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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
Mark One:
/x/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the fiscal year ended DECEMBER 31, 1998; 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 NO. 0-25136
SUITE101.COM, INC
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(Name of Small Business Issuer in its Charter)
DELAWARE 33-0464753
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1122 MAINLAND STREET - SUITE 390, VANCOUVER, BRITISH COLUMBIA, CANADA V6B 51.1
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(Address of Principal Executive Offices) (Zip Code)
604-682-1400
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
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None
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Securities Registered Pursuant to Section 12(g) of the Exchange Act:
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Common Stock, Par value $.001 per share
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(Title of Each Class)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the exchange act during the past twelve (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. /x/ Yes
/ / No
check if there is no disclosure of delinquent filers in response to item
405 of regulation s-b in this form, and no disclosure will be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in part iii of this form 10-KSB, or any amendment to
this form 10-KSB. /X/
State Issuer's revenues for its most recent fiscal year: $18,769
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of April 9, 1999, was $ 40,325,588.
(Non-affiliates have been determined on the basis of holdings set forth in the
information incorporated by reference under Item 11 of this Annual Report on
Form 10-KSB.)
The number of shares outstanding of each of the Issuer's classes of common
equity, as of DECEMBER 31, 1998, was 10,061,288.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS:
GENERAL
Suite101.com, Inc. (the "Company") 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. The Company community includes its visitors and Members
who are Internet users and Contributing Editors who create their own personal
Web sites organized topically into eleven major 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.
THE i5iVE ACQUISITION TRANSACTION
Prior to December 4, 1998, the Company was known as Kinetic Ventures
Ltd. On that date it changed its name to Suite101.com, Inc. and on December
10, 1998, it completed the purchase from Northfield Capital Corporation and
284085 B.C. Ltd. (herein collectively referred to as the "Vendors"), pursuant
to an Agreement (the "Agreement") effective October 30, 1998, of all of the
issued and outstanding common shares of i5ive communications inc., a British
Columbia corporation ("i5ive"). The purchase price for the shares of i5ive
was the issuance of 3,405,622 shares of Common Stock of the Company. On
execution of the Agreement the sum of approximately (US) $65,000 was advanced
by the Company to i5ive to be used to finance the business of i5ive. In
addition, Northfield Capital Corporation, and Julie M. Bradshaw and Sunny H.
Hirai, both of whom were officers and Directors of i5ive, and two of i5ive's
management employees acquired concurrently with the closing from Benitz &
Partners Limited, a principal shareholder of the Company, an aggregate of
2,500,000 shares of Common Stock.
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On the closing of the transaction, Peter L. Bradshaw, Julie M. Bradshaw and
Sunny H. Hirai, all officers and Directors if i5ive, were elected Directors
of the Company and the Company's three Directors prior to the closing resigned
Unless the context otherwise requires, references herein to the
"Company" refer to Suite101.com, Inc. (formerly known as Kinetic Ventures
Ltd.), a Delaware corporation, and its wholly owned subsidiary, i5ive, and
references to "i5ive" refer to i5ive communications, inc. a British Columbia
corporation. On March 20, 1997, the Company completed the sale to Ballard
Medical Products, Inc. of its medical products business assets pursuant to an
option agreement entered into on July 17, 1995 approved by the Company's
stockholders on November 13, 1995. Subsequent to the sale of its medical
products business until its acquisition of i5ive, the Company had no active
business operations.
The acquisition of the outstanding shares of i5ive has been accounted
for as a pooling of interests and, accordingly, the Company's financial
statements included herein includes the operating results and financial
condition of i5ive since the inception of i5ive in April 1996. The Company's
financial statements also include the operating results of its medical
products business prior to its sale in March 1997.
BUSINESS OF THE COMPANY
The Company has realized no material revenues to date from its Internet
operations activities. From inception of i5ive in April 1996 through
December 31, 1998, its total revenues were $37,461. During that period, it
has accumulated losses of $722,234. A new user interface was introduced in
November 1998, which offers substantially improved presentation of
Member-generated content in an intuitive topical format - Communities of
Interest - and has been well received by the Company's Members and visitors.
The Company's current focus is to build visitor traffic and Member and
Contributing Editor enrollment into its community. At December 31, 1998, it
had approximately 32,101 Members and had grown from 35 Contributing Editors
in October 1996 to 465 in December 31, 1998. During the month of December
1998, the site received approximately 1,300,000 page views.
The Company's business plan is to continue to expand its numbers of
visitors, Members and Contributing Editors in an effort to expand its
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.
The Company's revenue model will concentrate on electronic commerce
("e-commerce"). Through e-commerce, the Company intends to provide its
Members with access to the products
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offered by leading marketers and service providers whereby the Company will
participate with their e-commerce partners ("E-Providers") in a percentage of
the proceeds from online transactions.
Users are seeking from the Web the same opportunity for expression,
interaction, sharing and recognition that they seek in the everyday world.
Generally, a typical Internet user's experience surfing the Web has been
essentially one-way-searching and viewing Web sites containing professionally
created content on topics of general interest, such as current events,
sports, finance, politics and weather. In general, the Web does not provide
a context to publish, promote, search, view and react to personal content.
While Internet search and navigational sites have improved a user's ability
to seek out aggregated Web content, these sites are not primarily focused on
providing a platform for publishing or aggregating the rapidly increasing
volume of personalized content created by users with similar interests, or
enabling such users to interact with one another. Similarly, users browsing
the Web are increasingly seeking ways of accessing unique, personalized
content, and interacting and communicating with other individuals with
similar interests. Often the most relevant content for a user is that
generated by other users who share a common interest. Online communities
offer a centralized means of accessing diverse, user-created content in an
easy-to-navigate context and the ability to interact directly with the author
of such personalized content. For businesses and advertisers, online
communities hold the potential of reaching highly targeted audiences within a
more personalized context, thus providing the opportunity to increase
advertising efficiency and improve the likelihood of a sale. The Company
offers Web users the ability to join and become actively involved in a Web
community of personal Web sites. The Company provides its Members and
Contributing Editors with the publishing tools to quickly and easily create
and participate in their own Web sites in one of the topically organized
Communities of Interest, such as Business, Arts & Humanities, Science or
Travel.
Members are encouraged to become active participants in the Company's
community by updating their sites and communicating with others through chat
and on line discussion services provided by the Company. The Company offers
Members seeking greater involvement the opportunity to become Contributing
Editors who generate articles in their topic of interest and monitor the
community for compliance with community guidelines. In addition, the Company
aims to make the Suite101.com community a primary destination point for
Internet users seeking personalized, user-created content. Through the
Company's enhanced user interface, the Company provides a central site for
Internet users to quickly access and view topically organized content created
by fellow visitors, Members and Contributing Editors.
The Company's objective is to be a major Member-content created online
community for people on the Web. The Company's strategies to achieve this
objective include:
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FOCUS ON MEMBERSHIP GROWTH AND AFFINITY. The Company intends to seek to
increase the number of its Members and concentrate on Member affinity to
become a leading community of personal Web sites. The Company intends to
seek to grow its Membership base by: (i) continuing to attract an increasing
amount of visitor traffic to Suite101.com through its free Best of Web guide
service. The Suite101.com Best of Web guide facilitates and attracts a
constant flow of new Internet visitors to the Web site. This, in turn, the
Company believes, will generate membership growth; (ii) introducing
additional classes of Memberships that appeal to a broader range of Internet
users; (iii) offering easier-to-use Web page publishing tools allowing
Members to easily create and enhance personal Web sites; (iv) promoting its
site as a destination point on the Web by seeking to establish distribution
alliances with strategic partners; and (v) launching brand name promotional
campaigns to drive both growth in Membership and traffic to its Members'
personal Web sites. In addition, the Company intends to introduce more
valued-added Member services and strengthen and expand the number of affinity
programs offered by the Company. The Company believes that its focus on the
needs of its Members and enhancing their experience within the Suite 101.com
community will produce continued growth in, and foster loyalty among its
Membership base. The Company believes that a large and growing base of
committed Members organized on a contextual basis provides potential
E-Providers with an attractive market to target promotion of their products
and services, thereby creating marketing and e-commerce revenue opportunities
for the Company.
BUILD THE SUITE101.COM IDENTITY. The Company's growth has been
primarily by word of mouth and the informal promotional efforts of its
Members. The Company currently intends to promote awareness of the
Suite101.com identity through a variety of means, which may include
traditional media, including print, radio, billboard and television. In
addition, the Company intends to pursue a variety of distribution
arrangements to increase its reach on the Internet and introduce a number of
Suite101.com identity awareness programs on its Web site to leverage its
Membership base and visitor traffic. The Company believes that a well
recognized Suite101.com identity will be attractive to potential E-Providers.
CONTINUE TO ENHANCE SITE FUNCTIONALITY AND PERFORMANCE. The Company
believes continually providing Members and visitors with greater
functionality and performance is critical to its continued leadership. The
Company introduced a new user interface in November 1998, which offers
substantially improved presentation of Member-generated content in an
intuitive topical format and has been well received by the Company's Members
and visitors. The Company also intends, as funds are available, to continue
to upgrade and expand its server and networking infrastructure, improving its
ability to provide fast and reliable access. The Company will also continue
to provide its Members with enhanced Web page publishing and communication
tools to enhance the community experience. The Company believes that
continually enhancing site functionality and performance foster Member and
visitor growth and
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affinity to the community, thereby providing the Company with an attractive
platform for e-commerce.
ESTABLISH NEW STRATEGIC ALLIANCES. The Company intends to seek to
establish strategic relationships intended to increase traffic and
Memberships of both partners.
BUILD MULTIPLE E-COMMERCE STREAMS. The Company believes that its Web
community will offer a scalable business platform from which the Company
plans to generate revenue from multiple e-commerce sources. The Company
intends to achieve its revenue objectives by: (i) obtaining marketing
revenues through expansion of its Member base, being able to target its
marketing efforts to demographically distinct groups, increasing its page
views, establishing and investing in improving ad serving and ad targeting
technology; (ii) develop revenue-sharing E-Provider relationships with
third-party content providers, and; (iii) provide a means for small and home
business owners to leverage the reach of the Internet through an e-commercial
presence within the Company's community.
MEMBERSHIP ON SUITE101.COM. Suite101.com offers Members a diverse range
of communities with whom to interact. The Company also promotes active
Member participation through its Member-focused editorial philosophy - Web
pages created and maintained by contributing their talents and ideas, meeting
and interacting with others with similar interests and creating their own
"home on the Web." Supporting the editorial efforts of its Members are
approximately 450 Contributing Editors. As well as being involved in
Suite101.com's community organization, content management and community
interaction, Contributing Editors endeavor to lead Suite101.com Members and
the Internet community at large to the best content on the Internet by
writing weekly/bi-weekly/monthly articles, maintaining a Best of Web list
(links to topic related information on the Internet) and hosting topical
discussions in their subject area. The Company provides links to the
Suite101.com Best of the Web Guidepowerful Web page publishing tools, Member
support, high-speed, high-quality site performance and chat and on-line
discussion services, all free of charge. The Company emphasizes a sense of
responsibility among community Members by leveraging the characteristics of
the Web that users find most attractive - connection, expression,
communication, entertainment and utility.
HOW MEMBERS JOIN. Suite101.com's 11 Communities of Interest are based
on familiar themes and provide Web users with a place to connect on the
Internet. Each Member is able to participate in the community that most
closely matches his or her interests. For example, Purebred Dogs, California
Gardening or Children's Health. To join Suite 101.com, Members fill out an
application and commence interacting or publishing content on the site.
Members agree to abide by the community guidelines and Terms of Involvement.
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PARTICIPATING IN THE SUITE 101.COM COMMUNITY. After joining, Members
are encouraged to become active in the community. Members can interact with
visitors and other Members, support community building initiatives, and
participate in discussions and chat sessions. The Company believes that
Member participation is the key to a successful online community.
Furthermore, the Company believes that Member participation is directly
related to community loyalty which in turn, the Company believes, will
facilitate a greater quantity and higher quality of Member generated content.
Members seeking greater involvement apply to become Contributing Editors.
Contributing Editors are Internet guides who have a passion for a particular
topic and want to share their enthusiasm and knowledge with other
Suite101.com Members and the Internet community at large by writing
weekly/bi-weekly/monthly articles, maintaining a Best of Web list (links to
topic related information on the Internet) and hosting topical discussions in
their subject area. In addition, Contributing Editors coordinate community
activities, interface with the Company's in-house editorial staff and work to
foster core community values. Managing Editors manage their respective
Contributing Editor teams, recruit new Contributing Editors and support their
communities. The Company intends to introduce additional community
leadership positions in the future to increase levels of community
participation.
HOW TO SURF THE SUITE101.COM COMMUNITY. The Company believes that it
provides users surfing the Web with a comprehensive, high-quality
concentration of personal Web sites on the Internet. The Company strives to
improve its site for such users by upgrading the look and feel of its Web
site to provide easier navigation of and to direct greater levels of traffic
to Members' Web sites. In November 1998, the Company introduced its new user
interface designed to be easier to use and highly intuitive. The new user
interface presents the Suite101.com Web site to visitors in a topical format
to facilitate the aggregation of categories. This format allows easier and
more intuitive access to contact on the Suite101.com Web site and enhances
the integration of Members' content with the Company's chat, and on-line
services.
INFRASTRUCTURE AND OPERATIONS
The Company has developed a software system that is built on Microsoft
Internet Information Server, Allaire's Cold Fusion Application Server and
Microsoft SQL Server and is designed to be reliable and responsive. The
Company's architecture is designed to scale across multiple application servers
to handle a continually growing load. The Company provides its editors and
visitors with a robust content platform that can support a virtually unlimited
number of pages.
The Company provides an efficient, responsive user experience through
network servers housed in Vancouver, British Columbia. Member-generated content
is stored in a SQL Server
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database that is backed up daily with a weekly backup taken off site weekly.
The Company will continue to upgrade and expand its server and networking
infrastructure in an effort to improve its fast and reliable access to the
Company's community web site.
Site connectivity to the Internet is provided via a shared T-1 provided on
a 24-hour per day, seven days per week basis by Pro.Net Communications inc. Any
interruption in the service that Pro.Net receives from other providers, or any
failure of Pro.Net to handle higher volumes of Internet users to the
Suite101.com site could have a material adverse effect on the Company's
business, results of operations and financial condition.
E-COMMERCE AND ADVERTISING
The growing adoption of the Web represents a significant opportunity for
businesses to conduct commerce over the Internet. According to IDC,
transactions on the Internet are expected to increase from approximately $12
billion in 1997 to approximately $426 billion in 2002, with the number of
users that are buyers of products and services rising from 26% to 40% in the
same period. One factor in this projected growth is the increasing variety of
transactions that take place on the Web. Initially, companies focused on
facilitating Internet transactions between businesses. More recently,
however, a number of companies have targeted business-to-consumer
transactions. These companies typically use the Internet to offer standard
products and services that can be easily described with graphics and text and
that do not necessarily require a physical presence for purchase, such as
software, books, music CDs, videocassettes, home loans, airline tickets and
online banking and stock trading. The Internet allows these companies to
develop one-to-one relationships with customers worldwide without making
significant investments in traditional infrastructure such as retail outlets,
distribution networks and sales personnel.
Growth in the Web has also created an important new advertising channel.
Tools not available in traditional advertising media, such as real-time
measurement of "click through" on advertising banners, further increase the
attractiveness of Web advertising by giving advertisers real-time feedback on
campaigns. Jupiter Communications projects that the dollar value of
advertising on the Web is expected to increase from approximately $940
million in 1997 to approximately $7.7 billion in 2002. To date, businesses
and advertisers have typically used traditional navigational sites and
professionally-created content sites for the sale and marketing of their
products and services online. In addition, online community sites provide
more detailed demographic data and self-selected groups of consumers with an
affinity for particular products. Advertisers can thus more easily deliver
targeted messages in cost-effective manner.
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THE GROWTH OF ONLINE COMMUNITIES
Traditional use of the Web has consisted largely of one-way
communications in which users "surf" and view different Web sites containing
professionally created content on topics of general interest such as news,
sports and weather. Internet search engines and navigational sites serve a
valuable function for users seeking to browse the Internet and locate Web
sites of interest. However, these services are not primarily focused on
providing a platform for publishing and aggregating the rapidly increasing
volume of personalized content created by users or enabling such users to
interact with each other.
In particular, users who publish Web sites have had limited means of
attracting visitors to their sites or interacting with such visitors, and, as a
result, there is a growing demand for online community sites where users can
publish content and engage in community activities. According to statistics,
online community sites have recently been one of the fastest growing sectors of
the Web. Statistics published by Media Metrix indicate that the combined reach
of the four leading Web communities increased from 32% to 62% from May 1997 to
July 1998. Additionally, Web users are increasingly seeking access to unique,
personalized content and interaction with others who share similar interests.
Online communities provide a medium for such access and interaction.
THE COMPANY'S SOLUTION
The Company plans on using the unique characteristics of the Web to
cost-effectively market products and services to its member base. By
offering its Members a variety of compelling free services, a focused
Communities of Interest and a share in the sale of the Company's demographic
profile, the Company believes it will acquire and maintain a substantial
Membership base of demographically distinct groups. The Company believes it
has developed an innovative online sales channel with low customer
acquisition and marketing costs.
The generation of e-commerce revenues, to be shared by the Company, its
Members and its E-Providers is to be a collaborative one-to-one marketing
effort. The Company's marketing plan is founded on the Members consent, the
Company's role as custodian of the Member's 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, physchographics and the individual
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
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direct mail) or electronic broadcasting (radio and television), the Company's
campaigns will use the Member's Personal Home Page or Web site to communicate
marketing material, 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 site quickly and easily.
This capability offers our Members electronic one-stop-shopping and our
E-Providers one-to-one contact with the consumer, our Member.
The Company's plans involve copyright protection for information on its
site and the opportunity for members to share in marketing revenues,
restrictions on solicitation of members without their consent, maintaining
the private identity of members and serving as an advocate for its members
who experience difficulties with e-commerce through the Company's site.
These plans have not been fully implemented and there can be no assurance
that these plans can be fully achieved.
EMPLOYEES
As of March 30, 1998, the Company had seven full time employees,
including five in operations and development and one in administration. The
Company's future success will depend, in part, on its ability to attract,
retain and motivate highly qualified technical and management personnel, for
whom competition is intense. The Company's employees are not covered by any
collective bargaining agreement, and the Company has never experienced a work
stoppage. The Company believes its relationship with its employees is good.
ITEM 2 - DESCRIPTION OF PROPERTY:
The Company's executive offices and computer operations are currently
located in Vancouver, British Columbia, Canada in approximately 1,046 square
feet of office space. The premises are occupied pursuant to a monthly lease
with a non-affiliated person providing for an annual rental of $14,571.
Management of the Company considers these premises adequate for its existing
operations.
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ITEM 3 - LEGAL PROCEEDINGS:
No legal proceedings are pending against the Company other than ordinary
litigation incidental to the Company's business, the outcome of which management
believes will not have a material adverse effect on the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matter was submitted during the fourth quarter of the fiscal year ended
December 31, 1998 to a vote of security holders.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS:
The Company's Common Stock has been quoted on the OTC Bulletin Board since
December 30, 1998 under the symbol BOWG. The following table sets forth the
high and low bid quotations on the OTC Bulletin Board for the Company's Common
Stock for the period January 1, 1999 through March 29, 1999. Prior to December
30, 1998 there was no active market for the Company's Common Stock.
<TABLE>
<CAPTION>
BID
--------------------------------------
CALENDAR QUARTER HIGH LOW
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<S> <C> <C>
1998: $5.00 $1.88
Fourth Quarter
(December 30 and 31)
1999: $7.88 $2.00
First Quarter
(through March 29)
</TABLE>
The foregoing amounts, represent inter-dealer quotations without
adjustment for retail markups, markdowns or commissions and do not represent
the prices of actual transactions. On
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April 13, 1999, the closing bid quotations for the Common Stock, as reported
on the OTC Bulletin Board was $10 3/8.
As of March 29, 1999, the Company had 113 shareholders of record and
believes that it has in excess of 500 beneficial holders. The Company has
never paid a cash dividend on its Common Stock and management has no present
intention of commencing to pay dividends on its Common Stock.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
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 elsewhere in this Annual Report. 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 in "Risk Factors," as well as those
discussed elsewhere in this Annual 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 twelve major 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.
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
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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.
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 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. See "Risk
Factors--Limited Operating History; Anticipated Losses; No Assurance Of
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.
By an agreement which was completed on December 8, 1998, the Company
acquired all the issued and outstanding shares of i5ive in consideration for
the issuance of 3,405,622 common
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shares of the Company's Common Stock. The issuance of these shares and the
concurrent transfer of 2,500,000 previously-issued shares to the former
stockholders of i5ive resulted in control of these companies being acquired
by the former stockholders of i5ive. In addition, at the same time, the
entire Board of Directors of i5ive was elected to replace the former
Directors of the Company who resigned. The business combination is accounted
for as a reverse takeover whereby the consolidated financial statements are
issued under the name of the Company but described in the notes and elsewhere
as a continuation of i5ive and not the Company. The legal capital structure
remains that of the Company but the stockholders' deficit of i5ive has
replaced the stockholders' deficit of the Company.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AND 1997
During the year ended December 31, 1998, the Company's sales were
$18,769 compared with sales of $6,751 during 1997. The decrease resulted
from the sale in March 1997 of the Company's medical products business assets
which left the Company without any operating revenues. Sales in 1998 were
primarily attributable to software licensing revenues of i5ive.
Operating expenses also decreased during the year ended December 31,
1998 to $471,826 from $950,149 during the year ended December 31, 1997. The
decrease was the result of the sale of the medical products business assets
and the elimination of the related expenses. Expenses in 1998 primarily
related to general and administrative expenses of i5ive resulting from
increased Contributing Editor recruitment. The Company pays each of its
Contributing Editors between $10 and $25 per month.
The loss from operations for the year ended December 31, 1998 was
$453,057 compared with $851,921 during 1997.
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 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
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anticipated capital needs. However, through April 13, 1999, the Company
realized gross proceeds of $5,000,000 from a private placement of its
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.
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 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.
From its inception in April 1996 through June 30, 1998, Northfield
Capital Corporation and 284085 B.C. Ltd., the principal shareholders of the
Company, advanced to the Company 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
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of i5ive shares to the Company, Northfield Capital Corporation and 284085
B.C. Ltd. converted these advances and accrued interest into an aggregate of
414,975 and 302,753 shares, respectively, of the Company. Such shares of
i5ive were exchanged for 1,969,057 and 1,436,565 shares, respectively, of the
Company's 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 the Company's Common Stock.
Subsequent to June 30, 1998, Northfield Capital Corporation and 284085
B.C. Ltd advanced or incurred additional liabilities on behalf of the Company
aggregating $12,868 through December 31, 1998. Such amounts are intended to
be repaid out of the proposed private sale of the Company's securities
intended to be completed in the first quarter of 1999.
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 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 Annual 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
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discussed in this Annual Report appear in various places including: "Item1 -
Description of Business", "Item 6 -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 below, as well as those described elsewhere in this Annual
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.
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 Annual Report.
EARLY DEVELOPMENT STAGE. 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 December 31, 1998, total revenues from these Internet
operations activities were $37,461. During that period, it has accumulated
losses of $722,234. 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.
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The Company is currently developing its business through efforts to
attract visitors, Members and Contributing Editors to its Web-based
community. At December 31, 1998, it had approximately 32,101 Members and had
grown from 35 Contributing Editors in October 1996 to 465 in December 1998.
During the month of December 1998, the site received approximately 1,300,000
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. Currently, the Company has seven full-time employees. Accordingly,
there can be no assurance that the Company's business plan can be
successfully developed or that it will realize any material revenues.
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
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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 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
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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 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
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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.
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
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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 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
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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.
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
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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
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Company's 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.
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
-26-
<PAGE>
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 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.
-27-
<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
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 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
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<PAGE>
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.
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<PAGE>
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 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,
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<PAGE>
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
March 31, 1999, 10,061,244 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 13, 1999, the Company sold 2,000,000 shares of Common
Stock and 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
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<PAGE>
the perception that such sales will or could occur could materially and
adversely affect the market price for the Company's Common Stock.
ITEM 7 - FINANCIAL STATEMENTS:
The response to this Item is included in a separate section of this report.
See page F-1.
ITEM 8 - CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
The Company terminated the engagement of Raimondo Pettit Group on
January 25, 1999. The Company's Board of Directors recommended the change in
accountants. During the Company's two most recent fiscal years and any
subsequent interim period preceding Raimondo Pettit Group's dismissal, there
were no disagreements with Raimondo Pettit Group on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreement(s) if not resolved to the satisfaction of
Raimondo Pettit Group, would have caused it to make reference to the subject
matter of the disagreement(s) in connection with its report.
Except for the explanatory paragraph relating to substantial doubt
existing about the Company's ability to continue as a going concern, the
audit reports of Raimondo Pettit Group on the Company's financial statements
as of and for the two years ended December 31, 1997, did not contain an
adverse opinion or a disclaimer of an opinion, nor were they qualified or
modified as to audit scope, or accounting principles.
During the Company's two most recent fiscal years and any subsequent
interim period preceding Raimondo Pettit Group's dismissal, none of the events
referred to in Item 304(a)(1)(v) of Regulation S-K has occurred.
The Company's newly engaged independent accountants are N.I. Cameron
Inc. N.I. Cameron Inc. was engaged by the Company on January 25, 1999.
During the Company's two most recent fiscal years and any subsequent interim
period prior to the engagement of N.I. Cameron Inc., neither the Company nor
anyone on its behalf consulted N.I. Cameron Inc. regarding the matters
referred to in Item 304(a)(2) of Regulation S-K.
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<PAGE>
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT:
The directors and Executive Officers of the Company and their ages are as
follows:
<TABLE>
<CAPTION>
NAME AGE EMPLOYMENT HISTORY
- ----------------------- ------- --------------------------------------------
<S> <C> <C>
Peter L. Bradshaw 64 Mr. Bradshaw, a co-founder of I5ive, has
been the Chairman of the Board, chief
executive officer and a Director of I5ive
since April 1996 and of the Company since
December 10, 1998. From April 1993 to
April 1996, he was a Director of Mobile
Data Solutions, Inc. ("MDSI"), including
Chairman of the Board from April 1993 to
December 1995. MDSI develops and markets
computer aided mobile (wireless) resource
management software. Its shares of common
stock are traded on the Nasdaq SmallCap
Market. From May 1998 to August 1998, he
was Chief Executive Officer and from July
1997 to the present, he has been Chairman
of the Board of eDispatch.com Wireless
Data, Inc (formerly Istep Mobile
Communications, Inc.) ("eDispatch.com"),
which also develops and market computer
aided mobile (wireless) resource management
software. Commencing in September 1996
through January 1998, he was Director of
Unitec International Controls Corp.
Commencing in 1992 through December 1995,
he was Chairman of the Board and Chief
Executive Officer of TeleSoft Mobile Data,
Inc., a venture capital Firm investing in
enterprises utilizing wireless data
protocol. Mr. Bradshaw has a B.Com. Degree
in Commerce and a major in History from the
University of British Columbia. Mr.
Bradshaw is the father of Julie M.
Bradshaw.
Julie M. Bradshaw 35 Ms. Bradshaw, a co-founder of I5ive, has
been a Director of I5ive since April 1996
and is currently
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NAME AGE EMPLOYMENT HISTORY
- ----------------------- ------- --------------------------------------------
<S> <C> <C>
the Managing Director of Real World
Relations. She has been a Director of
the Company since December 10, 1998.
Prior to April 1996, she attended the
University of Paris, Sorbonne and the
University of British Columbia. In 1992,
Ms. Bradshaw earned her B.A. degree from
the University of British Columbia with a
major in French Literature. Ms. Bradshaw
is the daughter of Peter L. Bradshaw.
Sunny H. Hirai 26 Mr. Hirai, a co-founder of I5ive, has been
a Director and the Chief Technical Officer
of I5ive since April 1996. He has been a
Director of the Company since December 10,
1998. Prior to April 1996, he was, from
June 1993 to April 1996, the owner of Salt
and Pepper Graphix, a graphic design group,
and from June 1994 to April 1995 he was the
head of marketing at Artel Educational
Resources. From June 1993 to June 1994, he
was engaged in marketing with
SunnyMarketing, Inc., a seafood brokerage
firm. Mr. Hirai is a graduate from the
British Columbia Institute of Technology,
specializing in Small Business: Marketing
Management.
Mitchell G. Blumberg 55 Mr. Blumberg was elected a Director of the
Company in February 1999. He has been,
since June 1994, engaged as a film producer
and talent manager in Los Angeles,
California initially with Blumberg
Productions and thereafter with Blumberg
Productions and Management, through
December 1998 and with Pritcher
Forman/Mitch Blumberg since January 1999.
Prior to June 1994, he was an Executive
Vice President of RKO Pictures, Inc. Mr.
Blumberg is also a Director of
E-Dispatch.com.
</TABLE>
Each of Mr. Bradshaw, Ms. Bradshaw, Mr. Hirai and Mr. Blumberg will serve
as Directors of the Company until its annual meeting of stockholders in 1999 and
the election and qualification of his or her successor.
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<PAGE>
DIRECTOR AND OFFICER SECURITIES REPORTS
The Federal securities laws require the Company's Directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of any equity securities of the Company. Copies of
such reports are required to be furnished to the Company. To the Company's
knowledge, based solely on a review of the copies of such reports and other
information furnished to the Company, all persons subject to these reporting
requirements filed the required reports on a timely basis with respect to the
Company's year ended December 31, 1998.
ITEM 10 - EXECUTIVE COMPENSATION:
During the year ended December 31, 1998, no officer or Director of the
Company received compensation from the Company for serving in that capacity.
DIRECTORS COMPENSATION
Directors of the Company do not receive any compensation for serving in
that capacity; however, they are reimbursed for their out-of-pocket expenses in
attending meetings.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
Set forth below is information concerning the Common Stock ownership of
all persons known by the Company to own beneficially 5% or more of the
Company's Common Stock, and the Common Stock ownership of each Director of
the Company and all Directors and officers of
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<PAGE>
the Company as a group, as of March 29, 1999. As of March 29, 1999, the
Company had 10,061,288 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
Name and Address of Number of Shares Beneficially Percentage of Outstanding
Beneficial Owner (1) Owned(2) Common Stock
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Peter L. Bradshaw 1,436,565 (3) 14.3%
Julie M Bradshaw 807,571 8.0%
Sunny Hirai 1,122,068 11.2%
Mitchell G. Blumberg 50,000 (4) 0.5%
Benitz & Partners Limited (5)
94 Mount Street - First Floor
London, England W1Y 5h5 2,500,000 24.8%
Northfield Capital Corporation 2,244,136 22.3%
350 Bay Street, Suite 1100
Toronto, Ontario, Canada M5H 2S6
284085 B.C. Ltd.
1122 Mainland Street - suite 390
Vancouver, BC, Canada V6B 5L1 1,436,565 14.3%
All officers and directors as a group 3,416,204 33.5%
(4 persons)
</TABLE>
________________________________
(1) Unless otherwise indicated, the address of such person is c/o the Company.
(2) For purposes of the above table, a person is considered to "beneficially
own" any shares with respect to which he or she exercises sole or shared voting
or investment power or of which he or she has the right to acquire the
beneficial ownership within 60 days following March 29, 1999.
(3) Shares held by 284085 B.C. Ltd. of which Mr. Bradshaw is an officer,
Director and principal shareholder.
(4) Shares issuable on exercise of an option.
(5) Benitz & Partners Limited is an investment dealer regulated in England by
the Securities and Futures Authority and holds the shares as a portfolio manager
as an agent for accounts fully managed by it. Benitz & Partners Limited
disclaims a beneficial interest in such shares.
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<PAGE>
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
In April 1996, i5ive issued an aggregate of 100 Class A common shares to
Northfield Capital Corporation and 284085 B.C. Ltd. for an aggregate purchase
price of $73.
From its inception in April 1996 through June 30, 1998 Northfield
Capital Corporation and 284085 B.C. Ltd. advanced to i5ive the sums of
$270,156 and $197,098 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 the i5ive shares to the Company, Northfield Capital
Corporation and 284085 B.C. Ltd. converted these advances and accrued
interest into an aggregate of 414,975 and 302,753 shares, respectively, of
i5ive. Such shares of i5ive were exchanged for 1,969,057 and 1,436,565
shares, respectively, of the Company's 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 the Company's Common Stock.
Subsequent to June 30, 1998, Northfield Capital Corporation and 284085
B.C. Ltd. advanced or incurred additional liabilities on behalf of i5ive
aggregating $92,721 through November 30, 1998. Such amounts are intended to
be repaid out of the proposed private sale of the Company's securities
intended to be completed in the first quarter of 1999.
-39-
<PAGE>
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------------ -----------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of the Registrant,
as amended. (1)
3.2 Bylaws of the Registrant, as amended. (1)
3.3 Certificate of Amendment filed with the State of Delaware
on November 25, 1998. (3)
3.4 Certificate of Amendment filed with the State of Delaware
on December 4, 1998(3)
4.1 Specimen stock certificate of the Registrant. (1)
10.1 Restated 1993 Stock Incentive Plan. (1)
10.2 1994 Directors Stock Option Plan. (1)
10.3 1994 Stock Option Plan. (1)
10.4 1993 Stock Incentive Plan. (1)
10.5 Form of Indemnification Agreement between the Registrant
and its officers and directors. (1)
10.6 Stock Purchase and Option Agreement dated July 17, 1995
between the Registrant and Ballard Medical Products,
including all exhibits thereto. (2)
10.7 Amendment dated November 18, 1998 to Purchase Agreement
among Registrant and Northfield Capital Corporation, 284085
B.C. Ltd. and i5ive communications inc. (3)
10.8 Amendment dated December 1, 1998 to Purchase Agreement
among Registrant and Northfield Capital Corporation, 284085
B.C. Ltd. and i5ive communications inc. (3)
10.9 Amendment dated December 3, 1998 to Purchase Agreement
among Registrant and Northfield Capital Corporation, 284085
B.C. Ltd. and i5ive communications inc. (3)
10.10 1998 Stock Incentive Plan. (3)
21.0 Subsidiaries of the Registrant (included within Item 13)
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
Name State or Jurisdiction of Incorporation
- ---------------------------- -----------------------------------------------
i5ive communication Inc. British Columbia, Canada
<S> <S>
23. Consent of experts and counsel:
23.1 Consent of N.I. Cameron, Inc.
27.0 Financial Data Schedule
</TABLE>
__________________________
(1) Filed as an Exhibit to Neuro Navigational Corporation Form 10-KSB No.
0-25136 dated September 30, 1994.
(2) Filed as Exhibit to Neuro navigational Corporation Form 8-K dated July 17,
1995.
(3) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
December 10, 1998.
-41-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.
BY: /s/ Peter L. Bradshaw
-----------------------------------
PETER L. BRADSHAW, PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/Peter L. Bradshaw President (Principal April 12, 1999
- --------------------- Executive Officer and Director)
Peter L. Bradshaw
/s/ Julie M. Bradshaw Director April 12, 1999
- ----------------------
Julie M. Bradshaw
/s/ Sunny H. Hirai Director April 12, 1999
- -------------------
Sunny H. Hirai
/s/ Mitchell G. Blumberg Director April 12, 1999
- -------------------------
Mitchell G. Blumberg
-42-
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in
Stockholders' Equity (Deficit) F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 to F-13
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Suite101.com Inc.
(formerly known as Kinetic Ventures Ltd.)
We have audited the accompanying consolidated balance sheets of Suite101.com
Inc. as of December 31, 1998 and December 31, 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for the two years
then ended. The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Suite101.com Inc. as
of December 31, 1998 and December 31, 1997, and the results of their operations
and their cash flows for the two years then ended, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
and, at the date of this report, has no liquidity resources. The Company's
ability to continue as a going concern is dependent upon its ability to raise
additional capital or to merge with a revenue producing venture partner. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
N.I. Cameron Inc. (signed)
VANCOUVER, B.C. CHARTERED ACCOUNTANTS
February 11, 1999
F-2
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS
1998 1997
-------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 10,544 $ -
Accounts receivable (Note 4) 5,129 7,177
Income taxes recoverable 1,020 -
-------------------------------------
16,693 7,177
-------------------------------------
PROPERTY, PLANT AND EQUIPMENT,
at cost (Notes 3 and 4)
Computer equipment 47,159 42,612
Furniture and fixtures 688 740
Leasehold improvements 16,495 17,727
-------------------------------------
64,342 61,079
Less: accumulated amortization 29,222 17,485
-------------------------------------
35,120 43,594
-------------------------------------
TOTAL ASSETS $ 51,813 $ 50,771
-------------------------------------
-------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Checks written in excess of funds on deposit $ - $ 1,578
Accounts payable 126,338 14,528
-------------------------------------
126,338 16,106
DUE TO STOCKHOLDERS (Note 4) 193,691 335,203
DUE TO AFFILIATED COMPANIES (Note 5) 42,623 69,606
-------------------------------------
TOTAL LIABILITIES 362,652 420,915
-------------------------------------
CAPITAL STOCK (Notes 7 and 8)
Authorized:
40,000,000 common shares with a par value of $0.001 each
Issued:
10,061,288 common shares 10,062 73
ADDITIONAL PAID-IN CAPITAL 386,261 -
DEFICIT (757,331) (383,564)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION 50,169 13,347
-------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (310,839) (370,144)
-------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 51,813 $ 50,771
-------------------------------------
-------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------------------------------------
<S> <C> <C>
SALES $ 18,769 $ 6,751
OPERATING EXPENSES
General and administrative 396,057 258,255
------------------------------------------
LOSS FROM OPERATIONS (377,288) (251,504)
OTHER INCOME
Other income, net 3,521 3,623
------------------------------------------
NET LOSS $ (373,767) $ (247,881)
------------------------------------------
------------------------------------------
INCOME (LOSS) PER SHARE
Basic and Diluted $ (0.10) $ (0.07)
------------------------------------------
------------------------------------------
Average common shares outstanding 3,825,020 3,405,622
------------------------------------------
------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
Equity
Adjustment
From Total
Additional Foreign Stockholders'
Common Stock Paid-in Currency Accumulated Equity
Shares Amount Capital Translation Deficit (Deficit)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997 100 $ 73 $ - $ 693 $(135,683) $(134,917)
Net Loss for the Year
Ended December 31, 1997 (247,881) (247,881)
Translation Adjustments for
the Year Ended
December 31, 1997 12,654 12,654
----------------------------------------------------------------------------------------------
Balances, December 31, 1997 100 73 - 13,347 (383,564) (370,144)
Capitalization of stockholder
loans (Note 7) 717,703 468,078 - 468,078
Adjustment of shares to reflect
Capital stock as of date of
reverse takeover 5,937,863 (461,495) 461,495 -
Issuance of shares to effect
reverse takeover (Note 2) 3,405,622 3,406 3,406
Cost of reverse takeover (Note 2) (75,234) (75,234)
Net loss for the Year Ended
December 31, 1998 (373,767) (373,767)
Translation Adjustments for
the Year Ended
December 31, 1998 36,822 36,822
----------------------------------------------------------------------------------------------
10,061,288 $ 10,062 $386,261 $50,169 $(757,331) $(310,839)
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $ (373,767) $ (247,881)
Adjustment to reconcile net loss to
net cash used in operating activities
Amortization 13,392 12,699
-------------------------------------
(360,375) (235,182)
Changes in operating assets and liabilities
Accounts receivable 1,602 1,745
Accounts payable and accrued expenses 113,611 4,254
Income taxes (1,020) -
------------------------------------
Net cash used in operating activities (246,182) (229,183)
----------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (7,763) (22,102)
-------------------------------------
Net cash used in operating activities (7,763) (22,102)
-------------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Advances from (to) stockholders (124,408) 204,661
Advances from (to) affiliated companies (23,523) 33,485
Shares issued to effect reverse takeover 3,406 -
Cost of reverse takeover (75,234) -
Proceeds from issuance of common stock
to reduce stockholder loans 468,078 -
------------------------------------
Net cash provided by financing activities 248,319 238,146
---------------------------------------
EFFECT OF EXCHANGE RATES ON CASH 17,748 (67)
-------------------------------------
NET INCREASE (DECREASE) IN CASH 12,122 (13,206)
CASH (DEFICIENCY) AT BEGINNING OF YEAR (1,578) 11,628
-------------------------------------
CASH (DEFICIENCY) AT END OF YEAR $ 10,544 $ (1,578)
-------------------------------------
-------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1997
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 takeover on December 8, 1998
(see Note 2) 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.
GOING CONCERN
The accompanying consolidated financial statements have been presented
assuming the Company will continue as a going concern. At December 31,
1998, the Company had accumulated $757,331 in losses and had no material
revenue producing operations. At the date of this report, the Company has
almost no liquidity and its ability to continue as a going concern is
dependent upon its ability to raise additional capital or merge with a
revenue producing venture partner. These matters raise substantial doubt
about the Company's ability to continue as a going concern. No adjustments
have been made in the accompanying consolidated financial statements to
provide for this uncertainty.
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 December 31, 1998, there were no operations in the
Company or Endovascular, Inc.
2. BUSINESS ACQUISITION BY WAY OF REVERSE TAKEOVER
By an agreement which was completed on December 8, 1998, the Company
acquired all the issued and outstanding shares of i5ive for consideration
by the issuance of 3,405,622 common shares of the Company. The issuance of
these shares and the concurrent transfer of 2,500,000 previously-issued
shares to the former stockholders of i5ive resulted in control of these
companies being acquired by the former stockholders of i5ive. In addition,
the entire Board of Directors of the Company is comprised of directors of
i5ive. The business combination is accounted for as a reverse takeover
whereby the consolidated financial statements are issued under the name of
the Company but described in the notes and elsewhere as a continuation of
i5ive and not the Company. The legal capital structure remains that of the
Company but the stockholders' deficit of i5ive has replaced the
stockholders' deficit of the Company.
F-7
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1997
2. BUSINESS ACQUISITION BY WAY OF REVERSE TAKEOVER (CONTINUED)
The cost of the purchase has been based on the par value of the issued
shares of the legal parent. The cost of the purchase has been allocated to
the assets and liabilities of the legal parent as follows:
<TABLE>
<S> <C>
Cost of purchase $ 3,406
Less: Assets (1,114)
Add: Liabilities 72,942
------
Unallocated purchase price $ 75,234
------
------
</TABLE>
The unallocated purchase price has been treated for accounting purposes as
a reduction of additional paid-in capital and not to goodwill as the
nature of the transaction was for i5ive to obtain a listing on the OTC
Bulletin Board by way of reverse takeover. The cost is associated with
publicly listing shares and not with any business associated with the
Company.
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles. Because a
precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period
necessarily involves the use of estimates which have been made using
careful judgement by management.
The consolidated financial statements have, in management's opinion, been
properly prepared within reasonable limits of materiality and within the
framework of the significant accounting policies summarized below:
(a) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at original cost and
amortized over their estimated useful lives at the following annual
bases and rates:
<TABLE>
<S> <C>
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements 20% straight-line
</TABLE>
One-half the normal amortization is taken in the year of acquisition
F-8
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1997
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
(c) 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 December 31, 1998 and December 31, 1997 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. $) 1998 1997
---------------------
<S> <C> <C>
December 31 rate .6522 .7009
Average rate for the year .6743 .7223
</TABLE>
(d) INCOME TAXES
The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns.
Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and the tax
basis of assets and liabilities using enacted rates in effect for the
year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
F-9
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1997
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) STOCK OPTIONS
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," encourages, but does not require,
companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue
to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25,
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee
must pay to acquire the stock.
(f) NET LOSS PER COMMON SHARE
The Company computes its loss per share in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, "EARNINGS PER
SHARE" ("EPS") issued in February 1997. SFAS No. 128 requires dual
presentation of basic EPS and diluted EPS on the face of the income
statement for entities with complex capital structures. Basic EPS is
computed as net income divided by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common shares issuable
through stock options, warrants and other convertible securities.
4. DUE TO STOCKHOLDERS
<TABLE>
<CAPTION>
1998 1997
------------------------------
<S> <C> <C>
(a) Amounts payable on demand bearing interest $ 128,690 $ 335,203
at 6.5% per annum calculated semi-annually not
in advance. The loans are secured by all the assets
of i5ive. Interest on these loans has been waived
during the year.
(b) Amounts with no specific terms of repayment. 65,001 -
----------------------------
$ 193,691 $ 335,203
----------------------------
----------------------------
</TABLE>
F-10
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1997
5. DUE TO AFFILIATED COMPANIES
Amounts due to affiliated companies have no specific terms of
repayment and are interest-free. Of the total, $24,028 (1997 -
$69,606) is owed to 100%-owned subsidiaries of a 14% stockholder of
the Company and $18,595 (1997 - 0) is owed to a related management
company.
6. RELATED PARTY TRANSACTIONS
The Company has incurred salaries of $28,319 (1997 - $22,754) to a
minority stockholder and director of the Company.
7. CAPITAL STOCK
In December 1998, i5ive issued 717,703 common shares to eliminate debt to
stockholders of $468,078.
In December 1998, 3,405,622 shares were issued for the purchase of i5ive
(see Note 2).
8. STOCK OPTIONS
THE COMPANY'S 1998 STOCK INCENTIVE PLAN
In December 1998, the Company adopted the 1998 Stock Incentive Plan (the
"Plan"). The Plan was adopted by the Board of Directors of the Company and
is subject to approval by the stockholders of the Company within twelve
months of the date the Board of Directors adopted the Plan. All options
currently outstanding under the Plan are conditioned upon the plan
receiving such approval. Under the Plan, 1,200,000 shares of Common Stock
have been reserved for issuance on exercise of options granted under the
Plan.
On the date of the closing of the Transaction with i5ive, outstanding
options granted under i5ive's 1998 Stock Incentive Plan were assumed by
the Company under the Plan and no further option grants will be made under
i5ive's Plan. The assumed options have substantially the same terms,
subject to anti-dilution adjustment, as will be in effect for grants made
under the Company's Plan.
F-11
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1997
8. STOCK OPTIONS
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (CONTINUED)
The Board of Directors of the Company may amend or modify the Plan at any
time, subject to any required stockholder approval. The Plan will
terminate on the earliest of (i) 10 years after the Plan Effective Date,
(ii) the date on which all shares available for issuance under the Plan
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with certain changes in control or
ownership of the Company.
As a consequence of assuming options granted under the i5ive Plan, the
Company has outstanding under the Plan options to purchase an aggregate of
333,110 shares of Common Stock at an exercise price of $1.50. Of these
options, 278,207 will vest to the holders on December 4, 1999 and 54,903
will vest on December 4, 2000.
9. INCOME TAXES
At December 31, 1998, there were deferred income tax assets resulting
primarily from operating loss carryforwards for Canadian tax purposes
totalling approximately $300,000 less a valuation allowance of $300,000.
The valuation allowance on deferred tax assets increased by $110,300 and
$135,300 during 1997 and 1998, respectively.
At December 31, 1998, the Company had net operating loss carryforwards for
Canadian tax purposes of approximately $603,957. These carryforwards begin
to expire in 2003. During the year, the Company's U.S. loss carryforwards
were eliminated due to a change in control of the Company and the change
in the Company's operations.
10. EARNINGS PER SHARE (EPS)
Earnings per share for the years ended December 31, were computed as
follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------
<S> <C> <C>
Net loss $ (373,767) $ (247,881)
Weighted average common shares outstanding 3,825,020 3,405,622
---------------------------------------
Basic and diluted EPS $ (0.10) $ (0.07)
---------------------------------------
---------------------------------------
</TABLE>
F-12
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND DECEMBER 31, 1997
11. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
12. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments consist of cash, accounts receivable,
accounts payable and due to stockholders. It is management's opinion that
the Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments. The fair value of these
financial instruments approximate their carrying values.
F-13
<PAGE>
EXH. 23.1
CONSENT OF CHARTERED ACCOUNTANTS
Board of Directors
Suite101.com Inc.
We consent to the use of our report dated February 11, 1999 on the
consolidated financial statements of Suite101.com Inc. as of December 31,
1998 and 1997 as included in the Form 10-KSB.
Dated this 15th day of April, 1999.
N.I. CAMERON INC.
"N.I. Cameron Inc."
Chartered Accountants
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 10544
<SECURITIES> 0
<RECEIVABLES> 5129
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16693
<PP&E> 64342
<DEPRECIATION> 29222
<TOTAL-ASSETS> 51813
<CURRENT-LIABILITIES> 126338
<BONDS> 0
0
0
<COMMON> 10062
<OTHER-SE> (320901)
<TOTAL-LIABILITY-AND-EQUITY> 51813
<SALES> 18769
<TOTAL-REVENUES> 22290
<CGS> 0
<TOTAL-COSTS> 396057
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (373767)
<INCOME-TAX> 0
<INCOME-CONTINUING> (373767)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (373767)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
