.
Expenses
Sales and marketing expenses increased from $55,708 in the first quarter of
1999 to $1,182,636 in the same period in 2000. The factors which contributed to
this increase are
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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 $669,532 in quarter one
1999 to $873,424 over the first quarter 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.
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Results of Operations
The year ended December 31, 1999, was the most significant period of growth
and development in our history. During the year, we expanded the scope of our
news division by hiring 10 professional journalists, including our Editor in
Chief, David Andelman. During 1999 we also expanded our productive capacity and
developed and launched www.smallcapcenter.com, our state of the art Web site
dedicated to serving the needs of small cap investors. This project required a
significant investment of resources and, along with other initiatives, resulted
in the addition of 31 new staff to our programming and design teams. The launch
of www.smallcapcenter.com also included the creation of our advertising image
based on the slogan: `Where to find the next big thing'. The accompanying ad
campaign included commercials on media such as CNBC and print ads in The Wall
Street Journal, U.S. News and World Report and other major publications.
During the year, we also expanded our news bureau/sales office branch
network through the addition of offices in San Francisco and New York.
Supporting financing for our
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strategic plan was raised through private placements with aggregate cash
proceeds of $5.4 million which were completed after March 11, 1999.
Revenue
The year ended December 31, 1999, was a year of record revenue for
Stockgroup.com. During that year we generated revenues of $1,920,052 versus
$857,591 for the year ended December 31, 1998. This represents a 123% increase
in year over year revenue.
A substantial part of growth in revenues was due to an increase in
Advertising and Media Services sales, which saw year over year growth of 393%.
Web site Design and Development also saw gains, with an increase of 61%, and Web
site Maintenance and Marketing saw a decrease of (12)%. Over the course of 1999
growth in Web site services overall was impacted by resources applied to the
development of our new enterprise financial news media Web site
www.smallcapcenter.com. In 2000, however, the programming and design capacity we
built up to complete the development of www.smallcapcenter.com are being
re-deployed to revenue generating projects and should enhance our ability to
expand sales.
We are seeking to increase revenues in 2000 based on implementation of our
strategic plan. As of year end 1999 we have hired Tim Bush, a 17 year veteran
sales professional, as our 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 three-year tenure at Ingram Micro Inc., Mr. Bush's team
averaged over 30% sales growth per year with sales in excess of CDN$400 million
in his final year. Mr. Bush's immediate mandate is to expand our sales staff and
increase sales in New York, San Francisco, Vancouver and other North American
markets.
In the first quarter of 2000 we introduced our subscription news service
product through www.smallcapcenter.com and we are continuing to increase our
base of journalists to support this product. In January, we also introduced a
new product named InvestorMarketPlace, which is a Web site that profiles public
companies, and which we believe is generating strong demand from our clients.
Operating Expenses
The development and launch of www.smallcapcenter.com had a major bearing on
the operating expenses that we incurred during 1999. Cost of Revenues, which
includes items such as data feed costs, Internet connectivity costs, some of the
costs of our design team and third party advertising costs for advertising
purchased on behalf of clients, increased from $172,343 in 1998 to $1,208,033 in
1999, representing an increase of 601%. These costs are required to maintain the
infrastructure which support the delivery of financial information services on
the Internet. In 1997 cost of revenues was $137,447.
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Sales and Marketing costs also saw significant increases primarily as a
function of advertising purchases related to the launch of
www.smallcapcenter.com and went from $265,840 in 1998 to $2,454,473 in 1999, an
increase of 823%. Funds expended for advertising have provided us with reach to
viewers and are expected to continue to provide value over the longer term. In
1998 and 1997, we had not yet undertaken significant initiatives with respect to
Sales and Marketing and our expenses were largely related to our commissioned
sales staff. From 1997 to 1998, Sales and Marketing expenses increased from
$238,964 to $265,840, or 11.2%.
Product Development costs, which consist of salaries for programmers and
design staff seconded to the development of www.smallcapcenter.com increased
from $117,453 in 1998 to $415,108 in 1999, an increase of 253%. We project that
expenses in this area will continue to grow as we hire more Internet design
specialists to deliver upon our anticipated expansion of Web site contract
commitments. With respect to year over year change between 1997 and 1998,
Product Development costs increased from $77,458 to $117,453, or an increase of
51.6% due to the addition of more programming staff.
General and Administrative costs also saw a large relative increase from
$443,201 in 1998 to $2,209,192 in 1999, or 398%. Notable expenses in this area
came as a result of the addition of two new offices, the moving of our head
office to larger premises, amortization of expenses for employee stock options,
increased salaries and wages for new management and executive staff, and
increased legal and accounting fees and consulting fee charges related to the
reverse acquisition described above. We project that General and Administrative
expenses will increase marginally during 2000. In 1998, G&A expenses increased
to $443,201 which represented a marginal increase of 5.5% from the $419,993
incurred in 1997.
Other Income and Income Taxes
We earned Interest and Other Income of $124,221 in 1999 primarily on
investment of our cash resources. Due to our net loss position, we did not incur
tax in 1999. At present we have tax loss carry forwards of $3,369,000 in Canada
which expire in 2006, and tax loss carry forwards of $845,000 in the U.S. which
expire in 2019.
Net Income
During 1999 we incurred a net loss of $(4,242,533) versus a net loss of
$(149,289) in 1998 and a profit of $74,213 in 1997. The loss incurred in 1999
was the result of our strategic investment in the development of our enterprise
financial Web site and supporting advertising program, the addition of
significant development capacity in our programming and design teams and the
initial investment in our editorial operations.
The most significant component of investment in 1999 was
www.smallcapcenter.com which was launched on October 5, 1999. Moving forward, we
anticipate further losses in 2000 and 2001 as we further develop
www.smallcapcenter.com and our Small Cap News Service.
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The news service is being expanded in 2000 and includes a subscription component
wherein viewers pay to subscribe to premium quality unbiased original news
stories on small cap companies and markets delivered throughout the trading day.
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Results of Operations
1998 was a transition year for the Company, when it started to implement
its long term business plan. As a result, profits suffered due to significant
increases in costs for research and development and infrastructure-building.
Net revenues decreased from 1997 to 1998, going from $830,644 to $685,248.
This decrease was largely due to an increase in direct costs of producing the
revenue under the changing business methods.
Expenses also increased slightly, caused in large part by an increase in
research and development expenses. In 1997 they were $736,415 and in 1998 they
were 826,494. Management had expected this increase as part of the long term
business plan.
Overall net income went from $74,213 in 1997 to a loss of $(149,289) in
1998.
LIQUIDITY AND CAPITAL RESOURCES
We ended 1999 with a cash position of $1,658,822. As we continue to expand
our operations and develop our Small Cap News Service to a global level, we will
require significant additional financial resources, which we may seek to obtain
through public or private equity offerings, including in the United Kingdom,
Western Europe, or Asia. We currently believe that we will have sufficient cash
to fund our operations through April, 2001, as a result of internally generated
sales and as a result of the $3,000,000 financing that we closed in April, 2000
(see "Description of Capital Stock-Notes and Warrants"). We will need to seek
additional capital to sustain our operations past April 2001. There can be no
assurance that we will we be successful in raising a sufficient amount of
additional capital or in internally generating a sufficient amount of capital.
If we are unable to generate the required amount of additional capital, our
ability to meet our obligations and to continue our operations may be adversely
affected.
CORPORATE DEVELOPMENTS
A synopsis of our corporate highlights are as follows:
1. Reverse acquisition completed March 11, 1999 - Stock Research Group, Inc.
acquired I-Tech Holdings Group, Inc. (now Stockgroup.com Holdings, Inc.)
through a reverse takeover.
2. New U.S. subsidiary formed - We incorporated "Stockgroup.com, Ltd." as an
operating subsidiary, domiciled in the State of Nevada. On April 9, 1999,
Stockgroup.com, Ltd. was provided with a Certificate of Qualification to
transact business in the State of California, and Stockgroup.com began
operations in California through this subsidiary.
3. Private placement during the second quarter of 1999 - We completed a
private placement totaling an aggregate of $5.4 million through the
issuance of 900,000 shares of our common stock at $6.00 per share. These
shares are deemed "restricted shares" as that term is defined under U.S.
securities laws.
4. Marketing initiatives during 1999 - We entered into a series of advertising
contracts which provided us with significant exposure on the Yahoo! Excite,
and Webcrawler Search engines. Under these agreements, banner ads which
showcased www.stockgroup.com and subsequently www.smallcapcenter.com appear
on these sites. We also became the "sponsor" of terms such as "small-cap,"
"micro-cap," and
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variations thereof for searches done by visitors researching Web sites,
public companies, and investments through these various search engine
sites.
5. Advertising and public relations initiative - As part of the launch of
www.smallcapcenter.com, we retained New York-based RocketScience Creative,
Ltd in 1999 as our agency of record for an advertising and brand-building
awareness campaign. The agency was responsible for a variety of advertising
and marketing activities aimed at positioning www.smallcapcenter.com as the
premier brand in the smallcap arena.
6. Southam private placement - We completed a private placement in 1999 with
Southam, Inc. for the issuance of 200,000 shares in exchange for
advertising in Southam publications. Southam, Inc. is a subsidiary of
Hollinger International (NYSE: HLR), a leading newspaper publishing
company.
7. New York office opening on September 1, 1999 - We opened our New York
branch. This office is home to our Editorial News center and is also
headquarters for our U.S. operations.
8. Launch of smallcapcenter.com on October 5, 1999 - We launched our new
on-line investment information Community www.smallcapcenter.com. This event
represented the culmination of a significant investment of time and
resources on our part.
The launch of www.smallcapcenter.com and its national advertising campaign
marked two significant achievements in the implementation of our strategic
plan. We believe the introduction of www.smallcapcenter.com has solidified
our position as a leading Internet content provider of small cap
information. The look, feel, and functionality of www.smallcapcenter.com
represent a significant improvement in the features offered on our previous
www.stockgroup.com site. Additionally, the daily real time editorial and
news reporting and increased access to small cap company information not
previously available on the Internet characterize some of the features on
the site.
Additionally, we believe our advertising campaign based around the slogan
"Where to Find The Next Big Thing" has significantly increased our profile
with investors in North America. To date, some of the prominent media
purchases we have made include full and partial page ads and/or commercials
in U.S. News & World Report, the Chicago Sun Times, the National Post,
CNBC, and the Wall Street Journal.
9. Board of Directors strengthened - At our 1999 Annual General Meeting on
October 7, 1999, shareholders voted to ratify our appointees for the Board
of Directors. Our Board of Directors is now composed of the following
persons:
Marcus New - Chairman & CEO
Louis deBoer II - President of MediaFutures, Inc.
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David N.Caddey, B.Sc., M.Sc., - Vice President of MacDonald Dettwiler and
Associates
Craig Faulkner - Chief Technology Officer
Leslie Landes - President & Chief Operating Officer
10. Broadcast Service launched during the fourth quarte of 1999 - We signed an
agreement with Yahoo! Broadcast (Nasdaq: YHOO) to deliver daily and weekly
broadcasts, which are accessible through Broadcast.com, Yahoo.com and
www.smallcapcenter.com. Yahoo! broadcasts smallcapcenter.com's daily
updates on the small cap markets, called "Small Cap Snapshot," and weekly
interviews with Wall Street's leading small cap analysts. Additionally,
through Yahoo!, our clients will be able to broadcast quarterly conference
calls, special events, live interviews and question and answer sessions.
The content is featured in several sections of the Business area on Yahoo!
Broadcast and will be archived for on-demand listening.
11. Editor-in-Chief appointed - In December 1999, David A. Andelman was
appointed as Editor-in-Chief of our news operations. Mr. Andelman has three
decades of experience in news and broadcasting, most recently as News
Editor at Bloomberg, following international financial markets, media and
communications, securities and investment banking, real estate, insurance
and finance. Before joining Bloomberg, Mr. Andelman served as Washington
correspondent for CNBC, Paris correspondent for CBS News (CBS: NYSE), and a
bureau chief and correspondent for the New York Times (NYT: NYSE). He is a
graduate of Harvard College and the Columbia University Graduate School of
Journalism.
Mr. Andelman's mandate is to develop a world class news organization
focused on small cap companies and markets and he has been actively
recruiting a team of seasoned financial reporters and editors in New York.
12. Expansion into Asia
On January 18, 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 Ptd Ltd.
(AsiaXIS).
13. Syndication strategy launched
Early in 2000 Stockgroup.com began the implementation of its syndication
strategy, signing agreements with web content aggregators and distributors.
The purpose of the syndication program is to raise the profile of
smallcapcenter.com's content, to drive traffic to smallcapcenter.com and to
generate revenues through licensing fees and revenue sharing agreements.
Stockgroup.com syndicates content available from the public access (free)
areas of smallcapcenter.com and some of its proprietary tools. The
structure of the terms of each agreement and the revenue model is dependent
on the size of the user base of the other site and the requirements of the
other site.
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BUSINESS
OVERVIEW
Our investment information on-line Internet Community has viewers in the
United States, Canada and abroad. The Community model is based on the creation
and fostering of an Internet site which provides members with a range of
services and content which are targeted toward a certain area of interest.
Community sites are generally designed to provide users with a stimulating
interactive experience which encourages them to return to the Community on a
frequent basis. The essence of the Community model is to provide an on-line home
which wins the loyalty of viewer members. Content is usually based around themes
of interest such as News, Business, Investing, Career Information, Travel,
Medical & Life Issues, Technology, Sports & Entertainment, etc. Generally, a
Community's revenues rely on the sale of advertising, e-mail commerce
arrangements and the sale of membership subscriptions for premium content or
other special services.
Our main Web site, www.smallcapcenter.com, acts as a portal for investors
researching, analyzing, and discussing small cap stocks and markets. This Web
site provides newsworthy small cap information to our investor viewers as well
as disseminating information about our corporate clients. This information
includes detailed profiles of companies, industry news, stock quotes, charts,
daily market reports, news releases and other investment tools. Our Community is
multi-tiered and includes both general interest and industry-specific areas
including: Computers/Telcomm; Consumer Goods; Energy; Finance/Real Estate; Food
& Beverage; Healthcare; Internet; Manufacturing; Natural Resources; Services;
and Transportation. We believe that we have become a primary provider of timely,
accurate investment information to small cap investors.
We are also a provider of Web site design and 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 which allow a company's management to assess the impact of Web site use
by its viewers, and design services and maintenance contracts.
Our industry is characterized by rapid technological change, new product
development and evolving industry standards. Inherent in our business are
various risks and uncertainties, including a limited operating history, a new
and unproven business model and the limited
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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.
DESCRIPTION OF BUSINESS MODEL
The Company's business model is based on serving two complementary target
markets.
Target Market One - Small Cap Investors Seeking Reliable Information
Investors have difficulty obtaining timely, accurate investment information
on small cap companies due to a lack of objective news sources. Most media
organizations, investment firms and brokerage houses tend to focus a significant
majority of their attention on larger public companies. As a result, small 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 sector has not been
accompanied by an increased coverage of the small cap sector 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.
Target Market Two - Small Cap Companies Seeking Better Exposure to
Investors
As described above, small cap companies do not receive the same coverage as
large public companies. Over the last few years, the Internet has become a
cost-effective solution to enhance their profile, but many small cap companies
have lacked the skills and knowledge to take full advantage of this opportunity.
This had led to the outsourcing of Internet related services. Requirements of
small cap companies are broad and range from the design, development and
maintenance of investor relations oriented Web sites to the creation of
effective on-line advertising campaigns. Stockgroup.com has become a significant
provider of these types of services.
Stockgroup.com does not act as a public relations or investor relations
firm but rather provides a suite of products and services.
To meet the needs of its two complementary target markets, Stockgroup.com
has created www.smallcapcenter.com, an Internet information Community which
provides a wide range of services to investors interested in small cap companies
and markets. A significant feature which differentiates smallcapcenter.com from
other financial Web sites is its on-line
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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 develop and expand
this news service into a world class news organization with bureaus and
contributors throughout North America. Services on the site are currently
offered on a free trial basis and we are projecting future revenues will arise
from the conversion of viewers of the site into purchasers of subscription based
services.
By satisfying its viewers' investment information needs, Stockgroup.com
seeks to become the dominant single source of small cap information on the
Internet.
STOCKGROUP.COM'S SOURCES OF REVENUE
Historically, Stockgroup.com has had three sources of revenue: (i)
advertising and media services; (ii) Web site design and development; and (iii)
Web site maintenance and marketing services. Additionally, Stockgroup.com has
recently commenced initiatives based on the sale of its technology platform and
services to other corporations who offer financial Web sites on the Internet.
ADVERTISING AND MEDIA SERVICES
Stockgroup.com 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 and
heavy traffic. The investor demographic profile, which consists of well
educated, technically savvy, mid to high-income level earners and higher risk
investors is very attractive to numerous advertisers. Corporate advertisers have
included such companies as IBM, Microsoft, VISA, Salomon Smith Barney, Datek
Securities, Standard & Poors, CIBC, Bank of America, Charles Schwab, Intel,
Ameritrade, Quicken, The Toronto Stock Exchange, and Discover Brokerage. In
addition, Stockgroup.com provides advertising management services, essentially
acting as an on-line advertising agency providing advertisement design and
placement services for its clients. Stockgroup.com also places ads, as a
function of client budgets, on other Web sites it believes will provide the
client with the greatest exposure to the investment community.
WEB SITE DESIGN AND DEVELOPMENT
Stockgroup.com offers specialized Web site design services and other web
services such as private label quotes and charts, database tools for building
relationships with shareholders and management "traffic" reports to track
investor usage of Web sites and inquiries. In addition, unlike other web hosting
and design companies, Stockgroup.com develops Web sites with the investment
community in mind.
Stockgroup.com offers packages which can be tailored to include some or all
of its services and graphic design levels, depending on the needs and budget of
each client.
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WEB SITE MAINTENANCE AND MARKETING SERVICES
As a means of providing small cap companies with greater exposure,
Stockgroup.com offers a maintenance service which keeps clients' Web sites
current and fresh. As part of this service we also link clients' sites to
Stockgroup.com's proprietary information Community and offer `rental' access to
Stockgroup.com's proprietary email listing of over 35,000 investors.
SALE OF TECHNOLOGY PLATFORM AND SERVICES
Stockgroup.com is developing opportunities for the sale of its expertise in
the development of enterprise financial Web site platforms. One of these
initiatives involves a contract for the creation of AsiaXIS, a firm based in
Singapore dedicated to providing Internet financial information on the Southeast
Asian economic markets.
RESEARCH AND DEVELOPMENT
During 1998 and 1999 we invested approximately $211,566 and $771,992,
respectively, on research and development related to new products and services
and the creation of www.smallcapcenter.com.
COMPETITION
There is intense competition to capture viewers on the Internet and many
financial information sites provide services which are similar in nature to
those offered on www.smallcapcenter.com. However, focusing on the small cap
niche allows Stockgroup.com to differentiate itself by avoiding direct
competition with large cap information providers such as TheStreet.com, the WSJ
Online, The Motley Fool and CBS Marketwatch.
EMPLOYEES
As of April 28, 2000 we employed 98 people on a full-time basis. Of the
total, 50 were in design, programming, product research and development, 18 in
sales, marketing, and support, 14 in publishing (plus an additional 5 freelance
writers), and 16 in administration and finance. Stockgroup.com's success is
highly dependent on its ability to attract and retain qualified employees.
Competition for employees is intense in the Internet industry. To date, we
believe that we have been successful in our efforts to recruit qualified
employees, but there is no assurance that we will continue to be as successful
in the future. None of our employees are subject to collective bargaining
agreements. We believe relations with our employees are good.
REGULATORY ISSUES
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The Company is not subject to governmental regulation in its Internet
publishing efforts other than local state and municipal sales tax licenses.
SUBSIDIARIES
Stockgroup.com has five subsidiaries. In Canada our British Columbia
subsidiaries are Stockgroup.com Media, Inc. and 579818 B.C. Ltd. and in the U.S.
we operate through Stockgroup.com, Ltd., a Nevada Corporation. Stockgroup.com
also owns two non-operating Bahamas corporations, Stockgroup.com (Bahamas) Ltd.
and Stockgroup.com International, Inc. which are currently dormant.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND DOMAIN NAMES
Stockgroup.com protects its intellectual property through a combination of
trademark and copyright law, trade secret protection and confidentiality with
its employees, customers, independent contractors and strategic partners.
Stockgroup.com pursues the registration of its domain names, trademarks and
service marks in the United States and internationally. Effective trademark,
service mark, copyright and trade secret protection may not be available in
every country in which our services and products are made available on-line.
Stockgroup.com creates a majority of its content and obtains rights to use the
balance of its content from third parties. It is possible that we could become
subject to infringement actions based upon the content obtained from these third
parties. In addition, others may use this content and we may be subject to
claims from our licensors. We currently have no patents or patents pending and
do not anticipate that patents will become significant part of our intellectual
property in the future. Stockgroup.com seeks to enter into confidentiality
agreements with its employees and independent consultants and has instituted
procedures to control access to and distribution of its technology,
documentation and other proprietary information and the proprietary information
of others from whom it licenses content. The steps we take to protect our
proprietary rights may not be adequate and third parties may infringe or
misappropriate our copyrights, trademarks, service marks and similar proprietary
rights. In addition, other parties may assert claims of infringement of
intellectual property or other proprietary rights against us. The legal status
of intellectual property on the Internet is currently subject to various
uncertainties.
LEASEHOLD
Our corporate offices are composed of one floor of leased space located in
the center of Vancouver's business community. The lease is for a term of seven
years, and expires in 2006. All of our offices are in good condition. We also
lease sites in New York, San Francisco, Toronto and Calgary. Our facilities are
fully used for current operations and we expect that we will be seeking
additional space in 2000.
EQUIPMENT
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We have made a substantial investment in servers and computer equipment
required for our Web site and we have dedicated staff assigned to maintenance
and support of these operations.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceeding.
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our directors, executive officers and other key employees, and their ages,
as of April 28, 2000 are as follows:
Name Age Position with the Company
- ---- --- -------------------------
Marcus A. New 29 Chairman of the Board; Chief Executive Officer
David Caddey 50 Director
Louis deBoer II 47 Director
Leslie Landes 56 Director, President, Chief Operating Officer
Craig Faulkner 29 Director, Chief Technical Officer, Secretary
Lindsay Moyle 35 Chief Financial Officer
David Andelman 53 Editor in Chief
Tim Bush 40 Vice President Sales
The backgrounds of our directors, executive officers and significant
employees are as follows:
Marcus New is the founder, and has been Chairman and Chief Executive
Officer since May 1995, of Stockgroup.com. Mr. New formed the vision for
Stockgroup.com in 1995 and developed the company from an idea to the dominant
single source for small cap information on the Internet. Over the last five
years he has grown the company by re-investing internally generated capital and
has successfully built a substantial corporate client roster based on
development of his ideas for Internet marketing. Similar to other successful
Internet pioneers, Mr. New created Stockgroup.com based on identification of the
ways in which the Internet could be used to provide services which were not
otherwise available. Mr. New is also a director of iWave.com, which provides
custom corporate research, fundraising research, executive searches, and
software services; Golden Maritime Resources, a commercial fishery; and
WorldTradeShow.com, which provides online tradeshow schedule information, all of
which are public companies.
David Caddey has been a Director of Stockgroup.com since May 1995 and has
over 26 years experience in the business and program management field. Since
July 1998 he has served as an Executive Vice President of MacDonald Dettwiler
and Associates, a wholly-owned subsidiary of Orbital Sciences Corp. (NYSE: ORB),
a space technology and satellite services company that designs, manufactures,
operates and markets a broad range of space products and services. During this
period he has also served as the General Manager of that
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company's Space Missions Group where he is responsible for managing the
construction of the Radarsat-2 spacecraft and associated ground infrastructure
program, valued at over $350 million, as well as the construction of the Space
Station Mobile Servicing System. From July 1994 to June 1998, Mr. Caddey worked
as a Vice President and General Manager of the Space and Defense Systems
Business Area of MacDonald Dettwiller and Associates. In this capacity he was
responsible for marketing and sales, project management, technical management
and post delivery support. From 1990 to 1994 he served as Vice President and
General Manager of Geo-information Systems of MacDonald Dettwiller and
Associates, where he managed the development of Radarsat I Ground Segment
Program.
Louis de Boer has served as a director of Stockgroup.com since October
1999. Since May 1998, he has served as President of MediaFutures, Inc., which
provides consulting services to clients in the Internet and cable broadcasting
industries, including such companies as Hearst New Media, Cox Enterprises,
Rainbow Programming as well as several emerging growth companies. From June 1996
to April 1998, he was Chief Executive Officer at New Century Network, an online
company formed by a consortium of the nine leading US newspaper organizations,
including, Advance Communications, Cox Communications, The Chicago Tribune,
Hearst, Gannett, Knight-Ridder, Inc., The New York Times, The Washington Post
and Times-Mirror. At New Century Networks, Mr. de Boer managed the team of
experts that aggregated content and marketed and sold space to over 150
newspaper Web sites. From 1977 to December 1994, Mr. de Boer was employed at HBO
culminating in the positions of Executive Vice President of HBO Inc. and
President of its International division, where he played an instrumental role in
helping negotiate and broker deals that significantly increased that company's
presence in its international markets. Mr. de Boer is also a director of Click
TV, an online television listings service, and Nextplay, both of which are
public companies.
Leslie Landes has served as Stockgroup.com's President and Chief Operating
Officer since August 1998 and has been an advisor to Stockgroup.com since its
inception. Since January 1992, Mr. Landes has served as the President and as a
director of Landes Enterprises Limited, which he founded, and which is an
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. Since July 1996 he has also served as the Chairman of Netset Home
Solutions, Inc., an Internet training company. Prior to forming Landes
Enterprises in 1992 Mr. Landes spent 13 years with the Jim Pattison Group,
Canada's third largest privately held company with sales in excess of CDN$3
Billion, with over 13,000 employees. He served as President of The Jim Pattison
Sign Group, Outdoor Group, and Communications Group, which included radio and
television stations and paid subscription print publications. Ultimately he was
appointed President of Jim Pattison Industries Ltd. and Senior Vice President of
the parent Jim Pattison Group, responsible for the Group's acquisitions and
divestitures, and with involvement in the management of the Group's 50
diversified companies. He successfully initiated and completed the acquisitions
of other companies in a number of diverse industries in which the Group was
active. Under his direction the Sign Group was built into the largest electric
sign company in the world. Mr. Landes is also a director of TIR Systems Ltd., a
lighting technology company, which is a public company.
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Craig Faulkner has served as Stockgroup.com's Chief Technical Officer and
as a member of Stockgroup.com's board of directors since January 1995. Early in
his career with Stockgroup.com, Mr. Faulkner led Stockgroup.com to co-develop
one of the first portfolio tracking tools, LivequoteSRG, based 100 percent on
the use of Java. Mr. Faulkner manages the programming and information management
team at Stockgroup.com, initiates solutions with data and hardware vendors,
while maintaining a senior management role and board membership. Under Mr.
Faulkner's direction, Stockgroup.com has implemented a sophisticated blend of
both Sun Solaris and Microsoft NT solutions. Stockgroup.com's main site is
hosted on IBM Netfinity servers, while client sites are hosted on Sun Enterprise
machines.
David A. Andelman has served as Editor in Chief of Stockgroup.com since
December 1999. Mr. Andelman is a leading international journalist and
communications professional who has spent more than 30 years in print and
broadcast media. From July 1995 to November 1999 he served as news editor of
Bloomberg News. Mr. Andelman began his career as a domestic and foreign
correspondent and bureau chief for The New York Times in the U.S., Southeast
Asia and Eastern Europe. For seven years he served as European correspondent for
CBS News, based in Paris and as Washington correspondent for CNBC before joining
Bloomberg in 1995. He is the author of two books, and has written articles for
such magazines as Harper's, The Atlantic, The New Republic and Readers Digest.
Tim Bush has served as Vice President-Sales of Stockgroup.com since January
2000. From January 1996 to December 1999, he served as the Regional Sales
Director for one of the world's largest computer products and services
distributors, Ingram Micro Inc. From January 1991 to December 1996, he was
Regional Sales Director for computer distributor Merisel, Inc. During his
three-year tenure at Ingram, his team enjoyed over 30% annual sales growth per
year with sales in excess of CDN$400 Million in his final year, and have
consistently enjoyed a dominant market share position and high customer
retention and satisfaction.
Lindsay Moyle has served as the Chief Financial Officer of Stockgroup.com
since May 2000. From July, 1995 to April, 1999 he was the Chief Financial
Officer of NTS Computer Systems, a publicly traded specialty computer
manufacturer, where he helped the company grow from annual revenues of CDN$1
Million to CDN$35 Million.
Executive Compensation
The following summary compensation table sets forth individual compensation
information for our Chief Executive Officer and each of our executive officers
whose aggregate compensation exceeded $100,000 (who we refer to as the "Named
Executive Officers") during each of the years ended December 31, 1997, 1998 and
1999 pertaining to services rendered to Stockgroup.com.
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Summary Compensation Table
All Annual
Name and Principal Position Year Salary Bonus Compensation
Marcus New 1997 $ 47,436 $ 0 $ 47,436
Chief Executive Officer, 1998 $ 40,192 $ 0 $ 40,192
Chairman and Director 1999 $111,073 $ 0 $111,073
Leslie Landes 1997 N/a N/a N/a
President & Chief Operating Officer 1998 $ 38,781 $ 0 $ 38,781
1999 $122,654 $ 0 $122,654
The following table presents information concerning stock options granted
to or exercised by the Named Executive Officers during 1999 for services
rendered to Stockgroup.com.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
Number of
Securities
Underlying # of Total
Options Options Granted
Granted to Employees in Exercise of Base
Name (#) Fiscal Year Price ($/share) Expiration Date
Marcus New 325,000 18.22% 2.50 March 11, 2004
Leslie Landes 105,000 5.89% 0.01 August 1, 2004
640,800* 35.93% 0.94 August 1, 2004
*Note: 107,600 of Mr. Landes' options to purchase shares at a price of $0.94
will vest and be exercisable only if Stockgroup.com attains sales performance
levels of $16,500,000 and $28,500,000, respectively, in the fiscal years ending
December 31, 2000 and 2001.
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares underlying Value Unexercised
Unexercised Options at December 31, In-the -Money Options at
1999 December 31, 1999
Shares acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Marcus New 0 0 0 325,000 0 0
Leslie Landes 0 0 0 105,000 0 $169,574
Directors' Compensation 0 0 0 640,800 0 $438,948
</TABLE>
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We compensate our Directors by issuing each one options to acquire 20,000
shares of common stock which fully vest after one year of service on our board
of directors. Mr. David Caddey was granted such options on March 11, 1999 which
have an exercise price of $2.50 per share and became fully vested and
exercisable on March 11, 2000. Mr. Louis deBoer II was granted such options on
October 7, 1999 which have a exercise price of $2.75 per share and become fully
vested and exercisable on October 7, 2000.
Employment and Severance Agreement
The Company has an employment agreement with its President Leslie Landes.
This agreement was signed on August 4, 1998 and has a term of 5 years. Under the
agreement Mr. Landes receives compensation of $150,000 per annum. The agreement
may be terminated by the Company or Mr. Landes on 30 days notice and if
termination is initiated by the Company, Mr. Landes is to receive a severance
payment equal to 12 months compensation.
1999 INCENTIVE STOCK OPTION PLAN
The purposes of our 1999 Incentive Stock Option Plan are to enhance our
profitability and shareholder value by enabling us to offer stock based
incentives to employees, directors and consultants. The 1999 Stock Option Plan
authorizes the grant, to employees, directors, consultants and advisors of
Stockgroup.com and its affiliates, of stock options, restricted shares (which
would generally provide for a substantial risk of forfeiture for a period of
time), deferred shares (which would generally provide for shares to be issued
upon services being rendered), and performance shares (which would generally
provide for shares to be issued upon the attainment of specified performance
goals). Under the 1999 Stock Option Plan, we may grant incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, and
non-qualified stock options. Incentive stock options may only be granted to our
employees.
The number of shares available for grants under the 1999 Stock Option Plan
is 2,000,000. The 1999 Stock Option Plan is administered by the board of
directors, although the board has the right to appoint a committee of two or
more non-employee directors to administer the Plan. Subject to the provisions of
the Plan, the board and the committee have authority to determine the employees,
directors, consultants and advisors of Stockgroup.com who are to receive awards
and the terms of such awards, including, the number of shares subject to the
award, the fair market value of the shares subject to options, the exercise
price per share, the terms of vesting (including whether vesting accelerates
upon a change of control, which may also be granted to participants at any time
after an award has been granted), and other terms.
Grants of options may consist of incentive stock options, non-qualified
stock options, or a combination of both. Incentive stock options must have an
exercise price equal to at least 100% of the fair market value of a share on the
date of the award and non-qualified stock options must have an exercise price at
least equal to 75% of the fair market value of a share on the date of the award.
If the grant of an incentive stock option is to a shareholder holding
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more than 10% of our voting stock, the exercise price must be at least 110% of
the fair market value on the date of grant. Terms and conditions of awards are
set forth in written agreements between Stockgroup.com and the respective option
holders. Awards under the 1999 Stock Option Plan may not be made after March 11,
2009, and stock options granted before that date may not have a term beyond that
date.
If the employment with Stockgroup.com of the holder of a stock option is
terminated for any reason other than as a result of a voluntary termination with
the consent of the board or the holder's death or disability, the holder's stock
option terminates on the same date. If the termination is due to such a
voluntary termination the holder may exercise the option, to the extent
exercisable on the date of termination of employment, until 3 months after the
date of termination. If an option holder dies or becomes disabled, stock options
may generally be exercised, to the extent exercisable on the date of death or
disability, by the option holder or the option holder's survivors until six
months after the date of death or disability.
As of April 28, 2000, options to purchase up to 1,882,300 shares of common
stock had been granted under the 1999 Stock Option Plan, and options to purchase
117,700 shares were available for future grants. We have registered the shares
subject to issuance under our 1999 Stock Option Plan, pursuant to our
registration statement on Form S-8 filed with the Securities and Exchange
Commission on November 16, 1999.
Optionees have no rights as shareholders with respect to shares subject to
options prior to the issuance of shares pursuant to the exercise of their
options. An optionee may exercise a part of the option from the date that part
first becomes exercisable until the option expires. The method of payment of the
purchase price is determined by the board or the committee, and may consist of
cash, net exercise, by delivery of shares of our common stock, or other legal
consideration. The board or the committee may also provide that the purchase
price for non-qualified stock options may be paid in restricted shares or other
shares that are subject to forfeiture, and the board or the committee may also
provide that Stockgroup.com may assist the participant in paying the purchase
price, by paying any taxes due from the participant with regard to the exercise,
by making a loan to the participant, by having us guaranty a loan to the
participant from a third party, or by paying a cash bonus to the participant.
The 1999 Stock Option Plan provides for adjustment as to the number and kinds of
shares covered by the outstanding options and the option price therefor to give
effect to any stock dividend, stock split, stock combination or other
reorganization of Stockgroup.com
Restricted Shares
Restricted shares are shares of common stock which are sold or transferred
by us to a participant at a price which may be below their fair market value, or
for no payment, but subject to restrictions on their sale or other transfer by
the participant, as determined by the board of directors or the committee.
Restricted shares are subject to such restrictions as the board or the
committee may determine, including, without limitation, any or all of the
following:
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(a) a prohibition against the sale, transfer, pledge or other
encumbrance of the restricted shares, such prohibition to lapse at such
time or times as the board or the committee shall determine (whether in
annual or more frequent installments, at the time of the death, disability
or retirement of the holder of such restricted shares, or otherwise);
(b) a requirement that the holder of restricted shares forfeit or
resell back to us at his or her cost, all or a part of such restricted
shares in the event of termination of employment during any period in which
such restricted shares are subject to restrictions; and
(c) a prohibition against employment of the holder of such restricted
shares by any competitor of ours or our subsidiaries, or against such
holder's dissemination of any secret or confidential information belonging
to us or our subsidiaries.
Subject to the terms and conditions of the Plan, each participant receiving
restricted shares has all the rights of a shareholder with respect to such
shares of stock during any period in which such shares are subject to forfeiture
and restrictions on transfer, including the right to vote such shares and to
receive dividends on such shares.
Deferred Shares
The board or the committee may authorize grants or sales of deferred shares
to participants, which constitutes our agreement to issue or transfer shares to
the participant in the future in consideration of the performance of services,
subject to the fulfillment during the specified deferral period of such
conditions as the board or the committee may specify.
During the deferral period, the participant does not have any right to
transfer any rights under the subject award, or any rights of ownership in the
deferred shares or the right to vote the deferred shares, but the board or the
committee may authorize the payment of dividend equivalents on the deferred
shares in cash or additional shares on a current, deferred or contingent basis.
Performance Shares
The board or the committee may authorize grants of performance shares and
performance units, which become payable to the participant upon the achievement
of specified management objectives, as determined by the board or the committee.
On or after the date of grant of performance shares, the board or the
committee may provide for the payment to the participant of dividend equivalents
thereon in cash or additional shares on a current, deferred or contingent basis.
LIMITATION OF LIABILITY AND INDEMNIFICATION
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We intend to enter into indemnification agreements with our directors and
officers. These agreements will provide, in general, that we will indemnify and
hold harmless such directors and officers to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement, and expenses incurred
in connection with, or in any way arising out of, any claim, action or
proceeding against, or affecting, such directors and officers resulting from,
relating to or in any way arising out of, the service of such persons as our
directors and officers. Currently, directors and officers are entitled to the
benefits of the limitation of liability provided under our charter documents and
the laws of the State of Colorado.
SELLING SHAREHOLDERS
This prospectus relates to the offering by the selling shareholders of
shares of our common stock acquired by them upon conversion of convertible notes
and exercise of warrants which the selling shareholders received in a private
placement. All of the shares of common stock offered by this prospectus are
being offered by the selling shareholders for their own accounts.
Deephaven Private Placement Trading Ltd. ("Deephaven") and Amro
International S.A. ("Amro") purchased an aggregate of $3 million of convertible
notes and warrants from us in a private placement transaction which closed on
April 3, 2000. As part of that private placement, Deephaven and Amro were issued
notes that may be converted into our common stock and warrants to acquire our
common stock. The notes and the warrants are described in more detail on page 58
of this prospectus. Holders of the notes and warrants are prohibited from using
them to convert into and acquire shares of our common stock to the extent that
such conversion or acquisition would result in such holder, together with any
affiliate thereof, beneficially owning in excess of 4.999% and 9.999%,
respectively, of the outstanding shares of our common stock following such
conversion or acquisition. This restriction may be waived by the holder on not
less than 61 days' notice to us. Since the number of shares of our common stock
issuable upon conversion of the notes will change based upon fluctuations of the
market price of our common stock prior to a conversion, the actual number of
shares of our common stock that will be issued under the notes, and consequently
the number of shares of our common stock that will be beneficially owned by
Deephaven and Amro, cannot be determined at this time. Because of this
fluctuating characteristic, we have agreed to register a number of shares of our
common stock that exceeds the number of shares beneficially owned by Deephaven
and Amro. The number of shares of our common stock listed in the table below as
being beneficially owned by Deephaven and Amro includes the shares of our common
stock that are issuable to them, subject to the 4.999% and 9.999%, respectively,
limitation, upon conversion of their notes and exercise of their warrants.
However, the 4.999% and 9.999%, respectively, limitation would not prevent
Deephaven and Amro from acquiring and selling in excess of 4.999% and 9.999%,
respectively, of our common stock through a series of conversions and sales
under the notes and acquisitions and sales under the warrants.
Deephaven is a private investment fund that is owned by its investors and
that is managed by Deephaven Capital Management LLC. Deephaven Capital
Management LLC has voting and investment control over the shares listed above as
owned by Deephaven.
Amro is a private investment fund that is owned by its investors and that
is managed by Ultrafinance. Mr. H.U. Bachofen is a director and principal of
Ultrafinance and as such has investment control over the shares listed above as
owned by Amro.
Deephaven and Amro have represented to us that (i) they acquired the
securities listed above in the ordinary course of business, and (ii) they did
not have any agreement or understanding, directly or indirectly, with any person
to distribute the securities at the time that the securities being registered
above were acquired.
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The following table sets forth information with respect to the common stock
beneficially owned by the selling shareholders as of the date of this
prospectus, including shares obtainable under convertible notes and warrants
exercisable within 60 days of such date. To our knowledge, each of the selling
shareholders has sole voting and investment power over the shares of common
stock listed in the table below. No selling shareholder has had a material
relationship with us during the last three years, other than as an owner of our
common stock or other securities.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SELLING NUMBER OF NUMBER OF SHARES OWNED PERCENT
SHAREHOLDERS SHARES SHARES OFFERED(1) AFTER OFFERING(2) OF CLASS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deephaven Private(3)
Placement Trading Ltd. 121,212 3,597,814 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Amro International(3) 60,606 1,798,907 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Jesup and Lamont Securities 90,909 90,909 0 0
Corp.(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The number of shares of common stock shown as being offered by Deephaven,
Amro and Jesup consists of 200% of the number of shares issuable upon
conversion of notes, being 3,476,602 shares, and 1,738,301 shares,
respectively, and 121,212 shares, 60,606 shares, and 90,909 shares,
respectively, issuable upon exercise of warrants. This estimate is based on
the conversion rate of the convertible notes and the exercise price of the
warrants in effect on the date of this prospectus. The notes may only be
converted if we do not make payment on a noteholder's prepayment request,
or if we seek to prepay the notes.
(2) We have assumed the sale of all of the common stock offered under this
prospectus will be sold. However, as the selling shareholders can offer
all, some or none of their shares of common stock, no definitive estimate
can be given as to the number of shares that the selling shareholders will
hold after this offering. Holders of the notes and warrants are prohibited
from using them to convert into or acquire shares of our common stock to
the extent that such conversion or acquisition would result in such holder,
together with any affiliate thereof, beneficially owning in excess of
4.999% and 9.999%, respectively, of the outstanding shares of our common
stock following such conversion or acquisition. This restriction may be
waived by the holder on not less than 61 days notice to us.
(3) As of the date of this prospectus, the conversion price was $1.342. The
number of shares to be issued upon exercise of the warrants is based upon
an exercise price of $3.30.
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PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners
The following table sets forth as of April 28, 2000 the beneficial ownership of
common stock of each person known to us who owns more than 5% of our issued and
outstanding common stock.
Name and address* of Amount and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
- -------------------- ----------------------- ----------
Marcus New 2,882,000(1)(2) 34.89%
Yvonne New 2,747,000(1)(4) 33.52%
518464 B.C. Ltd. 2,245,000(1)(5) 27.39%
Craig Faulkner 954,000(1)(3) 11.59%
569358 B.C. Ltd. 665,000(1)(6) 8.11%
*Unless otherwise referenced, the address for each of the above mentioned
parties is c/o Stockgroup.com Holdings, Inc. Suite 500 - 750 West Pender Street,
Vancouver, B.C. Canada V6C 2T7.
(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,
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Canada corporation wholly-owned by Stockgroup.com (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"), Stockgroup.com 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 Stockgroup.com 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 Stockgroup.com, 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 shares of
the our 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 shares of our common stock. The Trustee has no
discretion as to voting or disposition of our 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 shares of our common stock equal to
the number of Exchangeable Shares held of record by such Stock Group
Shareholder. In the aggregate, shares of our common stock issued to the
Trustee represent approximately 47.59% of the our 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 Shares are held by
any Stock Group Shareholder; (b) each of the Subsidiary and Stockgroup.com
acts in writing to terminate the Trust and such termination is approved by
the holders of the Exchangeable Shares in accordance with section 27.10 of
the SEA; and (c) December 31, 2098.
(2) Of this amount, 47.62% (or 1,372,500 shares) of the Exchangeable 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. Mr. New also owns 2,000 shares of
common stock which were purchased in the open market. Accordingly, Marcus
and Yvonne New beneficially own 2,747,000 shares of our common stock which
represent approximately 33.52% of our 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. Mr. New was also
granted options to purchase 325,000 shares of common stock at an exercise
price of $2.50 per share. The initial vesting of 65,000 options took place
on March 11, 2000. In combination with Mr.
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New's 2,745,000 Exchangeable shares, 2,000 shares of common stock, and
70,000 shares of common stock held in trust, these 65,000 optioned shares
create a beneficial ownership position in the company of 2,882,000 shares
representing approximately 34.89% of our 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. Mr. Faulkner has also
been granted options to acquire 195,000 shares of common stock at an
exercise price of $2.50 per share. Mr. Faulkner was granted these options
on March 11, 1999. The options have a five year term and vest 20% per year.
The initial vesting of 39,000 options took place on March 11, 2000. In
combination with his direct and indirect holdings of 915,000 Exchangeable
Shares, Mr. Faulkner beneficially owns 954,000 shares representing
approximately 11.59% of our issued and outstanding common stock.
(4) Yvonne New is Marcus New's wife. Mrs. New owns 250,000 Exchangeable Shares
directly and 2,245,000 shares indirectly through her 50% ownership of
518464 B.C. Ltd. These holdings in combination with the 250,000
Exchangeable Shares and 2,000 shares of common stock owned by Mr. New,
bring Ms. New's beneficial ownership of our shares to 33.52%.
(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.
Security Ownership of Management
The tables below and the paragraphs that follow present certain information
concerning our directors, executive officers and significant employees. Mr.
David Caddey is Mr. Marcus New's wife's uncle. Other than this relationship,
none of our directors, executive officers or significant employees has any
family relationship with any other director, executive officer or significant
employee.
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<TABLE>
<CAPTION>
Executive Shares of Common Stock
Officer/Director Beneficially Owned As of Percent of
Name Age Position with Company Since April 28, 2000 Class (3)
<S> <C> <C> <C> <C>
Directors:
Marcus A. New 29 Chairman of the Board, Chief 05/04/95 2,882,000(1)(2)(6) 34.89%
Executive Officer, Director
Craig D. Faulkner 29 Chief Technology Officer, 05/04/95 954,000(1)(3)(7) 11.59%
Director
Leslie Landes 56 President, Chief Operating 08/04/98 Nil (8) Nil
Officer, Director
David Caddey 50 Director 05/04/95 80,000(4) 0.97%
Louis deBoer II 47 Director 10/07/99 Nil (9) Nil
Executive Officers and significant employees who are not Directors:
Lindsay Moyle 35 Chief Financial Officer 05/23/00 Nil(12) Nil
David Andelman 53 Editor in Chief 12/16/99 6,000(5)(10) .07%
Tim Bush 40 Vice President Sales 01/03/00 6,000(5)(11) .07%
All Directors, Executive Officers and 3,928,000(1)(2)(3) 47.22%
Significant employees as a group (4)(5)(6)(7)
</TABLE>
(1) See footnote 1 to "Security Ownership of Certain Beneficial Owners."
(2) See footnote 2 to "Security Ownership of Certain Beneficial Owners."
(3) See footnote 3 to "Security Ownership of Certain Beneficial Owners."
(4) Of this amount, 50% (or 30,000 shares) are owned by Ms. 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, Mr. and Ms. Caddey
beneficially own 60,000 shares of our common stock which represents
approximately 0.73% of our issued and outstanding common stock.
Mr. Caddey has been granted options to purchase 20,000 shares of common
stock at an exercise price of $2.50 per share. Mr. Caddey was granted these
options on March 11, 1999. The options have a six year term and full
vesting of the 20,000 options took place on March 11, 2000 and the
beneficial ownership calculation here includes 20,000 shares of common
stock underlying these options. In combination with his direct and indirect
holdings of 40,000 Exchangeable Shares and direct and indirect holdings of
20,000 shares of common stock, Mr. Caddey beneficially owns 80,000 shares
representing approximately 0.97% of our issued and outstanding common
stock.
(5) Mr. David Andelman and Mr. Tim Bush each respectively own 6,000
shares of common stock purchased in the open market.
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<PAGE>
(6) Mr. New has been granted options to acquire 325,000 shares of common stock
at an exercise price of $2.50 per share. Mr. New was granted these options
on March 11, 1999. The options have a five year term and vest 20% per year.
The initial vesting of 65,000 options took place on March 11, 2000 and the
beneficial ownership calculation here includes 65,000 shares of common
stock underlying these options. Mr. New beneficially owns 2,745,000
Exchangeable shares, 2,000 shares of common stock, 70,000 shares of common
stock held in trust and 65,000 vested options for a total of 2,882,000
shares representing approximately 34.89% of our issued and outstanding
common stock.
(7) Mr. Faulkner has been granted options to acquire 195,000 shares of common
stock at an exercise price of $2.50 per share. Mr. Faulkner was granted
these options on March 11, 1999. The options have a five year term and vest
20% per year. The initial vesting of 39,000 options took place on March 11,
2000 and the beneficial ownership calculation here includes 39,000 shares
of common stock underlying these options. In combination with his direct
and indirect holdings of 915,000 Exchangeable shares, Mr. Faulkner
benefically owns 954,000 shares representing approximately 11.59% of our
issued and outstanding common stock.
(8) Mr. Leslie Landes has been granted options to purchase 745,800 shares of
our common stock at a price of $0.01 per share as to 105,000 shares and
$0.94 per shares as to the balance. Mr. Landes was granted these options on
March 11, 1999. The options may be exercised, to the extent vested, only
after August 1, 2000. As at August 1, 1999, 106,640 of the options had
vested. In addition, 107,600 of Mr. Landes' options to purchase shares at a
price of $0.94 will vest and be exercisable only if Stockgroup.com attains
sales performance levels $16,500,000 and $28,500,000 respectively in fiscal
years ending December 31, 2000 and 2001. As at April 28, 2000, none of Mr.
Landes' options provide him with beneficial ownership of any of our issued
and outstanding common stock.
(9) Mr. Louis deBoer II, has been granted options to purchase 20,000 shares of
our common stock at an exercise price of $2.75 per share. Mr. deBoer was
granted these options on October 7, 1999. The options have a six year term
and full vesting of the 20,000 options will take place on October 7, 2000.
As at April 28, 2000, none of Mr. deBoer's options provide him with
beneficial ownership of any of our issued and outstanding Common Stock.
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<PAGE>
(10) Mr. David Andelman was granted options to purchase 100,000 shares at an
exercise price of $1.62. These options were granted to Mr. Andelman on
December 16, 1999, have a six year term and vest as to 20% per year
starting December 16, 2000. As at April 28, 2000, Mr. Andelman's vested
options are nil, and he owned 6,000 shares representing 0.07% of our issued
and outstanding common stock.
(11) Mr. Tim Bush was granted options to purchase 50,000 shares at an exercise
price of $1.625. These options were granted to Mr. Bush on January 3, 2000,
have a six year term and vest as to 20% per year starting January 3, 2001.
As at April 28, 2000, Mr. Bush's vested options are nil and he owned 6,000
shares representing 0.07% of our issued and outstanding common stock.
(12) Mr. Moyle's employment agreement provides that he will be granted an option
to acquire 25,000 shares of common stock. The terms of the grant have not
as yet been determined.
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and various provisions of our
Articles of Incorporation and our bylaws are summaries. Statements contained in
this prospectus relating to such provisions are not necessarily complete, and
reference is made to the Articles of Incorporation and bylaws, copies of which
have been filed with the Securities and Exchange Commission as exhibits to our
registration statement of which this prospectus constitutes a part, and
provisions of applicable law. Our authorized capital stock consists of
75,000,000 shares of common stock, no par value, of which 8,195,000 shares were
issued and outstanding as of April 28, 2000, and 5,000,000 shares of preferred
stock, no par value, of which no shares were issued and outstanding as of April
28, 2000. As of April 28, 2000, there were approximately 32 holders of record of
our common stock.
COMMON STOCK
Each share of common stock is entitled to share pro rata in dividends and
distributions with respect to the common stock when, as and if declared by the
board of directors from funds legally available therefor. No holder of any
shares of common stock has any pre-emptive
57
<PAGE>
right to subscribe for any of our securities. Upon dissolution, liquidation or
winding up of Stockgroup.com, the assets will be divided pro rata on a
share-for-share basis among holders of the shares of common stock after any
required distribution to the holders of preferred stock, if any. All shares of
common stock outstanding are fully paid and nonassessable.
Each shareholder of common stock is entitled to one vote per share with
respect to all matters that are required by law to be submitted to shareholders.
The shareholders are not entitled to cumulative voting in the election of
directors. Accordingly, the holders of more than 50% of the shares voting in the
election of directors will be able to elect all the directors if they choose to
do so.
Currently, our bylaws provide that shareholder action may be taken at a
meeting of shareholders and may be affected by a consent in writing if such
consent is signed by the holders of the majority of outstanding shares, unless
Colorado law requires a greater percentage. Our Articles of Incorporation
provide that they may be amended by the affirmative vote of a majority of the
shares entitled to vote on such an amendment. These are the only provisions of
our bylaws or Articles of Incorporation that specify the vote required by
security holders to take action.
PREFERRED STOCK
The board of directors is authorized, without further shareholder approval,
to issue from time to time up to an aggregate of 5,000,000 shares of preferred
stock. The preferred stock may be issued in one or more series and the board of
directors may fix the rights, preferences and designations thereof. No shares of
preferred stock are currently outstanding and we have no present plans to issue
any shares of preferred stock. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of our outstanding voting stock.
NOTES AND WARRANTS
On April 3, 2000, we entered into a Convertible Note Purchase Agreement
pursuant to which we obtained $3 million in a financing with two institutional
investors.
The funding included $3 million of 8% Convertible Debenture Notes, and
5-year Callable Warrants. The notes mature on March 31, 2002 and are convertible
into common stock only after July 31, 2000. The notes may only be converted if
we do not make payment on a note holder's prepayment request, or if we seek to
prepay the notes. The initial conversion price for the notes is $3.72, and the
exercise price of the warrants is $3.30. The
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<PAGE>
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 our option. The lenders have
the right to put back to us 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, we have 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 we do not make such prepayment within 10 days after
our receipt of a "put" notice, the conversion rate of the note changes to the
lesser of (a) the initial conversion price, and (b) 88% of the five lowest
closing prices of our common stock during the 30 trading days prior to the date
of conversion.
The warrants permit the holders to acquire up to 272,727 shares of our
stock. The warrants may be called by us, at a purchase price of $.01 per
underlying share, if our common stock trades at the level of 175% of the initial
conversion price of $3.72 for any 20 consecutive trading days after the
effective date of our registration statement, provided that the holders have the
right to exercise the warrants within 30 days after their receipt of such a
call.
The placement agent in the transaction received warrants to purchase 90,909
shares of common stock on the same terms as the warrants issued to the lenders.
Assuming that the notes were fully convertible on the date of this
prospectus, conversion of the entire $3,000,000 principal amount of the
convertible notes and accrued interest at 8% thereon, would yield 2,260,949
shares of common stock, given a conversion price of $1.342 per share. Based upon
the interest rate and the conversion price of $1.342, which is subject to
adjustment as described above, the number of shares of common stock issuable
upon conversion of the notes will increase by approximately 490 shares daily
until conversion.
If the notes have not been converted or redeemed on March 30, 2002, they
will automatically convert into shares of common stock as of that date. Upon the
occurrence of events specified in the Convertible Note Purchase Agreement, the
holders of the notes may elect to have us redeem the notes at a premium to their
purchase price. These events include, but are not limited to:
- failure by us to issue shares of our common stock upon conversion of the
notes;
- failure by us to keep the specified number of shares of our common stock
reserved for issuance upon conversion of the notes; and
- our making an assignment for the benefit of our creditors or our
bankruptcy, insolvency, reorganization or liquidation.
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The warrants issued to Deephaven, Amro and Jesup may be exercised at any
time during the five-year period following their issuance. The exercise price
for the warrants is subject to adjustment for stock dividends, stock splits,
recapitalizations, reclassifications, combinations, and dilutive issuances of
securities. The notes and warrants contain provisions which limit the number of
shares of common stock into which the notes are convertible and the warrants are
exercisable. Under these provisions, the number of shares of common stock into
which the notes are convertible and the warrants are exercisable on any given
date, together with any additional shares of common stock held by Deephaven or
Amro, will not exceed 4.99% of our then outstanding common stock.
The foregoing has been a brief description of some of the terms of the
notes and warrants. For a more detailed description of the rights of the holders
of the notes and warrants, prospective investors are directed to the actual
forms of the notes and warrants, and the Convertible Note Purchase Agreement
under which they were issued, which were all filed as exhibits to our Form 8-K
filed with the SEC on April 18, 2000.
REGISTRATION RIGHTS
Under a Registration Rights Agreement with Deephaven and Amro entered into
on April 3, 2000, we agreed to register the shares of common stock issuable to
Deephaven and Amro upon conversion of their notes and exercise of their
warrants. We also agreed to register the shares issuable to Jesup upon
conversion of its warrants. This prospectus is part of the registration
statement intended to satisfy this obligation. The registration rights agreement
requires us to file a registration statement with respect to the shares within a
specified period of time and to have the registration statement be declared
effective within a specific period of time. We must also keep the registration
statement effective until all of the securities offered have been sold. We are
responsible for the payment of all fees and costs associated with the
registration of the securities, except that we are not responsible for legal
fees generated by Deephaven's, Amro's and Jesup's counsel, and we are not
responsible for brokerage commissions and discounts. We are required to
indemnify and hold harmless Deephaven, Amro and Jesup, and their agents and
representatives, against:
- - any untrue statement of a material fact in a registration statement;
- - any untrue statement or alleged untrue statement contained in any
preliminary prospectus if used prior to the effective date of the
registration statement; or
- - any violation or alleged violation of the Securities Act of 1933 or the
Securities Exchange Act of 1934.
Specific procedures for carrying out such indemnification are set forth in
the Agreement.
Under the Registration Rights Agreement, Deephaven, Amro and Jesup also
have the right to include all or a part of their common stock in a registration
filed
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<PAGE>
by us for purposes of a public offering in the event that we fail to satisfy our
other obligations as to the registration of the common stock acquired them.
ANTITAKEOVER EFFECTS OF COLORADO LAW AND OUR ARTICLES OF INCORPORATION AND
BYLAWS
Colorado law does not contain provisions which are intended to have the
effect of delaying or deterring a change in control or management of
Stockgroup.com.
Our Articles of Incorporation permit the issuance of up to 5,000,000 shares
of preferred stock, having such rights, preferences and privileges as the board
of directors may determine. The issuance of preferred stock, while providing
desirable flexibity in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a majority of our
outstanding voting stock.
Provisions of our bylaws which are summarized below may affect potential
changes in control of Stockgroup.com. The board of directors believes that these
provisions are in the best interests of shareholders because they will encourage
a potential acquirer to negotiate with the board of directors, which will be
able to consider the interests of all shareholders in a change in control
situation. However, the cumulative effect of these terms may be to make it more
difficult to acquire and exercise control of Stockgroup.com and to make changes
in management more difficult.
The bylaws provide the number of directors of Stockgroup.com shall be
established by the board of directors, but shall be no less than one. Between
shareholder meetings, the board of directors may appoint new directors to fill
vacancies or newly created directorships. A director may be removed from office
by the affirmative vote of 66-2/3% of the combined voting power of the then
outstanding shares of stock entitled to vote generally in the election of
directors.
As discussed above, our bylaws further provide that shareholder action may
be taken at a meeting of shareholders and may be effected by a consent in
writing if such consent is signed by the holders of the majority of outstanding
shares, unless Colorado law requires a greater percentage.
We are not aware of any proposed takeover attempt or any proposed attempt
to acquire a large block of our common stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We believe that provisions of our Articles of Incorporation and bylaws will
be useful to attract and retain qualified persons as directors and officers. Our
Articles of Incorporation limit the liability of directors and officers to the
fullest extent permitted by Colorado law. This is intended to allow our
directors and officers the benefit of Colorado's corporation law which
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provides that directors and officers of Colorado corporations may be relieved of
monetary liabilities for breach of their fiduciary duties as directors, except
under circumstances which involve acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or the payment of unlawful
distributions.
We intend to obtain officer and director liability insurance with respect
to liabilities arising out of certain matters, including matters arising under
the Securities Act of 1933.
TRANSFER AGENT AND REGISTRAR
Stocktrans, Inc. is the transfer agent and registrar for our capital stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus, 8,195,000 shares of our common stock
were outstanding, 1,882,300 shares of common stock were subject to options
granted under our 1999 stock option plan, and 2,533,676 shares of common stock
were issuable upon exercise of the convertible notes and warrants held by the
selling shareholders. Of the outstanding shares, 3,195,000 shares of common
stock are immediately eligible for sale in the public market without restriction
or further registration under the Securities Act of 1933, unless purchased by or
issued to any "affiliate" of ours, as that term is defined in Rule 144
promulgated under the Securities Act of 1933, described below. All other
outstanding shares of our common stock are "restricted securities" as such term
is defined under Rule 144, in that such shares were issued in private
transactions not involving a public offering and may not be sold in the absence
of registration other than in accordance with Rule 144, 144(k) or 701
promulgated under the Securities Act of 1933 or another exemption from
registration.
The shares of common stock issuable upon conversion or exercise of the
convertible notes and warrants held by the selling shareholders are being
registered in the registration statement of which this prospectus is a part.
Upon effectiveness of that registration statement, such shares will also be
immediately eligible for sale in public market subject to restrictions included
in our agreements with the selling shareholders. We also filed a registration
statement to register for resale the 2,000,000 shares of common stock reserved
for issuance under our stock option plan. That registration statement became
effective immediately upon filing. Accordingly, shares covered by that
registration statement are eligible for sale in the public market subject to
vesting restrictions. As of April 28, 2000, 162,200 of these options were
exercisable.
Sales of substantial amounts of our common stock under Rule 144, this
prospectus or otherwise could adversely affect the prevailing market price of
our common stock and could impair our ability to raise capital through the
future sale of our securities.
PLAN OF DISTRIBUTION
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The selling shareholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling shareholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling shareholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such method of sale; and
o any other method permitted pursuant to applicable law.
The selling shareholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling shareholders may also engage in short sales against the box,
puts and calls and other transactions in securities of Stockgroup.com or
derivatives of our securities and may sell or deliver shares in connection with
these trades. The selling shareholders may pledge their shares to their brokers
under the margin provisions of customer agreements. If a selling shareholder
defaults on a margin loan, the broker may, from time to time, offer and sell
pledged shares.
Broker-dealers engaged by the selling shareholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
63
<PAGE>
The selling shareholders and any broker-dealers or agents that are involved
in selling the shares may be deemed to be "underwriters" within the meaning of
the Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Stockgroup.com is required to pay all fees and expenses incident to the
registration of the shares, excluding the fees and disbursements of counsel to
the selling shareholders. Stockgroup.com has agreed to indemnify the selling
shareholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby has been
passed upon for us by Sierchio & Albert, P.C., New York, New York.
EXPERTS
The consolidated financial statements of Stockgroup.com Holdings, Inc. at
December 31, 1999 and 1998, and for each of the two years in the period ended
December 31, 1999, appearing in this prospectus and in the registration
statement have been audited by Ernst & Young LLP, independent chartered
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2. This prospectus, which is a part of the registration
statement, does not contain all of the information included in the registration
statement. Some information is omitted and you should refer to the registration
statement and its exhibits. With respect to references made in this prospectus
to any contract, agreement or other document of Stockgroup.com, such references
are not necessarily complete and you should refer to the exhibits attached to
the registration statement for copies of the actual contract, agreement or other
document. You may review a copy of the registration statement, including
exhibits, at the Securities and Exchange Commission's public reference room at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or Seven World
Trade Center, 13th Floor, New York, New York 10048 or Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661.
The public may obtain information on the operation of the public reference
room by calling the Securities and Exchange Commission at 1-800-SEC-0330.
We will also file annual, quarterly and current reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any
64
<PAGE>
reports, statements or other information on file at the public reference rooms.
You can also request copies of these documents, for a copying fee, by writing to
the Securities and Exchange Commission.
Our Securities and Exchange Commission filings and the registration
statement can also be reviewed by accessing the Securities and Exchange
Commission's Internet site at http://www.sec.gov, which contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999
(unaudited).................................... .......................... F-2
Consolidated Statement of Operations for the three months ended
March 31, 2000 and 1999 (unaudited)....................................... F-3
Consolidated Statement of Cash Flows for the three months ended
March 31, 2000 and 1999 (unaudited)...................................... F-4
Notes to (unaudited) Consolidated Financial Statements.................... F-5
Auditors' Report.......................................................... F-8
Consolidated Balance Sheets as at December 31, 1999 and 1998.............. F-9
Consolidated Statement of Operations for the years ended
December 31, 1999 and 1998................................................ F-10
Consolidated Statement of Shareholders' Equity for the years ended
December 31, 1999 and 1998................................................ F-11
Consolidated Statement of Cash Flows for the years ended
December 31, 1999 and 1998................................................ F-12
Notes to Consolidated Financial Statements................................ F-13
F-1
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED BALANCE SHEET
As at March 31, 2000
(UNAUDITED - Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
2000 1999
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 609,208 $ 1,658,822
Accounts receivable, net 1,136,177 855,170
Due from shareholder 32,216 31,973
Prepaid expenses 185,062 887,223
----------- -----------
TOTAL CURRENT ASSETS $ 1,962,663 $ 3,433,188
Property and equipment, net $ 537,175 $ 440,368
Investments and advances 500,000 --
----------- -----------
$ 2,999,838 $ 3,873,556
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Bank indebtedness $ 141,784 $ 21,004
Accounts payable 620,262 732,392
Accrued payroll liabilities 29,298 126,566
Deferred revenue 765,174 230,545
----------- -----------
TOTAL CURRENT LIABILITIES $ 1,556,518 $ 1,110,507
----------- -----------
TOTAL LIABILITIES $ 1,556,518 $ 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 297,563 261,277
ACCUMULATED DEFICIT $(5,615,726) $(4,259,711)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,443,320 2,763,049
----------- -----------
$ 2,999,838 $ 3,873,556
=========== ===========
</TABLE>
The Accompanying Notes Are An Integral Part
Of These Unaudited Financial Statements.
F-2
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2000
(UNAUDITED - Expressed in U.S. Dollars)
Unaudited Unaudited
Three Months Three Months
Ended March Ended March
31, 2000 31, 1999
----------- ------------
(unaudited) (unaudited)
REVENUE
Revenues $ 1,241,207 $ 179,194
Cost of revenues 397,066 60,392
----------- -----------
Gross profit $ 844,141 $ 118,802
EXPENSES
Sales and marketing $ 1,182,636 $ 55,708
Product development 161,639 30,955
General and administrative 873,424 669,532
----------- -----------
$ 2,217,699 $ 756,195
----------- -----------
INCOME (LOSS) FROM OPERATIONS $(1,373,558) $ (637,393)
Interest income 16,989 0
Other income (expense) 554 232
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES $(1,356,015) $ (637,161)
Income tax provision (recovery) -- --
----------- -----------
NET INCOME (LOSS) $(1,356,015) $ (637,161)
=========== ===========
Basic and diluted earnings (loss)
Per share (0.17) (0.15)
=========== ===========
Weighted average shares used in
the calculation of basic and
diluted net loss per share 8,195,000 4,265,769
=========== ===========
F-3
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS For the Three Months
Ended March 31, 2000
(UNAUDITED - Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Unaudited Unaudited
Three Months Three Months
Ended March Ended March
31, 2000 31, 1999
------------ ------------
(unaudited) (unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) $(1,356,015) $ (637,161)
Add (deduct) non-cash items
Depreciation and amortization 28,804 6,723
Provision for doubtful accounts (113) --
Common stock issued for services -- 450,000
Compensation expense on stock options 36,286 39,320
----------- -----------
(1,291,038) (141,118)
Net changes in non-cash working capital
Accounts receivable (280,893) (14,222)
Due from shareholder (243) (10,990)
Prepaid expenses 702,161 (7,359)
Accounts payable (547,130) 131,851
Accrued liabilities (97,268) (15,837)
Deferred revenue 34,629 2,261
----------- -----------
CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES $(1,479,782) $ (55,414)
----------- -----------
FINANCING ACTIVITIES
Net deposit on common stock to be issued 435,000 402,451
(Repayments) proceeds on bank indebtedness 120,780 (60,553)
(Repayments) proceeds on long-term debt -- (8,260)
(Repayments to) advances from shareholders -- (12,069)
Due to (from) related company -- --
----------- -----------
CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES $ 555,780 $ 321,569
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (125,612) (69,466)
Investments 0 --
Net cash acquired in reverse acquisition -- 3,272
----------- -----------
CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES $ (125,612) $ (66,194)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,049,614) 199,961
Cash and cash equivalents, beginning of period 1,658,822 --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 609,208 $ 199,961
=========== ===========
</TABLE>
F-4
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Three
Months Ended March 31, 2000
(UNAUDITED)
1. NATURE OF BUSINESS
Stockgroup.com Holdings, Inc. ("Stockgroup.com") is a leading provider of
Internet financial news and information services focusing on the North American
small-cap and micro-cap markets. Stockgroup.com also provides Internet
advertising and Website design and maintenance services to publicly traded
companies. 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 the
disclosures are adequate to make the information presented not 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
three month period ended March 31, 2000. The results for the three month period
ended March 31, 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. The Company changed
its reporting to U.S. GAAP. In this report comparative figures have been
retroactively restated to conform to the U.S. GAAP presentation. The comparative
figures have been recast into U.S. dollars in accordance with FASB Statement No.
52, Foreign Currency Translation.
3. CALCULATION OF 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 options outstanding during the
year, in accordance with FASB Statement No. 128, Earnings Per Share.
The following table sets forth the computation of earnings (loss) per share:
For the Three For the Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
$ $
Net income (loss) for the quarter (1,356,013) (637,161)
Weighted average number of common shares
used in computation 8,195,000 4,265,769
Basic and diluted earnings (loss) per share (0.17) (0.15)
F-5
<PAGE>
For the quarter ended March 31, 2000, all of the Company's common shares
issuable upon the exercise of stock options were excluded from the determination
of diluted earnings (loss) per share as their effect would be anti-dilutive.
4. 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 quarters
ended March 31, 2000 and March 31, 1999, the Company did not have any components
of comprehensive income.
5. 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.
6. SEGMENTED INFORMATION
The Company operates in one industry segment and derives its revenue from the
following services:
For the Three For the Three
Months Ended Months Ended
March 31, 2000 March 31, 1999
Advertising and media services $ 174,539 $ 79,717
Website design and development 169,415 49,500
Website maintenance and marketing 394,122 49,977
Enterprise Financial Website development 503,131 -
----------- ------------
$ 1,241,207 $ 179,194
=========== ============
During the first quarter 2000, the Company had two customers from whom revenue
received by the Company represented 41% of total revenue. No other customers
represented greater than 10% of revenue.
7. SUBSEQUENT EVENT
Financing Arrangement
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
F-6
<PAGE>
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 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 has agreed to file 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 placement agent in the transaction received a fee of $120,000 and Warrants
to purchase 90,909 common shares on the same terms as the Warrants issued to the
lenders.
Funds from this loan arrangement will be used for ongoing working capital
purposes.
F-7
<PAGE>
AUDITORS' REPORT
To the Board of Directors of
Stockgroup.com Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Stockgroup.com
Holdings, Inc. as at December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
two years in the period ended December 31, 1999. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated 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
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Stockgroup.com Holdings, Inc. as at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the two
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
Vancouver, Canada,
January 28, 2000.
(except for Note 13[b], which
is as of April 3, 2000). Chartered Accountants
F-8
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED BALANCE SHEETS
As at December 31 (expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
- ------------------------------------------------------------------------------------------------------------
ASSETS [notes 7 and 8]
Current
<S> <C> <C>
Cash and cash equivalents [note 3] 1,658,822 --
Accounts receivable (net of allowances for doubtful
accounts of $20,786 in 1999 and $60,139 in 1998) [note 4] 855,170 98,818
Due from shareholder [note 5] 31,973 --
Prepaid expenses 887,223 39,005
- ------------------------------------------------------------------------------------------------------------
Total current assets 3,433,188 137,823
- ------------------------------------------------------------------------------------------------------------
Due from shareholder [note 5] -- 18,033
Property and equipment, net [note 6] 440,368 57,720
- ------------------------------------------------------------------------------------------------------------
3,873,556 213,576
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current
Bank indebtedness [note 7] 21,004 101,077
Accounts payable 732,392 51,712
Accrued payroll liabilities 126,566 15,837
Deferred revenue 230,545 41,702
Current portion of long-term debt [note 8] -- 8,260
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 1,110,507 218,588
- ------------------------------------------------------------------------------------------------------------
Due to shareholder -- 12,069
- ------------------------------------------------------------------------------------------------------------
Total liabilities 1,110,507 230,657
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies [note 9]
Shareholders' equity (deficiency) [note 10]
Common stock, no par value 6,761,483 97
Authorized shares - 75,000,000
Issued and outstanding shares - 8,195,000 in 1999
and 3,660,000 in 1998
Preferred stock, non-voting, no par value -- --
Authorized shares - 5,000,000
Issued and outstanding - nil in 1999 and 1998
Additional paid-in capital 261,277 --
Accumulated deficit (4,259,711) (17,178)
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficiency) 2,763,049 (17,081)
- ------------------------------------------------------------------------------------------------------------
3,873,556 213,576
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-9
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31 (expressed in US dollars)
1999 1998
$ $
- --------------------------------------------------------------------------------
REVENUE
Revenues 1,920,052 857,591
Cost of revenues 1,208,033 172,343
- --------------------------------------------------------------------------------
Gross profit 712,019 685,248
- --------------------------------------------------------------------------------
EXPENSES
Sales and marketing 2,454,473 265,840
Product development 415,108 117,453
General and administrative 2,209,192 443,201
- --------------------------------------------------------------------------------
5,078,773 826,494
- --------------------------------------------------------------------------------
Loss from operations (4,366,754) (141,246)
Interest income 123,260 --
Other income (expense) 961 (42,845)
- --------------------------------------------------------------------------------
Loss before income taxes (4,242,533) (184,091)
Income tax provision (recovery) [note 11] -- (34,802)
- --------------------------------------------------------------------------------
Net loss (4,242,533) (149,289)
================================================================================
Basic and diluted loss per share [note 10] (0.60) (0.04)
================================================================================
See accompanying notes
F-10
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year ended December 31 (expressed in US dollars)
<TABLE>
<CAPTION>
Common stock Additional
Common stock amount paid-in capital
# of shares $ $
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1997 3,660,000 97 --
Net loss -- -- --
Balance at December 31, 1998 3,660,000 97 --
Issuance of common stock pursuant to private placement [note 10] 240,000 402,451 --
Deemed issuance of common stock pursuant to
reverse acquisition [notes 1 and 10] 3,120,000 672 --
Issuance of common stock pursuant to a consulting
agreement [note 10] 75,000 450,000 --
Issuance of common stock pursuant to private placements,
net of share issue costs of $167,737 [note 10] 900,000 5,232,263 --
Issuance of common stock pursuant to an advertising
agreement [note 10] 200,000 676,000 --
Compensation related to grant of stock options [note 10] -- -- 261,277
Net loss -- -- --
Balance at December 31, 1999 8,195,000 6,761,483 261,277
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Retained earnings Total
(accumulated shareholders'
deficit) equity
$ $
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1997 132,111 132,208
Net loss (149,289) (149,289)
----------
Balance at December 31, 1998 (17,178) (17,081)
Issuance of common stock pursuant to private placement [note 10] -- 402,451
Deemed issuance of common stock pursuant to
reverse acquisition [notes 1 and 10] -- 672
Issuance of common stock pursuant to a consulting
agreement [note 10] -- 450,000
Issuance of common stock pursuant to private placements,
net of share issue costs of $167,737 [note 10] -- 5,232,263
Issuance of common stock pursuant to an advertising
agreement [note 10] -- 676,000
Compensation related to grant of stock options [note 10] -- 261,277
Net loss (4,242,533) (4,242,533)
----------
Balance at December 31, 1999 (4,259,711) 2,763,049
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
F-11
<PAGE>
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31 (expressed in US dollars)
<TABLE>
<CAPTION>
1999 1998
$ $
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss (4,242,533) (149,289)
Add (deduct) non-cash items
Depreciation and amortization 85,601 19,459
Provision for doubtful accounts (39,352) 44,715
Consulting services received for common stock 450,000 --
Advertising services received for common stock 676,000 --
Compensation expense on stock options 261,277 --
- ----------------------------------------------------------------------------------------------------------
(2,809,007) (85,115)
Net changes in non-cash working capital
Accounts receivable (717,000) (19,539)
Due from shareholder (13,940) --
Prepaid expenses (848,218) (2,312)
Accounts payable 678,080 43,144
Accrued liabilities 110,729 (10,524)
Income taxes payable -- (199)
Deferred revenue 188,843 (39,993)
- ----------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities (3,410,513) (114,540)
- ----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 5,634,714 --
(Repayments) proceeds on bank indebtedness (80,073) 75,825
(Repayments) proceeds on long-term debt (8,260) (17,105)
(Repayments to) advances from shareholders (12,069) 6,010
Due to (from) related company -- 39,186
- ----------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities 5,534,312 103,916
- ----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (468,249) (21,092)
Net cash acquired in reverse acquisition 3,272 --
- ----------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (464,977) (21,092)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,658,822 (31,716)
Cash and cash equivalents, beginning of year -- 31,716
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year 1,658,822 --
==========================================================================================================
Supplemental disclosure of cash flow information
Interest paid 10,500 4,100
Income taxes paid -- --
==========================================================================================================
</TABLE>
See accompanying notes
F-12
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
[a] Nature of business and continuing entity
Stockgroup.com Holdings, Inc. ("Stockgroup.com") is a leading provider of
Internet financial news and information services focusing on the North American
small-cap and micro-cap markets. Stockgroup.com was incorporated under the laws
of Colorado on December 6, 1994 under the former name of I-Tech Holdings Group,
Inc. ("I-Tech"), a United States non-operating company registered on the NASD
OTC Bulletin Board.
These consolidated financial statements are issued under the name of
Stockgroup.com but are a continuation of the financial statements of Stock
Research Group Inc. (`SRG"), a British Columbia corporation which was
incorporated on May 4, 1995. On March 11, 1999, pursuant to a reverse
acquisition, SRG acquired the net assets of I-Tech.
[b] Reverse acquisition of Stockgroup.com
Pursuant to a share exchange agreement dated March 11, 1999, the shareholders of
SRG sold their 100% interest in SRG to Stockgroup.com in consideration for
3,900,000 shares of Stockgroup.com which represented a controlling interest of
approximately 56%. This transaction is considered a recapitalization of SRG and
an acquisition of Stockgroup.com (the accounting subsidiary/legal parent) by SRG
(the accounting parent/legal subsidiary). Accordingly, the transaction has been
accounted for as a purchase of the net assets of Stockgroup.com by SRG in these
consolidated financial statements.
In these consolidated financial statements, SRG's assets and liabilities are
included at their historical carrying amounts. Operating results to March 11,
1999 are those of SRG. For purposes of the acquisition, the fair value of the
net monetary assets of Stockgroup.com of $672 is ascribed to the 3,120,000
previously outstanding common shares of Stockgroup.com deemed to be issued in
the acquisition as follows:
$
- --------------------------------------------------------------------------------
Net assets acquired
Cash 3,272
Accounts payable 2,600
- --------------------------------------------------------------------------------
672
Deemed consideration
3,120,000 shares of Stockgroup.com 672
================================================================================
F-13
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Stockgroup.com
Holdings, Inc. (the "Company") and its wholly owned subsidiaries, Stockgroup.com
Media Inc. (British Columbia, Canada) (formerly Stock Research Group Inc.) and
Stockgroup.com, Ltd. (Nevada, United States). All significant intercompany
accounts and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Foreign exchange
The reporting currency and the functional currency of the Company during the
fiscal year ended December 31, 1999 is the U.S. dollar. The accounts of the
Company's Canadian subsidiary are translated into U.S. dollars such that
monetary assets and liabilities are translated at exchange rates in effect at
the balance sheet date and non-monetary items are translated at exchange rates
prevailing at the transaction date. Operating revenues and expenses are
translated at average exchange rates prevailing during the year. Any
corresponding foreign exchange gains and losses are included in income.
Foreign currency transactions are translated into U.S. dollars at the rate of
exchange in effect at the date of the transaction. Foreign currency balances of
monetary assets and liabilities are translated using the rate of exchange in
effect at the balance sheet date. Foreign exchange gains and losses on
transactions during the year and on the year end translation of the accounts are
included in income.
Cash equivalents
Cash equivalents consist of short-term deposits with original maturities of
ninety days or less and are recorded at amortized cost.
F-14
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Property and equipment
Property and equipment are carried at cost less depreciation and amortization.
Depreciation and amortization are provided at the following annual rates with
one-half of the depreciation and amortization provided in the year of
acquisition:
Computer equipment 30% straight line
Computer software 100% straight line
Office furniture and equipment 20% straight line
Leasehold improvements 20% straight line
Income taxes
The Company utilizes the liability method of accounting for income taxes. Under
this method, deferred taxes are determined based on the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates. A valuation allowance is provided against deferred tax assets for which
it is more likely than not that the asset will not be realized.
Fair value of financial instruments
The Company's financial instruments consist principally of cash and cash
equivalents, accounts receivable, bank indebtedness, accounts payable and
long-term debt. The carrying values of all financial instruments approximate
fair value due to their short-term maturities.
Revenue recognition
The Company's revenue is derived from various services, resulting in the
following types of revenue recognition:
o Website design and development is recognized upon customer acceptance.
o Website maintenance and marketing is recognized on a pro-rata basis over
the term of the contract.
o Advertising and media services is recognized on a pro-rata basis over the
term of the contract.
Deferred revenue consists of deposits paid in advance of services rendered.
F-15
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Advertising costs
Advertising costs are expensed in the period incurred and are included as a
component of sales and marketing expenses. Advertising expense for the years
ended December 31, 1999 and 1998 was $1,670,000 and $23,000 respectively.
Product development expenditures
Product development expenditures, which are primarily related to website
development, are expensed in the period incurred.
Stock-based compensation
The Company accounts for fixed stock-based awards to employees in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations and has adopted the disclosure-only
alternative of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Accordingly, compensation expense for stock options issued to employees is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
Earnings 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 options outstanding during the
year, in accordance with FASB Statement No. 128, Earnings Per Share.
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 years ended
December 31, 1999 and 1998, the Company did not have any components of
comprehensive income.
F-16
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
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.
3. CASH AND CASH EQUIVALENTS
1999 1998
- --------------------------------------------------------------------------------
Cash 13,822 --
Short-term deposits 1,645,000 --
- --------------------------------------------------------------------------------
1,658,822 --
================================================================================
The short-term deposits are issued by a major Canadian chartered bank. The
effective interest rates on the short-term deposits existing at year-end range
from 5.21% to 5.48%. Interest income earned on short-term deposits for the years
ended December 31, 1999 and 1998 was $123,260 and $nil respectively.
4. ACCOUNTS RECEIVABLE
Included in accounts receivable is an amount of $575,000 due from one customer
representing 67% of the total balance. Management's best estimate as at December
31, 1999 is that the realization of this amount is probable. Because of the
uncertainties inherent in this estimation process, management's estimate of
credit loss on this account may change in the near term. No other customers
represented greater than 10% of the total balance in any other year.
F-17
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
5. DUE FROM SHAREHOLDER
Amounts due from shareholder consist of $12,850 [1998 - $nil] in short-term
advances and a $19,123 [1998 - $18,033] non-interest bearing loan. The loans and
advances are expected to be repaid in the next fiscal year.
6. PROPERTY AND EQUIPMENT
Accumulated Net book
Cost amortization value
$ $ $
- ---------------------------------------------------------------------------
1999
Computer equipment 360,552 85,571 274,981
Computer software 24,074 12,037 12,037
Office furniture and equipment 146,595 21,608 124,987
Leasehold improvements 31,596 3,233 28,363
- ---------------------------------------------------------------------------
562,817 122,449 440,368
===========================================================================
1998
Computer equipment 74,100 30,386 43,714
Computer software -- -- --
Office furniture and equipment 20,097 6,425 13,672
Leasehold improvements 371 37 334
- ---------------------------------------------------------------------------
94,568 36,848 57,720
===========================================================================
7. BANK INDEBTEDNESS
1999 1998
$ $
- ---------------------------------------------------------------------------
Operating line of credit -- 75,825
Demand loan 21,004 25,252
- ---------------------------------------------------------------------------
21,004 101,077
===========================================================================
The Company has an approved operating line of credit of $500,000 bearing
interest at prime plus 1/4%. Interest expense for the years ended December 31,
1999 and 1998 was $8,400 and $1,300 respectively.
F-18
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
7. BANK INDEBTEDNESS (cont'd.)
The demand loan bears interest at prime plus 1%, is repayable in blended monthly
principal and interest payments of $635, and is due December 31, 2002. Interest
expense for the years ended December 31, 1999 and 1998 was $1,800 and $1,800
respectively.
Bank indebtedness is collateralized by a general security agreement on all
assets of the Company. The weighted average effective prime rate for 1999 was
6.44% [1998 - 6.60%].
8. LONG-TERM DEBT
Long-term debt consisted of a special term loan bearing interest at prime plus
1%, repayable in blended monthly principal and interest payments of $800, due
December, 1999. The loan was collateralized by a general security agreement on
all assets of the Company. Interest expense for the years ended December 31,
1999 and 1998 was $300 and $1,000 respectively.
9. COMMITMENTS AND CONTINGENCIES
[a] The Company has operating lease commitments with respect to office premises
with minimum annual payments as follows: $
---------------------------------------------------------------------------
2000 350,000
2001 339,000
2002 278,000
2003 256,000
2004 and thereafter 655,000
- --------------------------------------------------------------------------------
1,878,000
- --------------------------------------------------------------------------------
Net rental expense included in general and administrative expenses for the
years ended December 31, 1999 and 1998 was $204,000 and $72,000
respectively.
F-19
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
9. COMMITMENTS AND CONTINGENCIES (cont'd.)
[b] 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.
10. SHAREHOLDERS' EQUITY
Stock split
During 1998, SRG effected a split of its common stock on the basis of 18,300
common shares for each common share outstanding. This increased the outstanding
share capital to 3,660,000 common shares which has been restated as the opening
common stock as if the split had happened at the beginning of the periods
presented.
Issuance of common stock pursuant to private placement
During January and February of 1999, the Company completed a private placement
to certain institutions and individuals for the issuance of 240,000 common
shares at $1.68 per share for net cash proceeds of $402,451.
Issuance of common stock pursuant to reverse acquisition
By a share exchange agreement dated March 11, 1999, the Company entered into a
series of transactions whereby 3,900,000 issued and outstanding shares of SRG
were exchanged for 3,900,000 shares of 579818 B.C. Ltd. a Canadian subsidiary of
Stockgroup.com. The exchanged shares are convertible into shares of
Stockgroup.com through a trustee, Stocktrans Inc., who holds the exchangeable
shares of the parent in trust for the Company pursuant to a voting and exchange
agreement giving the SRG shareholders effective control over Stockgroup.com. For
purposes of the reverse acquisition, the fair value of the net assets of
Stockgroup.com of $672 is ascribed to the 3,120,000 previously outstanding
common shares of Stockgroup.com deemed to be issued in the acquisition.
F-20
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
10. SHAREHOLDERS' EQUITY (cont'd.)
Issuance of common stock for consulting services
On March 15, 1999, the Company issued 75,000 shares in exchange for consulting
services provided in respect of the reverse acquisition. The transaction was
recorded at a fair value of $450,000 based on an average closing price of the
stock in the first week of trading subsequent to the reverse acquisition.
Issuance of common stock pursuant to private placement
During the spring and summer of 1999, the Company completed a private placement
to certain institutions and individuals for the issuance of 900,000 common
shares at $6.00 per share for net cash proceeds of $5,232,263.
Issuance of common stock for advertising services
On September 17, 1999 the Company completed a private placement with a media
company for the issuance of 200,000 common shares in exchange for advertising
services. The transaction was recorded at a fair value of $676,000 based on the
closing price of the stock on the day of the agreement.
Earnings (loss) per share
The following table sets forth the computation of earnings (loss) per share:
1999 1998
$ $
- -------------------------------------------------------------------------------
Net loss for the year (4,242,533) (149,289)
Weighted average number of common shares
used in computation 7,055,151 3,660,000
Basic and diluted loss per share (0.60) (0.04)
- -------------------------------------------------------------------------------
For the year ended December 31, 1999, all of the Company's common shares
issuable upon the exercise of stock options were excluded from the determination
of diluted loss per share as their effect would be anti-dilutive.
Prior to the reverse acquisition described in note 1, the deemed number of
common shares outstanding is equal to the common shares issued to the
shareholders of SRG adjusted to take into account the effect of the change in
the number of issued shares of SRG in the earlier periods.
F-21
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
10. SHAREHOLDERS' EQUITY (cont'd.)
1999 Incentive Stock Option Plan
The Company's 1999 Incentive Stock Option Plan ("1999 Plan"), which became
effective March 11, 1999 (the "Plan Effective Date"), is available to directors,
employees and consultants, and is intended to serve as the successor equity
incentive program to the 1999 Incentive Stock Option Plan of Stock Research
Group, Inc. ("1999 SRG Plan").
Under the 1999 SRG Plan, 1,441,300 options, representing 1,441,300 common shares
were granted in February, 1999. In March 1999, outstanding options under the
1999 SRG Plan were incorporated into the 1999 Plan, and no further grants may be
made under the 1999 SRG Plan. The incorporated options will continue to be
governed by their existing terms, unless the Plan Administrator elects to extend
one or more features of the 1999 Plan to those Options.
Under the 1999 Plan, a total of 2,000,000 common shares have been authorized for
issuance. Such share reserve consists of (i) the number of shares issued under
the 1999 SRG Plan incorporated into the 1999 Plan on the Plan Effective Date;
and (ii) an additional increase of 558,700 shares of common stock.
Options issued under the 1999 Plan generally begin vesting one year after grant,
at which time vesting occurs in equal installments of one-fifth of the grant
total per year for a period of five years. Options immediately become
exercisable once vested. Any options which do not vest as the result of a
grantee leaving the Company are cancelled and the shares underlying them are
returned to the reserve. The Board has the authority to vary the vesting
provisions of grants at its discretion.
Activity under the 1999 Plan is set forth below:
<TABLE>
<CAPTION>
Options outstanding
---------------------------------------------------------
Shares Weighted
available for Number of Price per average
grant shares share exercise price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 -- -- -- --
Additional shares reserved 2,000,000 -- -- --
Options granted (1,827,800) (1,827,800) 0.01 - 5.625 $ 1.855
Options canceled 44,500 44,500 2.50 - 5.625 $ 3.921
- -----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 216,700 1,783,300 0.01 - 4.437 $ 1.803
=======================================================================================================================
</TABLE>
F-22
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
10. SHAREHOLDERS' EQUITY (cont'd.)
The weighted average remaining contractual life and weighted average exercise
price of options outstanding and of options exercisable as of December 31, 1999
are as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
----------------------------------------- --------------------------
Weighted
average Weighted Weighted
Number of remaining average average
shares contractual exercise Shares exercise
outstanding life (years) price exercisable price
- -------------------------------------------------------------------------------------------------------------
Range of exercise prices
<S> <C> <C> <C> <C> <C>
$0.01 - 0.94 745,800 4.58 $0.809 -- --
$1.50 - 1.75 128,500 5.96 $1.609 -- --
$2.25 - 2.937 784,000 5.26 $2.506 5,000 2.500
$3.00 - 4.437 125,000 5.59 $3.530 -- --
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The Company recorded $261,277 in compensation expense in the year ended December
31, 1999 for the difference between the exercise price of certain of the
Company's options granted under the 1999 SRG Plan and the fair market value of
the underlying common stock on the date of grant. This amount has been recorded
as additional paid-in capital.
A total of 107,600 of the outstanding options are performance based and vest
equally in 2000 and 2001 if the Company achieves predetermined annual revenues.
These options are classified as variable, whereby, compensation expense is
measured as the excess, if any, of the quoted market price of the Company's
stock at the measurement date over the amount the employee must pay to acquire
the stock. With variable options, the measurement date is established when it
appears probable that the Company will meet the performance targets. Because of
the uncertainty of achieving the annual revenue targets, no compensation expense
has been recorded.
Pro forma disclosure of the effect of Stock Based Compensation Plan
Pro forma information regarding results of operations and net income (loss) per
share is required by FASB Statement No. 123 for stock-based awards to employees
as if the Company had accounted for such awards using a valuation method
permitted under Statement No. 123. The value of the Company's stock-based awards
granted to employees in 1999 have been valued using the Black-Scholes option
pricing model. Among other things, the Black-Scholes model considers the
expected volatility of the Company's stock price, determined in accordance with
Statement No. 123, in arriving at an option valuation.
F-23
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
10. SHAREHOLDERS' EQUITY (cont'd.)
The fair value of the Company's stock-based awards granted to employees in 1999
was estimated assuming no expected dividends, a weighted average expected life
of 4.55 years, a risk free interest rate of 5.06% and an expected volatility of
151%. The weighted average fair value of options granted during 1999 was $1.701.
For pro forma purposes, the estimated value of the Company's stock-based awards
to employees is amortized over the vesting period of the underlying options. The
results of applying Statement No. 123 to the Company's stock-based awards to
employees would approximate the following:
1999 1998
$ $
- --------------------------------------------------------------------
Net loss
As reported 4,242,533) (149,289)
Pro forma 5,091,330) (149,289)
Basic and diluted loss per share
As reported (0.60) (0.04)
Pro forma (0.72) (0.04)
- --------------------------------------------------------------------
11. INCOME TAXES
The Company is subject to United States federal and state income taxes at an
approximate rate of 40%. The Company's Canadian subsidiary is subject to
Canadian federal and provincial taxes of approximately 45%. For 1998 and prior
years, the Company qualified as a Canadian Controlled Private Corporation and
was subject to a lower tax rate of 22%. The Company is no longer eligible for
this low tax rate.
F-24
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
11. INCOME TAXES (cont'd.)
The reconciliation of the provision (recovery) for income taxes at the United
States federal statutory rate compared to the Company's income tax expense is as
follows:
1999 1998
$ $
- -------------------------------------------------------------------------------
Tax expense (recovery) at U.S. statutory rates (1,698,000) (74,000)
Lower (higher) effective income taxes of
Canadian subsidiary (170,000) 33,000
Net operating losses not recognized for
accounting purposes 1,856,000 --
Non-deductible expenses 12,000 6,198
- -------------------------------------------------------------------------------
Current income tax expense (recovery) -- (34,802)
================================================================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred taxes are as follows:
1999 1998
$ $
- --------------------------------------------------------------------------------
Net operating loss carryforwards 1,856,000 --
Valuation allowance (1,856,000) --
- --------------------------------------------------------------------------------
Net deferred tax asset -- --
================================================================================
The tax loss carryforwards expire as follows:
$
- --------------------------------------------------------------------------------
Canada
2006 3,369,000
U.S.
2019 845,000
- --------------------------------------------------------------------------------
4,214,000
================================================================================
F-25
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
12. SEGMENTED INFORMATION
The Company operates in one industry segment and derives its revenue from the
following services:
1999 1998
$ $
- --------------------------------------------------------------------------------
Website design and development 343,928 214,085
Website maintenance and marketing 347,243 394,350
Advertising and media services 1,228,881 249,156
- --------------------------------------------------------------------------------
1,920,052 857,591
================================================================================
During 1999, the Company had one customer whose revenue represented 35% of total
revenue. No other customers represented greater than 10% of the revenue in any
other year.
Predominantly all of the Company's revenues are generated in Canada based on the
location of customers. The majority of the Company's property and equipment are
located in Canada.
13. SUBSEQUENT EVENTS
[a] On January 18, 2000, the Company entered into a contract in Singapore which
expands the Company's operation into Asia and entails the development of an
enterprise financial site for Asia Exchange Information Service Pte Ltd.
(AsiaXIS). Under the terms of the agreement, the Company will receive
approximately US$1,500,000 for development and upgrade of the initial site
in Singapore. The agreement also provides for AsiaXIS to develop 13
additional financial enterprise sites throughout Asia, Australia and New
Zealand. The Company will be paid a licensing fee for its technology, a
development fee for building and customizing each additional financial
enterprise site, ongoing maintenance and support fees and royalties for
each of the markets that AsiaXIS enters. The Company has also secured
access to the content that will be created by AsiaXIS in its international
news development. As part of the contract, the Company has agreed to
acquire an equity position of 19.4% in AsiaXIS for US$500,000.
F-26
<PAGE>
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1999 (expressed in US dollars)
13. SUBSEQUENT EVENTS (cont'd.)
[b] On April 3, 2000, the Company entered into a Convertible Note Purchase
Agreement pursuant to which it obtained $3 million in a financing
consisting of 8% Convertible Notes (the "Notes"), and 5-year Callable
Warrants (the "Warrants"). The Notes mature on March 31, 2002 and are
convertible into common shares only after July 31, 2000 at an initial
conversion price of $3.72. The Warrants permit the holders to acquire up to
181,818 common shares at an exercise price of $3.30. Both the initial
conversion price of the Notes and the exercise price of the Warrants are
subject to adjustment upon the happening of certain events, such as the
payment of a stock dividend, or the issuance of additional warrants at a
below market price or at a price below the conversion price. The placement
agent in the transaction received a fee of $120,000 and Warrants to
purchase 90,909 common shares on the same terms as the Warrants issued to
the lenders.
F-27
<PAGE>
STOCKGROUP.COM HOLDINGS, INC.
5,487,630 Shares of
Common Stock
--------------------
PROSPECTUS
--------------------
_________, 2000
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of various expenses, all of
which we will pay, in connection with the sale and distribution of the
securities being registered. All of the amounts shown are estimates, except the
Securities and Exchange Commission registration fee.
Securities and Exchange Commission Registration Fee $ 2,897.47
Accounting Fees and Expenses $ 15,000
Legal Fees and Expenses $ 15,000
Miscellaneous $ 3,500
Total $ 36,397.47
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Colorado Law provides that a corporation may indemnify a person made a
party to a proceeding because the person is or was a director against liability
incurred in the proceeding if:
(a) the person conducted himself or herself in good faith; and
(b) the person reasonably believed:
(I) in the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best
interests; and
(II) in all other cases, that his or her conduct was at least not
opposed to the corporation's best interest.
The law also provides that a corporation may not indemnify a director:
II-1
<PAGE>
(a) in connection with a proceeding by or in the right of
the corporation in which the director was adjudged liable to the
corporation; or
(b) in connection with any other proceeding charging that
the director derived an improper personal benefit, whether or not
involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived
an improper personal benefit.
Indemnification permitted under Colorado law in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding. Unless limited by its
articles of incorporation, Colorado law provides that a corporation shall
indemnify a person who was wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the person was party because the person is or
was a director, against reasonable expenses incurred by him or her in connection
with the proceeding.
Colorado law further provides that a corporation may pay for or reimburse
the reasonable expenses incurred by a director who is a party to a proceeding in
advance of final disposition of the proceeding if:
(a) the director furnishes to the corporation a written
affirmation of the director's good faith belief that he or she met the
standard of conduct described in the law;
(b) the director furnishes to the corporation a written
undertaking, executed personally or on the director's behalf, to repay
the advance if it is ultimately determined that he or she did not meet
the standard of conduct; and
(c) a determination is made that the facts then known to those
making the determination would not preclude indemnification under
Colorado law.
A corporation may not indemnify a director under Colorado law unless
authorized in the specific case after a determination has been made that
indemnification of the director is permissible in the circumstances because the
director has met the standard of conduct set forth in the law. A corporation may
not advance expenses to a director unless authorized in the specific case after
the written affirmation and undertaking required by the law are received and the
determination required by the law has been made.
The determinations required by Colorado law shall be made:
(a) by the board of directors by a majority vote of those present
at a meeting at which a quorum is present, and only those directors
not parties to the proceeding shall be counted in satisfying the
quorum; or
(b) if a quorum cannot be obtained, by a majority vote of a
committee of the board of directors designated by the board of
directors, which committee shall consist of two or more directors not
parties to the proceeding; except that directors who are parties to
the proceeding may participate in the designation of directors for the
committee.
Alternatively, the determination required to be made by the law may be
made:
II-2
<PAGE>
(a) by independent legal counsel selected by a vote of the board of
directors or the committee in the manner specified above or, if a quorum of
the full board cannot be obtained and a committee cannot be established, by
independent legal counsel selected by a majority vote of the full board of
directors; or
(b) by the shareholders.
Authorization of indemnification and advance of expenses shall be made in
the same manner as the determination that indemnification or advance of expenses
is permissible; except that, if the determination that indemnification or
advance of expenses is permissible is made by independent legal counsel,
authorization of indemnification and advance of the expenses shall be made by
the body that selected such counsel.
Colorado law also provides that, unless otherwise provided in the articles
of incorporation:
(a) an officer is entitled to mandatory indemnification, and is
entitled to apply for court-ordered indemnification, in each case to the
same extent as a director;
(b) a corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as to a
director; and
(c) a corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a greater
extent, if not inconsistent with public policy, and if provided for by its
bylaws, general or specific action of its board of directors or
shareholders, or contract.
Colorado law further provides a corporation may purchase and maintain
insurance on behalf of a person who is or was a director, officer, employee,
fiduciary, or agent of the corporation, or who, while a director, officer,
employee, fiduciary, or agent of the corporation, is or was serving at the
request of the corporation as a director, officer, partner, trustee, employee,
fiduciary, or agent of another domestic or foreign corporation or other person
or of an employee benefit plan, against liability asserted against or incurred
by the person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, or agent, whether or not the corporation would
have power to indemnify the person against the same liability under Colorado
law.
Our articles of incorporation provide that the board of directors has the
power to:
(a) Indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right Stockgroup.com), by reason of the fact that he or she is or
was a director, officer, employee or agent of Stockgroup.com or is or was
serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he reasonably believed to be in our best interests and, with respect to any
criminal action or proceedings, had no reasonable cause to believe his or her
conduct was unlawful.
II-3
<PAGE>
(b) Indemnify any person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of Stpclgroup.com to procure a judgment in its favor by reason of the fact
that he or she is or was a director, officer, employee or agent of
Stockgroup.com or is or was serving at our request as a director, officer,
employee or agent of Stockgroup.com request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorney's fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he or she
reasonably believed to be in our best interests; but no indemnification shall be
made in respect of any claim, issue or matter as to which such person has been
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to Stockgroup.com unless and only to the extent that the court in which
such action or suit was brought determines upon application that, despite the
adjudication of liability, but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses
which such court deems proper.
(c) Indemnify a director, officer, employee or agent of Stockgroup.com to
the extent that such person has been successful on the merits in defense of any
action, suit or proceeding referred to in subparagraph (a) or (b) above or in
defense of any claim, issue, or matter therein, against expenses (including
attorney's fees) actually and reasonable incurred by him or her in connection
therewith.
(d) Authorize indemnification under subparagraph (a) or (b) above (unless
ordered by a court) in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
subparagraph (a) or (b). Such determination shall be made by the board of
directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or, if such a quorum is not
obtainable or even if obtainable a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or by the shareholders.
(e) Authorize payment of expenses (including attorney's fees) incurred in
defending a civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding as authorized in subparagraph (d)
above upon receipt of an undertaking by or on behalf of the director, officer,
employee or agent to repay such amount if it is ultimately determined that he or
she is not entitled to be indemnified by Stockgroup.com.
(f) Purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of Stockgroup.com or who is or was serving
at our request as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him or her in any such capacity or arising
our of his or her status as such, whether or not we would have the power to
indemnify him or her against such liability under the provision of our Articles
of Incorporation.
The indemnification provided by our Articles of Incorporation is not
exclusive of any other rights to which those indemnified may be entitled under
the bylaws, any agreement, vote of shareholders or disinterested directors or
otherwise, and any procedure provided for by any of the foregoing, both as to
action in his or her official capacity and as to action in another while holding
such office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of heirs, executors
and administrators of such a person.
II-4
<PAGE>
Our by-laws give effect to the foregoing provision's of our Articles of
Incorporation.
We intend to enter into indemnification agreements with our directors and
officers. These agreements provide, in general, that we will indemnify such
directors and officers for, and hold them harmless from and against, any and all
amounts paid in settlement or incurred by, or assessed against, such directors
and officers arising out of or in connection with the service of such directors
and officers as a director or officer of Stockgroup.com or its affiliates to the
fullest extent permitted by Colorado law.
The Company intends to obtain liability insurance for its directors and
officers covering, subject to exceptions, any actual or alleged negligent act,
error, omission, misstatement, misleading statement, neglect or breach of duty
by such directors or officers, individually or collectively, in the discharge of
their duties in their capacity as directors or officers of Stockgroup.com.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order is information regarding shares of common
stock issued and options and warrants and other convertible securities granted
by us during the past three years. Also included is the consideration, if any,
received by us for such shares and options and information relating to the
section of the Securities Act of 1933 (the "1933 Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
Transactions described in Items (1) through (3) below took place prior to
March 11, 1999, the date of the reverse acquisition of Stockgroup.com. The
transactions described in Items (4) through (8) below took place on or after
March 11, 1999 to be invested.
1. In June 1995 Stockgroup.com sold and issued 380,000 shares of common stock,
in an aggregate amount of $380, under the exemption provided by Regulation
D, Rule 504 of the 1933 Act.
2. In March through May 1997, Stockgroup.com sold and issued 20,000,000 shares
of its common stock in an aggregate amount of $10,000.00 under the
exemption provided by Regulation D, Rule 504 of the 1933 Act.
3. Stockgroup.com, in January1997, sold and issued 300,000 shares of its
preferred stock in an aggregate amount of $3,000 under the exemption
provided by Section 4(2) of the 1933 Act.
4. Pursuant to a Shares Exchange and Share Purchase Agreement dated March 11,
1999 (the "SEA") by and among I-Tech Holdings Group, Inc. (the
"Corporation"), 579818 B.C. Ltd., a British Columbia, Canada corporation
wholly-owned by the Corporation (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 Corporation acquired (the "Acquisition") all of
the issued and outstanding common shares of Stock Group form 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 Corporation
issuing to Stocktrans, Inc. as trustee for the Stock Group Shareholders
(the "Trustee") 3,900,000 shares of common stock (the "Corporation's
Shares") to be held under the terms of an Exchange and Voting Agreement
dated March 11, 1999 (the "Trust Agreement") by and
II-5
<PAGE>
among the Corporation, the Trustee, the Subsidiary and the Stock Group
Shareholders. These shares were issued in under the exemption provided by
Section 4(2) of the 1933 Act.
5. On March 15, 1999, Stockgroup.com issued 75,000 shares in exchange for
consulting services provided in respect of the reverse acquisition
described in Item 5 above. The transaction was recorded at a fair value of
$450,000 based on an average closing price of the stock in the first week
of trading subsequent to the reverse acquisition. The issuances were made
under Section 4(2) of the 1933 Act and were made without general
solicitation or advertising. The purchasers were sophisticated investors
with access to all relevant information necessary to evaluate these
investments, and who represented to Stockgroup.com that the shares were
being acquired for investment.
6. During the spring and summer of 1999, Stockgroup.com completed a private
placement to certain institutions and individuals for the issuance of
900,000 common shares at $6.00 per share for net cash proceeds of
$5,232,263. The issuances were made under Regulation S to non-U.S. persons.
7. On September 17, 1999 Stockgroup.com completed a private placement with a
media company for the issuance of 200,000 common shares in exchange for
advertising services. The transaction was recorded at a fair value of
$676,000 based on the closing price of the stock on the day of the
agreement. The issuances were made under Regulation S to non-U.S. persons.
8. 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. The funding included $3 million of 8% Convertible Notes (the
"Notes"), and 5 year Callable Warrants (the "Warrants"). The Notes are
convertible into common stock 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.
Interest may be paid in the form of cash or registered stock, at the option
of Stockgroup.com. The Warrants permit the holders to acquire up to 181,818
shares of common stock. The placement agent in the transaction received
Warrants to purchase 90,909 common shares on the same terms as the Warrants
issued to the lenders. The issuances were made under Section 4(2) of the
1933 Act and/or Regulation D promulgated under the Securities Act of 1933
and were made without general solicitation or advertising. The purchasers
were sophisticated investors with access to all relevant information
necessary to evaluate these investments, and who represented to
Stockgroup.com that the shares were being acquired for investment.
II-6
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The following Exhibits are either attached hereto incorporated herein by
reference or will be filed by amendment:
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT AND FILING REFERENCE
2.1 Share Exchange and Share Purchase Agreement dated March 11,
1999, among I-Tech Holdings Group, Inc. (the "Registrant")
the former shareholders of the Registrant, 579818 B.C. Ltd.
("B.C. Ltd"), Stock Research Group, Inc. ("SRG"), and the
former shareholders of SRG effecting a change in control of
Registrant. (incorporated by reference to the Exhibits filed
with Form 8K filed March 19, 1999, Form 8K/A filed March 24,
1999 and Form 8K/A filed May 10, 1999)
*3.1 Articles of Incorporation (incorporated by reference to the
Exhibits filed with Form 10SB12G filed January 29, 1998, and
Amendments to Articles of Incorporation filed herewith)
*3.2 Amended and Restated Bylaws
4.1 1999 Stock Incentive Plan (incorporated by reference to the
Exhibits filed with Form S-8 filed November 16, 1999)
4.2 Convertible Note Purchase Agreement, ("Note Purchase
Agreement") dated March 21, 2000, among the Registrant,
Deephaven Private Placement Trading Ltd. ("Deephaven") and
Amro International, S.A. ("Amro") (incorporated by reference
to the Exhibits filed with Form 8K filed on April 18, 2000)
4.3 Form of 8% Convertible Note issued to each of Deephaven and
Amro pursuant to the Note Purchase Agreement (incorporated
by reference to the Exhibits with Form 8K filed on April 18,
2000)
4.4 Form of Callable Warrant issued to Deephaven, Amro, and
Jesup and Lamont Securities Corporation pursuant to the Note
Purchase Agreement (incorporated by reference to the
Exhibits filed with Form 8K filed on April 18, 2000)
4.5 Registration Rights Agreement, dated March 31, 2000, among
the Registrant, Deephaven and Amro (incorporated by
reference to the Exhibits filed with Form 8K filed on April
18, 2000)
9.1 Exchange and Voting Agreement dated March 11, 1999, among
the Registrant, B.C. Ltd., SRG and the individual
signatories thereto, incorporated by reference to the
Exhibits filed with Form 8K filed on March 19, 1999
**10.1 Enterprise Financial Website Development & Software
Licensing Agreement, dated January 2000, between the
Registrant and PTE Ltd.
II-7
<PAGE>
* 11.1 Statement re: computation of per share earnings - see Note
10 to financial statements
16.1 Letter regarding change in certifying accountant
(incorporated by reference to Exhibits filed with Form 8K
filed July 9, 1999)
21.1 Subsidiaries of the Company (incorporated by reference to
Exhibits filed with Form 10KSB/A filed May 1, 2000)
***23.1 Consent of experts or counsel
* 23.5 Consent of Ernst & Young LLP
* 27.1 Financial Data Schedule
* 27.2 Financial Data Schedule
* 27.3 Financial Data Schedule
- ----------
* Filed herewith.
** Confidential treatment application to be filed.
*** To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules omitted because the information is included
in the Financial Statements of notes thereto.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually, or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
II-8
<PAGE>
notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b)
(230.424(b) of this Chapter) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the Registration Statement.
Provided, however, that paragraphs (b)(1)(i) and (b)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities and Exchange of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each post- effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registraiton Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that at that time shall be deemed to be the initial bona fide offering
thereof.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Vancouver, Province of British Columbia, on May 25, 2000.
STOCKGROUP HOLDINGS INC.
By: /S/ Marcus New
Marcus New
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/S/ Marcus A. New Chief Executive Officer, May 25, 2000
- ------------------------- Secretary and Director
Marcus A. New (principal executive officer)
President and Director May 25, 2000
- -------------------------
David N. Caddey
Director May 25, 2000
- -------------------------
Louis deBoer II
/S/ Leslie Landes Director May 25, 2000
- -------------------------
Leslie Landes
/S/ Craig Faulkner Director May 25, 2000
- -------------------------
Craig Faulkner
/S/ Lindsay Moyle Chief Financial Officer May 25, 2000
- ------------------------- (principal accounting officer)
Lindsay Moyle
</TABLE>
II-10
<PAGE>
EXHIBIT INDEX
The following Exhibits are either attached hereto or incorporated herein by
reference:
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT AND FILING REFERENCE
<TABLE>
<CAPTION>
Page
<S> <C> <C>
2.1 Share Exchange and Share Purchase Agreement dated March 11, 1999,
among I-Tech Holdings Group, Inc. (the "Registrant") the former
shareholders of the Registrant, 579818 B.C. Ltd. ("B.C. Ltd"),
Stock Research Group, Inc. ("SRG"), and the former shareholders
of SRG effecting a change in control of Registrant. (incorporated
by reference to the Exhibits filed with Form 8K filed March 19,
1999, Form 8K/A filed March 24, 1999 and Form 8K/A filed May 10,
1999) _____
*3.1 Articles of Incorporation (incorporated by reference to the
Exhibits filed with Form 10SB12G filed January 29, 1998, and
Amendments to Articles of Incorporation filed herewith) _____
*3.2 Amended and Restated Bylaws _____
4.1 1999 Stock Incentive Plan (incorporated by reference to the
Exhibits filed with Form S-8 filed November 16, 1999) _____
4.2 Convertible Note Purchase Agreement, ("Note Purchase Agreement")
dated March 21, 2000, among the Registrant, Deephaven Private
Placement Trading Ltd. ("Deephaven") and Amro International, S.A.
("Amro") (incorporated by reference to the Exhibits filed with
Form 8K filed on April 18, 2000) _____
4.3 Form of 8% Convertible Note issued to each of Deephaven and Amro
pursuant to the Note Purchase Agreement (incorporated by
reference to the Exhibits with Form 8K filed on April 18, 2000) _____
4.4 Form of Callable Warrant issued to Deephaven, Amro, and Jesup and
Lamont Securities Corporation pursuant to the Note Purchase
Agreement (incorporated by reference to the Exhibits filed with
Form 8K filed on April 18, 2000) _____
4.5 Registration Rights Agreement, dated March 31, 2000, among the
Registrant, Deephaven and Amro (incorporated by reference to the
Exhibits filed with Form 8K filed on April 18, 2000) _____
9.1 Exchange and Voting Agreement dated March 11, 1999, among the
Registrant, B.C. Ltd., SRG and the individual signatories
thereto, incorporated by reference to the Exhibits filed with
Form 8K filed on March 19, 1999 _____
**10.1 Enterprise Financial Website Development & Software Licensing
Agreement, _____
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
dated January 2000, between the Registrant and PTE Ltd. _____
*11.1 Statement re: computation of per share earnings - see Note 10 to
financial statements _____
*16.1 Letter regarding change in certifying accountant (incorporated
by reference to Exhibits filed with Form 8K filed July 9, 1999) _____
21.1 Subsidiaries of the Company (incorporated by reference to
Exhibits filed with Form 10KSB/A filed May 1, 2000) _____
***23.1 Consent of experts or counsel _____
*23.5 Consent of Ernst & Young LLP _____
*27.1 Financial Data Schedule _____
*27.2 Financial Data Schedule
*27.3 Financial Data Schedule
</TABLE>
- ----------
* Filed herewith.
** Confidential treatment application to be filed.
*** To be filed by amendment.
Exhibit 3.1
Secretary of State
Corporation Section
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is I-Tech Holdings Group, Inc.
SECOND: The following amendment to the Articles of Incorporation was adopted on
May 5, 1999, as prescribed by the Colorado Business Corporation Act, in the
manner marked with an X below.
_______ No Shares have been issued or Directors Elected - Action by
Incorporators
_______ No shares have been issued but Directors Elected - Action by Directors
_______ Such amendment was adopted by the board of directors where shares have
been issued and shareholder action was not required.
___X___ Such amendment was adopted by a vote of the shareholders. The number
of shares voted for the amendment was sufficient for approval.
THIRD: If changing corporate name, the new name of the corporation is
Stockgroup.com Holdings, Inc.
FOURTH: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the amendment
shall be effected, is as follows: n/a
If these amendments are to have delayed effective date, please list that
date: n/a (Not exceed ninety (90) days form the date of filing)
-----------------------------------
Signature /s/ Marcus New
--------------------------
Title: Marcus New, Chief Executive Officer
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
STOCKGROUP.COM HOLDINGS, INC.
ARTICLE I
Offices
The principal office of the Corporation in Colorado shall initially be
located in Denver, Colorado. The Corporation may have such other offices, either
within or outside the State of Colorado, as the Board of Directors may
designate, or as the business of the Corporation may require from time to time.
The registered office of the Corporation required by the Colorado Business
Corporation Act to be maintained in the State of Colorado may be, but need not
be, identical with the principal office, and the address of the registered
office may be changed from time to time by the Board of Directors.
ARTICLE II
Shareholders
Section 1. Annual Meeting.
The annual meeting of the shareholders shall be held pursuant to notice
given by the Board of Directors for the purpose of electing directors and for
the transaction of such other business as may come before the meeting.
Section 2. Special Meetings.
Special meetings of the shareholders, for any purpose, unless otherwise
prescribed by statute, may be called by the President or by the Board of
Directors, and shall be called by the President at the request of the holders of
not less than ten (10%) percent of all the outstanding shares of the Corporation
entitled to vote at the meeting. Such request shall state the purposes of the
proposed meeting.
Section 3. Adjournment.
a. When the annual meeting is convened, or when any special meeting is
convened, the presiding officer may adjourn it for such period of time as may be
reasonably necessary to reconvene the meeting at another place and another time.
<PAGE>
b. The presiding officer shall have the power to adjourn any meeting of the
shareholders for any proper purpose, including, but not limited to, lack of a
quorum, to secure a more adequate meeting place, to elect officials to count and
tabulate votes, to review any shareholder proposals or to pass upon any
challenge which may properly come before the meeting.
c. When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting. If,
however, after the adjournment the Board fixes a new record date for the
adjourned meeting, a notice of the adjourned meeting shall be given in
compliance with Subsection (4)(a) of this Article II to each shareholder of
record on the new record date entitled to vote at such meeting.
Section 4. Notice of Meeting; Purpose of Meeting; Waiver
a. Each shareholder of record entitled to vote at any meeting shall be
given in person, or by first class mail, postage prepaid, written notice of such
meeting which, in the case of a special meeting, shall set forth the purpose(s)
for which the meeting is called, not less than ten (10) or more then fifty (50)
days before the date of such meeting. If mailed, such notice is to be sent to
the shareholder's address as it appears on the stock transfer books of the
Corporation unless the shareholder shall have requested of the Secretary in
writing at least fifteen (15) days prior to the distribution of any required
notice that any notice intended for him to be sent to some other address, in
which case the notice may be sent to the address so designated. Notwithstanding
any such request by a shareholder, notice sent to a shareholder's address as it
appears on the stock transfer books of this Corporation as of the record date
shall be deemed properly given. Any notice of a meeting sent by the United
States mail shall be deemed delivered when deposited with proper postage thereon
with the United States Postal Service or in any mail receptacle under its
control.
b. A shareholder waives notice of any meeting by attendance, either in
person or by proxy, at such meeting or by waiving notice in writing either
before, during or after such meeting. Attendance at a meeting for the express
purpose of objecting that the meeting was not lawfully called or convened,
however, will not constitute a waiver of notice by a shareholder stating at the
beginning of the meeting, his objection that the meeting is not lawfully called
or convened.
c. Whenever the holders of at least eighty (80%) percent of the capital
stock of the Corporation having the right to vote shall be present at any annual
or special meeting of shareholders, however called or notified, and shall sign a
written consent thereto on the minutes of such meeting, the meeting shall be
valid for all purposes.
d. A Waiver of Notice signed by all shareholders entitled to vote at a
meeting of shareholders may also be used for any other proper purpose including,
but not limited to, designating any place within or without the State of
Colorado as the place for holding such a meeting.
e. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of shareholders need be specified in any written
Waiver of Notice.
<PAGE>
Section 5. Closing of Transfer Books; Record Date; Shareholders' List.
a. In order to determine the holders of record of the capital stock of the
Corporation who are entitled to notice of meetings, to vote at a meeting or
adjournment thereof, or to receive payment of any dividend, or for any other
purpose, the Board of Directors may fix a date not more than fifty (50) days
prior to the date set for any of the above-mentioned activities for such
determination of shareholders.
b. If the stock transfer books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such books shall be closed for at least ten (10) days immediately
preceding such meeting.
c. In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the date for such determination of shareholders, such
date in any case to be not more than fifty (50) days and, in case of a meeting
of shareholders, not less than ten (10) days prior to the date on which the
particular action, requiring such determination of shareholders, is to be taken.
d. If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice or to vote at a meeting
of shareholders, or to receive payment of a dividend, the date on which notice
of the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders.
e. When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, unless the Board of Directors fixes a new
record date under this section for the adjourned meeting.
f. The officer or agent having charge of the stock transfer books of the
Corporation shall make, as of a date at least ten (10) days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, with the address of each shareholder and the
number and class and series, if any, of shares held by each shareholder. Such
list shall be kept on file at the registered office of the Corporation or at the
office of the transfer agent or registrar of the Corporation for a period of ten
(10) days prior to such meeting and shall be available for inspection by any
shareholder at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of any meeting of shareholders and
shall be subject to inspection by any shareholder at any time during the
meeting.
g. The original stock transfer books shall be prima facie evidence as to
the shareholders entitled to examine such list or stock transfer books or to
vote at any meeting of shareholders.
h. If the requirements of Subsection 5(f) of this Article II have not been
substantially complied with then, on the demand of any shareholder in person or
by proxy, the meeting shall be adjourned until such requirements are complied
with.
i. If no demand pursuant to Section 5(h) is made, failure to comply with
the requirements of this Section shall not affect the validity of any action
taken at such meeting.
j. Subsection 5(g) of this Article II shall be operative only at such
time(s) as the Corporation shall have six (6) or more shareholders.
<PAGE>
Section 6. Quorum.
a. At any meeting of the shareholders of the Corporation, the presence, in
person or by proxy, of shareholders owning a majority of the issued and
outstanding shares of the capital stock of the Corporation entitled to vote
thereat shall be necessary to constitute a quorum for the transaction of any
business. If a quorum is present the affirmative vote of a majority of the
shares represented at such meeting and entitled to vote on the subject matter
shall be the act of the shareholders. If there shall not be a quorum at any
meeting of the shareholders of the Corporation, then the holders of a majority
of the shares of the capital stock of the Corporation who shall be present at
such meeting, in person or by proxy, may adjourn such meeting from time to time
until holders of a majority of the shares of the capital stock shall attend. At
any such adjourned meeting at which a quorum shall be present, any business may
be transacted which might have been transacted at the meeting as originally
scheduled.
b. The shareholders at a duly organized meeting having a quorum may
continue to transact business until adjournment notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 7. Presiding Officer; Order of Business.
a. Meetings of the shareholders shall be presided over by the Chairman of
the Board, or, if he is not present, by the President or, if he is not present,
by a Vice President or, if none of the Chairman of the Board, the President, or
a Vice President is present, the meeting shall be presided over by a Chairman to
be chosen by a plurality of the shareholders entitled to vote at the meeting who
are present, in person or by proxy. The presiding officer of any meeting of the
shareholders may delegate the duties and obligations of the presiding officer of
the meeting as he sees fit.
b. The Secretary of the Corporation, or, in his absence, an Assistant
Secretary shall act as Secretary of every meeting of shareholders, but if
neither the Secretary nor an Assistant Secretary is present, the presiding
officer of the meeting shall choose any person present to act as Secretary of
the meeting.
c. The order of business shall be as follows:
1. Call of meeting to order.
2. Proof of notice of meeting.
3. Reading of minutes of last previous shareholders meeting or a Waiver
thereof.
4. Reports of officers.
5. Reports of committees.
6. Election of directors.
7. Regular and miscellaneous business.
8. Special matters.
9. Adjournment.
d. Notwithstanding the provisions of Article II, Section 7, Subsection c,
the order and topics of business to be transacted at any meeting shall be
determined by the presiding officer of the meeting in his sole discretion. In no
event shall any variation in the order of business or additions and deletions
from the order of business as specified in Article II, Section 7, Subsection c,
invalidate any actions properly taken at any meeting.
<PAGE>
Section 8. Voting.
a. Unless otherwise provided for in the Certificate of Incorporation, each
shareholder shall be entitled, at each meeting and upon each proposal to be
voted upon, to one vote for each share of voting stock recorded in his name on
the books of the Corporation on the record date fixed as provided for in Article
II, Section 5.
b. The presiding officer at any meeting of the shareholders shall have the
power to determine the method and means of voting when any matter is to be voted
upon. The method and means of voting may include, but shall not be limited to,
vote by ballot, vote by hand or vote by voice. However, no method of voting may
be adopted which fails to take account of any shareholder's right to vote by
proxy as provided for in Section10 of this Article II. In no event may any
method of voting be adopted which would prejudice the outcome of the vote.
Section 9. Action Without Meeting.
Unless the Articles of Incorporation require that such action be taken at a
shareholders' meeting, any action required or permitted to be taken at a
shareholders meeting may be taken subject to compliance with applicable law
without a meeting if all of the shareholders entitled to vote thereon consent to
such action; anything herein to the contrary notwithstanding if any time
hereafter the provisions of the Colorado Corporations Code permit shareholder
action to be taken by written consent of less than all of the Company's
shareholders, these By-laws shall be deemed to permit shareholder action by
written consent to be taken by such lesser number of shareholders.
Section 10. Proxies.
a. Every shareholder entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting, or his duly authorized
attorney-in-fact may authorize another person or persons to act for him by
proxy.
b. Every proxy must be signed by the shareholder or his attorney-in-fact.
No proxy shall be valid after the expiration of eleven (11) months from the date
thereof unless otherwise provided in the proxy. Every proxy shall be revocable
at the pleasure of the shareholder executing it, except as otherwise provided in
this Article II, Section 10.
c. The authority of the holder of a proxy to act shall not be revoked by
the incompetence or death of the shareholder who executed the proxy unless,
before the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the corporate officer responsible
for maintaining the list of shareholders.
d. Except when other provisions shall have been made by written agreement
between the parties, the record holder of shares held as pledges or otherwise as
security or which belong to another, shall issue to the pledgor or to such owner
of such shares, upon demand therefor and payment of necessary expenses thereof,
a proxy to vote or take other action thereon.
e. A proxy which states that it is irrevocable is irrevocable when it is
held by any of the following or a nominee of any of the following: (i) a
pledgee; (ii) a person who has purchased or agreed to purchase the
<PAGE>
shares; (iii) a creditor or creditors of the Corporation who extend or continue
to extend credit to the Corporation in consideration of the proxy, if the proxy
states that it was given in consideration of such extension or continuation of
credit, the amount thereof, and the name of the person extending or continuing
credit; (iv) a person who has contracted to perform services as an officer of
the Corporation, if a proxy is required by the contract of employment, if the
proxy states that it was given in consideration of such contract of employment
and states the name of the employee and the period of employment contracted for;
and (v) a person designated by or under an agreement as provided in Article XI
hereof.
f. Notwithstanding a provision in a proxy stating that it is irrevocable,
the proxy becomes revocable after the pledge is redeemed, or the debt of the
Corporation is paid, or the period of employment provided for in the contract of
employment has terminated, or the agreement under Article XII hereof, has
terminated and, in a case provided for in Subsection 10(e)(iii) or Subsection
10(e)(iv) of this Article II becomes irrevocable three years after the date of
the proxy or at the end of the period, if any, specified therein, whichever
period is less, unless the period of irrevocability is renewed from time to time
by the execution of a new irrevocable proxy as provided in this Article II,
Section 10. This Subsection 10(f) does not affect the duration of a proxy under
Subsection 10(b) of this Article II.
g. A proxy may be revoked, notwithstanding a provision making it
irrevocable, by a purchaser of shares without knowledge of the existence of the
provision unless the existence of the proxy and its irrevocability is noted
conspicuously on the face or back of the certificate representing such shares.
h. If a proxy for the same shares confers authority upon two (2) or more
persons and does not otherwise provide a majority of such persons present at the
meeting, or if only one is present, then that one may exercise all the powers
conferred by the proxy. If the proxy holders present at the meeting are equally
divided as to the right and manner of voting in any particular case, the voting
of such shares shall be prorated.
i. If a proxy expressly so provides, any proxy holder may appoint in
writing a substitute to act in his place.
Section 11. Voting of Shares by Shareholders.
a. Shares standing in the name of another corporation, domestic or foreign,
may be voted by the officer, agent, or proxy designated by the Bylaws of the
corporate shareholder; or, in the absence of any applicable Bylaw, by such
person as the Board of Directors of the corporate shareholder may designate.
Proof of such designation may be made by presentation of a certified copy of the
Bylaws or other instrument of the corporate shareholder. In the absence of any
such designation, or in case of conflicting designation by the corporate
shareholder, the Chairman of the Board, President, any vice president, secretary
and treasurer of the corporate shareholder, in that order shall be presumed to
possess authority to vote such shares.
b. Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
c. Shares standing in the name of a receiver may be voted by such receiver.
Shares held by or under the control of a receiver but not standing in the name
of such receiver, may be voted by such without the transfer thereof into his
name if authority to do so is contained in an appropriate order of the court by
which such receiver was appointed.
<PAGE>
d. A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledge.
e. Shares of the capital stock of the Corporation belonging to the
Corporation or held by it in a fiduciary capacity shall not be voted, directly
or indirectly, at any meeting, and shall not be counted in determining the total
number of outstanding shares.
ARTICLE III
Directors
Section 1. Board of Directors; Exercise of Corporate Powers.
a. All corporate powers shall be exercised by or under the authority of,
and the business and affairs of the Corporation shall be managed under the
direction of the Board of Directors except as may be otherwise provided in the
Articles of Incorporation. If any such provision is made in the Articles of
Incorporation, the powers and duties conferred or imposed upon the Board of
Directors shall be exercised or performed to such extent and by such person or
persons as shall be provided in the Articles of Incorporation.
b. Directors need not be residents of the state of incorporation unless the
Articles of Incorporation so require.
c. The Board of Directors shall have authority to fix the compensation of
Directors unless otherwise provided in the Articles of Incorporation.
d. A Director shall perform his duties as a Director, including his duties
as a member of any committee of the Board upon which he may serve, in good
faith, in a manner he reasonably believes to be in the best interests of the
Corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
e. In performing his duties, a Director shall be entitled to rely on
information, opinions, reports or statements, including financial data, in each
case prepared or presented by: (i) one or more officers or employees of the
Corporation whom the Director reasonably believes to be reliable and competent
in the matters presented; (ii) counsel, public accountants or other persons as
to matters which the Director reasonably believes to be within such persons'
professional or expert competence; or (iii) a committee of the Board upon which
he does not serve, duly designated in accordance with a provision of the
Articles of Incorporation or the Bylaws, as to matters within its designated
authority, which committee the Director reasonably believes to merit confidence.
f. A Director shall not be considered to be acting in good faith if he has
knowledge concerning the matter in question that would cause such reliance
described in Subsection 1(e) of this Article III to be unwarranted.
g. A person who performs his duties in compliance with this Article III,
Section 1 shall have no liability by reason of being or having been a Director
of the Corporation.
h. A Director of the Corporation who is present at a meeting of the Board
of Directors at which action
<PAGE>
on any corporate matter is taken consents thereto unless he votes against such
action or abstains from voting in respect thereto because of an asserted
conflict of interest.
Section 2. Number; Election; Classification of Directors; Vacancies.
a. The Board of Directors of this Corporation shall consist of not less
than two (2) or more than seven (7) members, unless the number of shareholders
is less than two, in which the Corporation shall have as many directors as there
are shareholders. The number of directors shall be fixed by the initial Board of
Directors. The number of directors constituting the initial Board of Directors
shall be fixed by the Articles of Incorporation. The number of directors may be
increased from time to time by the Board of directors, but no decrease shall
have the effect of shortening the term of any incumbent director.
b. Each person named in the Articles of Incorporation as a member of the
initial Board of Directors, shall hold office until the first annual meeting of
shareholders, and until his successor shall have been elected and qualified or
until his earlier resignation, removal from office or death.
c. At the first annual meeting of shareholders and at each annual meeting
thereafter the shareholders shall elect directors to hold office until the next
succeeding annual meeting, except in case of the classification of directors as
permitted by the Colorado Business Corporation Act. Each director shall hold
office for the term for which he is elected and until his successor shall have
been elected and qualified or until his earlier resignation, removal from office
or death.
d. The shareholders, by amendment to these Bylaws, may provide that the
directors be divided into not more than four classes, as nearly equal in number
as possible, whose terms of office shall respectively expire at different times,
but no such term shall continue longer than four (4) years, and at least
one-fifth (l/5) in number of the directors shall be elected annually.
e. If directors are classified and the number of directors is thereafter
changed, any increase or decrease in directorships shall be so apportioned among
the classes as to make all classes as nearly equal in number as possible.
f. Any vacancy occurring in the Board of Directors including any vacancy
created by reason of an increase in the number of directors, may be filled by
the affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A director elected to fill a vacancy shall
hold office only until the next election of directors by the shareholders.
Section 3. Removal of Directors.
a. At a meeting of shareholders called expressly for that purpose,
directors may be removed in the manner provided in this Article III, Section 3.
Any director or the entire Board of Directors may be removed, with or without
cause, by a vote of the holders of a majority of the shares then entitled to
vote at an election of directors.
b. If the Corporation has cumulative voting, if less than the entire Board
is to be removed, no one of the directors may be removed if the votes cast
against his removal would be sufficient to elect him if then cumulatively voted
at an election of the entire Board of Directors, or, if there be classes of
directors, at an election of the class of directors of which he is a member.
<PAGE>
Section 4. Director Quorum and Voting.
a. A majority of the number of directors fixed in the manner provided in
these Bylaws shall constitute a quorum for the transaction of business unless a
greater number if required elsewhere in these Bylaws.
b. A majority of the members of an Executive Committee or other committee
shall constitute a quorum for the transaction of business at any meeting of such
Executive Committee or other committee.
c. The act of the majority of the directors present at a Board meeting at
which a quorum is present shall be the act of the Board of Directors.
d. The act of a majority of the members of an Executive Committee present
at an Executive Committee meeting at which a quorum is present shall be the act
of the Executive Committee.
e. The act of a majority of the members of any other committee present at a
committee meeting at which a quorum is present shall be the act of the
committee.
Section 5. Director Conflicts of Interest.
a. No contract or other transaction between this Corporation and one or
more of its directors or any other Corporation, firm, association or entity in
which one or more of its directors are directors or officers or are financially
interested, shall be either void or voidable because of a relationship or
interest or because such director or directors are present at the meeting of the
Board of Directors or a committee thereof which authorizes, approves or ratifies
such contract or transaction or because his or their votes are counted for such
purpose, if:
(i) The fact of such relationship or interest is disclosed or known to the
Board of Directors or committee which authorizes, approves or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors; or
(ii) The fact of such relationship or interest is disclosed or known to the
shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
(iii) The contract or transaction is fair and reasonable as to the
Corporation at the time it is authorized by the Board, a committee, or the
shareholders.
b. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
Section 6. Executive and Other Committees; Designation; Authority.
a. The Board of Directors, by resolution adopted by a majority of the full
Board of Directors, may designate from among its members an Executive Committee
and one or more other committees each of which, to the extent provided in such
resolution or in the Articles of Incorporation or these Bylaws, shall have and
may exercise all the authority of the Board of Directors, except that no such
committee shall have the authority to:
<PAGE>
(i) approve or recommend to shareholders actions or proposals required by the
Colorado Business Corporation Act to be approved by shareholders; (ii) designate
candidates for the office of director for purposes of proxy solicitation or
otherwise; (iii) fill vacancies on the Board of Directors or any committee
thereof; (iv) amend the Bylaws; or (v) authorize or approve the issuance or sale
of, or any contract to issue or sell, shares or designate the terms of a series
of class of shares, unless the Board of Directors, having acted regarding
general authorization for the issuance or sale of shares, or any contract
therefor, and, in the case of a series, the designation thereof, has specified a
general formula or method by resolution or by adoption of a stock option or
other plan, authorized a committee to fix the terms upon which such shares may
be issued or sold, including, without limitation, the price, the rate or manner
of payment of dividends, provisions for redemption, sinking fund, conversion,
and voting preferential rights, and provisions for other features of a class of
shares, or a series of class of shares, with full power in such committee to
adopt any final resolution setting forth all the terms thereof and to authorize
the statement of the terms of a series for filing with the Secretary of State
under the Colorado Business Corporation Act.
b. The Board, by resolution adopted in accordance with Article III,
Subsection 6(a) may designate one or more directors as alternate members of any
such committee, who may act in the place and stead of any absent member or
members at any meeting of such committee.
c. Neither the designation of any such committee, the delegation thereto of
authority, nor action by such committee pursuant to such authority shall alone
constitute compliance by any member of the Board of Directors, not a member of
the committee in question, with his responsibility to act in good faith, in a
manner he reasonably believes to be in the best interests of the Corporation,
and with such care as an ordinarily prudent person in a like position would use
under similar circumstances.
Section 7. Place, Time, Notice, and Call of Directors' Meetings.
a. Meetings of the Board of Directors, regular or special, may be held
either within or without this state.
b. A regular meeting of the Board of Directors of the Corporation shall be
held for the election of officers of the Corporation and for the transaction of
such other business as may come before such meeting as promptly as practicable
after the annual meeting of the shareholders of this Corporation without the
necessity of other notice than this Bylaw. Other regular meetings of the Board
of Directors of the Corporation may be held at such times and at such places as
the Board of Directors of the Corporation may from time to time resolve without
other notice than such resolution. Special meetings of the Board of Directors
may be held at any time upon call of the Chairman of the Board or the President
or a majority of the Directors of the Corporation, at such time and at such
place as shall be specified in the call thereof. Notice of any special meeting
of the Board of Directors must be given at least two (2) days prior thereto, if
by written notice delivered personally; or at least five (5) days prior thereto,
if mailed; or at least two (2) days prior thereto, if by telegram; or at least
two (2) days prior thereto, if by telephone. If such notice is given by mail,
such notice shall be deemed to have been delivered when deposited with the
United States Postal Service addressed to the business address of such director
with postage thereon prepaid. If notice be given by telegram, such notice shall
be deemed delivered when the telegram is delivered to the telegraph company. If
notice is given by telephone, such notice shall be deemed delivered when the
call is completed.
c. Notice of a meeting of the Board of Directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and waiver of any and all objections to the place of the meeting,
the time of the meeting, or the manner in which it has been called or convened,
except when a director states, at the beginning of the
<PAGE>
meeting, any objection to the transaction of business because the meeting is not
lawfully called or convened.
d. Neither the business to be transacted at, nor the purpose of any regular
or special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
e. A majority of the directors present, whether or not a quorum exists, may
adjourn any meeting of the Board of Directors to another time and place. Notice
of any such adjourned meeting shall be given to the directors who were not
present at the time of the adjournment and, unless the time and place of the
adjourned meeting are announced at the time of the adjournment, to the other
directors.
f. Members of the Board of Directors may participate in a meeting of such
Board by means of a conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
the same time. Participation by such means shall constitute presence in person
at a meeting.
Section 8. Action by Directors Without a Meeting.
Any action required by the Colorado Business Corporation Act to be taken at
a meeting of the directors of the Corporation, or a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so to
be taken, signed by all of the directors, or all of the members of the
committee, as the case may be, is filed in the minutes of the proceedings of the
Board or of the committee. Such consent shall have the same effect as a
unanimous vote.
Section 9. Compensation.
The directors and members of the Executive and any other committee of the
Board of Directors shall be entitled to such reasonable compensation for their
services and on such basis as shall be fixed from time to time by resolution of
the Board of Directors. The Board of Directors and members of any committee of
the Board of Directors shall be entitled to reimbursement for any reasonable
expenses incurred in attending any Board or committee meeting. Any director
receiving compensation under this section shall not be prevented from serving
the Corporation in any other capacity and shall not be prohibited from receiving
reasonable compensation for such other services.
Section 10. Resignation.
Any Director of the Corporation may resign at any time without acceptance
by the Corporation. Such resignation shall be in writing and may provide that
such resignation shall take effect immediately or on any future date stated in
such notice.
Section 11. Removal.
Any Director of the Corporation may be removed for cause by a majority vote
of the other members of the Board of Directors as then constituted or with or
without cause by the vote of the holders of a majority of the outstanding shares
of capital stock shareholders of the Corporation called for such purpose.
<PAGE>
Section 12. Vacancies.
In the event that a vacancy shall occur on the Board of Directors of the
Corporation whether because of death, resignation, removal, an increase in the
number of directors or any other reason, such vacancy may be filled by the vote
of a majority of the remaining directors of the Corporation even though such
remaining directors represent less than a quorum. An increase in the number of
directors shall create vacancies for the purpose of this section. A director of
the Corporation elected to fill a vacancy shall hold office for the unexpired
term of his predecessor, or in the case of an increase in the number of
directors, until the election and qualification of directors at the next annual
meeting of the shareholders.
ARTICLE IV
Officers
Section 1. Election; Number; Terms of Office.
a. The officers of the Corporation shall consist of a Chairman of the
Board, a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors at such time and in such manner as may be prescribed
by these Bylaws. Such other officers and assistant officers and agents as may be
deemed necessary may be elected or appointed by the Board of Directors.
b. All officers and agents, as between themselves and the Corporations
shall have such authority and perform such duties in the management of the
Corporation as are provided in these Bylaws, or as may be determined by
resolution of the Board of Directors not inconsistent with these Bylaws.
c. Any two (2) or more offices may be held by the same person except the
offices of the President and Secretary.
d. A failure to elect a Chairman of the Board, President, a Secretary and a
Treasurer shall not affect the existence of the Corporation.
Section 2. Removal.
An officer of the Corporation shall hold office until the election and
qualification of his successor; however, any officer of the Corporation may be
removed from office by the Board of Directors whenever in its judgment the best
interests of the Corporation will be served thereby. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of any officer shall not of itself create any contract
right to employment or compensation.
Section 3. Vacancies.
Any vacancy in any office from any cause may be filled for the unexpired
portion of the term of such office by the Board of Directors.
<PAGE>
Section 4. Powers and Duties.
a. The Chairman of the Board shall be the Chief Executive Officer of the
Corporation. Except as set forth herein, the position of President of the
Corporation and the position of Chief Executive Officer of the Corporation shall
be two separate positions. The Chairman of the Board shall preside at all
meetings of the shareholders and of the Board of Directors. Except where by law
the signature of the President is required or unless the Board of Directors
shall rule otherwise, the Chairman of the Board shall possess the same power as
the President to sign all certificates, contracts and other instruments of the
Corporation which may be authorized by the Board of Directors. Unless a Chairman
of the Board is specifically elected, the President shall be deemed to be the
Chairman of the Board.
b. The President of the Corporation shall be the Chief Operating Officer of
the Corporation. The Chief Operating Officer of the Corporation shall be
responsible for the general day-to-day supervision of the business and affairs
of the Corporation. He shall sign or countersign all certificates, contracts or
other instruments of the Corporation as authorized by the Board of Directors. He
may, but need not, be a member of the Board of Directors. In the absence of the
Chairman of the Board, the President shall be the Chief Executive Officer of the
Corporation and shall preside at all meetings of the shareholders and the Board
of Directors. He shall make reports to the Board of Directors and shareholders.
He shall perform such other duties as are incident to his office or are properly
required of him by the Board of Directors. The Board of Directors will at all
times retain the power to expressly delegate the duties of the President to any
other officer of the Corporation.
c. The Vice-President(s), if any, in the order designated by the Board of
Directors, shall exercise the functions of the President during the absence,
disability, death, or refusal to act of the President. During the time that any
Vice-President is properly exercising the functions of the President, such
Vice-President shall have all the powers of and be subject to all the
restrictions upon the President. Each Vice-President shall have such other
duties as are assigned to him from time to time by the Board of Directors or by
the President of the Corporation.
d. The Secretary of the Corporation shall keep the minutes of the meetings
of the shareholders of the Corporation and, if so requested, the Secretary shall
keep the minutes of the meetings of the Board of Directors of the Corporation.
The Secretary shall be the custodian of the minute books of the Corporation and
such other books and records of the Corporation as the Board of Directors of the
Corporation may direct. The Secretary shall make or cause to be made all proper
entries in all corporate books that the Board of Directors of the Corporation
may direct. The Secretary shall have the general responsibility for maintaining
the stock transfer books of the Corporation, or of supervising the maintenance
of the stock transfer books of the Corporation by the transfer agent, if any, of
the Corporation. The Secretary shall be the custodian of the corporate seal of
the Corporation and shall affix the corporate seal of the corporation on
contracts and other instruments as the Board of Directors of the Corporation may
direct. The Secretary shall perform such other duties as are assigned to him
from time to time by the Board of Directors or the President of the Corporation.
e. The Treasurer of the Corporation shall have custody of all funds and
securities owned by the Corporation. The Treasurer shall cause to be entered
regularly in the proper books of account of the corporation full and accurate
accounts of the receipts and disbursements of the Corporation. The Treasurer of
the Corporation shall render a statement of cash, financial and other accounts
of the Corporation whenever he is directed to render such a statement by the
Board of Directors or by the President of the Corporation. The Treasurer shall
at all reasonable times make available the corporation's books and financial
accounts to any Director of the Corporation during normal business hours. The
Treasurer shall perform all other acts incident to the office of the Treasurer
of the Corporation, and he shall have such other duties as are assigned to him
from time to time by the Board of Directors or the President of the Corporation.
<PAGE>
f. Other subordinate or assistant officers appointed by the Board of
Directors or by the President, if such authority is delegated to him by the
Board of Directors, shall exercise such powers and perform such duties as may be
delegated to them by the Board of Directors or by the President, as the case may
be.
g. In case of the absence or disability of any officer of the Corporation
and of any person authorized to act in his place during such period of absence
or disability, the Board of Directors may from time to time delegate the powers
and duties of such officer to any other officer or any director or any other
person whom it may select.
Section 5. Salaries
The salaries of all Officers of the Corporation shall be fixed by the Board
of Directors. No officer shall be ineligible to receive such salary by reason of
the fact that he is also a Director of the Corporation and receiving
compensation therefor.
ARTICLE V
Loans to Employees and Officers:
Guaranty of Obligations of Employees and Officers
This Corporation may lend money to, guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of a
subsidiary, including any officer or employee who is a Director of the
Corporation or of a subsidiary, whenever, in the judgment of the Directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest, and may be unsecured, or secured in such manner as the Board of
Directors shall approve including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Article shall be deemed to deny, limit
or restrict the powers of guaranty or warranty of this Corporation at common law
or under any statute.
ARTICLE VI
STOCK CERTIFICATES; VOTING TRUSTS; TRANSFERS
Section 1. Certificates Representing Shares.
a. Every holder of shares in this Corporation shall be entitled to one or
more certificates, representing all shares to which he is entitled and such
certificates shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary of the Corporation and may be sealed with
the seal of the Corporation or a facsimile thereof. The signatures of the
President or Vice President and the Secretary or Assistant Secretary may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar, other than the Corporation itself or an employee of the
Corporation. In case any officer who signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
such certificate is issued, it may be used by the Corporation with the same
effect as if he were such officer at the date of its issuance.
b. Each certificate representing shares shall state upon the face thereof:
(i) the name of the
<PAGE>
Corporation; (ii) that the Corporation is organized under the laws of this
state; (iii) the name of the person or persons to whom issued; (iv) the number
and class of shares, and the designation of the series, if any, which such
certificate represents; and (v) the par value of each share represented by such
certificate, or a statement that the shares are without par value.
c. No certificate shall be issued for any shares until such shares are
fully paid.
Section 2. Transfer Book.
The Corporation shall keep at its registered office or principal place of
business or in the office of its transfer agent or registrar, a book (or books
where more than one kind, class, or series of stock is outstanding) to be known
as the Stock Book, containing the names, alphabetically arranged, addresses and
Social Security numbers of every shareholder, and the number of shares of each
kind, class or series of stock held of record. Where the Stock Book is kept in
the office of the transfer agent, the Corporation shall keep at its office in
the State of Colorado copies of the stock lists prepared from said Stock Book
and sent to it from time to time by said transfer agent. The Stock Book or stock
lists shall show the current status of the ownership of shares of the
Corporation provided, if the transfer agent of the Corporation be located
elsewhere, a reasonable time shall be allowed for transit or mail.
Section 3. Transfer of Shares.
a. The name(s) and address(s) of the person(s) to whom shares of stock of
this Corporation are issued, shall be entered on the Stock Transfer Books of the
Corporation, with the number of shares and date of issuance.
b. Transfer of shares of the Corporation shall be made on the Stock
Transfer Books of the Corporation by the Secretary or the transfer agent, only
when the holder of record thereof or the legal representative of such holder of
record or the attorney-in-fact of such holder of record, authorized by power of
attorney duly executed and filed with the Secretary or transfer agent of the
Corporation, shall surrender the Certificate representing such shares for
cancellation. Lost, destroyed or stolen Stock Certificates shall be replaced
pursuant to Section 5 of this Article VI.
c. The person or persons in whose names shares stand on the books of the
Corporation shall be deemed by the Corporation to be the owner of such shares
for all purposes, except as otherwise provided pursuant to Section 10 and 11 of
Article II, or Section 4 of this Article VI.
Section 4. Voting Trusts.
a. Any number of shareholders of the Corporation may create a voting trust
for the purpose of conferring upon a trustee or trustees the right to vote or
otherwise represent their shares, for a period not to exceed ten (10) years, by:
(i) entering into a written voting trust; (ii) depositing a counterpart of the
agreement with the Corporation at its registered office; and (iii) transferring
their shares to such trustee or trustees for the purposes of this Agreement.
Prior to the recording of the Agreement, the shareholder concerned shall tender
the stock certificate(s) described therein to the corporate secretary who shall
note on each certificate:
<PAGE>
"This Certificate is subject to the provisions of a voting trust agreement
dated __________________, recorded in Minute Book __________________, of the
Corporation.
-----------------------
Secretary"
b. Upon the transfer of such shares, voting trust certificates shall be
issued by the trustee or trustees to the shareholders who transfer their shares
in trust. Such trustee or trustees shall keep a record of the holders of the
voting trust certificates evidencing a beneficial interest in the voting trust,
giving the names and addresses of all such holders and the number and class of
the shares in respect of which the voting trust certificates held by each are
issued, and shall deposit a copy of such record with the Corporation at its
registered office.
c. The counterpart of the voting trust agreement and the copy of such
record so deposited with the Corporation shall be subject to the same right of
examination by a shareholder of the Corporation, in person or by agent or
attorney, as are the books and records of the Corporation, and such counterpart
and such copy of such record shall be subject to examination by any holder of
record of voting trust certificates either in person or by agent or attorney, at
any reasonable time for any proper purpose.
d. At any time before the expiration of a voting trust agreement as
originally fixed or as extended one or more times under this Article VI,
Subsection 4(d) one or more holders of voting trust certificates may, by
agreement in writing, extend the duration of such voting trust agreement,
nominating the same or substitute trustee or trustees, for an additional period
not exceeding ten (10) years. Such extension agreement shall not affect the
rights or obligations of persons not parties to the agreement, and such persons
shall be entitled to remove their shares from the trust and promptly to have
their stock certificates reissued upon the expiration date of the original term
of the voting trust agreement. The extension agreement shall in every respect
comply with and be subject to all the provisions of this Article VI, Section 4
applicable to the original voting trust agreement except that the ten (10) year
maximum period of duration shall commence on the date of adoption of the
extension agreement.
e. The trustees under the terms of the agreements entered into under the
provisions of this Article VI, Section 4 shall not acquire the legal title to
the shares but shall be vested only with the legal right and title to the voting
power which is incident to the ownership of the shares.
Section 5. Lost, Destroyed, or Stolen Certificates.
No certificate representing shares of the stock in the Corporation shall be
issued in place of any Certificate alleged to have been lost, destroyed, or
stolen except on production of evidence, satisfactory to the Board of Directors,
of such loss, destruction or theft, and, if the Board of Directors so requires,
upon the furnishing of an indemnity bond in such amount (but not to exceed twice
the fair market value of the shares represented by the Certificate) and with
such terms and with such surety as the Board of Directors may, in its
discretion, require.
<PAGE>
ARTICLE VII
Books and Records
a. The Corporation shall keep correct and complete books and records of
account and shall keep minutes of the proceedings of its shareholders, Board of
Directors and committees of Directors.
b. Any books, records and minutes may be in written form or in any other
form capable of being converted into written form within a reasonable time.
c. Any person who shall have been a holder of record of one quarter of one
percent of all shares or of voting trust certificates therefor at least six
months immediately preceding his demand or shall be the holder of record of, or
the holder of record of voting trust certificates for, at least five (5%)
percent of the outstanding shares of any class or series of the Corporation,
upon written demand stating the purpose thereof, shall have the right to
examine, in person or by agent or attorney, at any reasonable time or times, for
any proper purpose, its relevant books and records of account, minutes and
record of shareholders and to make extracts therefrom.
d. No shareholder who within two (2) years has sold or offered for sale any
list of shareholders or of holders of voting trust certificates for shares of
this Corporation or any other Corporation; has aided or abetted any person in
procuring any list of shareholders or of holders of voting trust certificates
for any such purpose; or has improperly used any information secured through any
prior examination of the books and records of account, minutes, or record of
shareholders or of holders of voting trust certificates for shares of the
Corporation or any other Corporation; shall be entitled to examine the documents
and records of the Corporation as provided in Subsection (c) of this Article
VII. No shareholder who does not act in good faith or for a proper purpose in
making his demand shall be entitled to examine the documents and records of the
Corporation as provided in Subsection (c) of this Article VII.
e. Unless modified by resolution of the shareholders, this Corporation
shall prepare not later than four (4) months after the close of each fiscal
year:
(i) A balance sheet showing in reasonable detail the financial conditions
of the Corporation as of the date of its fiscal year.
(ii) A profit and loss statement showing the results of its operation
during its fiscal year.
f. Upon the written request of any shareholder or holder of voting trust
certificates for shares of the Corporation, the Corporation shall mail to such
shareholder or holder of voting trust certificates a copy of its most recent
balance sheet and profit and loss statement.
g. Such balance sheets and profit and loss statements shall be filed and
kept for at least five (5) years in the registered office of the Corporation in
this state and shall be subject to inspection during business hours by any
shareholder or holder of voting trust certificates.
ARTICLE VIII
Dividends
The Board of Directors of the Corporation may, from time to time, declare
and the Corporation may
<PAGE>
pay dividends on its shares in cash, property or its own shares, except when the
Corporation is insolvent or when the payment thereof would render the
Corporation insolvent subject to the following provisions:
a. Dividends in cash or property may be declared and paid, except as
otherwise provided in this Article VIII, only out of the unreserved and
unrestricted earned surplus of the Corporation or out of capital surplus,
however arising, but each dividend paid out of capital surplus shall be
identified as a distribution of capital surplus, and the amount per share paid
from such capital surplus shall be disclosed to the shareholders receiving the
same concurrently with the distribution.
b. Dividends may be declared and paid in the Corporation's treasury shares.
c. Dividends may be declared and paid in the Corporation's authorized but
unissued shares out of any unreserved and unrestricted surplus of the
Corporation upon the following conditions:
(i) If a dividend is payable in the Corporation's own shares having a par
value, such shares shall be issued at not less than the par value thereof and
there shall be transferred to stated capital at the time such dividend is paid
an amount of surplus equal to the aggregate par value of the shares to be issued
as a dividend.
(ii) If a dividend is payable in the Corporation's own shares without par
value, such shares shall be issued at such stated value as shall be fixed by the
Board of Directors by resolution adopted at the time such dividend is declared,
and there shall be transferred to stated capital at the time such dividend is
paid an amount of surplus equal to the aggregate stated value so fixed in
respect of such shares; and the amount per share so transferred to stated
capital shall be disclosed to the shareholders receiving such dividend
concurrently with the payment thereof.
d. No dividend payable in shares of any class shall be paid to the holders
of shares of any other class unless the Articles of Incorporation so provide or
such payment is authorized by the affirmative vote or written consent of the
holders of at least a majority of the outstanding shares of the class in which
the payment is to be made.
e. A split up or division of the issued shares of any class into a greater
number of shares of the same class without increasing the stated capital of the
Corporation shall not be construed to be a stock dividend within the meaning of
this Article VIII.
ARTICLE IX
Indemnification
Section 1. Action, etc. Other Than by or in the Right of the Corporation.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding or investigation, whether civil, criminal or administrative,
and whether external or internal to the Corporation, (other than a judicial
action or suit brought by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or that, being or having been such a director, officer, employee or
agent, he is or was serving at the request of the Corporation as a director,
officer, employee, or trustee or agent of another corporation, partnership,
joint venture, trust or other enterprise (all such persons being referred to
hereafter as an "Agent"), against expenses (including attorneys' fees),
judgments, fines and
<PAGE>
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding, or any appeal therein, if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe such conduct
was unlawful. The termination of any action, suit or proceeding -- whether by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent -- shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, that such person had reasonable cause to believe
that his conduct was unlawful.
Section 2. Action, etc., by or in the Right of the Corporation.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed judicial
action or suit brought by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was an Agent (as
defined above) against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense, settlement or appeal
of such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for gross
negligence or willful misconduct in the performance of his or her duty to the
Corporation unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
Section 3. Determination of Right of Indemnification.
Any indemnification under Section 1 or 2 (unless ordered by a court) shall
be made by the Corporation unless a determination is reasonably and promptly
made (i) by the Board by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a quorum is
not obtainable, or, even if obtainable, if a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders, that such person acted in bad faith and in a manner that such
person did not believe to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe that his conduct was unlawful.
Section 4. Indemnification Against Expenses of Successful Party.
Notwithstanding the other provisions of this Article, to the extent that an
Agent has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice or the settlement of an
action without admission of liability, in defense of any proceeding or in
defense of any claim, issue or matter therein, or on appeal from any such
proceeding, action, claim or matter, such Agent shall be indemnified against all
expenses incurred in connection therewith.
<PAGE>
Section 5. Advances of Expenses.
Except as limited by Section 6 of this Article, costs, charges and expenses
(including attorneys' fees) incurred in any action, suit, proceeding or
investigation or any appeal therefrom shall be paid by the Corporation in
advance of the final disposition of such matter, if the Agent shall undertake to
repay such amount in the event that it is ultimately determined, as provided
herein, that such person is not entitled to indemnification. Notwithstanding the
foregoing, no advance shall be made by the Corporation if a determination is
reasonably and promptly made by the Board of Directors or if a majority vote of
a quorum of disinterested directors cannot be obtained, then by independent
legal counsel in a written opinion, that, based upon the facts known to the
Board or counsel at the time such determination is made, such person acted in
bad faith and in a manner that such person did not believe to be in or not
opposed to the best interest of the Corporation, or, with respect to any
criminal proceeding, that such person believed or had reasonable cause to
believe his conduct was unlawful. In no event shall any advance be made in
instances where the Board or independent legal counsel reasonably determines
that such person deliberately breached his duty to the Corporation or its
shareholders.
Section 6. Right of Agent to Indemnification Upon Application; Procedure Upon
Application.
Any indemnification under Sections 1, 2 and 4 or advance under Section 5 of
this Article, shall be made promptly, and in any event within ninety (90) days,
upon the written request of the Agent, unless with respect to applications under
Sections 1, 2 or 5, a determination is reasonably and promptly made by the Board
of Directors by a majority vote of a quorum of disinterested directors that such
Agent acted in a manner set forth in such Sections as to justify the
Corporation's not indemnifying or making an advance to the Agent. In the event
no quorum of disinterested directors is obtainable, the Board of directors shall
promptly direct that independent legal counsel shall decide whether the Agent
acted in the manner set forth in such Sections as to justify the Corporation's
not indemnifying or making an advance to the Agent. The right to indemnification
or advances as granted by this Article shall be enforceable by the Agent in any
court of competent jurisdiction, if the Board or independent legal counsel
denies the claim, in whole or in part, or if no disposition of such claim is
made within ninety (90) days. The Agent's costs and expenses incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such proceeding shall also be indemnified by the Corporation.
Section 7. Contribution.
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in this Article is held by a court of
competent jurisdiction to be unavailable to an indemnitee in whole or part, the
Corporation shall, in such an event, after taking into account, among other
things, contributions by other directors and officers of the Corporation
pursuant to indemnification agreements or otherwise, and, in the absence of
personal enrichment, acts of intentional fraud or dishonesty or criminal conduct
on the part of the Agent, contribute to the payment of Agent's losses to the
extent that, after other contributions are taken into account, such losses
exceed: (i) in the case of a director of the Corporation or any of its
subsidiaries who is not an officer of the Corporation or any of such
subsidiaries, the amount of fees paid to him for serving as a director during
the 12 months preceding the commencement of the suit, proceeding or
investigation; or (ii) in the case of a director of the Corporation or any of
its subsidiaries who is also an officer of the Corporation or any of such
subsidiaries, the amount set forth in clause (i) plus 5% of the aggregate cash
compensation paid to said director for service in such office(s) during
<PAGE>
the 12 months preceding the commencement of the suit, proceeding or
investigation; or (iii) in the case of an officer of the Corporation or any of
its subsidiaries, 5% of the aggregate cash compensation paid to such officer of
service in such office(s) during the 12 months preceding the commencement of
such suit, proceeding or investigation.
Section 8. Other Rights and Remedies.
The indemnification provided by this Article shall not be deemed exclusive
of, and shall not affect, any other rights to which an Agent seeking
indemnification may be entitled under any law, Bylaw, or charter provision,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be an
Agent and shall inure to the benefit of the heirs, executors and administrators
of such a person. All rights to indemnification under this Article shall be
deemed to be provided by a contract between the Corporation and the Agent who
serves in such capacity at any time while these Bylaws and other relevant
provisions of the general corporation law and other applicable law, if any are
in effect. Any repeal or modification thereof shall not affect any rights or
obligations then existing.
Section 9. Insurance.
Upon resolution passed by the Board, the Corporation may purchase and
maintain insurance on behalf of any person who is or was an Agent against any
liability asserted against such person and incurred by him in any such capacity,
or arising out of his status as such, whether or not the Corporation would have
the power to indemnify such person against such liability under the provisions
of this Article. The Corporation may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such sums as may become necessary to effect
indemnification as provided herein.
Section 10. Constituent Corporation.
For the purposes of this Article, references to the "Corporation" include
all constituent corporations absorbed in a consolidation or merger as well as
the resulting or surviving corporation, so that any person who is or was a
director, officer, employee, agent or trustee of such a constituent corporation
or who, being or having been such a director, officer, employee or trustee, is
or was serving at the request of such constituent corporation as a director,
officer, employee, agent or trustee of another corporation, partnership, joint
venture, trust or other enterprise shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as such person would if he had served the resulting or surviving
corporation in the same capacity.
Section 11. Other Enterprises, Fines and Serving at Corporation's Request.
For purposes of this Article, references to "other enterprise" in Sections
1 and 10 shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service by Agent as director, officer, employee, trustee or
agent of the Corporation which imposes duties on, or involves services by, such
Agent with respect to any employee benefit plan, its
<PAGE>
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article.
Section 12. Savings Clause.
If this Article or any portion thereof shall be invalidated on any ground
by any court of competent jurisdiction, then the Corporation shall nevertheless
indemnify each Agent as to expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement with respect to any action, suit, appeal,
proceeding or investigation, whether civil, criminal or administrative, and
whether internal or external, including a grand jury proceeding and an action or
suit brought by or in the right of the Corporation, to the full extent permitted
by any applicable portion of this Article that shall not have been invalidated,
or by any other applicable law.
ARTICLE X
Amendment of Bylaws
a. The Board of Directors shall have the power to amend, alter, or repeal
these Bylaws, and to adopt new Bylaws, from time to time.
b. The shareholders of the Corporation, may, at any annual meeting of the
shareholders of the Corporation or at any special meeting of the shareholders of
the Corporation called for the purpose of amending these Bylaws, amend, alter,
or repeal these Bylaws, and adopt new Bylaws, from time to time.
c. The Board of Directors shall not have the authority to adopt or amend
any Bylaw if such new Bylaw of such amendment would be inconsistent with any
Bylaw previously adopted by the shareholders of the Corporation. The
shareholders may prescribe in any Bylaw made by them that such Bylaw shall not
be altered, amended or repealed by the Board of Directors.
ARTICLE XI
Shareholder Agreements
Unless the shares of this Corporation are listed on a national securities
exchange or are regularly quoted by licensed securities dealers and brokers, all
the shareholders of this Corporation may enter into agreements relating to any
phase of business and affairs of the Corporation and which may provide for,
among other things, the election of directors of the Corporation in a manner
determined without reference to the number of shares of capital stock of the
Corporation owned by its shareholders, the determination of management policy,
and division of profits. Such agreement may restrict the discretion of the Board
of Directors and its management of the business of the Corporation or may treat
the Corporation as if it were a partnership or may arrange the relationships of
the shareholders in a manner that would be appropriate only among partners. In
the event such agreement shall be inconsistent in whole or in part with the
Articles of Incorporation and/or Bylaws of the Corporation, the terms of such
agreement shall govern. Such agreement shall be binding upon any transferee of
shares of this corporation provided such transferee has actual notice thereof or
a legend referring to such agreement is noted on the face or back of the
certificate or certificates representing the shares transferred to such
transferee.
<PAGE>
ARTICLE XII
Fiscal Year
The Fiscal Year of this Corporation shall be determined by the Board of
Directors.
Date: June 15, 1999
------------------------
Secretary
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 28, 2000 (except for Note 13[b], which is as of
April 3, 2000), in the Registration Statement on Form SB-2 and related
Prospectus of Stockgroup.com Holdings, Inc. for the registration of 5,487,630
shares of its common stock.
/s/ ERNST & YOUNG LLP
Vancouver, Canada,
May 26, 2000. Chartered Accountants
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<BONDS> 12,069
0
0
<COMMON> 97
<OTHER-SE> (17,178)
<TOTAL-LIABILITY-AND-EQUITY> 213,576
<SALES> 857,591
<TOTAL-REVENUES> 857,591
<CGS> 172,343
<TOTAL-COSTS> 826,494
<OTHER-EXPENSES> (42,845)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (184,091)
<INCOME-TAX> (34,802)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (149,289)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
