<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 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 November 11, 1999
- ----------------------------- --------------------------------------------
COMMON STOCK, PAR VALUE 12,061,281
$.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>
<S> <C> <C>
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements 3
Accountants' Compilation Report 3
Consolidated Balance Sheets -- September 30, 1999 and 4-5
September 30, 1998
Consolidated Statements of Operations -- Nine Months and Three Months 6
Ended September 30, 1999 and September 30,
1998
Consolidated Statements of Cash Flows -- Nine Months 7
Ended September 30, 1999 and September 30, 1998
Notes to Consolidated Financial Statements -- 8-9
September 30, 1999 and September 30, 1998
Item 2. Management's Discussion and Analysis or Plan of Operation 10-28
PART II OTHER INFORMATION 35
Item 6. Exhibits and Reports on Form 8-K 35
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
ACCOUNTANTS' COMPILATION REPORT
We have compiled the accompanying consolidated balance sheets of Suite101.com
Inc. as of September 30, 1999 and September 30, 1998, the related
consolidated statements of operations for the nine-month and three-month
periods then ended and the related consolidated statements of cash flows for
the nine-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.
/s/ N.I. Cameron Inc.
VANCOUVER, B.C. CHARTERED ACCOUNTANTS
November 2, 1999
3
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(UNAUDITED -- SEE ACCOUNTANTS' COMPILATION REPORT)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
----------------------------------------------
<S> <C> <C>
CURRENT
Cash $3,493,140 $-
Accounts receivable 18,922 4,003
Prepaid expenses and deposits 56,569 -
---------------------------------------------
3,568,631 4,003
PROPERTY, PLANT AND EQUIPMENT, AT COST ---------------------------------------------
Computer equipment 96,265 43,199
Furniture and fixtures 10,589 694
Leasehold improvements 11,650 16,625
---------------------------------------------
118,504 60,518
Less: accumulated amortization 35,402 25,701
---------------------------------------------
83,102 34,817
---------------------------------------------
TOTAL ASSETS $3,651,733 $38,820
---------------------------------------------
---------------------------------------------
</TABLE>
4
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(UNAUDITED - SEE ACCOUNTANTS' COMPILATION REPORT)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30,1998
------------------------------------------------
<S> <C> <C>
CURRENT LIABILTIES
Checks written in excess of funds on deposit $- $12,779
Accounts payable 95,718 21,790
------------------------------------------------
95,718 34,569
DUE TO STOCKHOLDERS - 490,408
DUE TO AFFILIATED COMPANIES - 69,879
------------------------------------------------
TOTAL LIABILITIES 95,718 594,856
------------------------------------------------
CAPITAL STOCK ( NOTE 4)
Authorized:
40,000,000 common shares with a par value of $0.001 each
Issued:
12,061,288 common shares 12,062 73
ADDITIONAL PAID-IN CAPITAL 5,220,510 -
DEFICIT (1,708,556) (600,666)
EQUITY ADJUSTMENT FROM FOREIGN CURRENCY
TRANSLATION 31,999 44,557
-----------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 3,556,015 (556,036)
-----------------------------------------------
TOTAL LIABILTIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $3,651,733 $38,820
-----------------------------------------------
-----------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE-MONTH AND THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(UNAUDITED -- SEE ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
-----------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $404 $10,442 $1,246 $20,115
-------------------------------------------------------------
OPERATING EXPENSES
General and administrative 386,582 90,489 869,354 240,648
Marketing 108,413 - 149,903 -
-------------------------------------------------------------
494,995 90,489 1,019,257 240,648
-------------------------------------------------------------
LOSS FROM OPERATIONS (494,591) (80,047) (1,018,011) (220,533)
-------------------------------------------------------------
OTHER INCOME (EXPENSES)
Loss on disposal of leasehold improvements - - (8,130) -
Other income, net 31,602 945 74,915 3,431
------------------------------------------------------------
31,602 945 66,785 3,431
------------------------------------------------------------
NET LOSS $(462,989) $(79,102) $(951,226) $(217,102)
------------------------------------------------------------
------------------------------------------------------------
INCOME (LOSS) PER SHARE
Basic and Diluted (Note 5) $(0.04) $(0.02) $(0.08) $(0.06)
------------------------------------------------------------
------------------------------------------------------------
Weighted average common shares outstanding 12,061,288 3,405,622 11,314,036 3,405,622
------------------------------------------------------------
------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
6
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(UNAUDITED -- SEE ACCOUNTANTS' COMPILATION REPORT)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
-----------------------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $(951,226) $(217,102)
Adjustments to reconcile net loss to net cash used
operating activities:
Loss on disposal of leasehold improvements 8,130 -
Amortization 13,756 9,668
------------------------------------------------
(929,340) (207,434)
Changes in operating assets and liabilities
Accounts receivable (13,464) 2,835
Income taxes 1,020 -
Prepaid expenses and deposits (56,492) -
Accounts payable and accrued expenses (32,323) 8,486
------------------------------------------------
Net cash used in operating activities (1,030,599) (196,113)
------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (67,895) (3,364)
------------------------------------------------
Net cash used in operating activities (67,895) (3,364)
------------------------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Advances from (to) stockholders (198,664) 182,953
Advances from (to) affiliated companies (43,091) 4,782
Shares issued 4,836,250 -
------------------------------------------------
4,594,495 187,735
------------------------------------------------
EFFECT OF EXCHANGE RATES ON CASH (13,405) 541
------------------------------------------------
NET INCREASE IN CASH 3,482,596 (11,201)
CASH (DEFICIENCY) AT BEGINNING OF PERIOD 10,544 (1,578)
------------------------------------------------
CASH AT END OF PERIOD $3,493,140 $(12,779)
------------------------------------------------
------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 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 September 30,
1998 and the nine-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 September 30,
1999, the Company had accumulated $ 1,708,556 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 September 30, 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.
8
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND SEPTEMBER 30, 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
September 30, 1999 and September 30, 1998 and all revenues and expenses
have been translated using the average exchange rate for each period. The
rates used were as follows:
<TABLE>
<S> <C> <C>
(equivalent Cdn $ per U.S. $) 1999 1998
----------------------
September 30 rate .6815 .6573
Average rate for the three-month period .6729 .6602
</TABLE>
4. CAPITAL STOCK
In April 1999, the Company completed a private placement of 1,000,000
units for $5,000,000. 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. To date, none of these warrants have
been exercised. The Company incurred $163,750 in expenses concerning this
share issuance.
5. EARNINGS PER SHARE
The calculation of fully diluted earnings per share has excluded any
potential exercise of warrants or options, as the inclusion of these items
would be anti-dilutive.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction
with, and is qualified in its entirety by, the more detailed information
including our Financial Statements and the Notes thereto included in our Annual
Report on Form 10-KSB for the year ended December 31, 1998. This Quarterly
Report contains forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results discussed in the
forward-looking statements. Factors that may cause or contribute to such
differences include the Risk Factors set forth below as well as the "Risk
Factors" contained in our Annual Report. See "Cautionary Statement for Purposes
of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act
of 1995" herein.
OVERVIEW
Suite101.com, Inc. is an Internet company engaged 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. Our community includes our visitors and Members who are Internet
users. It also includes Contributing Editors who create our directory of
personalized Web sites organized topically into eleven major Communities of
Interest. Our directory, the "Best-of-Web Guide," was started in 1996. We
believe we were one of the first Internet sites to engage people rather than
software (search engines) to find information on the Internet. At the end of
October 1999, we have over 785 Web guides or "Contributing Editors" searching
the Internet for the best resources in eleven topic areas.
Since 1996, our Contributing Editors, who are typically enthusiasts
with a passion for a particular topic, have created a topically organized
directory with close to 24,000 hand-picked and personally reviewed links. In
addition to compiling the directory, our Contributing Editors have also written
over 18,690 searchable, archived articles and managed 18,492 discussions in 785
topics ranging from hitch-hiking, through romance, to gardening.
Our revenue model will concentrate on electronic commerce
("e-commerce"). Using a consensual marketing model, Suite101.com will offer
participating enterprises ("eVendors") access to psycho-demographic information
on Suite101 Members who have consented to participate in the program. eVendors
will then be asked to pay a fee to market their products or services directly to
the participating Member. Revenue from these fees will be shared between
Suite101.com and its Members. Suite101.com intends to receive additional
revenues by participating in completed transactions.
10
<PAGE>
THE SUITE101.COM COMMUNITY
The Suite101.com community is based on Web site software that compiles,
organizes, and distributes content created by Members of its community. This
enhances Members' experiences on the Web because they can publish their own
articles, share ideas, and interact with other Members who have common
interests.
The content of Suite101.com is organized into eleven major subjects or
"Communities of Interest:"
<TABLE>
<S> <C> <C> <C>
1. Arts and Humanities; 7. Home & Garden;
2. Business; 8. Law, Politics, & Issues;
3. Computers & Internet; 9. Society & Culture;
4. Education; 10. Sports & Recreation; and
5. Entertainment & Media; 11. Travel & Leisure
6. Health;
</TABLE>
These Communities are managed by Managing Editors. These are
individuals who have demonstrated an extraordinary commitment to the Community.
Each Community is further organized into topic areas overseen by a Contributing
Editor.
This topical organization of the site's content makes it quick and easy for
both visitors and Members to locate the content that interests them. They can
read the articles or explore the list of related links created by the
Contributing Editors in each topic area. The organization of the content also
helps them find other users who share their interests. For example, people who
are interested in perennial plants can "find" each other in the discussion
threads and chat rooms of the Home and Garden Community. The functions and
features available to each Contributing Editor allows them to encourage
self-expression and interaction by providing a forum for discussion, sharing,
learning, and understanding.
We strive to improve the online experience of our Members by providing
state-of-the-market tools and services. Members can create personal HomePages
that can include autobiographical information, communication tools, e-mail and
chat, personalized lists of links (including what's new on Suite101.com), and an
area for personalized, consensual e-commerce.
Each Contributing Editor is provided with publishing and communication
tools for posting and archiving articles, facilitating discussion threads and
chats, and creating contests and polls in their topic area. These features,
tools and services are provided free of charge to Members to encourage
self-expression and interaction in an online, information-rich environment.
11
<PAGE>
To begin generating revenue without changing the nature of our
community, we intend to implement an e-commerce program that will help our
Members meet their needs and wants, cost-effectively, while protecting their
privacy. The program is based on three principles:
(1) Protection of Members' privacy;
(2) Participation only by consent; and
(3) Sharing of marketing revenues.
Adherence to these principles will ensure the e-commerce program will
add to rather than detract from the nature of the Suite101.com community.
Although similar to the goals of traditional direct-marketing programs,
the Suite101.com e-commerce program is intended to be fundamentally different in
one very important way: customers rather than companies will reap the rewards of
its success. The program will offer participating Suite101 Members the means to
collect, consolidate, market, and benefit from their "psycho-demographic"
information (data on their age, sex, marital status, income, buying habits and
consumption behavior). We intend that customers will be able to use their
psycho-demographic information, when aggregated with other customers, to
purchase quality products and services at prices traditionally only offered to
large institutional and commercial buyers.
The technology behind the Internet gives individuals an opportunity to
create their own loyalty programs. Each Member of Suite101.com will be given an
opportunity to develop his or her own "Member-centric" database containing their
psycho-demographic information and a periodic "wish list" of planned purchases.
This information will be securely stored at Suite101.com, accessible online only
to the individual Member. Heretofore, this demographic information has been
primarily collected and controlled by large marketing groups and vendors.
With Members' explicit consent, Suite101 will then consolidate
participating Members' demographic data into a central, aggregated database for
the entire Suite101.com community. Using a strong security system, Members'
actual identities will be separated from their demographic data. A
Member-selected online alias and a password will be the only connection between
a Member's actual identity and their demographic data. The aggregated database
will contain valuable but anonymous information.
We then intend to contract with qualified companies ("eVendors") to
give them direct access to this aggregated database. By running various searches
for potential customers in the database, these "eVendors" will be able to
develop lists of potential customers. For a per-person fee, we will then
facilitate the eVendor's online, direct marketing campaign. Participating
Members will not, however, receive a barrage of email or be subjected to banner
ads.
Participating Members will be notified of the eVendor's offer by having
a postage-stamp-sized "SuiteStamp" placed on their personal HomePage. This
clickable button will allow the Member to decide if they want to view the
eVendor's offer (by clicking on the SuiteStamp) or ignore it. If they do click
through, it is intended that they will be rewarded by receiving a portion of the
revenues generating from the eVendor's marketing fee paid to Suite101. Revenues
will
12
<PAGE>
most likely be distributed to participating Members as "SuitePoints" (much
like Air Miles) that can be used to purchase other products or services.
At all times, prior to the moment of a completed sale to an individual
Member, the participating Member's identity will be protected by Suite101.
eVendors will only have access to the aggregated demographic information and
Members' aliases. Even though only Members who consent to participate in the
marketing program will share in the eVendors' marketing payments to
Suite101.com, a Member's lack of participation will in no way take away from
their rights and privileges as a Member of the Suite101.com community. Members
will be able to opt in and out of the marketing program at any time. Only the
profiles of Members participating in the program will be included in the
aggregated demographic information.
Suite101 believes that the nature of its e-commerce strategy will
attract high-quality, brand-name eVendors. As a result, we believe that Members
will have access to a wide array of products and services at a reduced cost. The
technology behind Suite101.com is also intended to give Members who want to
purchase a product or service the opportunity to aggregate their purchases
together with other Members, so they or we will be able to negotiate reduced
prices from e-Vendors. For example, we believe that it will be possible for a
large group of Members who want to purchase a particular type of car from a
Suite101 e-Vendor to negotiate a group price with the provider. There may even
be opportunities to improve the block pricing dynamically as more Members join
together to purchase a desirable product or service.
To achieve our goal, we have recently started several initiatives that
we believe will grow and strengthen Suite101.com:
- Accelerate membership growth from 58,000 currently to 250,000,
- Build the Suite101.com brand,
- Continue to enhance site functionality and performance, and
- Implement the e-commerce strategy.
- ACCELERATE MEMBERSHIP GROWTH
Our immediate membership goal is 250,000 Members. We believe this goal
is attainable within the defined time parameters (the first quarter of 2000) and
the budget allocated (US$675,000). To help achieve this goal, we contracted with
New-York-based Doublespace to prepare our Marketing Plan. This Marketing Plan
was implemented beginning in September, 1999.
We believe 250,000 Members is the minimum "critical mass" required to
implement our e-commerce strategy. We intend to grow our Membership. Therefore,
the success of our marketing effort will not only be measured by attaining
250,000 Members within our budget and timeframe, but it will also be measured by
attracting Members within our targeted demographic profile.
13
<PAGE>
- BUILD THE SUITE101.COM BRAND
Suite101.com's growth, in the past three years, has been primarily
by word-of-mouth, ad hoc public relations by our management and the informal
promotional efforts of our Members. However, by implementing the Marketing
Plan, we intend to raise the "brand recognition," that is, the profile of
Suite101.com among three target markets:
- The "general" Internet audience;
- Existing Editors and Members; and
- Investors, potential partners and the media
Approximately US$1.2 million will be allocated to the marketing and
promotion of the Suite101.com brand through December 31, 2000. Planned
activities include advertising in both off-line (print and radio), and online
media (banners, buttons, email campaigns); public relations; sponsorships; and
strategic partnerships.
In addition, Suite101.com has introduced several online sweepstakes and
"Friends and Family" affiliate programs to increase membership and brand
awareness. It also intends to pursue a variety of distribution arrangements with
other Internet-based companies to raise the profile of its brand. Suite101.com
believes that a high-profile and well-recognized Suite101.com brand will not
only attract additional Members, but it will also make the Community more
attractive to qualified eVendors.
- CONTINUE TO ENHANCE FUNCTIONALITY AND PERFORMANCE
Suite101.com believes continually providing visitors and Members with
greater functionality and performance is critical to its success.
Using approximately (US)$675,000 from our April 1999 private sale of
securities, Suite101.com intends to substantially upgrade and expand our
technological infrastructure to provide faster and more reliable access and to
ensure that the site's software is scalable to handle much higher usage. To
date, we have added Web-based e-mail ("SuiteMail"), personal Home Pages, and
improved chat rooms ("SuiteChat"). A list of planned enhancements to the
functions and features of the Suite101.com site include:
- E-commerce and privacy tools,
- Electronic postcards,
- Member-centric psycho-demographic profiles,
- PC-to-PC telecommunications, and
- SuitePoints (micropayments).
14
<PAGE>
Suite 101 believes that continually enhancing site functionality and
performance will foster growth and affinity to the community. We believe that a
large and loyal membership will make Suite101.com very attractive as a platform
for e-commerce.
- IMPLEMENT THE E-COMMERCE PROGRAM
Suite101.com intends to mobilize as many suppliers of products and
services relevant to our membership as possible. Suite101 does not intend to
maintain an inventory of the products and services of its eVendors. Instead, it
intends to help these providers deliver appropriate marketing messages to
Members who have agreed to participate in a particular promotion. Suite101 also
intends to help facilitate transactions. In return, we will receive fees from
eVendors for helping to connect buyer and seller (which will be shared with the
consenting participating Members who have opted to receive the marketing
offering) and, if a sale is consummated, a share in the transaction.
We also believe that these profiles will be attractive to eVendors
because they will have the opportunity to target a marketing message to
consumers who have indicated they are considering a purchase.
Suite101.com intends to provide the following to its Members:
- A range of eVendors (products and services) that will maximize the
value of their profiles to the Members.
- A set of privacy tools that will prevent eVendors from obtaining
information about the Members prior to the moment of completed
transactions.
- A set of profiling tools that will help Suite101 capture detailed
information about the Members.
By automatically tracking Members' interests and browsing patterns, a
comprehensive portrait of the Member will be developed. Updates to their
psycho-demographic profile and "wish lists" of planned expenditures combined
with accurate monitoring of actual purchases, we believe will create a
valuable marketing resource. When this psychographic information is combined
with transaction records from Members' credit cards, the Members will have
created a complete profile of both their online and traditional ertail
activities.
A COMPARISON OF OUR OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998
During the nine months ended September 30, 1999, our sales were $1,246
compared with sales of $20,115 during the 1998 period. Sales in both periods
were primarily attributable to software licensing revenues of i5ive.
General and administrative expenses were $869,354 in the nine months
ended September 30, 1999 compared with $240,648 during the nine months ended
September 30, 1998. The increase was primarily the result of the increase in the
number of our Contributing Editors and the increased scale of our operations in
1999. Marketing expenses were $149,903 during the nine months ended September
30, 1999 compared with $-0- during 1998. This was the consequence of the
initiation of these activities during the 1999 period.
15
<PAGE>
Our Loss From Operations was $1,018,011 in 1999 compared with $220,533
in 1998. Other income was $66,785 in 1999 compared with $3,431 in 1998. The
increase was the result of interest earned on bank balances. Loss on disposal of
leasehold improvements in 1999 of $8,130 was the result of relocating our
offices.
The increase in our Net Loss in 1999 compared with 1998 was the result
of the increase in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The report of our independent auditors on their audit of our financial
statements as of December 31, 1998 contains an explanatory paragraph that
describes an uncertainty as to our ability to continue as a going concern due to
our recurring losses and, as of the date of their report, the lack of liquid
resources. At December 31, 1998, we did not have available the funds necessary
to meet our anticipated capital needs. However, thereafter through April 1999,
we realized gross proceeds of $5,000,000 from a private placement of our
securities. In the transaction, we 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. At September 30, 1999, we had cash of $3,493,140. We believe these funds
will be sufficient to meet our anticipated needs for working capital and capital
expenditures for at least the next 12 months.
We 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 us, or at all. If adequate
funds are not available or not available on acceptable terms, we may not be able
to fund our expansion, promote our e-commerce as we desire, or, develop or
enhance services or respond to competitive pressures. Any such inability could
have a material adverse effect on our 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
our stockholders and, stockholders may experience additional dilution and such
securities may have rights, preferences or privileges senior to those of the
rights of our Common Stock.
As a result of our limited operating history, we have limited
meaningful historical financial data upon which to base planned operating
expenses. Accordingly, our anticipated expense levels in the future are based in
part on our expectations as to future revenue from proposed e-commerce
revenue-sharing arrangements, and anticipated growth in visitor traffic and
membership. We expect that these expense levels 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 we will be able to accurately
predict our net revenue, particularly in light of the intense competition for
the sale of products and services on the Web, revenue-sharing opportunities, our
limited operating history and the uncertainty as to the broad acceptance of the
Web as an e-
16
<PAGE>
commerce medium. We 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 us to accurately make such
predictions would have a material adverse effect on our business, results of
operations and financial condition.
From our inception in April 1996 through June 30, 1998, Northfield
Capital Corporation and 284085 BC Ltd., our principal shareholders, advanced to
us the sums of $270,156 and $197,098, respectively, used for general corporate
purposes and working capital. Such amounts accrued interest at the rate of 6.5%
per annum. At the closing of the sale of i5ive shares to us, Northfield Capital
Corporation and 284085 BC Ltd. converted these advances and accrued interest
into an aggregate of 414,975 and 302,753 shares, respectively, of i5ive Common
Stock. Such shares of i5ive were exchanged for 1,969,057 and 1,436,565 shares,
respectively, of our Common Stock or an effective purchase price, based on the
amounts advanced by such persons through June 30, 1998, of approximately $0.14
per share of Common Stock.
Subsequent to June 30, 1998, Northfield Capital Corporation and 284085
BC Ltd advanced or incurred additional liabilities on behalf of the Company
aggregating $12,868 through December 31, 1998. Such amounts were repaid out of
the proceeds of the April 1999 private sale of securities.
YEAR 2000 COMPUTER ISSUES
We are 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. We are in the process of
working with our software vendors to ensure that the software that we have
licensed from third parties will operate properly in the year 2000 and beyond.
In addition, we are working with our external suppliers and service providers to
ensure that they and their systems will be able to support our needs and, where
necessary, inter-operate with our server and networking hardware and software
infrastructure in preparation for the year 2000. We do not anticipate that we
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 we experience or our
customers or vendors experience would have a material adverse effect on our
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
17
<PAGE>
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," as well
as in "Risk Factors." We caution readers that the risk factors described in
our Annual Report on Form 10-KSB, as well as those described elsewhere in
this Quarterly Report, or in our other filings with the Commission, in some
cases have affected, and in the future could affect our actual results, could
cause our actual results during 1999, 2000 and beyond, to differ materially
from those expressed in any forward-looking statements, and could cause our
development and the development of our 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, our early stage of
development and absence of material revenues, the possibility that we will be
unable to increase membership in our Communities of Interest sufficiently to
attract e-commerce, the usual unforeseeable risks encountered by any new
enterprise, our inability to attract readership to our Communities, our
potential need for additional capital and our possible inability to attract
such capital on acceptable terms or at all, the uncertainties of the levels
of our future operating expenses, fluctuations in our quarterly revenues and
membership growth, the level of consumer acceptance of e-commerce, our
inability to enter into marketing and other relationships to develop our
e-commerce, intense competition among Internet portals and e-commerce
participants, our inability to manage our growth, the impact of possible
future government regulation, our inability to afford a sufficient level of
privacy to our members, the possible volatility of the market price for our
Common Stock, and the impact of additional shares possibly coming onto the
market for sale.
RISK FACTORS
AN INVESTMENT IN SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU
SHOULD CONSIDER THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER INFORMATION
CONTAINED IN THIS QUARTERLY REPORT, IN EVALUATING OUR BUSINESS AND PROPOSED
ACTIVITIES. YOU SHOULD ALSO SEE THE "CAUTIONARY STATEMENT FOR PURPOSES OF THE
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1996"
REGARDING RISKS AND UNCERTAINTIES RELATING TO US AND TO FORWARD LOOKING
STATEMENTS HEREIN.
RISKS WE FACE ARISING OUT OF THE EARLY STAGE OF OUR BUSINESS
EARLY DEVELOPMENT STAGE
We are in the early stage of developing our business plan and
operations. We have realized no material revenues to date from our Internet
operations activities. From April 1996
18
<PAGE>
through September 30, 1999, our total revenues from our Internet operations
activities were negligible. During that period, we accumulated losses of
$1,708,556. We have not achieved profitability on a quarterly or annual basis
to date, and anticipate that we will continue to incur net losses for the
foreseeable future. The extent of our losses will be dependent, in part, on
the amount and rates of our expenditures and growth in net revenue from
e-commerce transactions. We expect our operating expenses to increase
significantly, especially in the areas of visitor and Member generation,
brand marketing and e-commerce promotion. As a result, we will need to
generate increased amounts of quarterly net revenue if we are to achieve
profitability. We believe that period-to-period comparisons of our operating
results, numbers of Members and page views will not be meaningful and that
you should not rely on the results or those numbers for any period as an
indication of our future performance. To the extent that our net revenues do
not grow at anticipated rates or that increases in our operating expenses
exceed our expectations or are not subsequently followed by commensurate
increases in net revenue, or that we are unable to adjust operating expense
levels accordingly, our business, results of operations and financial
condition will be materially and adversely affected. There can be no
assurance that our operating losses will not increase in the future or that
we will ever achieve or sustain profitability.
We are currently developing our business through efforts to attract
visitors, Members and Contributing Editors to our Web-based community. At
October 31, 1999, we had approximately 58,000 Members and had grown from 35
Contributing Editors in October 1996 to 785 in October 1999. During the month of
October 1999, our site received approximately 7.9 million page views, according
to PC Data Online. We cannot assure you that such growth rates are sustainable.
Our business plan is to continue to expand our 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 our site infrastructure through
the introduction of improved technology. We have not expended significant
efforts to date to realize revenues. Currently, we have twelve full-time
employees. Accordingly, there can be no assurance that our business plan can be
successfully developed or that we will realize any material revenues.
19
<PAGE>
LIMITED OPERATING HISTORY; ANTICIPATED LOSSES; NO ASSURANCE OF PROFITABILITY
i5ive, our wholly-owned subsidiary through which we conduct our
Internet operations, was founded in April 1996 and has had no material revenues
to date. Accordingly, our current business plans and prospects are not able to
be evaluated on the basis of our operating history. Our business plans and
prospects must be considered in light of the risks, expenses and problems
frequently encountered by companies in the early stages of development. This
must be considered, particularly as to companies entering new and rapidly
developing markets like the Internet. These risks include:
- 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
- Our ability to attract visitors, or retain Members and Contributing
Editors
- Our inability to generate significant e-commerce-based revenues from
our e-Vendors and Members
- Risks associated with a new and unproven business concept
- Our ability to anticipate and adapt to a developing market
- The failure of our network infrastructure (including our server,
hardware and software) to efficiently handle our Internet traffic
- Changes in laws and taxes that adversely affect our business
- The possibility that we will be unable to manage effectively any rapid
expansion of our operations, including the amount and timing of
capital expenditures and other costs relating to any expansion of our
operations
- The introduction and development of different or more extensive
communities by direct and indirect competitors, including those with
greater financial, technical and marketing resources
- Our inability to maintain and increase levels of traffic on our
Website
- Our inability 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 our business, operations and
infrastructure, and
- General economic conditions.
To address these risks, we must, among other things:
20
<PAGE>
- Attract visitors and retain Members and Contributing Editors
- Attract and retain a significant number of e-commerce vendors
(evendors)
- 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 our
technologies and commercialize our 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 we will be successful in addressing
these risks. Any failure to do so could have a material adverse effect on our
business, results of operations and financial condition. Because of the
foregoing factors, our quarterly net revenue and operating results are difficult
to forecast. Consequently, we believe that period to period comparisons of our
operating results will not necessarily be meaningful and should not be relied
upon as an indication of our future performance. It is likely that in some
future quarter or quarters our operating results may fall below the expectations
of securities analysts and investors. In such event, the trading price of our
Common Stock would likely be materially and adversely affected.
UNPROVEN BUSINESS; DEPENDENCE ON MEMBERS
The success of our business depends upon our ability to expand upon and
develop our community-based platform of Internet access and to generate multiple
revenue streams. Currently, we have no source of material revenues. The
potential success of our business concept is unproven, and, to be successful, we
must, among other things, develop and market concepts that achieve broad market
acceptance by our Members and Internet users. We are and will be substantially
dependent upon our Member-generated content, the promotional efforts of our
Members, the acceptance by our visitors and Members of marketing and other
promotional programs of third parties and us, and our ability and the ability of
our Contributing Editors to attract Web users to our site and to reduce the
demands on our personnel. Our business concept has existed for only a limited
period of time. As a result, it is relatively unproven.
There can be no assurance that our Member-generated content or the
promotional efforts of our Members will continue to attract users to our
Website. There can also be no assurance that our Members and Contributing
Editors will continue to devote time voluntarily to improving our community.
Given the fact that we provide free disk space to our Members and we support the
involvement of our Contributing Editors, third parties may attempt to hold us
responsible for our Contributing Editors' content and/or any of their actions or
omissions. There also can be no assurance that our 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 our services or our intention to commercialize those services
or that the Contributing Editors become dissatisfied with the amounts of
compensation we pay to them.
21
<PAGE>
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 our efforts in the future to attract Contributing
Editors. Further, there can be no assurance that our community on the Internet
or our services will achieve broad market acceptance. Accordingly, no assurance
can be given that our business will be successful or that we can sustain revenue
growth or generate significant profits.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The report of our independent auditors on their audit of our financial
statements as of December 31, 1998 contains an explanatory paragraph that
describes an uncertainty as to our ability to continue as a going concern due to
our recurring losses and, as of the date of their report, the lack of liquid
resources. At December 31, 1998, we did not have available to us the funds
necessary to meet our anticipated capital needs. However, through April 13,
1999, we realized gross proceeds of $5.0 million from a private placement of our
securities. At September 30, 1999, we had cash of $3,493,140. We believe these
funds will be sufficient to meet our anticipated needs for working capital and
capital expenditures for at least the next 12 months. We 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 to us on favorable terms, or at all. If adequate funds are not
available or not available on acceptable terms, we may not be able to fund our
expansion, promote our e-commerce as we desire, or, develop or enhance services
or respond to competitive pressures. Any such inability could have a material
adverse effect on our 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 our stockholders
and, our stockholders may experience additional dilution and such securities may
have rights, preferences or privileges senior to those of the rights of our
Common Stock.
As a result of our limited Internet operating history, we have limited
meaningful historical financial data upon which our planned operating expenses
can be based. Accordingly, our anticipated expense levels in the future are
based in part on our 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 we will be able to
accurately predict our net revenue, particularly in light of the unproven manner
in which we intend to derive our Internet revenue, the intense competition for
the sale of products and services on the Web, revenue-sharing opportunities, our
limited operating history and the uncertainty as to the broad acceptance of the
Web as an e-commerce medium. We may be unable to adjust our spending in a timely
manner to compensate for disappointing results of our marketing efforts and
efforts to develop Internet revenue, any unexpected revenue shortfall or other
unanticipated changes in the
22
<PAGE>
e-commerce industry. Our failure to accurately make such predictions or
adjustments in our spending would have a material adverse effect on our
business, results of operations and financial condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY; UNPREDICTABILITY OF
FUTURE NET REVENUE
We expect our operating results to fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. These factors include:
- The demand for the products and services we intend to market through
our Web site
- Our Members' acceptance of e-commerce on the Web site
- The level of traffic on our Suite101.com site
- The amount and timing of capital expenditures and other costs relating
to the expansion of our operations
- The introduction of new or enhanced services by us or our competitors
- The timing and number of new hires, the availability of desirable
products and services for sale through our Web site
- Our loss of a key strategic or marketing relationship
- Changes in our marketing policy or those of our competitors
- The mix of products and services marketed by our eVendors
- Engineering or development fees that may be paid in connection with us
adding new Web site development and publishing tools
- Technical difficulties with our 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, we
may from time to time make certain pricing, service or marketing decisions or
business combinations that could have a material adverse effect on our business,
results of operations and financial condition. We expect to experience
seasonality in our business, with user traffic on our 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 our operating results. There can be no assurance that such
patterns will not have a material adverse effect on our business, results of
operations and financial condition.
23
<PAGE>
MANAGEMENT OF GROWTH AND RELATIONSHIPS; BRIEF TENURE OF MANAGEMENT;
DEPENDENCE ON KEY PERSONNEL
In developing our business plan, we expect to be required to establish
and manage multiple relationships with various strategic and eVendors,
distributors, providers of services, technology licensors, Members, marketers
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 our material growth or in the number of third
party relationships, and there can be no assurance that our systems, procedures
or controls will be adequate to enable us to establish and enter into these
relationships, to support any substantial growth in our operations or that our
management will be able to implement or manage any growth effectively.
To effectively manage growth, we must establish, implement and improve
operational, financial and management information systems and expand, train and
manage our employee base. Our development is and will continue to be
substantially dependent on the abilities and performance of our executive
officers and other key employees. The loss of the services of any of our
executive officers or other key employees could have a material adverse effect
on our prospects, business development, and results of operations and financial
condition. Competition for senior management, experienced sales and marketing
personnel, qualified Web engineers and other employees is and is expected to
continue to be intense. There can be no assurance that we will be successful in
attracting and retaining such personnel. There can be no assurance that we may
not experience difficulty from time to time in hiring and retaining the
personnel necessary to support the growth of our business. Our failure to
successfully manage our personnel requirements would have a material adverse
effect on our business, results of operations and financial condition.
INTENSE COMPETITION
The market for community based e-commerce on the Internet is new and
rapidly evolving. Competition is expected to increase significantly in the
future. Barriers to entry into the Internet business are relatively
insubstantial. We believe 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 About.com, Geocities, Inc.,
iVillage.com, Inc.Tripod, Inc., a subsidiary of Lycos, Inc., Angelfire
Communications, Xoom.com, Inc. and theglobe.com. Each of these competitors is
significantly larger than us and more well-established and well-known in the
Internet industry and with greater capital resources.
We will likely also face competition in the future from Web
directories, search engines, shareware archives, content sites, commercial
online service providers ("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 our
competitors. In addition, we could face competition in the future from
traditional media
24
<PAGE>
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 our competitors and potential
competitors will not develop communities that are equal or superior to ours
or that achieve greater market acceptance than our community.
We also compete 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
providers, 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 America 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"), About.com Inc., and Yahoo! Inc. ("Yahoo!"). We also compete with
traditional forms of media, such as newspapers, magazines, radio and television.
We believe that the principal competitive factors in attracting strategic
partners and other sources of e-commerce business include the amount of traffic
on our Web site, name recognition, customer service, the demographics of our
Members and viewers, our ability to offer targeted audiences and the overall
cost-effectiveness of the e-commerce opportunities we offer. We believe that the
number of Internet companies relying on Web-based e-commerce and advertising
revenue will increase substantially in the future. Accordingly, we will likely
face increased competition, resulting in increased pressures on our revenue
sharing percentages which could, in turn, have a material adverse effect on our
business, results of operations and financial condition.
Substantially all of our 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. 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, eVendors, marketers 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, eVendors and
marketers as having more desirable Web sites. In addition, many persons with
whom we would seek to enter into a strategic relationship have already
established collaborative relationships with our competitors or potential
competitors, and other high-traffic Web sites. Accordingly, there can be no
assurance that we will be able to grow our visitor and Membership base, traffic
levels and customer base or retain our current Members, traffic levels or
customers, or that competitors will not experience greater growth in traffic
than we experience as a result of such relationships which could have the effect
of making their Web sites more attractive.
In addition, for these reasons, our strategic partners may sever or
elect not to renew their agreements with us. There can also be no assurance that
we will be able to compete successfully
25
<PAGE>
in the Internet or that competition will not have a material adverse effect
on our business, results of operations and financial condition.
GROWTH WILL DEPEND ON OUR ABILITY TO DEVELOP OUR BRAND
We believe that establishing broader brand recognition of the
Suite101.com brand is critical to our future success. Accordingly, we intend to
launch a brand-enhancing campaign shortly that will include online advertising,
promotional programs targeted and Members and visitors, and public relations
activities. We intend to incur significant expenditures in our marketing
efforts. If our brand building strategy is unsuccessful, these expenses may
never be recovered and we may be unable to increase our future revenues.
RISK OF RELIANCE ON INTERNALLY AND EXTERNALLY DEVELOPED SYSTEMS
We use and intend to use an internally developed system for our Web
site, as well as systems licensed from others. Our system has not been fully
developed. A key element of our strategy is to generate a higher volume of
traffic to our Web site. Our inability to further develop and modify our system
as necessary to accommodate increased levels of traffic on our Web site may
cause unanticipated system disruptions, slower response times, degradation in
Member satisfaction and service leading to a possible loss of Members and
Contributing Editors, and delays in reporting accurate financial information.
Any of these events could have a material adverse effect on our business,
results of operations and financial condition.
Furthermore, to expand our operations we will introduce new or
complementary enhancements on the Web site which will require us to outsource
development where we may have little control over the speed and quality of the
development. Any decline in the speed or quality of the development could
adversely effect our business, results of operations and financial condition.
RISKS WE FACE ARISING OUT OF THE NATURE OF THE INTERNET
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally. 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 as well as others. 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 our community, increase our cost of doing
business, or otherwise have a material adverse effect on our business, results
of operations and financial condition.
26
<PAGE>
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 our 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 us 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. The result
could, thereby, have a material adverse effect on our business, results of
operations and financial condition.
It is also possible that our 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 our
use of cookies could limit our effectiveness in targeting of advertisements,
which could have a material adverse effect on our business, results of
operations and financial condition.
In addition, a number of 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. The U.S.
Congress enacted the Internet Tax Freedom Act on October 21, 1998 which imposes
a national moratorium in the United States on state and local taxes on Internet
access services, online services, and multiple or discriminatory taxes on
electric commerce effective October 1, 1998 and ending three years after its
enactment. There can be no assurance 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, our opportunity to derive
financial benefit from these activities may be adversely affected.
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.
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 is otherwise granted,
the costs of communicating on the Web could increase substantially, potentially
slowing growth in use of the Web. This could, in turn, decrease demand for our
services or increase our cost of doing business.
27
<PAGE>
Due to the global nature of the Web, it is possible that, although our
transmissions over the Internet currently originate primarily in British
Columbia, Canada, the governments of various states in the United States and
foreign countries might attempt to regulate our transmissions or prosecute us
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 we
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 our business, results of operations and
financial condition.
In addition, as our services are available over the Internet in
multiple foreign countries, provinces, states and other jurisdictions, such
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each of those jurisdictions. We are qualified to do
business only in British Columbia, and our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us to
taxes and penalties and could result in our inability 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 our
business, or the application of existing laws and regulations to the Internet
and other online services could have a material adverse effect on our 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 our
Web site and subsequently distributed to others, there is a potential that
claims will be made against us for defamation, negligence, copyright or
trademark infringement, personal injury or other theories based on the nature,
content, publication and distribution of these materials. Such claims have been
brought, and sometimes successfully pressed, against OSPs for example, in the
past. We have 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 us.
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. We could also be exposed to liability with respect to
the offering of third party content that may be accessible through our Web site,
or through content and materials that may be posted by Members on their personal
Web sites or chat rooms, or online discussions offered by us. Such claims might
include, among others, that by directly or indirectly hosting the personal Web
sites of third parties, we are 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 our web site contains errors, third parties could make claims
against us for losses incurred in reliance on such information. Even to the
extent that such claims do not result in liability to us, we could incur
significant costs in investigating and defending against such claims. The
imposition on us of potential liability for information carried on or
disseminated through our systems could require us to implement measures to
reduce our exposure to such liability, which may require the expenditure of
substantial resources and limit the attractiveness of our services to Members
and visitors.
28
<PAGE>
We also intend to enter into agreements with eVendors and sponsors
whereby it is intended that we will be entitled to receive a share of any
revenue from the purchase of goods and services through direct links from our
Web site. Such arrangements may expose us to additional legal risks and
uncertainties, including potential liabilities to consumers of such products and
services by virtue of our involvement in providing access to such products or
services, even if we do not provide such products or services. While our
agreements with these parties are intended to provide that we will be
indemnified against such liabilities, there can be no assurance that such
indemnification, if available, will be adequate.
Currently, we do not carry general liability insurance intended to
protect us from any liability arising out of the foregoing. In any event,
however, insurance may not cover all potential claims to which we are exposed or
may not be adequate to indemnify us for all liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in excess of our
insurance coverage would have a material adverse effect on our 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 our 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 our business, results of operations or financial condition. A party who is
able to penetrate our network security could misappropriate proprietary
information or cause interruptions in our Web site.
In addition, in offering certain payment services, we could become
increasingly reliant on encryption and authentication technology licensed from
third parties to provide the security and authentication authentication
necessary to effect secure transmission of confidential information, such as
customer credit card numbers. We 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 us to a risk of loss
or litigation and possible liability. There can be no assurance that contractual
provisions attempting to limit our liability in such areas will be successful or
enforceable, or that other parties will accept such contractual provisions as
part of our agreements, which could have a material adverse effect on our
business, results of operations and financial condition.
RELIANCE ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our technology as proprietary and attempt to protect it by
relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. We
currently have no patents or patents pending and do not
29
<PAGE>
anticipate that patents will become a significant part of our intellectual
property in the foreseeable future. We also generally enter into
confidentiality or license agreements with our employees and consultants, and
generally control access to and distribution of our documentation and other
proprietary information. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use our proprietary information
without authorization or to develop similar technology independently.
We pursue the registration of our trademarks and service marks in
the United States and Canada and internationally, and intend to apply for the
registration in the United States and Canada for a number of our service
marks There can be no assurance that such registration will be granted or, if
granted, that we 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 our services are
distributed or made available through the Internet, and policing unauthorized
use of our proprietary information is difficult.
Legal standards relating to the validity, enforceability and scope
of protection of certain proprietary rights in Internet-related businesses
are uncertain and still evolving. No assurance can be given as to the future
viability or value of any of our proprietary rights or other companies within
this market. There can be NO assurance that the steps taken by us will
prevent misappropriation or infringement of our proprietary information. Any
such infringement or misappropriation, should it occur, could have a material
adverse effect on our business, results of operations and financial condition.
In addition, litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation might result in substantial costs and diversion of resources and
management attention and could have a material adverse effect on our
business, results of operations and financial condition and we may not have
available the resources necessary to pursue such litigation.
Furthermore, there can be no assurance that our business activities
will not infringe upon the proprietary rights of others, or that other
parties will not assert infringement claims against us. It can be expected
that we will be subjected to claims in the ordinary course of our business,
including claims of alleged infringement of the trademarks, service marks and
other intellectual property rights of third parties by us 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 us
to significant liability for damages and might result in invalidation of our
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 our business,
results of operations and financial condition.
We currently license from third parties certain technologies
incorporated into our Web site. As we continue to introduce new services that
incorporate new technologies, we may be required to license additional
technology from others. There can be no assurance that these third party
technology licenses will continue to be available to us on commercially
reasonable terms, if at all. Our inability to obtain any of these technology
licenses could result in delays or
30
<PAGE>
reductions in the introduction of new services or could adversely affect the
performance of our 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
Our 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 our 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. We 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 our 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 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, our
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
31
<PAGE>
a viable commercial marketplace, there can be no assurance that we will not
be required to incur substantial expenditures in order to adapt our services
to changing Web technologies, which could have a material adverse effect on
our 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 us 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 we should collect sales or other similar taxes on the
sale of merchandise could have a material adverse effect on our business,
prospects, financial condition and results of operations
OTHER RISKS WE FACE
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, NORTHFIELD CAPITAL CORPORATION AND
284085 BC LTD.
Three of our Directors and Northfield Capital Corporation, and their
respective affiliates, in the aggregate, beneficially own approximately
5,597,840 shares or 46.4% of our outstanding Common Stock. As a result, these
stockholders possess significant influence over us, giving them the ability,
among other things, to elect a majority of our 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 us, impeding
a merger, consolidation, takeover or other business combination involving us,
or discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us which could have a material adverse effect
on the market price of our Common Stock.
YEAR 2000 COMPLIANCE
We are 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. We are in
the process of working with our software vendors to ensure that the software
that we have licensed from third parties will operate properly in the year
2000 and beyond.
In addition, we are working with our external suppliers and service
providers to ensure that they and their systems will be able to support our
needs and, where necessary, inter-operate with our server and networking
hardware and software infrastructure in preparation for the year 2000.
Management does not anticipate that we will incur significant operating
expenses or be required to invest heavily in computer systems improvements to
be year 2000 compliant.
32
<PAGE>
However, significant uncertainty exists concerning the
potential costs and effects associated with any year 2000 compliance. Any
year 2000 compliance problems experienced by our customers, vendors or us
would have a material adverse effect on our 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 our transaction with i5ive, there was no
active public market for our Common Stock. Since December 30, 1998, our
Common Stock has been quoted on the OTC Bulletin Board. There can be no
assurance that an active trading market for our Common Stock will be
sustained or that the market price of our Common Stock will not decline or
fluctuate based upon market or other conditions. The market price may bear
no relationship to our revenues, earnings, assets or potential and may not
be indicative of our future business performance. The trading price of our
Common Stock has been and can be expected to be subject to wide fluctuations
in response to variations in our quarterly results of operations, the gain or
loss of significant strategic relationships, unanticipated delays in our
development, changes in estimates by analysts, announcements of technological
innovations or new solutions by us or our competitors, general conditions in
the technology and Internet sectors and in Internet-related industries, other
matters discussed elsewhere in this Quarterly Report and other events or
factors, many of which are beyond our 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 us 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 our 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 our business, results of operations and financial
condition.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of significant amounts of our 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 our Common Stock or our future
ability to raise capital through an offering of our equity securities. We
had, as of September 30, 1999, 12,061,281 shares of common stock outstanding.
Of such shares, 5,597,840 shares were held by our Directors, 284085 BC Ltd.
and Northfield Capital Corporation. The 3,405,622 shares held by Northfield
Capital Corporation and 284085 BC Ltd. are "restricted securities" as such
term is defined in Rule 144 under the Securities Act. 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. As of September 30, 1999, approximately 4,450,948 shares
of our Common Stock were freely transferable under U.S. Federal securities
laws.
33
<PAGE>
In addition, the effectiveness on October 19, 1999 under the U.S.
Securities Act of 1933 of a registration statement will enable the public
offer and sale of 3,000,000 shares, including 2,000,000 shares currently
outstanding and 1,000,000 shares issuable on exercise of warrants. Such
securities were sold in April 1999 in the private sale of our securities and
were registered under the U.S. Securities Act of 1933 by virtue of a
commitment we made to the purchasers. The sale of those shares or the
perception that such sales will or could occur could materially and adversely
affect the market price for our Common Stock.
We have 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 our 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. Commencing December 4, 1999, the options granted under the 1998
Stock Incentive Plan begin to become exercisable and the shares issuable on
exercise eligible for sale, subject to Rule 144 limitations applicable to
affiliates. On that date, an aggregate of 278,207 shares will become eligible
for sale on exercise of the options. Thereafter on various dates commencing
on February 23, 2000 through April 27, 2002, an additional aggregate of
164,902 shares will become eligible for sale on exercise of options. As of
September 30, 1999, there were outstanding five-year options to purchase up
to 443,109 shares of Common Stock. Of these options, 333,109 are exercisable
at a price of $1.50 per share and the balance are exercisable at prices
ranging from $3.34 to $6.38 per share.
34
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
We did not file any Current Reports on Form 8-K during the quarter
ended September 30, 1999.
35
<PAGE>
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: November 12, 1999 /s/ PETER L. BRADSHAW
-----------------------------------
Peter L. Bradshaw
President and Chief Operating Officer
(Principal Executive, Financial and
Accounting Officer)
36
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,493,140
<SECURITIES> 0
<RECEIVABLES> 18,922
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,568,631
<PP&E> 118,504
<DEPRECIATION> 35,402
<TOTAL-ASSETS> 3,651,733
<CURRENT-LIABILITIES> 95,718
<BONDS> 0
0
0
<COMMON> 12,062
<OTHER-SE> 3,543,953
<TOTAL-LIABILITY-AND-EQUITY> 3,651,733
<SALES> 1,246
<TOTAL-REVENUES> 76,161
<CGS> 0
<TOTAL-COSTS> 1,019,257
<OTHER-EXPENSES> 8,130
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (951,226)
<INCOME-TAX> 0
<INCOME-CONTINUING> (951,226)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (951,226)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
</TABLE>
