UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended October 31, 2000
------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number 000-25151
---------
FETCHOMATIC GLOBAL INTERNET INC.
--------------------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 52-212549
------ ---------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
SUITE 370, 444 VICTORIA STREET, PRINCE GEORGE, BC, CANADA V2L 2J7
-----------------------------------------------------------------
(Address of principal executive offices)
(250) 564-6868
--------------
(Issuer's telephone number)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE>
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
54,659,217 common shares, as at December 12, 2000
--------------------------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Our consolidated financial statements are stated in United States Dollars (US$)
and are prepared in accordance with United States Generally Accepted Accounting
Principles.
It is the opinion of Management that the interim financial statements for the
quarter ended October 31, 2000 include all adjustments, consisting of normal
recurring adjustments, which are necessary for fair presentation of information
contained in the consolidated financial statements.
Prince George, British Columbia /s/ Wayne Loftus
December 20, 2000 ------------------
Director of Fetchomatic
Global Internet Inc.
<PAGE>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE THREE-MONTH PERIODS ENDED
OCTOBER 31, 2000 AND 1999
CONTENTS
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Balance Sheets
Statements of Operations
Statement of Changes in Stockholders' Equity (Deficit)
Statements of Cash Flows
Notes to the Financial Statements
<PAGE>
<TABLE>
<CAPTION>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheets
OCTOBER 31 July 31
2000 2000
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $ 981,294 $ 1,982,923
Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . 95,089 87,808
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 19,738 37,812
------------- -------------
1,096,121 2,108,543
PROPERTY AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . 792,321 801,219
SOFTWARE DEVELOPMENT COSTS . . . . . . . . . . . . . . . . . . . 646,410 494,522
DEFERRED FINANCING COSTS . . . . . . . . . . . . . . . . . . . . 473,317 581,976
------------- -------------
$ 3,008,169 $ 3,986,260
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
CURRENT
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 222,751 $ 250,447
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 212,750 88,050
Demand loans payable . . . . . . . . . . . . . . . . . . . . . 41,922 42,626
------------- -------------
477,423 381,123
CONVERTIBLE DEBENTURES (Note 4). . . . . . . . . . . . . . . . . 2,359,478 2,589,861
------------- -------------
2,836,901 2,970,984
------------- -------------
STOCKHOLDERS' EQUITY
Capital stock (Note 4)
Authorized
200,000,000 common shares, par value $0.001
Issued
54,202,942 (July 31, 2000 - 53,561,000) common shares. . 54,203 53,561
Additional paid-in capital . . . . . . . . . . . . . . . . . . 35,707,424 35,400,279
Deficit accumulated in the development stage . . . . . . . . . (26,179,857) (17,015,713)
Accumulated other comprehensive income (loss) - foreign
currency translation . . . . . . . . . . . . . . . . . . . . (29,190) 30,752
------------- -------------
9,552,580 18,468,879
Deferred advertising costs and stock subscriptions receivable. (9,381,312) (17,453,603)
------------- -------------
171,268 1,015,276
------------- -------------
$ 3,008,169 $ 3,986,260
============================
</TABLE>
See the accompanying notes to the consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Interim Statements of Operations
(Unaudited)
Period from
September 24
1998
Three months ended (Inception) to
October 31 October 31
2000 1999 (a) 2000
<S> <C> <C> <C>
EXPENSES
Administration . . . . . . . . . . . $ 369,236 $ 47,341 $ 4,647,918
Advertising and promotion. . . . . . 8,241,597 12,149 14,809,197
Corporate finance and communications 93,011 - 971,502
Depreciation . . . . . . . . . . . . 78,548 - 231,910
Professional fees. . . . . . . . . . 127,912 - 283,025
Research and development . . . . . . 82,893 - 238,574
Write-down of amounts receivable . . - 95,235 2,659,170
--------------- ------------ -----------
8,993,197 154,725 23,841,196
INTEREST AND FINANCING COSTS . . . . . 170,947 - 1,771,159
--------------- ------------ -----------
LOSS FROM CONTINUING OPERATIONS. . . . 9,164,144 154,725 25,612,355
LOSS FROM DISCONTINUED OPERATIONS. . . - - 567,502
--------------- ------------ -----------
NET LOSS FOR THE PERIOD. . . . . . . . $ 9,164,144 $ 154,725 $26,179,857
==========================================
LOSS PER SHARE - BASIC AND DILUTED . . $ 0.17 $ 0.01
=============================
WEIGHTED AVERAGE SHARES OUTSTANDING. . 53,795,466 19,000,000
=============================
<FN>
a) Represents the results of operations of fetchOmatic.com Online Inc.
(formerly SSA Coupon Ltd.)
</TABLE>
See the accompanying notes to the consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Interim Statement of Changes in Stockholders' Equity (Deficit)
(Unaudited)
OCTOBER 31, 2000
<S> <C> <C> <C> <C>
Deficit
Accumulated
Additional in the
Common Shares Paid-in Development
Number Amount Capital Stage
------------- ------------ ------------- ---------------
Initial capital contributions to SSA Coupon Ltd. on
September 24, 1998 at C$0.01 per share . . . . . . . . . . 100 $ 66 $ - $ -
Capital contributions by Forest Glade during the period. . . - - 175,000 -
Net loss for the period. . . . . . . . . . . . . . . . . . . - - - (235,354)
------------- ------------ ------------- ---------------
BALANCE, July 31, 1999 . . . . . . . . . . . . . . . . . . . 100 66 175,000 (235,354)
Adjustment for the issuance of common stock on
reverse acquisition. . . . . . . . . . . . . . . . . . . . 18,999,900 18,934 (18,934) -
------------- ------------ ------------- ---------------
19,000,000 19,000 156,066 (235,354)
Issuance of common stock by SSA Coupon Ltd. prior
to acquisition . . . . . . . . . . . . . . . . . . . . . . - - 14 -
Capital contributions by Forest Glade prior to acquisition . - - 355,000 -
Adjustment for the stockholders' equity of the Company
at the acquisition date. . . . . . . . . . . . . . . . . . 17,800,000 17,800 (547,800) -
Stock option compensation. . . . . . . . . . . . . . . . . . - - 3,800,000 -
Issuance of common stock on exercise of stock options
at $1.09 per share . . . . . . . . . . . . . . . . . . . . 4,636,000 4,636 5,048,604 -
Issuance of common stock for services:
- in January and June 2000 at prices from $1.06 per
share to $1.78 per share. . . . . . . . . . . . . . . . . 375,000 375 488,125 -
Issuance of warrants for services. . . . . . . . . . . . . . - - 192,800 -
Issuance of common stock for advertising:
- in May and July 2000 at $2 per share. . . . . . . . . . . 11,750,000 11,750 23,488,250 -
Beneficial conversion feature and value of warrants
on convertible debentures. . . . . . . . . . . . . . . . . - - 2,419,220 -
------------- ------------ ------------- ---------------
53,561,000 53,561 35,400,279 (235,354)
------------- ------------ ------------- ---------------
Net loss for the year. . . . . . . . . . . . . . . . . . . . - - - (16,780,359)
Foreign currency translation adjustments . . . . . . . . . . - - - -
------------- ------------ ------------- ---------------
Total comprehensive loss . . . . . . . . . . . . . . . . . - - - (16,780,359)
------------- ------------ ------------- ---------------
BALANCE, July 31, 2000 . . . . . . . . . . . . . . . . . . . 53,561,000 53,561 35,400,279 (17,015,713)
Conversion of 7% convertible debentures in September
and October 2000 (Note 4). . . . . . . . . . . . . . . . . 641,942 642 260,145 -
Utilization of previously deferred advertising costs (Note 4) - - - -
Additional capital contribution (Note 5) . . . . . . . . . . - - 47,000 -
------------- ------------ ------------- ---------------
54,202,942 54,203 35,707,484 (17,015,713)
------------- ------------ ------------- ---------------
Net loss for the period. . . . . . . . . . . . . . . . . . . - - - (9,164,144)
Foreign currency translation adjustments . . . . . . . . . . - - - -
------------- ------------ ------------- ---------------
Total comprehensive loss . . . . . . . . . . . . . . . . . - - - (9,164,144)
------------- ------------ ------------- ---------------
BALANCE, October 31, 2000. . . . . . . . . . . . . . . . . . 54,202,942 $ 54,203 $ 35,707,424 $ (26,179,857)
=========================================================================================================================
OCTOBER 31, 2000
<S> <C> <C> <C>
Deferred
Accumulated Advertising
Other Costs and Total
Comprehensive Subscriptions Stockholders'
Income (Loss) Receivable Equity (Deficit)
--------------- --------------- -----------------
Initial capital contributions to SSA Coupon Ltd. on
September 24, 1998 at C$0.01 per share . . . . . . . . . . $ - $ - $ 66
Capital contributions by Forest Glade during the period. . . - - 175,000
Net loss for the period. . . . . . . . . . . . . . . . . . . - - (235,354)
--------------- --------------- -----------------
BALANCE, July 31, 1999 . . . . . . . . . . . . . . . . . . . - - (60,288)
Adjustment for the issuance of common stock on
reverse acquisition. . . . . . . . . . . . . . . . . . . . - - -
--------------- --------------- -----------------
- - (60,288)
Issuance of common stock by SSA Coupon Ltd. prior
to acquisition . . . . . . . . . . . . . . . . . . . . . . - - 14
Capital contributions by Forest Glade prior to acquisition . - - 355,000
Adjustment for the stockholders' equity of the Company
at the acquisition date. . . . . . . . . . . . . . . . . . - - (530,000)
Stock option compensation. . . . . . . . . . . . . . . . . . - - 3,800,000
Issuance of common stock on exercise of stock options
at $1.09 per share . . . . . . . . . . . . . . . . . . . . - (190,359) 4,862,881
Issuance of common stock for services:
- in January and June 2000 at prices from $1.06 per
share to $1.78 per share. . . . . . . . . . . . . . . . . - - 485,500
Issuance of warrants for services. . . . . . . . . . . . . . - - 192,800
Issuance of common stock for advertising:
- in May and July 2000 at $2 per share. . . . . . . . . . . - (17,263,244) 6,236,756
Beneficial conversion feature and value of warrants
on convertible debentures. . . . . . . . . . . . . . . . . - - 2,419,220
--------------- --------------- -----------------
- (17,453,603) 17,764,883
--------------- --------------- -----------------
Net loss for the year. . . . . . . . . . . . . . . . . . . . - - (16,780,359)
Foreign currency translation adjustments . . . . . . . . . . 30,752 - 30,752
--------------- --------------- -----------------
Total comprehensive loss . . . . . . . . . . . . . . . . . 30,752 - (16,749,607)
--------------- --------------- -----------------
BALANCE, July 31, 2000 . . . . . . . . . . . . . . . . . . . 30,752 (17,453,603) 1,015,276
Conversion of 7% convertible debentures in September
and October 2000 (Note 4). . . . . . . . . . . . . . . . . - - 260,787
Utilization of previously deferred advertising costs (Note 4) - 8,072,291 8,072,291
Additional capital contribution (Note 5) . . . . . . . . . . - - 47,000
--------------- --------------- -----------------
30,752 (9,381,312) 9,395,354
--------------- --------------- -----------------
Net loss for the period. . . . . . . . . . . . . . . . . . . - - (9,164,144)
Foreign currency translation adjustments . . . . . . . . . . (59,942) - (59,942)
--------------- --------------- -----------------
Total comprehensive loss . . . . . . . . . . . . . . . . . (59,942) - (9,224,086)
--------------- --------------- -----------------
BALANCE, October 31, 2000. . . . . . . . . . . . . . . . . . $ (29,190) $ (9,381,312) $ 171,268
=================================================================================================================
</TABLE>
See the accompanying notes to the consolidated interim financial statements.
<PAGE>
<TABLE>
<CAPTION>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
Consolidated Interim Statements of Cash Flows
(Unaudited)
Period from
September 24
1998
Three-months ended (Inception) to
October 31 October 31
2000 1999 (a) 2000
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the period. . . . . . . . . . . . . $ (9,164,144) $(154,725) $(26,179,857)
Adjustments to reconcile net loss to net cash
used in operating activities
Write-down of amounts receivable . . . . . . . - 95,235 2,659,170
Amortization and depreciation of property and
equipment and goodwill . . . . . . . . . . . 78,548 - 301,807
Amortization of deferred financing costs . . . 50,008 - 102,915
Loss on sale of trailer park . . . . . . . . . - - 478,560
Expenses settled with common stock and
warrants . . . . . . . . . . . . . . . . . . 8,119,291 - 14,851,847
Stock option compensation. . . . . . . . . . . - - 3,800,000
Beneficial conversion feature on convertible
debentures and amortization of discount. . . 78,898 - 1,588,259
(Increase) decrease in assets
Receivables. . . . . . . . . . . . . . . . . . (7,281) (6,278) (95,089)
Prepaid expenses . . . . . . . . . . . . . . . 18,074 (630) (16,101)
Increase (decrease) in liabilities
Accounts payable . . . . . . . . . . . . . . . (27,696) (10,755) 139,588
Accrued expenses . . . . . . . . . . . . . . . 124,700 - 212,750
---------------- ---------- -------------
(729,602) (77,153) (2,156,151)
---------------- ---------- -------------
INVESTING ACTIVITIES
Proceeds on sale of discontinued operations. . . - - 135,000
Software development costs . . . . . . . . . . . (170,200) (37,866) (664,722)
Cash acquired on reverse acquisition of Forest
Glade. . . . . . . . . . . . . . . . . . . . . - - 145,757
Purchase of property and equipment . . . . . . . (96,075) (69,457) (1,048,517)
---------------- ---------- -------------
(266,275) (107,323) (1,432,482)
---------------- ---------- -------------
FINANCING ACTIVITIES
Proceeds on issuance of common stock, net
of subscriptions receivable and non cash
proceeds . . . . . . . . . . . . . . . . . . . - 309,765 1,687,024
Repayment of advances from directors . . . . . . - - (8,019)
Repayment of note payable on acquisition of
discontinued operations. . . . . . . . . . . . - - (138,000)
Repayment of long-term debt from discontinued
operations . . . . . . . . . . . . . . . . . . - - (11,260)
Proceeds on issuance of convertible debentures
and warrants, net of issuance costs. . . . . . - - 3,050,617
---------------- ---------- -------------
- 309,765 4,580,362
---------------- ---------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . (995,877) 125,289 991,729
EFFECT OF FOREIGN EXCHANGE ON CASH . . . . . . . . (5,752) 749 (10,435)
CASH AND CASH EQUIVALENTS, beginning of period . . 1,982,923 49,725 -
---------------- ---------- -------------
CASH AND CASH EQUIVALENTS, end of period . . . . . $ 981,294 $ 175,763 $ 981,294
===============================================================================================
SUPPLEMENTAL INFORMATION (Note 3)
<FN>
a) Represents the cash flows of fetchOmatic.com Online Inc. (formerly SSA Coupon Ltd.)
</TABLE>
See the accompanying notes to the consolidated interim financial statements.
<PAGE>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Interim Financial Statements
(Unaudited)
OCTOBER 31, 2000
1. BASIS OF PRESENTATION AND GOING CONCERN
The consolidated interim financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. 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, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
These statements reflect all adjustments, consisting of normal
recurring adjustments which, in the opinion of management, are necessary for
fair presentation of the information contained therein. It is suggested that
these consolidated interim financial statements be read in conjunction with the
financial statements of the Company for the year ended July 31, 2000 and notes
thereto included in the Company's 10-KSB annual report. The Company follows the
same accounting policies in the preparation of interim reports.
Results of operations for the interim periods are not indicative of
annual results.
These accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. As at October
31, 2000, the Company has recognized no revenues and has accumulated operating
losses from the Internet business of approximately $26 million since its
inception. The Company has substantially used common stock to pay for operating
expenses. The continuation of the Company is dependent upon the successful
completion of development of the Company's website, www.fetchomatic.com, the
continuing financial support of creditors and stockholders, the favorable
settlement of contingent liabilities (Note 2) and obtaining long-term financing
as well as achieving a profitable level of operations. In June 2000, the
Company issued $3.5 million of convertible debentures and plans to raise
additional equity capital as necessary to finance the operating and capital
requirements of the Company. Amounts raised will be used to continue
development of the Company's website, to provide financing for the marketing,
promotion and launch of its website, to secure products and for other working
capital purposes including operational hardware and software upgrades.
Additionally, management has undertaken a significant internal restructuring and
review which, among other matters, is expected to result in a reduction of
administration and corporate overhead costs. Finally, the Company relaunched
its website on December 1, 2000 which it hopes will enable it to commence the
revenue-generation stage of its corporate development. While the Company is
expending its best efforts to achieve the above plans, there is no assurance
that any such activity will generate sufficient funds for operations.
These conditions raise substantial doubt about the Company's ability
to continue as a going concern. These financial statements do not include any
adjustments that might arise from this uncertainty.
<PAGE>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Interim Financial Statements
(Unaudited)
OCTOBER 31, 2000
2. CONTINGENT LIABILITIES
During fiscal 1999, the Company's subsidiary entered into contracts with its
three former stockholders for consulting services each at approximately $4,000
per month for a period of five years expiring in September 2003, renewable
for successive two-year terms. Additional termination fees aggregating to
Cdn$3,000,000 (approximately $2 million) would be due to the three former
stockholders in the event of their termination. The monthly fee of $4,000
remains until the first period that the Company has quarterly earnings in
excess of approximately $167,000. Once quarterly earnings exceed $167,000,
monthly payments to the former stockholders increase in accordance with specific
earnings benchmarks up to a maximum of approximately $29,000 per month for
quarterly earnings in excess of approximately $4 million. Additionally, the
Company agreed to pay to the three former stockholders, in perpetuity, royalties
aggregating to 7% of gross revenues relating to the technology created by
the Company's subsidiary.
On October 26, 2000, the Company discontinued payments for the services of the
three former stockholders. Further, on November 24, 2000, the Company filed a
Writ of Summons in the Supreme Court of British Columbia (Vancouver Registry)
naming two of the three former stockholders. The Writ alleges, among other
things, various breaches of fiduciary and contractual duties and seeks an
accounting or return of certain payments made and to set aside the Company's
obligations to the former stockholders under the consulting agreements and the
share exchange agreement. At this time, the Company is uncertain of the outcome
of the claim. A settlement, if any, will be accrued in the period payment
becomes probable and a reasonable estimate can be made.
3. SUPPLEMENTAL CASH FLOW INFORMATION
Required disclosures of supplemental information on the Statements of Cash Flows
include:
a) Supplemental disclosure of non-cash investing and financing activities:
Three-months ended
October 31
2000 1999
i) issuance of common stock in satisfaction of
expenses $ 8,119,291 $ -
ii) issuance of common stock on conversion of
convertible debenture, net of
issuance costs (Note 4) $ 260,787 $ -
b) Interest paid for the three-month periods ended October 31, 2000 and 1999
was $Nil.
<PAGE>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Interim Financial Statements
(Unaudited)
OCTOBER 31, 2000
4. CAPITAL STOCK
a) During the three-month period ended October 31, 2000, the holder of the
Company's 7% convertible debentures converted the principal amount of $400,000
debentures and accrued interest on those debentures of $9,515 into 641,942
shares of the Company's common stock. The increase in net assets of the Company
as a result of the conversion is comprised of the proportionate reduction of the
debentures and related deferred expenses as follows:
Conversion of convertible debentures, net of
unamortized discount $ 309,281
Conversion of accrued interest 9,515
Reduction of deferred financing costs (58,009)
-------
$ 260,787
==================
Subsequent to October 31, 2000, the debenture holder converted or issued
notices of conversion for a further $422,570 principal amount of 7% convertible
debentures plus interest into 3,022,187 shares of the Company's common stock.
During the three months ended October 31, 2000, an additional $78,898 (1999
- $Nil) of the debt discount was amortized.
b) At October 31, 2000 and July 31, 2000, 364,000 stock options were
exercisable at $1.09 per common share and outstanding. Subsequent to October
31, 2000, these stock options expired.
c) At October 31, 2000 and July 31, 2000, the Company had 721,765 fully
exercisable share purchase warrants outstanding as follows:
Exercise
Number Price Expiry
------ ----- ------
100,000 $1.09 December 2004
100,000 $3.00 December 2004
521,765 $2.295 May 2005
-------
721,765
=======
<PAGE>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Interim Financial Statements
(Unaudited)
OCTOBER 31, 2000
4. CAPITAL STOCK - CONTINUED
d) On March 30, 2000, the Company entered into an agreement to acquire
public relations and advertising services from Sivla Inc. in exchange for
$100,000 cash (paid in May 2000) plus up to approximately $43.5 million of the
Company's common stock. 11,750,000 shares of fully vested, non-forfeitable
common stock were issued in fiscal 2000 in respect of $23,500,000 of available
advertising, valued using the trading value of the Company's common stock on the
agreement date. To October 31, 2000, the Company had committed for $14,309,047
in various forms of media advertising and public relation services including
print, radio, television, billboards, internet and racing sponsorship, of which
$7,994,980 was used during the three-month period ended October 31, 2000 and
charged to the Statement of Operations. At October 31, 2000, the Company was
entitled to $9,190,953 of further advertising for common stock already issued
pursuant to the contract. This entitlement was recorded as a reduction of
stockholders' equity. Advertising in excess of $23.5 million is payable in
common stock based upon a 35% discount to the average of the previous month's
closing trading price. Future issuances of common stock for advertising should
the Company decide to acquire additional advertising from Sivla, Inc. will be
measured using the trading value of the Company's common stock on the respective
dates of issuance.
On November 22, 2000, the Company agreed to reprice advertising not yet
received such that the amount of advertising to which the Company is entitled
was reduced by $4,377,813 to $4,812,340 of which $1,005,000 has been committed.
This repricing will not affect the recognition of advertising expense when used.
Advertising will be recognized as an expense in the Statement of Operations
based upon the original amortization rate of $2 per common share issued.
e) At October 31, 2000 and July 31, 2000, the Company had $660,359 of notes
receivable outstanding from three stockholders in respect to exercise of stock
options, including $545,000 owing from a director. A writedown of $470,000 was
recognized in fiscal 2000 to provide for a reduction to net realizable value of
the underlying common stock. In December 2000, the above-noted director
returned 500,000 shares of common stock to the Company in settlement of his note
receivable.
5. COMMITMENTS
a) On July 20, 2000, the Company entered into an agreement with a company
for a two-month term, extended to six months, to obtain public relation
services. Under the terms of the agreement, the Company was required to pay a
non-refundable fee of $10,000 (which was paid in fiscal 2000) and fees payable
by issuance of 25,000 shares of common stock and options to purchase additional
common shares. Options have yet to be granted and are currently under
negotiation. Thus, no expense has been recognized for stock options. Expenses
incurred for stock options will be calculated using the Black-Scholes option
pricing model. The value of common stock is measured using the trading price of
the common stock on the dates of issuance.
<PAGE>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Interim Financial Statements
(Unaudited)
OCTOBER 31, 2000
5. COMMITMENTS - CONTINUED
To date a stockholder has provided 100,000 shares of common stock to the
consultant to settle the Company's obligation for the first four months of the
contract. 50,000 shares were provided prior to October 31, 2000. The
stockholder has indicated that she will not seek reimbursement. Accordingly,
the Company has recorded as expense and additional paid in capital $47,000
representing the trading price of the common stock on the dates the 50,000
shares were provided.
b) On September 20, 2000, the Company entered into an agreement with a
consulting firm, whereby the consulting firm will market and solicit banner ads
for the Company's website for an initial term of twelve months, subject to
performance review on March 30, 2001. Compensation for these services includes
200,000 non-forfeitable shares of common stock (approximately $188,000 based on
the trading price of the common stock on the commitment date), a monthly
consulting fee of $6,000 subject to a partial set-off against commissions
earned, 50% of banner advertising fees collected and certain other performance
incentives. An accrual has been recorded in the financial statements for the
three months ended October 31, 2000 for the portion of the common shares
applicable to services provided during the period. The balance will be
amortized on a straight-line basis over the term of the contract. The Company
issued the 200,000 shares of common stock on November 2, 2000.
c) During the period ended October 31, 2000, the Company terminated the
services of its Chief Financial Officer. In connection therewith, the Company
agreed to a settlement package totalling approximately $36,000 of which $18,000
was paid on October 10, 2000. The remaining $18,000 is payable on January 1,
2001 and is accrued in these interim financial statements.
6. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to
recognize all derivatives contracts as either assets or liabilities on the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (i) the changes in the fair value of the hedged assets
or liability that are attributable to the hedged risk or (ii) the earning effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, adoption of the
new standards on August 1, 2000 did not affect its financial statements.
<PAGE>
FETCHOMATIC GLOBAL INTERNET INC.
(A DEVELOPMENT STAGE COMPANY)
Notes to the Consolidated Interim Financial Statements
(Unaudited)
OCTOBER 31, 2000
6. NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED
In 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin
No. 101 dealing with revenue recognition which is effective in the fourth
quarter of the Company's 2001 fiscal year. The Company does not expect its
adoption to have a material effect on the Company's financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation", an interpretation of APB Opinion No. 25. The Company is required
to adopt the Interpretation on July 1, 2000. Among other matters, the
Interpretation requires that stock options that have been modified to reduce the
exercise price be accounted for as variable. Adoption of this standard did not
have a material effect on the financial statements.
<PAGE>
ITEM 2. MANAGEMENT'S PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the notes to the consolidated financial
statements, included as part of this Quarterly Report.
Certain statements contained in this Quarterly Report on Form 10-QSB, including,
without limitation, statements containing the words "believes", "anticipates",
"estimates", "intends", "expects" and words of similar import, constitute
forward-looking statements within the meaning of the Private Securities Reform
Act of 1995. Although management of our company believes that the expectations
reflected in these forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct. Actual
results could vary materially from those expressed in those forward-looking
statements. Readers are referred to the risk factors described below in this
Quarterly Report entitled "Factors That May Affect Our Future Results", which
identify some of the important factors or events that could cause our actual
results or performance, or the actual results or performance of our subsidiary,
to differ materially from those contained in the forward looking statements.
General Discussion
We have recently gone through a major reorganization. During that
reorganization, which commenced October 26, 2000 and is expected to end on or
before December 31, 2000, we have designed a new Web portal. Additionally, we
expect to have fully-developed our new search engine by January 15, 2001. In
any case, we have sufficient capital to complete the reorganization as
discussed.
<PAGE>
Going forward, our objective is to be the first graphical portal on the Web
with a geographical-based one-click product, services and business locator
incorporating our Targeted Advertising Banner System ("TABS"). We also expect
to license this technology to other companies.
Plan of Operation
In order to achieve the goals as stated in the General Discussion, we have
developed a plan of operations for the twelve months commencing January 1, 2001
and ending December 31, 2001. Our plan is as follows:
- continue development and redesign of the web portal, which will be an
ongoing process dictated bymarket response;
- upgrade the site to include additional forms of content and services which
again, will be an ongoing process dictated by market response and capital
requirement;
- commence sales and marketing initiatives during January 2000, including
implementation of an in-house and external sales team (Kramer Group LLC), and a
public relations campaign which will provide us with exposure to the consumer
and investment communities;
- implement targeted advertising campaigns to support the sales and branding
requirements (initially slated for approximately seven (7) cities in the United
States);
- development of partnerships and strategic alliances; and
- enhance and further develop our current technology to increase performance
and usability of both the our graphical portal and search engine.
CASH REQUIREMENTS
We will require a minimum of $1.9 million over the period ending December
31, 2001 in order to accomplish our goals. The cash requirements of $1.9
million are based on our estimates of operational costs for the period ending
December 31, 2001. We estimate that $289,000 is required to hire marketing and
sales persons and to implement our planned sales and marketing program. We
estimate that $100,000 will be required to support a shareholder communications
program, $125,000 will be required for the continued development and enhancement
of www.fetchomatic.com, $100,000 will be required for equipment purchases and
the balance of $1,286,000 will be required to support general corporate expenses
and operating expenses.
We intend to obtain the balance of the cash requirements through the sale
of our equity securities, proceeds received from the exercise of outstanding
warrants or by obtaining further debt financing. Additionally, we will explore
the possibility of raising funds by way of government grants made available to
high-technology companies operating in Canada.
ADVERTISING AND MARKETING
We plan on expending $289,000 of cash in the twelve months ended December
31, 2001 in marketing, advertising and promotional expenses in connection with
the launch of our web portal and to develop brand awareness of our products and
services. As well, we will utilize the balance of advertising due to us
pursuant to the first component of our Agreement with Sivla, Inc.
RESEARCH AND DEVELOPMENT
We expect to spend $125,000 in the twelve months ending December 31, 2001
in further developing the search engine during 2001. These monies will be spent
on expanding the scope and sophistication of our search engine.
<PAGE>
From inception to October 31, 2000, we have spent approximately $905,000
(including $250,000 during the three months ended October 31, 2000) on
construction of our web site and on development of our search engine (excluding
the costs of computer hardware and equipment). To October 31, 2000, we have
deferred on our consolidated balance sheet approximately $646,000 of these
development costs (incurred in fiscal 2000) with the remaining development costs
charged to our consolidated statement of operations.
PERSONNEL
As of October 31, 2000, our staff consisted of 22 full-time employees and 2
part-time consultants. In the next twelve months, we plan to hire no more than
5 additional full-time employees and 2 part-time consultants.
PURCHASE OR SALE OF EQUIPMENT
We expect to purchase approximately $100,000 in equipment associated with
the further development of our search engine. We will also continue to purchase
other computer hardware and software required for our ongoing operations.
GENERAL AND ADMINISTRATIVE EXPENSES
We expect that we will spend approximately $107,000 per month on general
corporate and operating expenses, which includes salaries, rent, legal,
accounting and other general corporate expenses.
FACTORS THAT MAY AFFECT OUR FUTURE RESULTS
An investment in our common stock involves a number of very significant
risks. You should carefully consider the following risks and uncertainties in
addition to other information in this Quarterly Report in evaluating our
business before purchasing shares of common stock. Our business, operating
result and financial condition could be seriously harmed due to any of the
following risks. The trading price of the shares of our common stock could
decline due to any of these risks, and you could lose all or part of your
investment.
IF WE DO NOT RAISE ADDITIONAL FUNDS FROM THIRD PARTY SOURCES OR BEGIN TO EARN
REVENUES, THEN WE MAY BE UNABLE TO CONTINUE OPERATING.
Our recurring operating losses and growing working capital needs will
require us to obtain additional capital to operate our business before we have
established that our business will generate significant revenue. As of December
1, 2000, we have recognized no revenues and accumulated significant losses from
our business operations. The continuation of our company is dependent upon the
successful completion of our web site and search engine, the continuing
financial support of our creditors and stockholders, obtaining long-term
financing, the favorable settlement of contingent liabilities and achieving a
profitable level of operations. While we are expending our best efforts to meet
our financing needs, there can be no assurance that we will be successful in
raising capital from third parties or generating sufficient funds for operations
and continued development. In the event that we do not raise sufficient funds
from third parties, we may not have adequate financial resources to continue our
business. If additional financing is obtained, the terms of the financing may
be adverse to the interests of existing stockholders, including the possibility
of substantially diluting their ownership position.
THE CONSULTING AGREEMENTS BETWEEN THE FETCHOMATIC.COM ONLINE INC. AND MAURICE
SIMPSON, DANA SHAW AND WILLIAM MURRAY CONTAIN PAYMENT PROVISIONS WHICH, IF
ENFORCED, WOULD DEPLETE ALL OF OUR CASH
Each of Maurice Simpson, Dana Shaw and William Murray is a party to a
consulting agreement with Fetchomatic.com Online Inc. Pursuant to the terms of
their particular agreement, in the event that the agreements are terminated,
Messrs. Simpson, Shaw and Murray are entitled to receive a payment from us in
the amount of CDN$2,000,000, CDN$500,000 and CDN$500,000 (approximately
$1,340,000, $335,000 and $335,000), respectively, in addition to the monthly
payments due under the term of the agreements. As discussed in Part II - Item
1, "Legal Proceedings," Fetchomatic.com Online Inc. has filed a writ of summons
in the Supreme Court of
<PAGE>
British Columbia against Mr. Simpson and Mr. Shaw, among others, alleging a
failure to adequately discharge contractual and fiduciary duties. Mr. Murray is
not named a party to this lawsuit, however, we are investigating our options for
setting aside the termination provisions of his agreement. There can be no
assurance that we will prevail in our legal action or that the consulting
agreements with Mr. Simpson, Mr. Shaw and Mr. Murray will be set aside. In the
event of an adverse determination, we may be required to pay substantially all
of our current cash reserves to Mr. Simpson and Mr. Shaw (and potentially to Mr.
Murray as well), which would leave us with inadequate capital to conduct our
business.
THE LIMITED OPERATING HISTORY OF OUR ONLINE BUSINESS MAKES IT DIFFICULT TO
EVALUATE WHETHER WE WILL OPERATE PROFITABLY.
Historically, we were in the business of owning and operating a mobile home
park in Canada. On June 2, 2000 we completed the process of divesting ourselves
of our real estate holdings and interest in the mobile home park and began to
focus our operations on the development, marketing and commercial exploitation
of our Internet search engine. Our Internet business operations have a limited
history upon which an evaluation of our company can be based. Our prospects are
subject to the risks, expenses and uncertainties frequently encountered by
companies in their early stage of development, especially in the new and rapidly
evolving markets for Internet products and services. There can be no assurance
that we will be able to address any of these challenges.
SINCE WE HAVE A HISTORY OF NET LOSSES, WE EXPECT TO INCUR NET LOSSES IN THE
FUTURE.
Our consolidated financial statements reflect that we have not yet earned
any revenue and have incurred significant net losses since inception, including
a net loss of $16,780,359 (including a loss from discontinued operations of
$567,502) in the year ended July 31, 2000 and a loss of $9,164,144 for the three
months ended October 31, 2000. As of October 31, 2000, we had an accumulated
deficit of $26,179,857. We expect to have continuing net losses and negative
cash flows for the foreseeable future. The size of these net losses will depend,
in part, on the commencement of and the rate of growth in our revenues. It is
critical to our success that we continue to expend financial and management
resources to develop brand loyalty through marketing and promotion.
With the acquisition of Fetchomatic.com Online Inc. on November 3, 1999,
and our entrance into the competitive Internet business market, we significantly
increased our operating expenses and we expect that our operating expenses will
continue to increase in the future. To the extent that any such expenses are not
timely followed by increased revenues, our business, results of operations,
financial condition and prospects would be materially adversely affected.
WE ARE IN A HIGHLY COMPETITIVE INDUSTRY AND SOME OF OUR COMPETITORS MAY BE MORE
SUCCESSFUL IN ATTRACTING AND RETAINING CUSTOMERS.
The market for Internet products and services is highly competitive and we
expect that competition will continue to intensify. Negative competitive
developments could prevent our business from being successful.
We compete with many other providers of online navigation, information,
entertainment, business, community, electronic commerce and broadcast services.
As we expand the scope of our Internet offerings, we will compete directly with
a greater number of Internet sites, media companies, and companies providing
business services across a wide range of different online services, including:
- companies offering communications services either on a stand alone basis
or integrated into other products and media properties;
- vertical markets where competitors may have advantages in expertise, brand
recognition, and other factors;
- manufacturers of personal computers who may develop their own Internet
portals to which they would direct their customers;
<PAGE>
- online merchant hosting services; and
- online broadcasting of business events.
In particular, we face significant competition from Yahoo!, Inc., America
Online Inc. and Microsoft Corporation. To a less significant extent, we face
competition from other companies that have combined a variety of services under
one brand in a manner similar to Yahoo! including CMGI Inc. (through Alta
Vista), the Walt Disney Company (through The GO Network), At Home Corporation
(through Excite@Home), and Lycos, Inc.
In certain of these cases, our competition has a direct billing
relationship with the user, which we generally lack. This relationship permits
our competitors to have several potential advantages including the potential to
be more effective than us in targeting services and advertisements to the
specific taste of their users. America Online and Time Warner Inc. announced the
proposed merging of their companies. If completed, the merger will provide
America Online with content from Time Warner's movie and television, music,
books and periodicals, news, sports and other media holdings; access to a
network of cable and other broadband delivery technologies; and considerable
resources for future growth and expansion. The proposed America Online and Time
Warner combination will also provide America Online with access to a broad
potential customer base consisting of Time Warner's current customers and
subscribers of its various media properties. We also face competition from web
sites focused on vertical markets where expertise in a particular segment of the
market may provide a competitive advantage. We must continue to obtain more
knowledge about our users and their preferences as well as increase our branding
and other marketing activities in order to remain competitive.
A large number of those web sites and online services as well as
high-traffic e-commerce merchants such as Amazon.com, Inc. also offer or are
expected to offer informational and community features that may be competitive
with the services that we offer or intend to offer in the future. In order to
effectively compete, we may need to expend significant internal engineering
resources or acquire other technologies and companies to provide or enhance such
capabilities. Any of these efforts could have a material adverse effect on our
business, operating results and financial condition and be dilutive to our
stockholders.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY BECAUSE WE ARE IN THE PROCESS OF
ESTABLISHING OUR NAME RECOGNITION AND BECAUSE OUR COMPETITORS ARE MORE
ESTABLISHED AND HAVE GREATER RESOURCES THAN WE DO.
Many of our existing competitors, such as Yahoo!, America Online and
Microsoft (MSN) have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than we do. This may allow them to devote greater resources
than we can to the development and promotion of their products and services. In
addition, many of these competitors offer a wider range of services than we do.
Our competitors' services may attract users to their sites and may consequently
result in decreased visits to our site.
Our competitors may also engage in more extensive research and development,
adopt more aggressive pricing policies and make more attractive offers to
existing and potential employees, partners, advertisers and electronic commerce
partners. Our competitors may develop products and services that are equal or
superior to ours or that achieve greater market acceptance. In addition, current
and potential competitors may establish relationships among themselves or with
third parties to better address the needs of advertisers and businesses engaged
in electronic commerce. As a result, it is possible that existing or new
competitors may emerge and rapidly acquire a significant market share.
WE WILL RELY HEAVILY ON REVENUES DERIVED FROM INTERNET ADVERTISING, WHICH MAY
PROVE TO BE AN INEFFECTIVE MEANS OF ADVERTISING FOR OUR CURRENT AND POTENTIAL
CLIENTS.
We expect to generate the majority of our revenues from advertisements
displayed on our online properties. Our ability to continue to achieve
substantial advertising revenue depends upon:
<PAGE>
- growth of our user base;
- our user base being attractive to advertisers;
- our ability to derive better demographic and other information from our
users;
- acceptance by advertisers of the Internet as an advertising medium; and
- our ability to transition and expand into other forms of advertising.
If we are unsuccessful in adapting to the needs of our advertisers, our
ability to generate revenues may be significantly reduced.
WE EXPECT TO DERIVE THE MAJORITY OF OUR REVENUES FROM THE SALE OF ADVERTISEMENTS
UNDER SHORT-TERM CONTRACTS, WHICH ARE DIFFICULT TO FORECAST ACCURATELY.
We expect that most or all of our revenues will be derived from agreements
with advertisers or sponsorship arrangements. Agreements for advertising and
sponsorship arrangements on the Internet are customarily for short terms. We
expect that the advertising and sponsorship agreements that we enter will have
terms of less than three years. In cases where the advertiser is providing
services, the agreements will often have payments contingent on usage levels.
Accordingly, it is difficult to accurately forecast these revenues. However, our
expense levels are based in part on expectations of future revenues and, to a
large extent, are fixed. We may be unable to adjust spending quickly enough to
compensate for any unexpected revenue shortfall. Accordingly, the cancellation
or deferral of advertising or sponsorship (once obtained) may impede our future
growth. Because our operating expenses are likely to increase significantly over
the near term, to the extent that expenses increase but our revenues do not, we
may be required to seek funds from third parties to finance our continued
operations.
THE RATE STRUCTURE OF SOME OF OUR PLANNED SPONSORSHIP ARRANGEMENTS SUBJECTS US
TO FINANCIAL RISK.
A key element of our strategy is to generate advertising revenues through
sponsored services and placements by third parties in our online media
properties in addition to banner advertising. We expect to receive sponsorship
fees or a portion of transaction revenues in return for minimum levels of user
impressions to be provided by us. These arrangements expose us to potentially
significant financial risks in the event our usage levels decrease, including
the following:
- fees we are entitled to receive may be adjusted downwards;
- we may be required to "make good" on our obligations by providing
alternative services;
- sponsors may not renew the agreements or may renew at lower rates; and
- arrangements may not generate anticipated levels of shared transaction
revenues, or sponsors may default on the payment commitments in such agreements.
Accordingly, any levelling off or decrease of our future user base or the
failure to generate anticipated levels of shared transaction revenues could
result in a significant decrease in our revenue levels.
WE MAY NOT BE SUCCESSFUL IN EXPANDING THE NUMBER OF USERS OF OUR ELECTRONIC
COMMERCE SERVICES AND OUR ABILITY TO EFFECTIVELY PROVIDE THESE SERVICES IS
LIMITED BECAUSE WE DO NOT HAVE A DIRECT BILLING RELATIONSHIP WITH OUR CUSTOMERS.
We have focused, and intend to continue to focus, significant resources on
the development and enhancement of our electronic commerce properties. These
properties link users with a network of retailers with which we have
relationships. However, we merely provide a means through which our users can
access the sellers of
<PAGE>
the products such users may wish to purchase and do not establish a direct
billing relationship with our users as a result of any such purchase. In
addition, a large number of our users currently utilize our online shopping
services simply to gather information for future offline purchases. We will need
to effectively induce information gatherers to make purchases in order for our
electronic commerce properties to be successful. The revenue that we derive from
our electronic commerce services is typically in the form of a bounty or
commission paid by the retailer from whom our user purchased a product. If the
user had a favorite buying experience with a particular retailer, the user may
subsequently contact that retailer directly rather than through our service. If
our users bypass our electronic commerce properties and contact retailers
directly, we will not receive any revenue for purchases made through such direct
contact. Competing providers of online shopping, including merchants with whom
we have relationships, may be able to provide a more convenient and
comprehensive online shopping experience due to their singular focus on
electronic commerce. As a result, we may have difficulty competing with those
merchants for users of electronic commerce services. The inability of our
electronic commerce properties to generate significant revenues could have a
material adverse effect on our business.
GROWTH OF OUR BUSINESS MAY STRAIN OUR MANAGERIAL, FINANCIAL AND OPERATIONAL
RESOURCES.
We may experience rapid growth, which will place a significant strain on
our managerial, financial and operational resources. Any growth we may
experience will result in increased responsibility for existing and new
management personnel. Our effective growth management will depend on our
ability to:
- integrate new personnel into our corporate structure;
- improve our operational, management and financial systems and controls;
and
- retrain, train, motivate and manage employees.
We cannot assure you that our systems, procedures or controls will be
adequate to support our operations or that we will be able to manage any growth
effectively. If we do not manage our growth effectively, then our expenses may
exceed our revenues.
OUR DEPENDENCE ON THIRD PARTY SOURCES FOR OUR DATABASES MAY INHIBIT THE GROWTH
AND SUCCESS OF OUR WEB SITE.
We currently have the right to use a database of approximately 16,000,000
U.S. business and 1,800,000 Canadian business listings under the terms of a
non-exclusive license from Acxiom Corporation. The license agreement is for an
initial term of one year that expires on October 29, 2000, but is automatically
renewed for additional one year periods unless either party to the agreement
provides 90 days prior written notice of termination. The agreement with Acxiom
Corporation was renewed for an additional one year term.
We received a non-exclusive license from Chicago Map Corporation. Under the
terms of the license we have a right to install and set up their mapping
software on our server. We also have the right to allow our customers to have
access to Chicago Map's software through our web site.
The database and mapping technology are integral components to our web site
and our ability to operate our web site and search engine as intended depends on
our ability to maintain the licenses and continue to use the licensed materials.
There can be no assurance that we will be able to use the database from
Acxiom Corporation or the mapping technology of Chicago Map Corporation for a
long-term period. In the event that we are unable to utilize the database or
mapping technology in the future, we would be required to obtain similar
licenses from other sources. There can be no assurances that we will be able to
obtain similar licenses from other sources, or in the event that we can obtain
such similar licenses, that we will be able to do so on favorable terms.
<PAGE>
SYSTEM FAILURE COULD SIGNIFICANTLY REDUCE OUR REVENUES.
The servers that host our web site are backed-up by remote servers, but we
cannot be certain that the back-up servers will not fail or cause an
interruption in our service. Our web site could also be effected by computer
viruses, electronic break-ins or other similar disruptions. Our users depend on
Internet service providers, online service providers and other web site
operators for access to our web sites. Each of these providers has experienced
significant outages in the past and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. Further, our
systems are vulnerable to damage or interruption from fire, flood, power loss,
telecommunications failure, break-ins, earthquake and similar events. Any
system failure, including network, software or hardware failure, that causes an
interruption in our service could result in reduced visits to our web sites and,
therefore, reduced revenues.
A LOSS OF ANY KEY PERSONNEL COULD IMPAIR OUR ABILITY TO SUCCEED.
In part, our future success depends on the continued service of our key
management personnel, particularly: (1) Jeffrey D. Welsh, our Chief Executive
Officer and President, (2) Kevin Kosick, Vice President (Business Development),
(3) Lindsay Lent, Vice President (Marketing) and a Director, (4) Colin Fraser,
Vice President (Technology), (5) Alex Klenman, Vice President (Communications),
and (6) Wayne E. Loftus, the Chairman of our Board of Directors and the sole
director and officer of Fetchomatic.com Online Inc. The loss of their services,
or the services of other key employees, could impair our ability to grow our
business.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in our industry is
intense. We may be unable to attract, assimilate or retain other highly
qualified employees in the future. In the past we have experienced from time to
time, difficulty hiring and retaining highly skilled employees with appropriate
qualifications. We expect this difficulty to continue in the future.
OUR INABILITY TO EXPAND OUR SALES AND SUPPORT ORGANIZATIONS MAY RESULT IN A
FAILURE TO INCREASE MARKET AWARENESS OF OUR PRODUCTS AND SERVICES.
We need to substantially expand both our advertising sales and corporate
sales operations as well as our marketing efforts to increase market awareness
and sales of our products and services. We plan to hire additional sales
personnel. Competition for qualified sales personnel is intense, and we may be
unable to hire the kind and number of sales personnel we are targeting. We will
need to increase our staff if our customer base increases. Hiring qualified
customer service and support personnel is very competitive in our industry due
to limited number of people available with the necessary technical skills and
understanding of the Internet. If we are unable to hire additional sales
personnel we may be unable to increase market awareness of our products and
services.
IF WE ARE UNABLE TO DEVELOP OUR BRAND, WE WILL BE UNABLE TO BUILD OUR BUSINESS.
We believe that broader brand recognition and favorable consumer perception
of the "Fetchomatic" brand are essential to our future success. We also believe
that the importance of brand recognition will increase due to the growing number
of Internet sites and the relatively low barriers to entry. Accordingly, we
intend to continue pursuing an aggressive brand-enhancement strategy, that will
include mass marketing and multimedia advertising, promotional programs and
public relations activities. As of November 22, 2000 we have delivered
11,750,000 shares of common stock to Sivla, Inc. and other entities who have
performed media, advertising and public relations services on our behalf. We
are still entitled to $4,812,340 of advertising for shares already issued. We
intend to incur significant expenditures on additional advertising and
promotional programs and activities in the future, however our ability to put in
place an effective media relations plan is impacted by our limited cash flow and
concerns over additional dilution of common stock. Future expenditures, which
may not be sufficient, may not result in a sufficient increase in revenues to
cover our advertising and promotional expenses. In addition, even if brand
recognition increases, the number of new users may not increase. Further, even
if the number of new users increases, the amount of our sales may not increase
sufficiently to justify the expenditures. If our brand enhancement strategy is
unsuccessful, these expenses may never be recovered and we may be unable to
increase future revenues.
<PAGE>
WE ARE UNCERTAIN WHETHER WE WILL BE ABLE TO OBTAIN THE CAPITAL NECESSARY TO GROW
OUR BUSINESS.
To fully realize our business objectives and potential, we may require
significant additional financing. Based on our current operating plan, we
anticipate that we may require additional financing by May 2001. In the past, we
have been largely dependent upon private convertible debt and financing through
the exercise of stock options when we required funds. We also issued common
stock in exchange for services. We may need to raise additional funds in the
future to:
- fund more aggressive brand promotion or more rapid expansion;
- develop new or enhanced services; and
- respond to competitive pressures or to make acquisitions.
We may be unable to obtain required additional financing on terms favorable
to us. If adequate funds are not available on acceptable terms, and we cannot
exchange shares of common stock for services, we may be unable to:
- fund our expansion;
- successfully promote our brand;
- develop or enhance services;
- respond to competitive pressures; or
- take advantage of acquisition opportunities.
Additional financing may be debt, equity or a combination of debt and
equity. If we raise additional funds through the issuance of equity securities,
our stockholders may experience dilution of their ownership interest and the
newly issued securities may have rights superior to those of the common stock.
If we raise additional funds by issuing debt, we may be subject to limitations
on our operations, including limitations on the payment of dividends.
OUR COMPETITORS OFTEN PROVIDE INTERNET ACCESS OR COMPUTER HARDWARE TO OUR
POTENTIAL CUSTOMERS AND THEY COULD MAKE IT DIFFICULT FOR OUR CUSTOMERS TO ACCESS
OUR SERVICES.
Our potential users must access our services through an Internet service
provider, with which the user establishes a direct billing relationship using a
personal computer or other access device. To the extent that an access provider,
such as America Online, or a computer or computing device manufacturer offers
online services or properties that are competitive with ours, the user may find
it more convenient to use the services or properties of that access provider or
manufacturer. In addition, the access provider or manufacturer may make it
difficult to access our services by not listing them in the access provider's or
manufacturer's own directory. Also, because an access provider gathers
information from the user in connection with the establishment of the billing
relationship, an access provider may be more effective than us in tailoring
services and advertisements to the specific tastes of the user. To the extent
that a user opts to use the services offered by his or her access provider or
those offered by computer or computing device manufacturers rather than the
services provided by us, our business, operating results and financial condition
will be materially adversely affected because we may be unable to increase our
revenues in an amount that is sufficient to sustain our operations.
<PAGE>
IF INTERNET USAGE DOES NOT GROW, WE MAY BE UNABLE TO EXECUTE OUR BUSINESS PLAN
TO INCREASE OUR OPERATIONS.
Our business will be unable to succeed if Internet usage does not continue
to grow or grows at significantly lower rates compared to current trends. The
continued growth of the Internet depends on various factors, many of which are
outside our control. These factors include, but are not limited to the following
factors:
- the Internet infrastructure's ability to support the demands placed on it;
- the public's concerns regarding security and authentication concerns with
respect to the transmission over the Internet of confidential information, such
as credit card numbers and attempts by unauthorized computer users, so-called
hackers, to penetrate online security systems; and
- the public's concern regarding privacy issues, including those related to
the ability of web sites to gather user information without the user's knowledge
or consent.
OUR INABILITY TO ADAPT TO EVOLVING INTERNET TECHNOLOGIES AND CUSTOMER DEMANDS
MAY IMPEDE OUR FUTURE GROWTH.
To be successful, we must adapt to rapidly changing Internet technologies
and customer demands. To that end, we must continually enhance our products and
services and introduce new services to address our customers' changing needs. If
we need to modify our services or infrastructure to adapt to changes affecting
providers of Internet services, we could incur substantial development or
acquisition costs. If we cannot adapt to these changes, or do not sufficiently
increase the features and functionality of our products and services, our
customers may switch to the product and service offerings of our competitors or
potential competitors.
Furthermore, our competitors or potential competitors may develop novel
Internet applications that are equal or superior to our services. As a result,
customer demand for our services may decrease.
IF OUR SYSTEMS DO NOT PERFORM AS EXPECTED, OUR POTENTIAL REVENUES MAY BE
SIGNIFICANTLY REDUCED.
Any system failure, including network, software or hardware failure, that
causes an interruption in our service or a decrease in our responsiveness could
result in delays in the full launch of our web site or reduced user traffic on
our web site and therefore cause a reduction in potential revenues. Our web site
and data are backed-up on tapes and are stored remotely. Although we believe
that our current back-up methods are adequate, we cannot assure you that the
back-up tapes will not cause an interruption in our service. Computer viruses,
electronic break-ins or other similar disruptions could also affect our web
site. Our users and customers depend on Internet service providers, online
service providers and other web site operators for access to our web site. Each
of these providers has experienced significant outages in the past, and could
experience outages, delays and other difficulties due to system failures
unrelated to our systems in the future. Our systems are vulnerable to damage or
interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and other similar events. Our insurance policies have low
coverage limits and may not adequately compensate us for losses that may occur
due to interruptions in our service.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR ARE HELD LIABLE
FOR INFRINGING ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WE MAY BE FORCED
TO DEVOTE SIGNIFICANT TIME, ATTENTION AND MONEY TO DEFEND THESE CLAIMS.
Third parties may infringe or misappropriate our trademarks or other
proprietary rights, which could injure our reputation and business. We may be
subject to or may initiate proceedings in the United States Patent and Trademark
Office, which may demand significant financial and management resources. While
we enter into confidentiality agreements with our employees and consultants, and
generally control access to and distribution of our proprietary information, the
steps we have taken to protect our proprietary rights may not prevent
<PAGE>
misappropriation. In addition, we do not know whether we will be able to defend
our proprietary rights since the validity, enforceability and scope of
protection of proprietary rights in Internet-related industries is uncertain and
still evolving.
Many parties are actively developing search, indexing, e-commerce and other
Internet related technologies, as well as a variety of online business models
and methods. We believe that these parties will continue to take steps to
protect these technologies, including, but not limited to, seeking patent
protection. As a result, disputes regarding the ownership of these technologies
and rights associated with online business are likely to arise in the future.
Although we believe our products and information system do not infringe
upon the proprietary rights of others, there can be no assurance that third
parties will not assert infringement claims against us. From time to time in the
ordinary course of business we may be subject to claims of alleged infringement
of the trademarks and other intellectual property rights of third parties. These
claims and any resultant litigation, should this occur, could further subject us
to significant liability for damages. In addition, even if we prevail,
litigation could be time-consuming and expensive to defend, and could result in
the diversion of our time and attention and a reduction in any potential
profits. Any claims from third parties may also result in limitations on our
ability to use the intellectual property subject to these claims unless we are
able to enter into agreements with the third parties making these claims.
IF WE ARE HELD LIABLE FOR PUBLISHING CERTAIN CONTENT ON THE INTERNET, WE MAY BE
FORCED TO DEVOTE SIGNIFICANT RESOURCES TO DEFEND THOSE CLAIMS.
As a publisher of online content, we face potential liability for
defamation, negligence, copyright, patent or trademark infringement, or other
claims based on the nature and content of materials that we publish or
distribute. In the past, plaintiffs have brought these types of claims and
sometimes successfully litigated them against online services. If a plaintiff
were to bring a claim against our company, we would incur legal expenses
associated with defending the litigation. Furthermore, there exists the
possibility that we may not prevail. Litigating any one of these claims would be
time-consuming and expensive to defend and could impair our ability to become
profitable.
IF WE EVER DECIDE TO COLLECT PERSONAL INFORMATION ABOUT OUR USERS, WE MAY FACE
POTENTIAL LIABILITY FOR INVASION OF PRIVACY.
Although we have a policy against using personal information, current
computing and Internet technology allows us to collect personal information
about our users. We may decide in the future to compile and provide such
information to our electronic commerce partners. If we begin collecting such
information, we may face potential liability for invasion of privacy for
compiling and providing to our electronic commerce partners information based on
questions asked by users and visitors on our web site. Because we may not obtain
permission from users to distribute this information, we may potentially face
liability for invasion of privacy.
IF A NEW LAW OR NEW GOVERNMENT REGULATION IS CREATED PERTAINING TO THE INTERNET,
IT COULD DECREASE THE DEMAND FOR OUR SERVICES OR INCREASE THE COST OF DOING
BUSINESS.
Any new law or regulation pertaining to the Internet, or the application or
interpretation of existing laws, could decrease the demand for our services or
increase our cost of doing business. There is, and will likely continue to be,
an increasing number of laws and regulations pertaining to the Internet. These
laws or regulations may relate to liability for information retrieved from or
transmitted over the Internet, online content regulation, user privacy, taxation
and the quality of products and services. Furthermore, the growth and
development of electronic commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on electronic commerce
companies as well as companies like ours that provide electronic commerce
services. Moreover, the applicability to the Internet of existing laws governing
intellectual property ownership and infringement, copyright, trademark, trade
secret, obscenity, libel, employment, personal privacy, advertising and other
issues is uncertain and developing.
<PAGE>
We file tax returns in such jurisdictions as required by law based on
principles applicable to traditional businesses. However, one or more states
could seek to impose additional income tax obligations or sales tax collection
obligations on out-of-state companies, such as ours, that engage in or
facilitate electronic commerce. A number of proposals have been made at state
and local levels that could impose such taxes on the sale of products and
services through the Internet. Such proposals, if adopted, could substantially
impair the growth of electronic commerce and adversely affect our opportunity to
become profitable.
The United States Congress has enacted legislation limiting the ability of
the states to impose taxes on Internet-based transactions. This legislation,
known as the Internet Tax Freedom Act was enacted on October 1, 1998 and ends on
October 21, 2001. The legislation imposes only a three-year moratorium on state
and local taxes on (1) electronic commerce where such taxes are discriminatory
and (2) Internet access unless such taxes were generally imposed and actually
enforced prior to October 1, 1998. It is possible that the tax moratorium could
fail to be renewed prior to October 21, 2001. Failure to renew this legislation
would allow various states to impose taxes on Internet-based commerce. The
imposition of such taxes could adversely affect our ability to become
profitable.
Due to the global nature of the Internet, it is possible that the
governments of other states and foreign countries might attempt to regulate its
transmissions or prosecute for violations of their laws. We might
unintentionally violate such laws, such laws may be modified, and new laws may
be enacted in the future. Any such developments could have a material adverse
effect on our business, operating results and financial condition.
SINCE WE PLAN TO ENTER INTO REVENUE-SHARING CONTRACTS WITH THIRD PARTIES, THIS
EXPOSURE MAY SUBJECT US TO LEGAL RISKS AND POSSIBLE LIABILITIES.
As part of our business, we plan to enter into agreements with sponsors,
content providers, service providers and merchants. As a result, we will be
entitled to receive a share of revenues from the purchase of goods and services
by users of our online properties. Such arrangements may expose us to additional
legal risks and uncertainties, including potential liabilities to consumers of
such products and services. Although we carry general liability insurance, our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us against all potential liability.
Some of the risks that may result from these arrangements with businesses
engaged in electronic commerce include, but are not limited to the following:
- potential liabilities for illegal activities that may be conducted by
participating merchants;
- product liability or other tort claims relating to goods or services sold
through third-party commerce web sites;
- consumer fraud and false or deceptive advertising or sales practices;
- breach of contract claims relating to merchant transactions;
- claims that materials included in merchant web sites or sold by merchants
through these web sites infringe third-party patents, copyrights, trademarks or
other intellectual property rights, or are libellous, defamatory or in breach of
third-party confidentiality or privacy rights; and
- claims relating to any failure of merchants to appropriately collect and
remit sales or other taxes arising from electronic commerce transactions.
Even to the extent that such claims do not result in material liability,
investigating and defending such claims could cause a strain on our finances,
damage our reputation and distract the attention of our management.
<PAGE>
SINCE OUR CURRENT AND FORMER OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF
OUR OUTSTANDING SHARES, THEY ARE ABLE TO SIGNIFICANTLY INFLUENCE MATTERS
REGARDING STOCKHOLDER APPROVAL.
As of December 12, 2000, our current executive officers, directors and
their affiliates beneficially own (or control via proxy) in the aggregate
15,901,084 shares or approximately 29.09% of our current issued and outstanding
common stock. These stockholders may be able to exercise control over all
matters requiring approval by our stockholders, including the election of
directors and the approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing an
acquisition or change in control of our company, which could significantly
reduce our stock price.
Further, as of December 12, 2000, Maurice Simpson, Dana Shaw and William
Murray (former executive officers of our company and/or certain of our
subsidiaries) beneficially own in the aggregate 17,225,000 shares or 31.5% of
our currently issued and outstanding common stock. This concentration of stock
with individuals with which we are currently in dispute may also have the effect
of delaying or preventing approval of transactions and events requiring
stockholder approval.
SINCE THE MARKET FOR STOCKS OF INTERNET COMPANIES HISTORICALLY HAS EXPERIENCED
EXTREME PRICE FLUCTUATIONS, OUR SHARES MAY EXPERIENCE EXTREME PRICE AND VOLUME
FLUCTUATIONS.
The market for the stocks of Internet-related companies has experienced
extreme price and volume fluctuations. The market price of our common stock may
be volatile and may decline. In the past, securities class action litigation has
often been initiated against companies following periods of volatility in the
market price of their securities. If initiated against us, regardless of the
outcome, litigation could result in substantial costs and a diversion of our
management's attention and resources.
FUTURE SALES OF COMMON STOCK BY OUR EXISTING STOCKHOLDERS COULD REDUCE THE PRICE
OF OUR COMMON STOCK.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market. Likewise, the
perception that these sales could occur may result in the decline of the market
price of our common stock. These sales also might make it more difficult for us
to sell equity securities in the future at a time and at a price that we deem
appropriate.
PROVISIONS IN OUR CHARTER OR AGREEMENTS MAY PREVENT OR DELAY A CHANGE OF
CONTROL.
Provisions of our certificate of incorporation and bylaws as well as
provisions of applicable Nevada law may discourage, delay or prevent a merger or
other change of control that a stockholder may consider favorable. Our board of
directors has the authority to issue up to 200,000,000 shares of common stock
and to determine the price and terms, including preferences and voting rights,
of those shares without stockholder approval. As of December 12, 2000, we have
issued the following (or are required to additional shares of common stock as
the result of our receipt of conversion notices form the holders of the
debentures so that our capitalization is as follows): (1) 721,765 warrants to
purchase common stock and (2) $3,500,000 of convertible debentures (with a
remaining principal balance of $2,677,430 convertible into shares of common
stock based upon applicable conversion price of our common stock at the time of
conversion). The issuance of additional shares of common stock or convertible
securities could, among other things, have the following effect:
- delay, defer or prevent an acquisition or a change in control of our
company;
- discourage bids for our common stock at a premium over the market price;
or
- reduce the market price of, and the voting and other rights of the holders
of, our common stock.
<PAGE>
Furthermore, we are subject to Nevada laws that could have the effect of
delaying, deterring or preventing a change in control of our company. One of
these laws prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder, unless certain conditions are met. In
addition, certain provisions of our certificate of incorporation and by-laws,
and the significant amount of common stock held by our executive officers,
directors and affiliates, could together have the effect of discouraging
potential takeover attempts or making it more difficult for stockholders to
change management.
WE DO NOT EXPECT TO PAY DIVIDENDS.
We have not paid dividends on our common stock or preferred stock and do
not expect to do so in the foreseeable future.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On November 24, 2000, our wholly-owned subsidiary, Fetchomatic.com Online
Inc., filed a Writ of Summons in the Supreme Court of British Columbia, naming
Maurice Simpson, Barbara Ann Jones Simpson, Robert Simpson, Brennan Simpson,
Robert Matthew Simpson, Novacom Marketing Inc. and Dana Shaw as Defendants.
Details of the lawsuit has been previously reported on our Form 10-KSB for the
year ended July 31, 2000.
ITEM 2. CHANGES IN SECURITIES.
On May 1, 2000, in a private placement transaction, we issued 7%
convertible debentures in the aggregate principal amount of $3,500,000, due May
1, 2003, to Collinson Road, LLC. The debentures may be converted into shares of
our common stock at the option of the holders of such debentures, in whole or in
part at any time and from time to time. The number of shares of common stock
issuable upon a conversion is based on the conversion price in effect at the
time of conversion. Any convertible debentures outstanding on May 1, 2003
automatically convert into shares of our common stock at the then applicable
conversion price. On each of the following dates, we issued shares of common
stock to Collinson Road LLC pursuant to a conversion notice received from them:
- On September 18, 2000, we issued 354,097 common shares to Collinson Road
LLC. with 68,047 issued at a conversion price of $0.75 per common share and
286,050 issued at a conversion price of $0.715 per common share;
- On September 26, 2000, we issued 118,306 common shares to Collinson Road
LLC. issued at a conversion price of $0.65 per common share; and
- On October 18, 2000, we issued 169,539 common shares to Collinson Road
LLC. issued at a conversion price of $0.425 per common share.
We received further conversion notices from Collinson Road LLC on (1)
October 17, 2000 requesting conversion of a principal amount of $60,000 at a
conversion price of $0.24167 which would require us to issue 256,275 common
shares (which we issued on November 2, 2000); and (2) October 30, 2000
requesting conversion of a principal amount of $65,000 at a conversion price of
$0.23 which would require us to issue 292,419 common shares. We did not issue
any shares in response to these conversion notices before the end of the quarter
or October 31, 2000.
In each case, the shares of our common stock were issued to Collinson Road
pursuant to the exemptions from the registration requirements provided by
Section 4(2), 4(6) and/or Rule 506 of Regulation D of the Securities Act of
1933, as amended.
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On December 12, 2000, Mr. Dana Shaw tendered his resignation as a director
of our company. Our Board of Directors accepted Mr. Shaw's resignation on
December 12, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
We did not file any Current Reports on Form 8-K during the quarter ended
October 31, 2000.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FETCHOMATIC GLOBAL INTERNET INC.
By: /s/ Jeffrey Dale Welsh
Jeffrey Dale Welsh, President and CEO
By: /s/ Lindsay Lent
Lindsay Lent, Secretary and Director
By: /s/ Wayne Loftus
Wayne Loftus, Chairman and Director
By: /s/ Michael Jenks
Michael Jenks, Director
By: /s/ Ted Kozub
Ted Kozub, Director
By: /s/ Frank Denis
Frank Denis, Director
By: /s/ Gil Rahier
Gil Rahier, Director
