<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1999; or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________ to ________.
Commission file Number: 0-25136
SUITE101.COM INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0464753
----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation of organization) identification no.)
SUITE 390 - 1122 MAINLAND STREET, VANCOUVER, BC, CANADA V6B 5L1
---------------------------------------------------------------
(Address of principal executive offices, zip code)
604-682-1400
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer(1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
proceeding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES X NO
-------- --------
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at May 11, 1999
- -------------------------------- -----------------------------------------
COMMON STOCK, PAR VALUE 12,061,288
$.001 PER SHARE
Transitional Small Business Disclosure Format
YES / / NO /X/
<PAGE>
SUITE 101.COM,INC.
QUARTERLY REPORT ON FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Accountants' Compilation Report 3
Consolidated Balance Sheets -- March 31, 1999 and
March 31, 1998 4
Consolidated Statements of Operations -- Three Months
Ended March 31, 1999 and March 31, 1998 6
Consolidated Statements of Cash Flows -- Three Months
Ended March 31, 1999 and March 31, 1998 7
Notes to Consolidated Financial Statements -- Three Months
Ended March 31, 1999 and March 31, 1998 8
Item 2. Management's Discussion and Analysis or Plan of Operation 10
PART II OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 29
Item 6. Exhibits and Reports on Form 8-K 30
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS
ACCOUNTANTS' COMPILATION REPORT
We have compiled the accompanying balance sheets of Suite101.com Inc. as of
March 31, 1999 and March 31, 1998 and the related statements of income and cash
flows for the three-month periods then ended in accordance with Statements on
Standards for Accounting and Review services issued by the American Institute of
Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and accordingly, do not express
an opinion or any form of assurance on them.
N.I. Cameron Inc.
(signed)
VANCOUVER, B.C. CHARTERED ACCOUNTANTS
May 11, 1999
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SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED - SEE ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, 1999 MARCH 31, 1998
<S> <C> <C>
CURRENT ASSETS
Cash (Note 4) $ 2,514,556 $ 13,110
Accounts receivable 3,784 1,419
Income taxes recoverable 1,020 -
Prepaid expenses and deposits 12,500 -
----------------------------------------
2,531,860 14,529
----------------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Computer equipment 51,099 43,411
Furniture and fixtures 700 746
Leasehold improvements 16,764 17,859
----------------------------------------
68,563 62,016
Less: accumulated amortization 32,662 20,835
----------------------------------------
35,901 41,181
----------------------------------------
TOTAL ASSETS $ 2,567,761 $ 55,710
----------------------------------------
----------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED - SEE ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
MARCH 31, 1999 MARCH 31, 1998
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 119,896 17,662
DUE TO STOCKHOLDERS 449,970 399,120
DUE TO AFFILIATED COMPANIES 23,591 72,594
----------------------------------------
TOTAL LIABILITIES 593,457 489,376
----------------------------------------
CAPITAL STOCK
Authorized:
40,000,000 common shares with a par value of $0.001 each
Issued:
10,061,288 common shares 10,062 73
CAPITAL STOCK SUBSCRIBED (NOTE 4) 1,000 -
ADDITIONAL PAID-IN CAPITAL 2,885,260 -
DEFICIT (968,640) (443,743)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION 46,622 10,004
----------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,974,304 (433,666)
----------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,567,761 $ 55,710
----------------------------------------
----------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED - SEE ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
MARCH 31,1999 MARCH 31,1998
---------------------------------------------
<S> <C> <C>
SALES $ 416 $ 9,673
OPERATING EXPENSES
General and administrative 212,051 70,184
---------------------------------------------
LOSS FROM OPERATIONS (211,635) (60,511)
OTHER INCOME
Other income, net 326 332
---------------------------------------------
NET LOSS $ (211,309) $ (60,179)
---------------------------------------------
---------------------------------------------
INCOME (LOSS) PER SHARE
Basic and Diluted $ (0.02) $ (0.02)
---------------------------------------------
---------------------------------------------
Average common shares outstanding 10,061,288 3,405,622
---------------------------------------------
---------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED - SEE ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
MARCH 31,1999 MARCH 31,1998
----------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $ (211,309) $ (60,179)
Adjustment to reconcile net loss to
net cash used in operating activities
Amortization 2,958 3,188
----------------------------------
(208,351) (56,991)
Changes in operating assets and liabilities
Accounts receivable (1,426) 5,754
Prepaid expenses and deposits (12,500) -
Accounts payable and accrued expenses (7,078) 2,997
----------------------------------
Net cash used in operating activities (229,355) (48,240)
----------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (3,166) (479)
----------------------------------
Net cash used in operating activities (3,166) (479)
----------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Advances from stockholders 254,201 60,826
Advances from (to) affiliated companies (19,389) 2,447
Share subscriptions 2,500,000 -
----------------------------------
Net cash provided by financing activities 2,734,812 63,273
----------------------------------
EFFECT OF EXCHANGE RATES ON CASH 1,721 134
----------------------------------
NET INCREASE IN CASH 2,504,012 14,688
CASH (DEFICIENCY) AT BEGINNING OF PERIOD 10,544 (1,578)
----------------------------------
CASH (DEFICIENCY) AT END OF PERIOD $ 2,514,556 $ 13,110
----------------------------------
----------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED - SEE ACCOUNTANTS' COMPILATION REPORT)
1. THE COMPANY
Suite101.com Inc. (formerly known as Kinetic Ventures Ltd. (the
"Company")) was incorporated in the State of California, United States on
May 20, 1991, and reincorporated in the State of Delaware, United States
on December 31, 1993. By way of a reverse purchase acquisition on December
8, 1998 the Company acquired a wholly-owned subsidiary, i5ive
communications inc. ("i5ive"). i5ive is engaged in the creation, operation
and maintenance of a World Wide Web based community. Because of this
reverse purchase acquisition, the financial statements for March 31, 1998
and the three-month period then ended are those of i5ive and not those
originally reported for Kinetic Ventures Ltd.
GOING CONCERN
The accompanying consolidated financial statements have been presented
assuming the Company will continue as a going concern. As at March 31,
1999, the Company had accumulated $968,640 in losses and had no material
revenue producing operations.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Endovascular, Inc., a California
corporation and i5ive communications inc. a Canadian company. All
intercompany accounts and transactions have been eliminated in
consolidation. As at March 31, 1999, there were no operations in the
Company or Endovascular, Inc.
Although unaudited, the interim consolidated financial statements in this
report reflect all adjustments, consisting of normal recurring accruals,
which are, in the opinion of management, necessary for a fair statement of
financial position, results of operations and cash flows for the interim
periods covered and of the financial condition of the Company at the
interim balance sheet dates. The results of operations for the interim
periods presented are not necessarily indicative of the results expected
for the entire year.
These consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998.
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SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND MARCH 31, 1998
(UNAUDITED - SEE ACCOUNTANTS' COMPILATION REPORT
3. FOREIGN EXCHANGE
Unless otherwise stated, all amounts are in United States dollars. The
functional currency of i5ive is the Canadian dollar. Hence, all asset and
liability accounts have been translated using the exchange rate as at
March 31, 1999 and March 31, 1998 and all revenues and expenses have been
translated using the average exchange rate for each period. The rates used
were as follows:
<TABLE>
<CAPTION>
(equivalent Cdn $ per U.S. $) 1999 1998
------------------------
<S> <C> <C>
March 31 rate .6628 .7061
Average rate for the three-month period .6617 .6992
</TABLE>
4. SUBSEQUENT EVENT
During March 1999, the Company received and accepted share subscriptions
regarding the issue of 500,000 units for $2,500,000 in a private
placement. Each unit was comprised of two common shares and one warrant
entitling the holder to purchase an additional common share for $4.50 on
or before February 29, 2000. Subsequent to March 31, 1999, the Company
received and accepted share subscriptions for an additional 500,000 units
for $2,500,000. Cost of these issuances are estimated to be approximately
$300,000.
As of May 11, 1999, all shares have been issued to the subscribers.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
The following discussion and analysis of the Company should be read in
conjunction with, and is qualified in its entirety by, the more detailed
information including the Company's Financial Statements and the Notes thereto
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998. This Annual Report contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that may cause or contribute to such differences include those discussed below
under "Cautionary Statement for Purposes of the 'Safe Harbor' Provisions of the
Private Securities Litigation Reform Act of 1995" and in "Risk Factors"
contained in the Company's Annual Report, as well as those discussed elsewhere
in this Quarterly Report.
OVERVIEW
The Company is an Internet company engaged through its wholly owned
subsidiary, i5ive communications, Inc. ("i5ive") in the creation, operation and
maintenance of a World Wide Web based community, known as Suite101.com, for
Internet users to express themselves, share ideas, interests and expertise, and
publish content accessible to other users with common interests. The Company's
community includes its visitors and Members who are Internet users and
Contributing Editors who create their own personal Web sites organized topically
into Communities of Interest. The Company believes that user affinity to the Web
occurs when users relate personally to their online experience, and the more
users are active in the creation of that experience, the more personal the
experience becomes. By establishing a free service enabling Internet users to
create their own Web sites in Communities of Interest, the Company further
believes that the users will in turn write about their experiences and offer
their knowledge to other Internet users as a means to find the best content and
information on the Internet - quickly and easily. These Communities of Interest
provide the context and tools for Web users to publish content, to communicate
with other users, and to access a centralized and easy-to-navigate destination
for the Best of the Web content. This process enhances the Member's experience
by allowing them to express themselves, share ideas, interests and expertise and
to publish content accessible to other Members and visitors with common
interests.
Content, organized into 11 categories, is authored by
Member/Contributing Editors, who have demonstrated competence in their area of
interest. Contributing Editors are paid an average honorarium of $20 for writing
monthly, bimonthly or weekly articles, for maintaining a "Best of Web" list
(links to topic related information on the Internet), and for hosting
discussions on their topic. As their number grew from 35 in October 1996 to 611
in March 1999, Member/Contributing Editors created an estimated 12,574 pages of
archived personalized content. Content, which generated 1.6 million page views
in March 1999, is currently growing by over 1000 articles a month.
10
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The Company intends to realize revenue by sharing in the proceeds of
e-commerce transactions. The marketing effort is expected to be a collaborative
effort: the Company, its Members and its E-Providers. The Company's marketing
plan is founded on the Member's consent, the Company's role as custodian of the
Members privacy and the E-Provider's commitment to deliver competitive, quality
goods and services on time. The Company currently intends to limit its
involvement to facilitating the introduction of the buyer to the seller, the
seller to the buyer. As custodian of the Members demographics, psychographics
and the Member's annual "Wish" list, the Company will offer its E-Providers a
unique opportunity to market one-to-one to a very loyal and focused community.
Unlike traditional marketing campaigns, which typically use print (newspapers,
magazines and direct mail) or the electronic media (radio and television), the
Company's campaigns will direct marketing material to the Member's "Home Page"
or personal Web site, significantly reducing the cost of reaching the consumer.
The interactive nature of the Web and the ability to display attractive graphics
and to facilitate Members "clicking" through directly to the E-Providers site,
will enable the Company to present such offerings 24 hours a day 7 days a week
in a complete, dynamic and timely manner. The Internet's interactive properties
and the Company's dynamic software are believed by management to be compelling
reasons why consenting Members and E-Providers will utilize the Company's
marketing program. Products and services can be marketed and the transaction can
be completed on the Web-site quickly and easily. This capability offers the
Company's Members electronic one-stop-shopping and the Company's E-Providers
one-to-one contact with the consumer, the Company's Member.
The Company's business plan includes presenting Suite101.com as a
portal for access to the Internet. The Company currently affords visitors with
access to what its Contributing Editors determine is the best of the World Wide
Web as well as member generated content. When fully implemented, Suite101 will
afford destinations through which the content can be accessed through the
creation of free member home pages. The Company is currently seeking to increase
membership.
The Company will focus on maintaining the confidentiality of member
information and assuring members that information concerning them and their
activities on the Internet are private. With this assured privacy, the Company
intends to seek the members consent to provide aggregated demographic and
psychographic information as well as aggregated member purchasing preferences to
vendors of services and products. As a consequence, marketing to members will be
limited to services and products in which they have expressed an interest.
Revenues derived from this aggregated information are intended to be shared with
members. The Company believes that this aggregated information will be
attractive to vendors looking for a loyal and targeted market to facilitate
transactions. In addition, the Company intends to derive revenues from
participating in transactions conducted by members with vendors through its
Internet facilities.
As the Company grows, its operating expenses will increase in
connection with its visitor and Member generation, brand marketing and
E-Providers promotional efforts, its increased funding of site development,
technology and operating infrastructure, and the increased general
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and administrative staff needed to support the Company's growth. The Company
anticipates that it will incur net losses for the foreseeable future. The extent
of these losses will be contingent, in part, on the amount and rates of growth
in the Company's net revenue from electronic commerce (e-commerce) and
advertising. The Company expects its operating expenses to increase
significantly, especially in the areas of sales and marketing and brand
promotion. The Company believes that period-to-period comparisons of its Member
recruitment results are not meaningful and that the results for any period
should not be relied upon as an indication of future performance. There can be
no assurance that the Company's operating losses will not increase in the future
or that the Company will ever achieve or sustain profitability.
To date, the Company has entered into a limited number of license
arrangements and strategic alliances in order to build its communities, provide
community-specific content, generate additional traffic, and increase
membership.
The Company intends to continue to increase reach and membership and to
seek additional strategic alliances with content and distribution partners,
including alliances that create co-branded sites through which the Company
markets its services.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
During the three months ended March 31, 1999, the Company's sales were
$416 compared with sales of $9,673 during 1998. Sales in both periods were
primarily attributable to software licensing revenues of i5ive.
The decline in 1999 was the result of [INSERT TO COME].
Operating Expenses in both the quarters ended March 31, 1999 and March
31, 1998 were comprised solely of general and administrative expenses. Such
expenses increased to $212,051 in 1999 from $70,184 in 1998, primarily as a
result of the increase in the number of the Company's Contributing Editors.
The Company's Loss From Operations was $211,635 in 1999 compared with
$60,511 in 1998. Other income was $326 in 1999 compared with $332 in 1998.
The increase in the Company's Net Loss in 1999 compared with 1998 was
the result of the increase in general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The report of the Company's independent auditors on their audit of the
Company's financial statements as of December 31, 1998 contains an explanatory
paragraph that describes an uncertainty as to the ability of the Company to
continue as a going concern due to the
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Company's recurring losses and, as of the date of their report, the lack of
liquid resources. Through April 30, 1999, the Company realized gross proceeds of
$5,000,000 from a private placement of its equity securities. In the
transaction, the Company sold 1,000,000 units of securities, each unit
consisting of two shares of Common Stock and one Common Stock Purchase Warrant.
The warrants are exercisable through February 29, 2000 at a price of $4.50 per
share. These proceeds are believed by management to be sufficient to meet the
Company's anticipated needs for working capital and capital expenditures for at
least the next 12 months. Of the proceeds, approximately $300,000 was used to
meet expenses of the offering and approximately $341,000 was used subsequent to
March 31, 1999 to repay indebtedness to stockholders and affiliated companies,
including accrued interest.
The Company may seek to raise additional funds in order to fund more
aggressive promotions and more rapid expansion, to develop newer or enhanced
services, to respond to competitive pressures or to acquire complementary
businesses, technologies or services. There can be no assurance that any
additional financing will be available on terms favorable to the Company, or at
all. If adequate funds are not available or not available on acceptable terms,
the Company may not be able to fund its expansion, promote its e-commerce as the
Company desires, or, develop or enhance services or respond to competitive
pressures. Any such inability could have a material adverse effect on the
Company's business, results of operations and financial condition. Additional
funds raised through the issuance of equity or convertible debt securities, will
result in reducing the percentage ownership of the stockholders of the Company
and, stockholders may experience additional dilution and such securities may
have rights, preferences or privileges senior to those of the rights of the
Company's Common Stock.
As a result of the Company's limited operating history, the Company has
limited meaningful historical financial data upon which to base planned
operating expenses. Accordingly, the Company's anticipated expense levels in the
future are based in part on its expectations as to future revenue from proposed
e-commerce revenue-sharing arrangements, and anticipated growth in visitor
traffic and membership and will become, to a large extent, fixed. Revenues and
operating results generally will depend on the volume of, timing of and ability
to complete transactions, which are difficult to forecast. In addition, there
can be no assurance that the Company will be able to accurately predict its
revenues, particularly in light of the intense competition for the sale of
products and services on the Web, revenue-sharing opportunities, the Company's
limited operating history and the uncertainty as to the broad acceptance of the
Web as an e-commerce medium. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall or other
unanticipated changes in the e-commerce industry. Any failure by the Company to
accurately make such predictions would have a material adverse effect on the
Company's business, results of operations and financial condition.
YEAR 2000 COMPUTER ISSUES
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "Year 2000
Problem" is pervasive and
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complex as virtually every computer operation will be affected in some way by
the rollover of the two-digit year value to 00. The issue is whether computer
systems will properly recognize date-sensitive information when the year changes
to 2000. Systems that do not properly recognize such information could generate
erroneous data or fail. the Company is in the process of working with its
software vendors to ensure that the software that the Company has licensed from
third parties will operate properly in the year 2000 and beyond. In addition,
the Company is working with its external suppliers and service providers to
ensure that they and their systems will be able to support the Company's needs
and, where necessary, inter-operate with the Company's server and networking
hardware and software infrastructure in preparation for the year 2000.
Management does not anticipate that the Company will incur significant operating
expenses or be required to invest heavily in computer systems improvements to be
year 2000 compliant. However, significant uncertainty exists concerning the
potential costs and effects associated with any year 2000 compliance. Any year
2000 compliance problems of either the Company, its customers or vendors would
have a material adverse effect on the Company's business, results of operations
and financial condition.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed above
and elsewhere in this Quarterly Report are "forward-looking statements" as
defined under the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties. The forward-looking statements discussed in this
Quarterly Report appear in various places including: "Item 2 - Management's
Discussion and Analysis or Plan of Operation - Overview", "-Liquidity and
Capital Resources", and "-Year 2000 Computer Issues". The Company cautions
readers that the risk factors described in its Annual Report on Form 10-KSB, as
well as those described elsewhere in this Quarterly Report, or in its other
filings with the Commission, in some cases have affected, and in the future
could affect its actual results, could cause its actual results during 1999 and
beyond, to differ materially from those expressed in any forward-looking
statements, and could cause the development of the Company and its business
plans to be different than expressed in those statements. Important factors that
may be encountered, that could cause actual results to differ materially from
the forward-looking statements in this Quarterly Report include, among others,
the Company's early stage of development and absence of material revenues, the
possibility that the Company will be unable to increase membership in its
Communities of Interest sufficiently to attract e-commerce, the usual
unforeseeable risks encountered by any new enterprise, the inability of the
Company to attract readership to its Communities, the Company's potential need
for additional capital and the possible inability of the Company to attract such
capital on acceptable terms or at all, the uncertainties of the levels of the
Company's future operating expenses, fluctuations in its quarterly revenues and
membership growth, the level of consumer acceptance of e-commerce, the inability
of the Company to enter into marketing and other relationships to develop its
e-commerce, intense competition among Internet portals and e-commerce
participants, the inability of the Company to manage its growth, the impact of
possible future government regulation, the inability of the Company to afford a
sufficient level of
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privacy to its members, the possible volatility of the market price for the
Company's Common Stock, and the impact of additional shares possibly coming onto
the market for sale.
RISK FACTORS
An investment in the Company's common stock involves a high degree of
risk. The following factors, in addition to the other information contained
herein, should be carefully considered in evaluating the Company and its
business before purchasing shares of the Company's common stock. See "Cautionary
Statement for Purposes of the Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995" regarding risks and uncertainties relating to
forward looking statements in this Quarterly Report.
EARLY DEVELOPMENT STAGE; NO MATERIAL REVENUES. The Company is in the
early stage of developing its business plan and operations. The Company has
realized no material revenues to date form its Internet operations activities.
From in April 1996 through March 31, 1999, total revenues from these Internet
operations activities were $37,877. During that period, it has accumulated
losses of $933,543. The Company has not achieved profitability on a quarterly or
annual basis to date, and the Company anticipates that it will continue to incur
net losses for the foreseeable future. The extent of these losses will be
dependent, in part, on the amount and rates of its expenditures and growth in
the Company's net revenue from e-commerce transactions. The Company expects its
operating expenses to increase significantly, especially in the areas of visitor
and Member generation, brand marketing and e-commerce promotion. As a result, it
will need to generate increased amounts of quarterly net revenue if
profitability is to be achieved. The Company believes that period-to-period
comparisons of its operating results will not be meaningful and that the results
for any period should not be relied upon as an indication of future performance.
To the extent that net revenue does not grow at anticipated rates or that
increases in its operating expenses precede or are not subsequently followed by
commensurate increases in net revenue, or that the Company is unable to adjust
operating expense levels accordingly, the Company's business, results of
operations and financial condition will be materially and adversely affected.
There can be no assurance that the Company's operating losses will not increase
in the future or that the Company will ever achieve or sustain profitability.
The Company is currently developing its business through efforts to
attract visitors, Members and Contributing Editors to its Web-based community.
At March 31, 1999, it had grown from 35 Contributing Editors in October 1996 to
611 in March 1999. During the month of March 1999, the site received
approximately 1.6 million page views. The Company cannot assure that such growth
rates are sustainable. The Company's business plan is to continue to expand its
numbers of visitors, Members and Contributing Editors in an effort to reach a
sufficient level of critical mass as well as to continue to improve and enhance
its site infrastructure through the introduction of improved technology. No
significant efforts have been expended to date to realize revenues. Accordingly,
there can be no assurance that the Company's business plan can be successfully
developed or that it will realize any material revenues.
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LIMITED OPERATING HISTORY; ANTICIPATED LOSSES; NO ASSURANCE OF
PROFITABILITY. i5ive was founded in April 1996 and has had no material revenues
to date. Accordingly, the Company and i5ive have no operating history upon which
an evaluation of the Company's current business plans and its prospects can be
based, each of which must be considered in light of the risks, expenses and
problems frequently encountered by companies in the early stages of development,
and particularly by such companies entering new and rapidly developing markets
like the Internet. Such risks include, without limitation, the lack of broad
acceptance of the community concept on the Internet, the possibility that the
Internet will fail to achieve broad acceptance as a commercial medium, the lack
of acceptance by consumers of e-commerce, the inability of the Company to
attract visitors, or retain Members and Contributing Editors, the inability of
the Company to generate significant e-commerce-based revenues from its visitors
and Members, risks associated with a new and unproven business concept, the
Company's ability to anticipate and adapt to a developing market, the failure of
the Company's network infrastructure (including its server, hardware and
software) to efficiently handle its Internet traffic, changes in laws and taxes
that adversely affect the Company's business, the possibility that the Company
will be unable to manage effectively any rapid expansion of its operations,
including the amount and timing of capital expenditures and other costs relating
to any expansion of the Company's operations, the introduction and development
of different or more extensive communities by direct and indirect competitors of
the Company, including those with greater financial, technical and marketing
resources, the inability of the Company to maintain and increase levels of
traffic on its Website, the inability of the Company to attract, retain and
motivate qualified personnel, technical difficulties, system downtime or
Internet brownouts, the amount and timing of operating costs and capital
expenditures relating to development of the Company's business, operations and
infrastructure, and general economic conditions. To address these risks, the
Company must, among other things, attract visitors and retain Members and
Contributing Editors, attract and retain a significant number of E-Providers,
respond to competitive developments, form and maintain relationships with
strategic partners, attract and respond to competitive developments, retain and
motivate qualified personnel, develop and upgrade its technologies and
commercialize its services incorporating such technologies and be successful in
attracting additional substantial capital at the times, in the amounts and on
the terms required. There can be no assurance that the Company will be
successful in addressing such risks, and any failure to do so could have a
material adverse effect on the Company's business, results of operations and
financial condition. Due to the foregoing factors, the Company's quarterly net
revenue and operating results are difficult to forecast. Consequently, the
Company believes that period to period comparisons of its operating results will
not necessarily be meaningful and should not be relied upon as an indication of
future performance. It is likely that in some future quarter or quarters the
Company's operating results may fall below the expectations of securities
analysts and investors. In such event, the trading price of the Company's Common
Stock would likely be materially and adversely affected.
UNPROVEN BUSINESS; DEPENDENCE ON MEMBERS. The success of the Company's
business depends upon its ability to expand upon and develop its community-based
platform of Internet access and to generate multiple revenue streams. Currently,
the Company has no source of material revenues. The potential success of this
business concept is unproven, and, to be successful, the Company must, among
other things, develop and market concepts that achieve
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broad market acceptance by its Members and Internet users. The Company is and
will be substantially dependent upon its Member-generated content, the
promotional efforts of its Members, the acceptance by its visitors and Members
of advertising and other promotional programs of third parties and the Company,
and its ability and the ability of its Contributing Editors to attract Web users
to its site and to reduce the demands on Company personnel. This business
concept has existed for only a limited period of time, and, as a result, is
relatively unproven. There can be no assurance that the Company's
Member-generated content or the promotional efforts of its Members will continue
to attract users to the Company's Website. There can also be no assurance that
the Company's Members and Contributing Editors will continue to devote time
voluntarily to improving the community, or, given the fact that the Company
provides free disk space to its Members and the Company supports the involvement
of its Contributing Editors, that third parties will not attempt to hold the
Company and the Company responsible for such content and/or any actions or
omissions of such Contributing Editors. There also can be no assurance that the
Company's business, results of operations and financial condition would not be
materially and adversely affected if a substantial number of Members or
Contributing Editors became dissatisfied with the Company's services or its
intention to commercialize those services or that the Contributing Editors
become dissatisfied with the amounts of compensation paid by the Company to
them. Moreover, considering the modest level of compensation paid to
Contributing Editors, there can be no assurance that consistent levels of high
quality Member generated content will be maintained. These levels of
compensation may hinder the Company's efforts in the future to attract
Contributing Editors. Further, there can be no assurance that the community on
the Internet or the Company's services will achieve broad market acceptance.
Accordingly, no assurance can be given that the Company's business will be
successful or that it can sustain revenue growth or generate significant
profits.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The report
of the Company's independent auditors on their audit of the Company's financial
statements as of December 31, 1998 contains an explanatory paragraph that
describes an uncertainty as to the ability of the Company to continue as a going
concern due to the Company's recurring losses and, as of the date of their
report, the lacks of liquid resources. At December 31, 1998, the Company did not
have available to it the funds necessary to meet its anticipated capital needs.
However, through April 13, 1999, the Company realized gross proceeds of $5.0
million from a private placement of its securities. These funds are believed by
management to be sufficient to meet the Company's anticipated needs for working
capital and capital expenditures for at least the next 12 months. The Company
may seek to raise additional funds in order to fund more aggressive promotions
and more rapid expansion, to develop newer or enhanced services, to respond to
competitive pressures or to acquire complementary businesses, technologies or
services. There can be no assurance that any additional financing will be
available on terms favorable to the Company, or at all. If adequate funds are
not available or not available on acceptable terms, the Company may not be able
to fund its expansion, promote its e-commerce as the Company desires, or,
develop or enhance services or respond to competitive pressures. Any such
inability could have a material adverse effect on the Company's business,
results of operations and financial condition. Additional funds raised through
the issuance of equity or convertible debt securities, will result in reducing
the percentage ownership of the stockholders
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of the Company and, stockholders may experience additional dilution and such
securities may have rights, preferences or privileges senior to those of the
rights of the Company's Common Stock.
As a result of the Company's limited Internet operating history, the
Company has limited meaningful historical financial data upon which to base
planned operating expenses. Accordingly, the Company's anticipated expense
levels in the future are based in part on its expectations as to future revenue
from proposed e-commerce revenue-sharing arrangements, and anticipated growth in
visitor traffic and in membership and will become, to a large extent, fixed.
Revenues and operating results generally will depend on the volume of, timing of
and ability to complete transactions, which are difficult to forecast. In
addition, there can be no assurance that the Company will be able to accurately
predict its net revenue, particularly in light of the intense competition for
the sale of products and services on the Web, revenue-sharing opportunities, the
Company's limited operating history and the uncertainty as to the broad
acceptance of the Web as an e-commerce medium. the Company may be unable to
adjust spending in a timely manner to compensate for any unexpected revenue
shortfall or other unanticipated changes in the e-commerce industry. Any failure
by the Company to accurately make such predictions would have a material adverse
effect on the Company's business, results of operations and financial condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY;
UNPREDICTABILITY OF FUTURE NET REVENUE. The Company expects operating results to
fluctuate significantly in the future as a result of a variety of factors, many
of which are outside of the Company's control. These factors include demand for
the products the Company intends to market through its Web site, consumers'
acceptance of e-commerce, the level of traffic on the Suite101.com site, the
amount and timing of capital expenditures and other costs relating to the
expansion of the Company's operations, the introduction of new or enhanced
services by the Company or its competitors, the timing and number of new hires,
the availability of desirable products and services for sale through the
Company's Web site, the loss of a key strategic or marketing relationship by the
Company, changes in the Company's marketing policy or those of its competitors,
the mix of products and services marketed by the Company's E-Providers,
engineering or development fees that may be paid in connection with adding new
Web site development and publishing tools, technical difficulties with the
Suite101.com site, general economic conditions, and economic conditions specific
to the Internet or all or a portion of the technology market. As a strategic
response to changes in the competitive environment, the Company may from time to
time make certain pricing, service or marketing decisions or business
combinations that could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company expects to
experience seasonality in its business, with user traffic on the Suite101.com
site potentially being lower during the summer and year-end vacation and holiday
periods when overall usage of the Web is lower. Because Web-based e-commerce is
an emerging market, additional seasonal and other patterns may develop in the
future as the market matures. Any seasonality is likely to cause quarterly
fluctuations in the Company's operating results, and there can be no assurance
that such patterns will not have a material adverse effect on the Company's
business, results of operations and financial condition.
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MANAGEMENT OF GROWTH AND RELATIONSHIPS; BRIEF TENURE OF MANAGEMENT;
DEPENDENCE ON KEY PERSONNEL. In developing its business plan, the Company
expects to be required to establish and manage multiple relationships with
various strategic and E-Providers, vendors, distributors, providers of services,
technology licensors, Members, advertisers and other third parties. To date,
only a limited number of such relationships have been established. These
requirements to enter into these relationships will be exacerbated in the event
of material growth of the Company or in the number of third party relationships,
and there can be no assurance that the Company's systems, procedures or controls
will be adequate to enable the Company to establish and enter into these
relationships, to support any substantial growth in the Company's operations or
that the Company's management will be able to implement or manage any growth
effectively. To effectively manage growth, the Company must establish, implement
and improve operational, financial and management information systems and
expand, train and manage its employee base. the Company's development is and
will continue to be substantially dependent on the abilities and performance of
its executive officers and other key employees. The loss of the services of any
of its executive officers or other key employees could have a material adverse
effect on the prospects, business development, and results of operations and
financial condition of the Company. Competition for senior management,
experienced sales and marketing personnel, qualified Web engineers and other
employees is and is expected to continue to be intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. There can be no assurance that the Company may not experience
difficulty from time to time in hiring and retaining the personnel necessary to
support the growth of its business. The failure of the Company to successfully
manage its personnel requirements would have a material adverse effect on the
Company's business, results of operations and financial condition.
INTENSE COMPETITION. The market for community based e-commerce on the
Internet is new and rapidly evolving and competition for visitors, Members and
Contributing Editors, strategic partners and E-Providers is new, rapidly
evolving, and intense and this competition is expected to increase significantly
in the future. Barriers to entry into the Internet business are relatively
insubstantial. The Company believes that the principal competitive factors for
companies seeking to create community on the Internet are content, critical
mass, functionality, brand recognition, Member affinity and loyalty, broad
demographic focus and open access for visitors. Other companies who are
primarily focused on creating Web-based community on the Internet are Geocities,
Inc., Tripod, Inc., a subsidiary of Lycos, Inc., Angelfire Communications,
Xoom.com, Inc. and theglobe.com. Each of these competitors is significantly
larger than the Company and more well-established and well-known in the Internet
industry and with greater capital resources. The Company will likely also face
competition in the future from Web directories, search engines, shareware
archives, content sites, commercial online service provides ("OSPs"), sites
maintained by Internet service providers ("ISPs") and other entities that
attempt to or establish communities on the Internet by developing their own
community or acquiring one of the Company's competitors. In addition, the
Company could face competition in the future from traditional media companies, a
number of which, including Disney, CBS and NBC have recently made significant
acquisitions of or investments in Internet companies. Further, there can be no
assurance that the Company's competitors and potential competitors will not
develop
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communities that are equal or superior to those of the Company or that achieve
greater market acceptance than the Company's community.
The Company also competes for visitors and Members with many Internet
content providers and ISPs, including Web directories, search engines, shareware
archives, content sites, commercial online services and sites maintained by
Internet service provides, as well as thousands of Internet sites operated by
individuals and government and educational institutions. These competitors
include free information, search and content sites or services, such as American
Online, Inc. ("AOL"), CNET, Inc. ("CNET"), CNN/Time Warner, Inc. ("CNN/Time
Warner"), Excite, Inc. ("Excite"), Infoseek Corporation ("Infoseek"), Lycos,
Inc. ("Lycos"), Netscape Communications Corporation ("Netscape"), Microsoft
Corporation ("Microsoft"), Miningco.com, Inc., and Yahoo! Inc. ("Yahoo!"). The
Company also competes with the foregoing companies, as well as traditional forms
of media, such as newspapers, magazines, radio and television. The Company
believes that the principal competitive factors in attracting strategic partners
and other sources of e-commerce business include the amount of traffic on its
Web site, name recognition, customer service, the demographics of the Company's
Members and viewers, the Company's ability to offer targeted audiences and the
overall cost-effectiveness of the e-commerce opportunities offered by the
Company. The Company believes that the number of Internet companies relying on
Web-based e-commerce and advertising revenue will increase substantially in the
future. Accordingly, the Company will likely face increased competition,
resulting increased pressures on its revenue sharing percentages which could, in
turn, have a material adverse effect on the Company's business, results of
operations and financial condition.
Substantially all of the Company's existing and potential competitors,
including Web directories and search engines and large traditional media
companies, have longer operating histories in the Web market, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than the Company. Such competitors are 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, visitors, Members, distribution partners,
E-Providers, advertisers and third party content providers. There can be no
assurance that Internet content providers and ISPs, including Web directories,
search engines, shareware archives, sites that offer professional editorial
content, commercial online services and sites maintained by ISPs will not be
perceived by potential strategic partners, E-Providers and advertisers as having
more desirable Web sites. In addition, many persons with whom the Company would
seek to enter into a strategic relationship have already established
collaborative relationships with the Company's competitors or potential
competitors, and other high-traffic Web sites. Accordingly, there can be no
assurance that the Company will be able to grow its visitor and Membership base,
traffic levels and customer base or retain its current Members, traffic levels
or customers, or that competitors will not experience greater growth in traffic
than the Company as a result of such relationships which could have the effect
of making their Web sites more attractive, or that the Company's strategic
partners will not sever or will elect not to renew their agreements with the
Company. There can also be no assurance that the Company will be able to compete
successfully in the Internet or that competition will not have a material
adverse effect on the Company's business, results of operations and financial
condition.
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RISK OF RELIANCE ON INTERNALLY DEVELOPED SYSTEMS. The Company uses and
intends to use an internally developed system for its Web site and substantially
all aspects of its transaction processing and order management systems. This
system has not been fully developed. The Company's inability to further develop
and modify this system as necessary to accommodate increased levels of traffic
on its Web site or any substantial volume through its transaction processing and
order management systems may cause unanticipated system disruptions, slower
response times, impaired quality and speed of order fulfillment, degradation in
customer service, and delays in reporting accurate financial information. Any of
these events could have a material adverse effect on the Company's business,
results of operations and financial condition.
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES. The Company is not
currently subject to direct regulation by any government agency, other than
regulations applicable to businesses generally, and there are currently few laws
or regulations directly applicable to access to or commerce on the Internet.
However, due to the increasing popularity and use of the Internet, a number of
legislative and regulatory proposals are under consideration by U.S. and
Canadian federal, state, provincial, local and foreign governmental
organizations, and it is possible that a number of laws or regulations may be
adopted with respect to the Internet relating to such issues as user privacy,
user screening to prevent inappropriate uses of the Internet by, for example,
minors or convicted criminals, taxation, infringement, pricing, content
regulation, quality of products and services and intellectual property ownership
and infringement. The adoption of any such laws or regulations may decrease the
growth in the use of the Internet, which could, in turn, decrease the demand for
i5ive's community, increase i5ive's cost of doing business, or otherwise have a
material adverse effect on the Company's business, results of operations and
financial condition.
Moreover, the applicability to the Internet of existing laws governing
issues such as property ownership, copyright, trademark, trade secret,
obscenity, libel and personal privacy is uncertain and developing. Any new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on the Company's business, results of
operations and financial condition. There can be no assurance that any
legislation will not be enacted in the future that could expose the Company to
substantial liability. Legislation could also dampen the growth in the use of
the Web generally and decrease the acceptance of the Web as a communications and
commercial medium, and could, thereby, have a material adverse effect on the
Company's business, results of operations and financial condition. It is also
possible that the Company's use of "cookies" to track demographic information
and user preferences and to target advertising may become subject to laws
limiting or prohibiting their use. A "cookie" is a bit of information keyed to a
specific server, file pathway or directory location that is stored on a user's
hard drive, possibly without the user's knowledge. A user is generally able to
remove cookies. Germany, for example, has imposed laws limiting the use of
cookies, and a number of Internet commentators, advocates and governmental
bodies in the United States and other countries have urged the passage of laws
limiting or abolishing the use of cookies. Limitations on or elimination of the
Company's use of cookies could limit the effectiveness of the Company's
targeting of advertisements, which could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
a number of
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legislative proposals have been made at the U.S. and Canadian federal, state,
provincial and local level that would impose additional taxes on the sale of
goods and services over the Internet and certain jurisdictions have taken
measures to tax Internet-related activities. Recently, the U.S. Congress has
considered a number of versions of legislation which would place a moratorium of
a number of years on any new taxation of Internet commerce. There can be no
assurance that nay such legislation will be adopted by the U.S. Congress.
Moreover, it is likely that, once such moratorium is lifted, some type of U.S.
federal and/or state taxes will be imposed upon Internet commerce, and there can
be no assurance that such legislation or other attempts at regulating commerce
over the Internet will not substantially impair the growth of commerce on the
Internet and, as a result, adversely affect the Company's opportunity to derive
financial benefit from such activities. In addition to the foregoing areas of
recent legislative activities, several telecommunications carriers are currently
seeking to have telecommunications over the Web regulated by the U.S. Federal
Communications Commission (the "FCC") in the same manner as other
telecommunications services. For example, America's Carriers Telecommunications
Association has filed a petition with the FCC for this purpose. In addition,
because the growing popularity and use of the Web have burdened the existing
telecommunications infrastructure and many areas with high Web use have begun to
experience interruptions in phone service, local telephone carriers have
petitioned the FCC to regulate ISPs and OSPs in a manner similar to long
distance telephone carriers and to impose access fees on the ISPs and OSPs. If
either of these petitions is granted, or the relief sought therein is otherwise
granted, the costs of communicating on the Web could increase substantially,
potentially slowing growth in use of the Web, which could, in turn, decrease
demand for the Company's services or increase the Company's cost of doing
business. Due to the global nature of the Web, it is possible that, although
transmissions by the Company over the Internet originate primarily in British
Columbia, Canada, the governments of various states in the United States and
foreign countries might attempt to regulate the Company's transmissions or
prosecute the Company for violations of their laws. There can be no assurance
that violations of local laws will not be alleged or charged by state or foreign
governments, that the Company might not unintentionally violate such laws or
that such laws will not be modified, or new laws enacted, in the future. Any of
the foregoing developments could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, as the
Company's services are available over the Internet in multiple foreign
countries, provinces, states and other jurisdictions, such jurisdictions may
claim that the Company is required to qualify to do business as a foreign
corporation in each such jurisdiction. the Company is qualified to do business
only in British Columbia, and failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so could subject the
Company to taxes and penalties and could result in the inability of the Company
to enforce contracts in such jurisdictions. Any such new legislation or
regulation, the application of laws and regulations from jurisdictions whose
laws do not currently apply to the Company's business, or the application of
existing laws and regulations to the Internet and other online services could
have a material adverse effect on the Company's business, results of operations
and financial condition.
LIABILITY FOR INFORMATION RETRIEVED FROM THE WEB; ABSENCE OF LIABILITY
INSURANCE. Because materials may be downloaded by Members and other users of the
Company's Web site and subsequently distributed to others, there is a potential
that claims will be made against the
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Company for defamation, negligence, copyright or trademark infringement,
personal injury or other theories based on the nature, content, publication and
distribution of such materials. Such claims have been brought, and sometimes
successfully pressed, against OSPs for example, in the past. the Company has
received inquiries from time to time from third parties regarding such matters,
all of which have been resolved to date without any payments or other material
adverse effect on the Company. In addition, the increased attention focused upon
liability issues as a result of these lawsuits and legislative proposals could
impact the overall growth of Internet use. the Company could also be exposed to
liability with respect to the offering of third party content that may be
accessible through the Company's Web site, or through content and materials that
may be posted by Members on their personal Web sites or chat rooms, or on-line
discussions offered by the Company. Such claims might include, among others,
that by directly or indirectly hosting the personal Web sites of third parties,
the Company is liable for copyright or trademark infringement, or other wrongful
actions by such third parties through such Web sites. It is also possible that
if any third party content information provided on the Company's web site
contains errors, third parties could make claims against the Company for losses
incurred in reliance on such information. Even to the extent that such claims do
not result in liability to the Company, the Company could incur significant
costs in investigating and defending against such claims. The imposition on the
Company of potential liability for information carried on or disseminated
through its systems could require the Company to implement measures to reduce
its exposure to such liability, which may require the expenditure of substantial
resources and limit the attractiveness of the Company's services to Members and
visitors. the Company also intends to enter into agreements with E-Providers and
sponsors under which the Company is intended to be entitled to receive a share
of any revenue from the purchase of goods and services through direct links from
the Company's Web site. Such arrangements may expose the Company to additional
legal risks and uncertainties, including potential liabilities to consumers of
such products and services by virtue of the Company's involvement in providing
access to such products or services, even if the Company does not itself provide
such products or services. While the Company's agreements with these parties are
intended to provide that the Company will be indemnified against such
liabilities, there can be no assurance that such indemnification, if available,
will be adequate. Currently, the Company does not carry general liability
insurance intended to protect the Company from any liability arising out of the
foregoing. In any event, however, insurance may not cover all potential claims
to which the Company is exposed or may not be adequate to indemnify the Company
for all liability that may be imposed. Any imposition of liability that is not
covered by insurance or is in excess of insurance coverage would have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, the increased attention focused upon liability issues as
a result of these lawsuits and legislative proposals could impact the overall
growth of Internet use.
SECURITY RISKS. There can be no assurance that experienced programmers
or "hackers" may not from time to time attempt to penetrate the Company's
network security. To date, none of this activity has occurred. However, in the
event any such attempts should occur and be successful, such a penetration may
have a material adverse effect on the Company's business, results of operations
or financial condition. A party who is able to penetrate the Company's network
security could misappropriate proprietary information or cause interruptions in
the Company's Web site. In addition, in offering certain payment services, the
Company could
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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. The Company may be required to expend significant capital and
resources to protect against the threat of such security, encryption and
authentication technology breaches or to alleviate problems cause 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. Security breaches or the
inadvertent transmission of computer viruses could expose the Company to a risk
of loss or litigation and possible liability. There can be no assurance that
contractual provisions attempting to limit the Company's liability in such areas
will be successful or enforceable, or that other parties will accept such
contractual provisions as part of the Company's agreements, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
RELIANCE ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. The Company
regards its technology as proprietary and attempts to protect it by relying on
trademark, service mark, copyright and trade secret laws and restrictions on
disclosure and transferring title and other methods. The Company currently has
no patents or patents pending and does not anticipate that patents will become a
significant part of the Company's intellectual property in the foreseeable
future. the Company also generally enters into confidentiality or license
agreements with its employees and consultants, and generally controls access to
and distribution of its documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use the Company's proprietary information without authorization or to
develop similar technology independently. the Company pursues the registration
of its trademarks and service marks in the United States and Canada and
internationally, and intends to apply for the registration in the United States
and Canada for a number of its service marks There can be no assurance that such
registration will be granted or, if granted, that the Company will derive any
material commercial benefit from such registration. Effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which the Company's services are distributed or made available
through the Internet, and policing unauthorized use of the Company's proprietary
information is difficult. Legal standards relating to the validity,
enforceability and scope of protection of certain proprietary rights in
Internet-related businesses are uncertain and still evolving, and no assurance
can be given as to the future viability or value of any proprietary rights of
the Company or other companies within this market. There can be no assurance
that the steps taken by the Company will prevent misappropriation or
infringement of its proprietary information. Any such infringement or
misappropriation, should it occur, could have a material adverse effect on the
Company's business, results of operations and financial condition. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation might
result in substantial costs and diversion of resources and management attention
and could have a material adverse effect on the Company's business, results of
operations and financial condition and the Company may not have available the
resources necessary to pursue such litigation. Furthermore, there can be no
assurance that the Company's business activities will not infringe upon the
proprietary rights of others, or that other parties will
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not assert infringement claims against the Company. It can be expected that the
Company will be subjected to claims in the ordinary course of its business,
including claims of alleged infringement of the trademarks, service marks and
other intellectual property rights of third parties by the Company and the
content generated by its Members. Although such claims have not occurred to
date, such claims and any resultant litigation, should it occur, might subject
the Company to significant liability for damages and might result in
invalidation of the Company's proprietary rights and even if not meritorious,
could be time consuming and expensive to defend and could result in the
diversion of management time and attention, any of which might have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company currently licenses from third parties certain
technologies incorporated into the Company's Web site. As the Company continues
to introduce new services that incorporate new technologies, it may be required
to license additional technology from others. There can be no assurance that
these third party technology licenses will continue to be available to the
Company on commercially reasonable terms, if at all. The inability of the
Company to obtain any of these technology licenses could result in delays or
reductions in the introduction of new services or could adversely affect the
performance of its existing services until equivalent technology could be
identified, licensed and integrated.
DEPENDENCE ON CONTINUED GROWTH IN THE USE OF THE INTERNET; DEPENDENCE
ON WEB INFRASTRUCTURE. The Company's future success is substantially dependent
upon continued growth in the use of the Internet and the Web in order to support
e-commerce development on the Company's Web site and in the acceptance and
volume of e-commerce transactions on the Internet. There can be no assurance
that the number of Internet users will continue to grow or that e-commerce over
the Internet will become more widespread. As is typical in the case of a new and
rapidly evolving industry, demand and market acceptance for recently introduced
services are subject to a high level of uncertainty. the Company cannot predict
the extent to which consumers will be willing to shift their purchasing habits
from traditional retailers to online retailers. The Internet may not prove to be
a viable commercial marketplace for a number of reasons, including lack of
acceptable security technologies, lack of access and ease of use, congestion of
traffic, inconsistent quality of service and lack of availability of
cost-effective, high-speed service, potentially inadequate development of the
necessary infrastructure, excessive governmental regulation, uncertainty
regarding intellectual property ownership or timely development and
commercialization of performance improvements, including high-speed modems. The
success of the Company's Web site will depend in large part upon the continued
development of a Web infrastructure, such as a reliable network backbone with
the necessary speed, data capacity and security, and timely development of
complementary products, such as high-speed modems for providing reliable Web
access and services. Because global e-commerce and online exchange of
information on the Web and other similar open wide area networks are new and
evolving, it is difficult to predict with any assurance whether the Web will
support increasing use or will prove to be a viable commercial marketplace. The
Web has experienced, and is expected to continue to experience, significant
growth in the number of users and the amount of content. To the extent that the
Web continues to experience increased numbers of users, frequency of use or
increased band width requirements of users, there can be no assurance that the
Web infrastructure will continue to be able to support the demands placed on it
by this continued growth or that the performance or reliability of the Web will
not be adversely affected
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by this continued growth. In addition, the Web could lose its viability or
effectiveness due to delays and the development or adoption of new standards and
protocols to handle increased levels of activities or due to increased
government regulation. There can be no assurance that the infrastructure or
complementary products or services necessary to make the Web a viable commercial
marketplace will be developed, or, if they are developed, that the Web will
achieve broad acceptance. If the necessary infrastructure standards, protocols,
or complementary products, services or facilities are not developed, or if the
Web does not become a viable commercial marketplace, the Company's business,
results of operations and financial condition will be materially and adversely
affected. Even if such infrastructure, standards or protocols or complementary
products, services, or facilities are developed and the Web becomes a viable
commercial marketplace, there can be no assurance that the Company will not be
required to incur substantial expenditures in order to adapt its services to
changing Web technologies, which could have a material adverse effect on the
Company's business, results of operations and financial condition.
SALES TAX COLLECTION. One or more states, provinces or countries may
seek to impose sales tax collection obligations on out-of-state or
out-of-province or foreign companies such as the Company which engage in online
commerce. Any new operation or facilities in the United States or Canada or
elsewhere could subject shipments into such states or provinces to state or
provincial or foreign sales taxes. A successful assertion by one or more states
or provinces or any foreign country that the Company should collect sales or
other similar taxes on the sale of merchandise could have a material adverse
effect on the Company's business, prospects, financial condition and results of
operations.
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, NORTHFIELD CAPITAL
CORPORATION AND 284085 B.C. LTD. The Company's three Directors and Northfield
Capital Corporation, and their respective affiliates, in the aggregate,
beneficially own approximately 55.8% of the outstanding Common Stock of the
Company. As a result, these stockholders possess significant influence over the
Company, giving them the ability, among other things, to elect a majority of the
Company's Board of Directors and approve significant corporate transactions.
Such share ownership and control may also have the effect of delaying or
preventing a change in control of the Company, impeding a merger, consolidation,
takeover or other business combination involving the Company, or discourage a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of the Company which could have a material adverse effect on the market
price of the Company's Common Stock.
YEAR 2000 COMPLIANCE. The Company is aware of the issues associated
with the programming code in existing computer systems as the year 2000
approaches. The "Year 2000 Problem" is pervasive and complex as virtually every
computer operation will be affected in some way by the rollover of the two-digit
year value to 00. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or fail. the
Company is in the process of working with its software vendors to ensure that
the software that the Company has licensed from third parties will operate
properly in the year 2000 and
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beyond. In addition, the Company is working with its external suppliers and
service providers to ensure that they and their systems will be able to support
the Company's needs and, where necessary, inter-operate with the Company's
server and networking hardware and software infrastructure in preparation for
the year 2000. Management does not anticipate that the Company will incur
significant operating expenses or be required to invest heavily in computer
systems improvements to be year 2000 compliant. However, significant uncertainty
exists concerning the potential costs and effects associated with any year 2000
compliance. Any year 2000 compliance problems of either the Company, its
customers or vendors would have a material adverse effect on the Company's
business, results of operations and financial condition.
NO ACTIVE PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF
STOCK PRICE. Prior to the closing of the Company's transaction with i5ive, there
was no active public market for its Common Stock. Since December 30, 1998, the
Company's Common Stock has been quoted on the OTC Bulletin Board. There can be
no assurance that an active trading market for the Common Stock will be
sustained or that the market price of the Common Stock will not decline based
upon market or other conditions. The market price may bear no relationship to
the revenues, earnings, assets or potential of the Company and may not be
indicative of the future business performance of the Company. The trading price
of the Company's Common Stock has been and can be expected to be subject to wide
fluctuations in response to variations in the Company's quarterly results of
operations, the gain or loss of significant strategic relationships,
unanticipated delays in the development of the Company, changes in earnings
estimates by analysts, announcements of technological innovations or new
solutions by the Company or its competitors, general conditions in the
technology and Internet sectors and in Internet-related industries, other
matters discussed elsewhere in this Annual Report and other events or factors,
many of which are beyond the Company's control. In addition, the stock market in
general and the technology and Internet sectors in particular have experienced
extreme price and volume fluctuations which have affected the market price for
many companies in industries similar or related to that of the Company and which
have been unrelated to the operating performance of these companies. These
market fluctuations, as well as general economic, political and market
conditions, may have a material adverse effect on the market price of the
Company's Common Stock. 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 companies. Such litigation, if instituted,
and irrespective of the outcome of such litigation, could result in substantial
costs and a diversion of management's attention and resources and have a
material adverse effect on the Company's business, results of operations and
financial condition.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of significant amounts of the
Company's Common Stock in the public market or the perception that such sales
will or could occur could materially and adversely affect the market price of
the Company's Common Stock or the future ability of the Company to raise capital
through an offering of its equity securities. The Company had, as of April 30,
1999, 12,061,244 shares of common stock outstanding. Of such shares, 5,610,340
shares were held by Directors of the Company, 284085 B.C. Ltd. and Northfield
Capital Corporation. The 3,405,622 shares held by Northfield Capital Corporation
and 284085 B.C. Ltd. are "restricted securities" as such term is defined in Rule
144 under the Securities Act. In addition, through April 30, 1999, the Company
sold 2,000,000 shares of Common Stock and
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warrants expiring on February 29, 2000 to purchase an additional 1,000,000
shares of Common Stock which are "restricted securities". Restricted securities
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rules 144, 144(k) or 701 promulgated under the
Securities Act. Approximately 4,450,948 shares of the Company's Common Stock are
freely transferable under U.S. Federal securities laws.
The Company has filed a Form S-8 registration statement under the
Securities Act to register all shares of Common Stock issuable pursuant to
outstanding options and all shares of Common Stock reserved for issuance under
the Company's 1998 Stock Incentive Plan. Such registration statement became
effective immediately upon filing and the shares issuable on exercise of options
granted under the 1998 Stock Incentive Plan are covered by that registration
statement. At such time as the options granted become exercisable, commencing
December 4, 1999, the shares issuable on exercise of the options will thereupon
be eligible for sale in the public markets, subject to Rule 144 limitations
applicable to affiliates. As of December 31, 1998, there were outstanding
options to purchase up to 333,310 shares of Common Stock, of which options to
purchase 278,208 shares will become vested and immediately exercisable at a
price of $1.50 per share on December 4, 1999, provided the stockholders of the
Company have approved the adoption of the Plan no later than December 3, 1999.
The remaining options to purchase 55,102 shares vest on December 4, 2000.
In addition, the Company has agreed to file no later than July 12,
1999, a registration statement under the Securities Act to register the offer
and sale of the 3,000,000 shares (including 1,000,000 shares issuable on
exercise of warrants) sold in April 1999 in the private sale of the Company's
securities. At such time as such registration statement is declared effective by
the Commission those shares will be freely transferrable. The sale of those
shares or the perception that such sales will or could occur could materially
and adversely affect the market price for the Company's Common Stock.
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PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
During the quarter ended March 31, 1999, the Company commenced
an offering of its securities. The Company offered 1,000,000 units, each unit
consisting of two shares of Common Stock and one warrant to purchase one share
of Common Stock. Each warrant is exercisable at a price of $4.50 per share,
subject to anti-dilution adjustment, at any time through February 29, 2000. At
any time after the shares of Common Stock issuable on exercise of the warrants
have been registered under the Securities Act of 1933, as amended (the
"Securities Act") and provided that the average of the high bid and low asked
prices for the Registrant's Common Stock, as quoted in the OTC Bulletin Board,
equals or exceeds (US) $5.00 per share for 20 consecutive trading days ending on
the third business day prior thereto, the Registrant may at its option redeem
the warrants at a price of (US) $0.01 per warrant.
Through March 31, 1999, the Company had received subscriptions to and
accepted purchases of 500,000 units, or gross proceeds of (US) $2,500,000 and
thereafter, on or prior to April 12, 1999, the Company had received
subscriptions to and had accepted purchases of an additional 500,000 units, or
gross proceeds of (US) $2,500,000 or aggregate gross proceeds of (US)
$5,000,000.
The Units and the securities included in the Units were offered and
sold in reliance upon the exemption from the registration requirements of the
Securities Act afforded by Section 4(2) thereof and by Regulation D adopted
under the Securities Act. The Units were sold to persons who represented that
they are "accredited investors" as defined under Regulation D and that they were
purchasing the securities for investment and not for distribution.
The net proceeds are intended to be used for marketing and advertising,
member service enhancements, working capital and general corporate purposes and
to repay loans. Subsequent to March 31, 1999, the Company repaid loans from
stockholders and affiliates in the amount of approximately $341,000. In addition
to cash commissions, the Company agreed to issue three-year warrants exercisable
at $5.50 per share to purchase an aggregate of approximately 65,000 shares as
compensation in connection with the offering.
The Company has agreed to file a registration statement under the
Securities Act within 90 days after the expiration of the offering to register
the Common Stock included in the Units and issuable on exercise of the warrants.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on From 8-K for
January 25, 1999 in response to Items 4 and 7 thereof.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Suite101.com,Inc.
-----------------
(Registrant)
Date: May 14, 1999 /s/Peter L. Bradshaw
-----------------------------------
Peter L. Bradshaw
President and Chief Operating Officer
(Principal Executive, Financial and
Accounting Officer)
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