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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, 1999; or
/ / Transition Report pursuant to Section 13 or 15(d) of 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 5L1
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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: $1,925
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 March 28, 2000, was $98,044,365.
(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 February 29, 2000, was 13,048,724.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS:
SUITE101.COM, INC.
We are an Internet company engaged in the creation, operation and
maintenance of a World Wide Web based community, known as Suite101.com. Our
community includes our visitors and Members who are Internet users. It also
includes Contributing Editors who create our directory of personalized Web sites
organized topically into eleven major Communities of Interest. Our directory,
the "Best-of-Web Guide" was started in 1996. We believe we were one of the first
Internet sites to engage people rather than software (search engines) to find
information on the Internet. Since 1996, our Contributing Editors, who are
typically enthusiasts with a passion for a particular topic, have created a
topically organized directory with close to 27,000 hand-picked and personally
reviewed links. At the end of December 1999, we had over 818 Web guides or
"Contributing Editors" searching the Internet for the best resources in 818
topic areas.
In addition to compiling the directory, our Contributing Editors have
also written over 21,500 searchable, archived articles and managed 20,172
discussions in 818 topics ranging from hitch-hiking, through romance, to
gardening.
Our revenue model will concentrate on electronic commerce
("e-commerce"). Using a consensual marketing model, Suite101.com will offer
participating enterprises ("eVendors") access to psycho-demographic information
on Suite101 Members who have consented to participate in the program. eVendors
will then be asked to pay a fee to market their products or services directly to
the participating Member. Revenue from these fees will be shared between
Suite101.com and its Members. Suite101.com intends to receive additional
revenues by participating in completed transactions.
BACKGROUND OF SUITE 101
We employ real people, known as guides or "Contributing Editors" rather
than software (search engines) to help Internet users find the Best-of-the-Web
resources. Our site offers not only a way to find quality information on the
Web, but also an opportunity to participate in a community of like-minded people
who share mutual interests.
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Our original idea behind Suite101.com was to give people who have a
passion for a particular topic the opportunity to publish articles and act as
guides or Contributing Editors on the site to others with similar interests. As
of December 31, 1999, we had 818 Contributing Editors publishing articles,
facilitating discussion threads, hosting online "chats," and contributing to
Suite101's "Best-of-Web Guide," a directory of links to top Web sites. As of
that date, the Contributing Editors had published and archived over 21,500
articles on 818 topics ranging from "artists" and "children's books" to "herb
gardening" and "virtual journeys," managed over 20,172 discussion threads, and
created a Web directory with almost 27,000 hand-picked and reviewed links.
According to PC Data Online, our Web site attracted over 9.1 million
page views in December, 1999, compared to a Company-estimated 1.37 million page
views in December, 1998. Of those visitors, almost 90,000 as of December 31,
1999, had become Members, compared to 32,300 Members on December 31, 1998.
We believe that the demographic profile of the Suite101 Members is
unique compared to other Internet-based communities. While we believe others
tend to attract younger, unmarried male users, the Suite101 community at
December 31 1999 has attracted primarily older (median age: 37), married (66
percent), female users (58 percent). Seventy-eight percent have attended a
post-secondary institution.
INDUSTRY BACKGROUND
The digital evolution has brought about the revolutionary
communications medium called the Internet ("Net"). In many ways the medium is
transforming how we live and interact with one another. The introduction of the
World Wide Web ("WWW" or "Web") in the mid-1990s accelerated this
transformation. Web sites, browsers, and development tools quickly made a
relatively complex technology accessible to a much larger population. Hundreds
of millions of people now have the opportunity to develop and publish their own
information without requiring substantial economic resources or being limited by
geographical boundaries. With an estimated 275.5 million users on the Internet
today (with 136 million in Canada and the US alone), the Internet is the largest
conglomeration of authors ever assembled, according to Nua Surveys
(http://www.nua.ie/surveys,February2000).
THE GROWTH OF ONLINE COMMUNITIES
Early Internet users developed a unique, give-and-take culture that
emphasized the sharing of information and resources. We believe that these are
the basic elements of community. However, the rise in the popularity and the
subsequent commercialization of the Web has changed the focus of this culture
from one of "give-and-take" (sharing and interaction) to passive consumption
where Internet "surfers" are relegated to the role of viewers, readers and
subscribers. The WWW has become a vast network of millions of Web sites, for the
most part
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broadcasting to the Net, professionally created, static content at users. For
the typical user, the Web does not live up to its promise; instead of the
powerful, two-way communication medium that it could be, we view the Web as a
chaotic, overloaded brochure rack.
"Portal" sites with powerful search engines were introduced to help
users find information on the Internet. In many cases, search engines have added
to, not diminished, the chaos on the Web. As the use of the Net and the number
of Web sites has grown, the utility of these search engines has declined because
of their inability to stay abreast of the growth in Web sites. As experienced
Net surfers know, their software does not distinguish the quality or relevance
of one site from another. A recent Nature magazine article stated that it takes,
on average, up to six months for a new page to show up in a search engine, and
even the best search engine only searches one-sixth of the Net's pages.
Therefore, when a surfer uses a search engine, he or she is faced with the
daunting task of wading through hundreds -- sometimes thousands -- of search
engine suggestions responding to the topic searched that may be irrelevant,
incomplete, or outdated.
Looking for a more effective way of finding quality information on the
Internet, we believe that many users are increasingly turning to Web directories
and online communities to find, read, and discuss information that is relevant
to their lives. According to the Nature article, online community sites now
reach approximately 36 per cent of the Internet audience. And many sites that
did not start as online communities are beginning to emulate these communities:
each of the top five Web sites in May, 1999 included chat and discussion areas,
the essential elements that make two-way communication and thus community,
possible. To subscribe and publish; to share in the give-and-take, users in
these online communities are starting to realize the availability of the
Internet as an interactive, two-way communication medium.
E-COMMERCE IN THE COMMUNITIES
Online communities tend to attract like-minded people who share mutual
interests and a similar demographic profile. Topically organized, they attract
interested users who tend to spend a significant portion of their time online at
the community Web site. Most of the online communities, such as Yahoo! Inc.,
also offer other services, such as personal home pages and messaging functions,
that further increase the site's "stickiness" (capacity to keep users at the
site). We believe that advertisers have not overlooked the marketing potential
of these commercially attractive, site-loyal demographic groups.
We believe that advertisers want to be seen in the online communities
because they include the ability to aggregate attractive demographic groups with
significant purchasing power and known interests. Advertisers can place their
ads in a context that makes them available to persons with a demonstrated
interest -- for example, ads for fishing tackle on a site devoted to fly
fishing. Because many of the communities collect substantial demographic
information from their members, marketers see an opportunity to tailor the
marketing of their products or services
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directly to particular groups within the community. Most of the popular online
community sites now generate a substantial portion of their revenues from banner
advertising.
PRIVACY CONCERNS
We believe that the lure of online communities will continue to grow
for online vendors because of focused demographics. Focused demographics makes
available targeted marketing to topically organized groups. But the nature of
the commercial opportunities envisioned by many of these vendors will be
changing for one very important reason -- privacy. Privacy concerns are
increasingly affecting what users do on the Internet, especially as consumers.
We believe many users are already uncomfortable giving their demographic
information or making purchases online because of these privacy concerns. They
are especially uncomfortable when they find that their personal demographic
information is being collected, used, and traded without their knowledge,
authorization, or benefit. Consumers are making these concerns about privacy
more public. To ultimately succeed at e-commerce, we believe marketers and
vendors will have to find ways of gaining the confidence of potential customers
by demonstrating that they will act sensitively and responsibly with regard to
consumers' privacy issues.
THE SUITE101 CONCEPT
THE SUITE101.COM COMMUNITY.
The Suite101.com community is based on Web site software that compiles,
organizes, and distributes content created by Members of its community. This
enhances Members' experiences on the Web because they can publish their own
articles, share ideas, and interact with other Members who have common
interests.
Our concept is a community of Internet users dedicated to
self-expression, interaction, and sharing. We believe that, like any community
in the "bricks-and-mortar" world, the Members of Suite101.com come to feel a
high degree of affinity to our site and responsibility to each other because
they share their interests and passions with each other in a safe,
non-threatening environment. Members of Suite101.com, we believe, come to feel
they have a "home" on the Internet. The products and services of this community
include articles written by "Contributing Editors," discussion threads and
chats, contests and polls, and, of course, links to the best sites on the Web in
over 800 different topic areas (the "Best-of-Web" guide).
With the addition of more Members and Contributing Editors, the
Suite101.com community has grown from approximately 35 Editors in October 1996
to almost 818 as of December 31, 1999 with a current backlog of over 500
applications from prospective Contributing Editors. Through December 1999,
Suite101's Contributing Editors have created a Web directory with almost 27,000
hand-picked and reviewed links, published and archived over 21,500 articles, and
managed over 20,000 discussion threads. Our site has 818 topic areas and in
December, we had over 9.1 million page views.
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COMMUNITIES OF INTEREST. The content of Suite101.com is organized into 11 major
subjects or "Communities of Interest:"
<TABLE>
<S> <C>
1. Arts and Humanities; 7. Home & Garden;
2. Business; 8. Law, Politics, & Issues;
3. Computers & Internet; 9. Society & Culture;
4. Education; 10. Sports & Recreation; and
5. Entertainment & Media; 11. Travel & Leisure
6. Health;
</TABLE>
These Communities are managed by Managing Editors. These are
individuals who have demonstrated an extraordinary commitment to the Community.
Each Community is further organized into topic areas overseen by a Contributing
Editor.
This topical organization of the site's content makes it quick and easy
for both visitors and Members to locate the content that interests them. They
can read the articles or explore the list of related links created by the
Contributing Editors in each topic area. The organization of the content also
helps them find other users who share their interests. For example, people who
are interested in perennial plants can "find" each other in the discussion
threads and chat rooms of the Home and Garden Community. The functions and
features available to each Contributing Editor allows them to encourage
self-expression and interaction by providing a forum for discussion, sharing,
learning, and understanding.
ACTIVE PARTICIPATION. The organization of the Suite101 community encourages
users to increase their participation. As they become more at home on the site,
they can move from visitor to Member. If they have a particular passion and want
to write, then they can apply to become a Contributing Editor. If they want to
guide and be a leader in the community, they can apply to be a Managing Editor.
With each level of participation comes added commitment and
responsibility to the community. Contributing Editors write articles, facilitate
discussions and chats, initiate contests and polls, and, of course, develop and
maintain the Best-of-Web guide in their topic area. Managing Editors oversee a
number of topic areas and Contributing Editors, supporting and encouraging their
efforts.
Members and Editors can also contribute to the community in other ways
with suggestions and feedback that improve the community. Through these
interactions, the Members and Editors develop a sense of personal involvement in
Suite101.com. They also tend to become champions of the community, actively
encouraging visitors, friends and family to join and
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participate. We believe that the greater the interaction and participation of
our Members and Editors, the greater their loyalty and affinity to Suite101
community.
STATE-OF-MARKET FEATURES, TOOLS & SERVICES. We strive to improve the online
experience of our Members by providing state-of-the-market tools and services.
Members can create personal HomePages that can include autobiographical
information, communication tools, e-mail and chat, personalized lists of links
(including what's new on Suite101.com), and an area for personalized, consensual
e-commerce.
Each Contributing Editor is provided with publishing and communication
tools for posting and archiving articles, facilitating discussion threads and
chats, and creating contests and polls in their topic area. These features,
tools and services are provided free of charge to Members to encourage
self-expression and interaction in an online, information-rich environment.
Both visitors and Members have free access to the Best-of-Web
directory, which we believe is one of the most significant features of
Suite101.com. Collectively maintained by the Contributing Editors, this
topically organized directory of links to other sites on the Internet helps
users find the best, most relevant information on the Internet in 818 topic
areas (as of December 31, 1999). Intended to help users overcome the chaos of
the Internet, this Web directory in many ways replaces the powerful search
engines on the major "portal" sites.
These engines, although impressive in the QUANTITY of information they
can generate, do not help users distinguish the QUALITY of the information. The
Nature magazine article states that many search engine contents are out of date
and incomplete. According to that report, even the best search engines take over
six months to index a new Web page and typically only cover one-sixth of the
Net's pages.
With the Best-of-Web directory, users can be assured that they are
being directed to quality, up-to-date information because someone with a passion
for the topic (the Contributing Editor) has picked and reviewed it for them.
Suite101.com offers Contributing and Managing Editors several online forums to
proactively determine what improvements and suggestions are important to the
Suite101.com community. These forums are supplemented with newsletters and
ad-hoc committees and teams.
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THE SUITE101 E-COMMERCE PROGRAM
OVERVIEW
To begin generating revenue for the Company without changing the nature
of its community, Suite101 intends to implement an e-commerce program that will
help its Members meet their needs and wants, cost-effectively, while protecting
their privacy. The program is based on three principles:
(1) Protection of Members' privacy;
(2) Participation only by consent; and
(3) Sharing of marketing revenues.
Adherence to these principles will ensure the e-commerce program will add to
rather than detract from the nature of the Suite101.com community.
Although similar to the goals of traditional direct-marketing programs,
the Suite101 e-commerce program is intended to be fundamentally different in one
very important way: customers rather than companies will reap the rewards of its
success. The program will offer participating Suite101 Members the means to
collect, consolidate, market, and benefit from their "psycho-demographic"
information (data on their age, sex, marital status, income, buying habits and
consumption behavior). We intend that customers will be able to use their
psycho-demographic information, when aggregated with other customers, to
purchase quality products and services at prices traditionally only offered to
large institutional and commercial buyers.
Psycho-demographic information has been primarily collected and used by
direct marketing and database companies as well as major financial institutions
and retailers. This psycho-demographic information was then sold or used by
companies to help them target their marketing activities.
Many of today's loyalty programs, for example Air Miles and
frequent-flyer points, are marketed as "reward" programs but are also, in fact,
an excellent way for companies to gather information about their customers.
Managed by the vendor, these loyalty programs do reward the customer
with better prices and service, but they also limit their choice. For example,
an airline's frequent-flyer program does reward a customer with reduced fares
and more perks, but only if that customer stays with the airline. If the
customer wants to fly with another airline because of a more convenient
departure time, for example, they cannot "transfer" their points to this airline
to take advantage of
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its frequent-flyer program. Because these programs are "vendor-centric," their
ultimate benefit of influencing customers' buying behavior is realized by the
vendor rather than the customer.
The technology behind the Internet gives individuals an opportunity to
create their own loyalty programs. Suite101 intends to provide its Members with
the technology to collect their own psycho-demographic information in
"Member-centric" databases. When aggregated with the information of other
participating Members, we believe that quality, name-brand vendors will
recognize the value of this database and will actively seek to access it.
ELEMENTS OF OUR E-COMMERCE PROGRAM
- CONSENSUAL PARTICIPATION IN DIRECT MARKETING ACTIVITIES
Each Member of Suite101.com will be given an opportunity to develop his
or her own "Member-centric" database containing their psycho-demographic
information and a periodic "wish list" of planned purchases. This information
will be securely stored at Suite101.com, accessible online only to the
individual Member. Heretofore, this demographic information has been primarily
collected and controlled by large marketing groups and vendors.
With Members' explicit consent, Suite101 will then consolidate
participating Members' demographic data into a central, aggregated database for
the entire Suite101.com community. Using a strong security system, Members'
actual identities will be separated from their demographic data. A
Member-selected online alias and a password will be the only connection between
a Member's actual identity and their demographic data. The aggregated database
will contain valuable but anonymous information.
- SHARING OF MARKETING REVENUE WITH PARTICIPATING MEMBERS
We then intend to contract with qualified companies ("eVendors") to
give them direct access to this aggregated database. By running various searches
for potential customers in the database, these "eVendors" will be able to
develop lists of potential customers. For a per-person fee, we will then
facilitate the eVendor's online, direct marketing campaign. Participating
Members will not, however, receive a barrage of email or be subjected to banner
ads.
Participating Members will be notified of the eVendor's offer by having
a postage-stamp-sized "SuiteStamp" placed on their personal HomePage. This
clickable button will allow the Member to decide if they want to view the
eVendor's offer (by clicking on the SuiteStamp) or ignore it. If they do click
through, it is intended that they will be rewarded by receiving a portion of the
revenues generating from the eVendor's marketing fee. Revenues will most likely
be distributed to participating Members as "SuitePoints" (much like Air Miles)
that can be used to purchase other products or services.
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At all times, prior to the moment of a completed sale to an individual
Member, the participating Member's identity will be protected by Suite101.
eVendors will only have access to the aggregated demographic information and
Members' aliases. Even though only Members who consent to participate in the
marketing program will share in the eVendors' marketing payments to
Suite101.com, a Member's lack of participation will in no way take away from
their rights and privileges as a Member of the Suite101.com community. Members
will be able to opt in and out of the marketing program at any time. Only the
profiles of Members participating in the program will be included in the
aggregated demographic information.
- GROUP-BUYING OPPORTUNITIES WITH DYNAMIC PRICING
Suite101 believes that the nature of its e-commerce strategy will
attract high-quality, brand-name eVendors. As a result, we believe that Members
will have access to a wide array of products and services at a reduced cost. The
technology behind Suite101.com is also intended to give Members who want to
purchase a product or service the opportunity to aggregate their purchases
together with other Members, so they or we will be able to negotiate reduced
prices from eVendors. We believe that it will be possible for a large group of
Members who want to purchase a particular type of car from a Suite101 eVendor,
for example, to negotiate a group price with the provider. There may even be
opportunities to improve the block pricing dynamically as more Members join
together to purchase a desirable product or service.
ADVANTAGES OF OUR E-COMMERCE PROGRAM
We believe that our e-commerce strategy and the Internet's interactive
properties are compelling reasons why Members and eVendors will participate in
our consensual direct marketing program. Unlike other forms of direct marketing,
our program will mean eVendors can reach a targeted group of pre-qualified
customers quickly and effectively (with what we believe will be an anticipated
response rate well above the current two to four percent rate of off-line direct
mail campaigns). This capability we believe offers our Members electronic
one-stop-shopping and our eVendors one-to-one contact with the consumer, our
Member. We believe that our e-commerce strategy will not only reward Members for
their participation and bring them substantial savings, but it will also
strengthen the bonds of community.
BUSINESS STRATEGY
- OVERVIEW
We believe there is occurring, because of the Internet e-commerce
opportunities, a dramatic shift in the balance of power from vendors to
customers. Prior to the Internet, the vendor with superior market knowledge
dominated the marketplace. Today, the Internet is
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arming the customer with this superior market knowledge. With this knowledge,
the customer is getting smarter, faster, than most vendors today.
Suite101.com intends to earn a role in this transforming marketplace by
implementing a business strategy that puts its Members and their interests
first. Our "Member-centric" strategy is based on the following four principles:
(1) respect for and protection of our Members' privacy;
(2) sharing with participating Members marketing revenues derived from
selected companies for their use of Members' aggregated,
psycho-demographic information;
(3) supporting the community by providing the tools and infrastructure
for communication and interaction; and
(4) acting first and foremost as an advocate for our Members.
We believe that our business strategy, based on these four principles, will
provide a pleasant, effective, non-threatening environment for the Suite101
community to grow. We also believe that this strategy will create a platform for
e-commerce that will ensure our Members realize the monetary rewards of
membership in the Suite101 community.
To achieve this goal, working with an independent marketing group to develop a
marketing and publicity plan, we have recently started several initiatives that
we believe will grow and strengthen Suite101.com:
- Accelerate membership growth from nearly 90,000 currently to
250,000,
- Build the Suite101.com brand,
- Continue to enhance site functionality and performance, and
- Implement the e-commerce strategy.
- ACCELERATE MEMBERSHIP GROWTH
We also believe that a growing membership will keep the Suite101.com
community vibrant and appealing to our targeted demographic group. It will also
provide qualified e Vendors with an attractive market for the promotion of their
products and services.
Our immediate membership goal is 250,000 Members. To help achieve this goal,
we implemented a marketing plan beginning in September, 1999.
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We believe 250,000 Members is the minimum "critical mass" required to implement
our e-commerce strategy. We intend to grow our Membership. Therefore, the
success of our marketing effort will not only be measured by attaining 250,000
Members within our budget and timeframe, but it will also be measured by
attracting Members within our targeted demographic profile.
- BUILD THE SUITE101.COM BRAND
To date, Suite101.com's growth has been primarily by word-of-mouth, ad
hoc public relations by our management and the informal promotional efforts of
our Members. However, by implementing the Marketing Plan, we intend to raise the
"brand recognition," that is, the profile of Suite101.com among three target
markets:
- The "general" Internet audience;
- Existing Editors and Members; and
- Investors, potential partners and the media
Approximately US$1.2 million will be allocated to the marketing and
promotion of theSuite101.com brand over the next year. Planned activities
include advertising in both off-line (print and radio), and online media
(banners, buttons, email campaigns); public relations; sponsorships; and
strategic partnerships.
In addition, Suite101.com intends to pursue a variety of distribution
arrangements with other Internet-based companies to raise the profile of its
brand. It also plans to introduce an "internal" --"Friends and Family"
- --promotional to increase brand awareness among its current Members and
Contributing Editors. Suite101.com believes that a high-profile and
well-recognized Suite101.com brand will not only attract additional Members, but
it will also make the Community more attractive to qualified eVendors.
- CONTINUE TO ENHANCE FUNCTIONALITY AND PERFORMANCE
Suite101.com believes continually providing visitors and Members with
greater functionality and performance is critical to its success. In November
1998, we introduced a new user interface which substantially improved the
usability of our site, presenting Member-generated content in a more intuitive,
topical format. The site redesign was very well received by Suite101.com's
Members. In September 1999, we redeveloped the site interface to insure increase
usability and accommodate additional functionality such as personal Home Pages,
Web-based e-mail, and electronic postcards.
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We intend to substantially upgrade and expand our technological
infrastructure to provide faster and more reliable access and to ensure that the
site's hardware and software is scalable to handle much higher usage. The
planned upgrade will also provide Members with additional Web page publishing
and communication tools to further enhance the community experience. A list of
planned enhancements to the functions and features of the Suite101.com site
include
- E-commerce and privacy tools,
- Upgraded electronic postcards,
- Upgraded personal HomePages,
- Chat room upgrades,
- Member-centric psycho-demographic profiles,
- PC-to-PC telecommunications, and
- SuitePoints (micropayments).
Suite101 believes that continually enhancing site functionality and
performance will foster growth and affinity to the community. We believe that a
large and loyal membership will make Suite101.com very attractive as a platform
for e-commerce.
IMPLEMENT THE E-COMMERCE PROGRAM
Traditional direct-marketing companies, such as mail-order companies,
either develop and market their own products or at least take inventory in the
products of others. This gives them a considerable vested interest in selling
more of their own products or services. In contrast, Suite101.com intends to
mobilize as many suppliers of products and services relevant to our membership
as possible.
But Suite101 does not intend to take inventory in the products and
services of its eVendors. Instead, it intends to help these providers deliver
appropriate marketing messages to Members who have agreed to participate in a
particular promotion. Suite101 also intends to help facilitate transactions. In
return, we will receive fees from eVendors for helping to connect buyer and
seller (which will be shared with the consenting participating Members who have
opted to receive the marketing offering) and, if a sale is consummated, a share
in the transaction.
We believe that acting as advocates, or agents, on behalf of its
Members will develop a strong sense of trust. By aggressively representing the
interests of our Members, we will help them optimize the value they receive from
the Suite101 e-commerce program. Suite101's ability
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to do this will stem from our ability to build a broad information profile of
each Member. By helping Members get as much value as possible for these profiles
- -- while protecting them from abuse --Suite101 will provide our Members with
lower prices and increased privacy.
We also believe that these profiles will be attractive to eVendors
because they will have the opportunity to target a marketing message to
consumers who have indicated they are considering a purchase.
Suite101.com intends to provide the following to its Members:
- A range of eVendors (products and services) that will maximize the
value of their profiles to the Members.
- A set of privacy tools that will prevent eVendors from obtaining
information about the Members prior to the moment of completed
transactions.
- A set of profiling tools that will help Suite101 capture detailed
information about the Members.
By automatically tracking what they do within Suite101.com, Members and
we will be able to develop a comprehensive portrait of the Members' interests
and browsing patterns. Updates to their psycho-demographic profile and "wish
lists" of planned expenditures combined with accurate monitoring of actual
purchases, we believe will create a valuable marketing resource. When this
psychographic information is combined with transaction records from Members'
credit cards, the Members will have created a complete profile of both their
online and traditional retail activities or return users to make the site
attractive to advertisers.
INFRASTRUCTURE AND OPERATIONS
We have developed a web application framework that is built on
Allaire's Cold fusion Application Server 4.0 for Microsoft windows NT and
Microsoft's SQL Server 7.0. The web site is load balanced on multiple Windows NT
servers running Microsoft Internet Information Server using F5 BigIP load
balancing hardware/software solution. In an event that one of the web srvers
becomes non-operational, all website traffic will fail over on to a secondary
web server. In an event that all web servers become non-operational, system
alerts will be sent to operations staff via email and pager. All web servers
will restart automatically after a pre-determined length of time.
Member-generated content is stored on multiple Microsoft SQL Server 7.0
databases that are replicated in real time to a backup SQL server. In an event
that one of the database servers becomes non-operational, the backup database
server will take over as primary production database server. Our database is
backed up to permanent storage on a daily basis and a weekly backup is kept off
site for one year.
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Our network servers are co-located at a data center in Vancouver,
British Columbia. Site connectivity to the Internet is provided via a dedicated
100Mb/s line provided on a 24-hour per day, seven days per week basis by the
data center. Any interruption in the service received from other providers, or
any failure of the data center to handle higher volumes of internet users to the
Suite101.com site could have a material adverse effect on our business, results
of operations and financial condition. We will continue to upgrade and expand
our server and networking infrastructure in an effort to improve its fast and
reliable access to ourcommunity web site. We intend to substantially upgrade and
expand our technological infrastructure to provide faster and more reliable
access and to ensure that the site's software is scalable to handle much higher
usage. The planned upgrade will also provide Members with additional Web page
publishing and communication tools to further enhance the community.
EMPLOYEES
As of December 31, 1999, we had ten full-time employees, including
eight in operations and development and two in administration. Our future
success will depend, in part, on our ability to attract, retain and motivate
highly qualified technical and management personnel, for whom competition is
intense. Our employees are not covered by any collective bargaining agreement,
and we have never experienced a work stoppage. We believe our relationship with
our employees is good.
COMPETITION
The market for community based e-commerce on the Internet is new and
rapidly evolving. Competition is expected to increase significantly in the
future. Barriers to entry into the Internet business are relatively
insubstantial. We believe that the principal competitive factors for companies
seeking to create community on the Internet are content, critical mass,
functionality, brand recognition, Member affinity and loyalty, broad demographic
focus and open access for visitors. Other companies who are primarily focused on
creating Web-based community on the Internet are About.com, Geocities, Inc.,
iVillage.com, Inc., Tripod, Inc., a subsidiary of Lycos, Inc., Angelfire
Communications, Xoom.com, Inc. and theglobe.com. Each of these competitors is
significantly larger than us and more well-established and well-known in the
Internet industry and with greater capital resources.
We will likely also face competition in the future from Web
directories, search engines, shareware archives, content sites, commercial
online service providers ("OSPs"), sites maintained by Internet service
providers ("ISPs") and other entities that attempt to or establish communities
on the Internet by developing their own community or acquiring one of our
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competitors. In addition, we 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 our competitors and potential
competitors will not develop communities that are equal or superior to ours or
that achieve greater market acceptance than our community.
We also compete for visitors and Members with many Internet content
providers and ISPs, including Web directories, search engines, shareware
archives, content sites, commercial online services and sites maintained by
Internet service providers, as well as thousands of Internet sites operated by
individuals and government and educational institutions. These competitors
include free information, search and content sites or services, such as 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"), About.com Inc., and Yahoo! Inc. ("Yahoo!"). We also
compete with traditional forms of media, such as newspapers, magazines, radio
and television. We believe that the principal competitive factors in attracting
strategic partners and other sources of e-commerce business include the amount
of traffic on our Web site, name recognition, customer service, the demographics
of our Members and viewers, our ability to offer targeted audiences and the
overall cost-effectiveness of the e-commerce opportunities we offer. We believe
that the number of Internet companies relying on Web-based e-commerce and
advertising revenue will increase substantially in the future. Accordingly, we
will likely face increased competition, resulting in increased pressures on our
revenue sharing percentages which could, in turn, have a material adverse effect
on our business, results of operations and financial condition.
Substantially all of our existing and potential competitors, including
Web directories and search engines and large traditional media companies, have
longer operating histories in the Web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources. Such competitors are able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies and make more attractive offers to potential employees,
visitors, Members, distribution partners, eVendors, marketers and third party
content providers.
There can be no assurance that Internet content providers and ISPs,
including Web directories, search engines, shareware archives, sites that offer
professional editorial content, commercial online services and sites maintained
by ISPs will not be perceived by potential strategic partners, eVendors and
marketers as having more desirable Web sites. In addition, many persons with
whom we would seek to enter into a strategic relationship have already
established collaborative relationships with our competitors or potential
competitors, and other high-traffic Web sites. Accordingly, there can be no
assurance that we will be able to grow our visitor and Membership base, traffic
levels and customer base or retain our current Members,
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traffic levels or customers, or that competitors will not experience greater
growth in traffic than we experience as a result of such relationships which
could have the effect of making their Web sites more attractive.
In addition, for these reasons, our strategic partners may sever or
elect not to renew their agreements with us. There can also be no assurance that
we will be able to compete successfully in the Internet or that competition will
not have a material adverse effect on our business, results of operations and
financial condition.
ITEM 2 - DESCRIPTION OF PROPERTY:
Our executive offices and computer operations are currently located in
Vancouver, British Columbia, Canada in approximately 2,150 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 $39,480. We consider
these premises adequate for our existing operations.
Our executive offices are located at 1122 Mainland Street, Suite 390,
Vancouver, British Columbia V6B 5L1. Our telephone number is 604-682-1400, and
our Internet address is WWW.SUITE101.COM.
ITEM 3 - LEGAL PROCEEDINGS:
No legal proceedings are pending against us other than ordinary
litigation incidental to our business, the outcome of which we believe will not
have a material adverse effect on us.
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, 1999 to a vote of security holders.
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PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS:
Our 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 our Common Stock for the
period January 1, 1999 through March 8, 2000. Prior to December 30, 1998 there
was no active market for the Company's Common Stock.
<TABLE>
<CAPTION>
BID
------------------------------------------------
CALENDAR QUARTER HIGH LOW
----------------------------------------------------------------------------------
<S> <C> <C>
1998: Fourth Quarter $5.00 $1.88
1999: First Quarter $7.88 $2.00
1999: Second Quarter $11.31 $3.25
1999: Third Quarter $4.38 $1.06
1999: Fourth Quarter $4.19 $0.63
2000: First Quarter (through $9.13 $2.97
March 8)
</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 March 8, 2000, the closing bid quotation for
the Common Stock, as reported on the OTC Bulletin Board was $7.63.
As of March 30, 2000, we had approximately 85 shareholders of record.
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DIVIDEND POLICY
We do not intend to pay any dividends on our Common Stock for the
foreseeable future. Any determination as to the payment of dividends on our
Common Stock in the future will be made by our Board of Directors and will
depend on a number of factors, including future earnings, capital requirements,
financial condition and future prospects as well as such other factors as our
Board of Directors may deem relevant.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
GENERAL
The following discussion and analysis of our financial condition or
plan of operation should be read in conjunction with, and is qualified in its
entirety by, the more detailed information including our Financial Statements
and the related Notes appearing elsewhere in this Prospectus. This Prospectus
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from the results discussed in the
forward-looking statements. Factors that may cause or contribute to such
differences include those discussed in "Risk Factors," as well as those
discussed elsewhere in this Prospectus.
OVERVIEW
We are an Internet company engaged in the creation, operation and
maintenance of a World Wide Web based community, known as Suite101.com, for
Internet users to express themselves, share ideas, interests and expertise, and
publish content accessible to other users with common interests. Our directory,
the "Best-of-Web Guide" was started in 1996. We believe we were one of the first
Internet sites to engage people rather than software (search engines) to find
information on the Internet. At the end of December 1999, we have over 800 Web
guides or "Contributing Editors" searching the Internet for the best resources
in 818 topic areas.
Since 1996, our Contributing Editors, who are typically enthusiasts
with a passion for a particular topic, have created a topically organized
directory with close to 27,000 hand-picked and personally reviewed links. In
addition to compiling the directory, our Contributing Editors have also written
over 21,500 searchable, archived articles and managed over 20,000 discussions in
818 topics ranging from hitch-hiking, through romance, to gardening.
Our revenue model will concentrate on electronic commerce
("e-commerce"). Using a consensual marketing model, Suite101.com will offer
participating enterprises ("eVendors" access to psycho-demographic information
on suite101 Members who have consented to participate in the program. eVendors
will then be asked to pay a fee to market their products or services directly to
the participating Member. Revenue from these fees will be shared between
suite101.com and its Members. Suite101.com intends to receive additional
revenues by participating in completed transactions.
We intend to realize revenue by sharing in the proceeds of e-commerce
marketing and transaction fees. The marketing effort is expected to be a
collaborative effort: our company, our Members and our eVendors. Our marketing
plan is founded on the Member's consent, our role
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as custodian of the Members privacy and the eVendor's commitment to deliver
competitive, quality goods and services on time. We currently intend to limit
our involvement to facilitating the introduction of the buyer to the seller, the
seller to the buyer. As custodian of the Members' psycho-demographic information
in our Member-centric database, we intend to offer our eVendors 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), our campaigns will direct marketing material to the Member's
personal "HomePage" 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 eVendor's site, will enable us 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 our dynamic software are, we believe,
compelling reasons why consenting Members and eVendors will utilize our
e-commerce program. Products and services will be marketed and the transaction
will be completed online quickly and easily. This capability offers our Members
electronic one-stop-shopping and our eVendors one-to-one contact with the
consumer, our Member.
As we grow, our operating expenses will increase in connection with our
visitor and Member generation, brand marketing and eVendors promotional efforts,
our increased funding of site development, technology and operating
infrastructure, and the increased general and administrative staff needed to
support our growth. We anticipate that we 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 our net revenue from electronic commerce
(e-commerce). We expect our operating expenses to increase significantly,
especially in the areas of sales and marketing and brand promotion. We believe
that period-to-period comparisons of our 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 our operating
losses will not increase in the future or that we will ever achieve or sustain
profitability.
To date, we have entered into a limited number of license arrangements
and strategic alliances in order to build our communities, provide
community-specific content, generate additional traffic, and increase
membership.
We intend 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 we can market our services.
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STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 AND 1998
During the year ended December 31, 1999, our sales were $1,925 compared with
sales of $18,769 during 1998. The decrease resulted from a decision made by
management to focus efforts on the development of the Suite101 community. Sales
in 1999 were primarily attributable to software licensing revenues of i5ive.
Operating expenses also increased during the year ended December 31, 1999 to
$1,687,850 from $396,057 during the year ended December 31, 1998. Expenses in
1999 primarily related to general and administrative expenses of i5ive resulting
from increased Contributing Editor recruitment and additional employees. We pay
each of our Contributing Editors between $15 and $28 per month. Additional
expenses were also the result of purchases of computer hardware and member
recruitment.
The loss from operations for the year ended December 31, 1999 was $1,685,925
compared with $377,288 during 1998.
Other income in 1999 was $137,496 compared with $3,521 in 1998. The increase was
primarily the result of interest earned on higher cash balances carried in 1999.
Our net loss in 1999 was $1,548,429 compared with a net loss of $373,767 in
1998. The increased net loss was the result of our increased scale of operations
and level of expenditures in 1999.
YEAR ENDED DECEMBER 31, 1998 AND 1997
During the year ended December 31, 1998, our sales were $18,769 compared with
sales of $6,751 during 1997. The decrease resulted from the sale in March 1997
of our medical products business assets which left us without any operating
revenues. Sales in 1998 were primarily attributable to software licensing
revenues of i5ive.
Operating expenses also increased during the year ended December 31, 1998 to
$396,057 from $258,255 during the year ended December 31, 1997. Expenses in 1998
primarily related to general and administrative expenses of i5ive resulting from
increased Contributing Editor recruitment. We pay each of our Contributing
Editors between $15 and $28 per month.
The loss from operations for the year ended December 31, 1998 was $373,767
compared with $247,881 during 1997.
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LIQUIDITY AND CAPITAL RESOURCES
The report of our independent auditors on their audit of our financial
statements as of December 31, 1999 contains an explanatory paragraph that
describes an uncertainty as to our ability to continue as a going concern due to
our recurring losses and, as of the date of their report, the lack of liquid
resources. At December 31, 1999, our cash was $2,847,438. In February 2000, we
realized gross proceeds of $4.5 million from the exercise of warrants issued in
a 1999 private sale of securities. Also in February 2000, we realized gross
proceeds of $2.5 million from a private sale of our securities. We anticipate
expending a substantial portion of these funds in connection with entering into
strategic alliances to promote the Suite101 community. We believe these cash
resources will be sufficient to meet our ongoing financial commitments through
December 31, 2000.
We have promissory notes due on June 30, 2000 in the principal amount
of $2.5 million issued in the February 2000 private sale of our securities. We
anticipate repaying these notes together with accrued interest when due out of
the proceeds from the possible exercise of outstanding common stock purchase
warrants, the sale of other equity securities and out of our available cash.
We may seek to raise additional funds in order to fund more aggressive
promotions and more rapid expansion, to develop newer or enhanced services, to
enter into strategic alliances, to respond to competitive pressures or to
acquire complementary businesses, technologies or services. There can be no
assurance that any additional financing will be available on terms favorable to
us, or at all. If adequate funds are not available or not available on
acceptable terms, we may not be able to fund our expansion, promote our
e-commerce as we desire, or, develop or enhance services or respond to
competitive pressures. Any such inability could have a material adverse effect
on our business, results of operations and financial condition. Additional funds
raised through the issuance of equity or convertible debt securities, will
result in reducing the percentage ownership of our stockholders and,
stockholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the rights of our Common
Stock.
As a result of our limited operating history, we have limited
meaningful historical financial data upon which to base planned operating
expenses. Accordingly, our anticipated expense levels in the future are based in
part on our expectations as to future revenue from proposed e-commerce
revenue-sharing arrangements, and anticipated growth in visitor traffic and
membership. We expect that these expense levels will become, to a large extent,
fixed. Revenues and operating results generally will depend on the volume of,
timing of and ability to complete transactions, which are difficult to forecast.
In addition, there can be no assurance that we will be able to accurately
predict our net revenue, particularly in light of the intense competition for
the
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sale of products and services on the Web, revenue-sharing opportunities, our
limited operating history and the uncertainty as to the broad acceptance of the
Web as an e-commerce medium. We may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall or other unanticipated
changes in the e-commerce industry. Any failure by us to accurately make such
predictions would have a material adverse effect on our business, results of
operations and financial condition.
From our inception in April 1996 through June 30, 1998, Northfield
Capital Corporation and 284085 BC Ltd., our principal shareholders, advanced to
us the sums of $270,156 and $197,098, respectively, used for general corporate
purposes and working capital. Such amounts accrued interest at the rate of 6.5%
per annum. At the closing of the sale of i5ive shares to us, Northfield Capital
Corporation and 284085 BC Ltd. converted these advances and accrued interest
into an aggregate of 414,975 and 302,753 shares, respectively, of our Common
Stock. Such shares of i5ive were exchanged for 1,969,057 and 1,436,565 shares,
respectively, of our Common Stock or an effective purchase price, based on the
amounts advanced by such persons through June 30, 1998, of approximately $0.14
per share of Common Stock.
Subsequent to June 30, 1998, Northfield Capital Corporation and 284085
BC Ltd advanced or incurred additional liabilities on behalf of the Company
aggregating $12,868 through December 31, 1998. Such amounts were repaid out of
the private sale of securities.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1996
With the exception of historical matters, the matters discussed in this
annual report are "forward-looking statements" as defined under the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended,
that involve risks and uncertainties. Forward-looking statements made herein
include, but are not limited to, the statements in this prospectus regarding our
plans and objectives of management com for our future operations, including
plans or objectives relating to our products or services as well as other
financial items. These statements appear, among other places, under the
following captions: "Business of the Company", "Risk Factors", "Dividend
Policy", and "Management's Discussion and Analysis of Financial Condition or
Plan of Operation". Forward-looking statements made in this annual report
include the assumptions made by management as to the future growth and business
direction of the Internet, e-commerce through the facilities of the Internet and
the role of Communities of Interest on the Internet. They also include our
beliefs as to the importance of privacy to Members, their willingness to divulge
certain demographic and psychographic information regarding themselves, to
participate in our proposed marketing programs and plans, as well as our plans
to improve the capabilities of our servers and facilities. We cannot assure you
that our assumptions in this regard or our views as to the commercial viability
of our
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business plans discussed herein will prove to be accurate. Likewise, we cannot
assure you that we will be successful in growing our membership base as we plan
or achieving any commercial advantage relative to other Internet companies. Our
ability to realize revenues from the business plans discussed herein cannot be
assured. If our assumptions are incorrect or our membership growth plans or
plans to realize revenues fail to materialize, we may be unsuccessful in
developing as a viable business enterprise. Under such circumstance your
investment will be in jeopardy. Our inability to meet our goals and objectives
or the consequences to us from adverse developments in general economic or
capital market conditions could have a material adverse effect on us. We caution
you that various risk factors accompany those forward looking statements and are
described, among other places, under the caption "Risk Factors" herein,
beginning below. They are also described in our Quarterly Reports on Form
10-QSB, and our Current Reports on Form 8-K. These risk factors could cause our
operating results, financial condition and ability to fulfill our plans to
differ materially from those expressed in any forward-looking statements made in
this prospectus and could adversely affect our financial condition and our
ability to pursue our business strategy and plans.
RISK FACTORS
An investment in shares of our Common Stock involves a high degree of
risk. You should consider the following factors, in addition to the other
information contained in this annual report, in evaluating our business and
proposed activities before you purchase any shares of our common stock. You
should also see the "Cautionary Statement for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1996" regarding
risks and uncertainties relating to us and to forward looking statements in this
annual report.
RISKS WE FACE ARISING OUT OF THE EARLY STAGE OF OUR BUSINESS
EARLY DEVELOPMENT STAGE
We are in the early stage of developing our business plan and
operations. We have realized no material revenues to date from our Internet
operations activities. From April 1996 through December 31, 1999, our total
revenues from our Internet operations activities were negligible. During that
period, we accumulated losses of $2,305,760. We have not achieved profitability
on a quarterly or annual basis to date, and anticipate that we will continue to
incur net losses for the foreseeable future. The extent of our losses will be
dependent, in part, on the amount and rates of our expenditures and growth in
net revenue from e-commerce transactions. We expect our operating expenses to
increase significantly, especially in the areas of visitor and
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Member generation, brand marketing and e-commerce promotion. As a result, we
will need to generate increased amounts of quarterly net revenue if we are to
achieve profitability. We believe that period-to-period comparisons of our
operating results will not be meaningful and that you should not rely on the
results for any period as an indication of our future performance. To the extent
that our net revenues do not grow at anticipated rates or that increases in our
operating expenses precede or are not subsequently followed by commensurate
increases in net revenue, or that we are unable to adjust operating expense
levels accordingly, our business, results of operations and financial condition
will be materially and adversely affected. There can be no assurance that our
operating losses will not increase in the future or that we will ever achieve or
sustain profitability.
We are currently developing our business through efforts to attract
visitors, Members and Contributing Editors to our Web-based community. At
December 31, 1999, we had approximately 90,000 Members and had grown from 35
Contributing Editors in October 1996 to 818 in December 1999. During the month
of December 1999, our site received approximately 9.1 million page views. We
cannot assure you that such growth rates are sustainable. Our business plan is
to continue to expand our numbers of visitors, Members and Contributing Editors
in an effort to reach a sufficient level of critical mass as well as to continue
to improve and enhance our site infrastructure through the introduction of
improved technology. We have not expended significant efforts to date to realize
revenues. Currently, we have ten full-time employees. Accordingly, there can be
no assurance that our business plan can be successfully developed or that we
will realize any material revenues.
LIMITED OPERATING HISTORY; ANTICIPATED LOSSES; NO ASSURANCE OF PROFITABILITY
i5ive, our wholly-owned subsidiary through which we conduct our
Internet operations, was founded in April 1996 and has had no material revenues
to date. Accordingly, our current business plans and prospects are not able to
be evaluated on the basis of our operating history. Our business plans and
prospects must be considered in light of the risks, expenses and problems
frequently encountered by companies in the early stages of development. This
must be considered, particularly as to companies entering new and rapidly
developing markets like the Internet. These risks include:
- The lack of broad acceptance of the community concept on the
Internet
- The possibility that the Internet will fail to achieve broad
acceptance as a commercial medium
- The lack of acceptance by consumers of e-commerce
- Our ability to attract visitors, or retain Members and
Contributing Editors
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- Our inability to generate significant e-commerce-based revenues
from our eVendors and Members
- Risks associated with a new and unproven business concept
- Our ability to anticipate and adapt to a developing market
- The failure of our network infrastructure (including our server,
hardware and software) to efficiently handle our Internet traffic
- Changes in laws and taxes that adversely affect our business
- The possibility that we will be unable to manage effectively any
rapid expansion of our operations, including the amount and
timing of capital expenditures and other costs relating to any
expansion of our operations
- The introduction and development of different or more extensive
communities by direct and indirect competitors, including those
with greater financial, technical and marketing resources
- Our inability to maintain and increase levels of traffic on our
Website
- Our inability to attract, retain and motivate qualified
personnel, technical difficulties, system downtime or Internet
brownouts
- The amount and timing of operating costs and capital expenditures
relating to development of our business, operations and
infrastructure, and
- General economic conditions.
To address these risks, we must, among other things:
- Attract visitors and retain Members and Contributing Editors
- Attract and retain a significant number of e-commerce vendors
(eVendors)
- Respond to competitive developments, form and maintain
relationships with strategic partners
- Attract and respond to competitive developments
- Retain and motivate qualified personnel, develop and upgrade our
technologies and commercialize our services incorporating such
technologies, and
- Be successful in attracting additional substantial capital at the
times, in the amounts and on the terms required.
There can be no assurance that we will be successful in addressing
these risks. Any failure to do so could have a material adverse effect on our
business, results of operations and
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financial condition. Because of the foregoing factors, our quarterly net revenue
and operating results are difficult to forecast. Consequently, we believe that
period to period comparisons of our operating results will not necessarily be
meaningful and should not be relied upon as an indication of our future
performance. It is likely that in some future quarter or quarters our operating
results may fall below the expectations of securities analysts and investors. In
such event, the trading price of our Common Stock would likely be materially and
adversely affected.
UNPROVEN BUSINESS; DEPENDENCE ON MEMBERS
The success of our business depends upon our ability to expand upon and
develop our community-based platform of Internet access and to generate multiple
revenue streams. Currently, we have no source of material revenues. The
potential success of our business concept is unproven, and, to be successful, we
must, among other things, develop and market concepts that achieve broad market
acceptance by our Members and Internet users. We are and will be substantially
dependent upon our Member-generated content, the promotional efforts of our
Members, the acceptance by our visitors and Members of marketing and other
promotional programs of third parties and us, and our ability and the ability of
our Contributing Editors to attract Web users to our site and to reduce the
demands on our personnel. Our business concept has existed for only a limited
period of time. As a result, it is relatively unproven.
There can be no assurance that our Member-generated content or the
promotional efforts of our Members will continue to attract users to our
Website. There can also be no assurance that our Members and Contributing
Editors will continue to devote time voluntarily to improving our community.
Given the fact that we provide free disk space to our Members and we support the
involvement of our Contributing Editors, third parties may attempt to hold us
responsible for our Contributing Editors' content and/or any of their actions or
omissions. There also can be no assurance that our business, results of
operations and financial condition would not be materially and adversely
affected if a substantial number of Members or Contributing Editors became
dissatisfied with our services or our intention to commercialize those services
or that the Contributing Editors become dissatisfied with the amounts of
compensation we pay to them.
Moreover, considering the modest level of compensation paid to
Contributing Editors, there can be no assurance that consistent levels of high
quality Member generated content will be maintained. These levels of
compensation may hinder our efforts in the future to attract Contributing
Editors. Further, there can be no assurance that our community on the Internet
or our services will achieve broad market acceptance. Accordingly, no assurance
can be given that our business will be successful or that we can sustain revenue
growth or generate significant profits.
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FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The report of our independent auditors on their audit of our financial
statements as of December 31, 1999 contains an explanatory paragraph that
describes an uncertainty as to our ability to continue as a going concern due to
our recurring losses and, as of the date of their report, the lack of liquid
resources. At December 31, 1999, our cash was $2,847,438. In February 2000, we
realized gross proceeds of $4.5 million from the exercise of warrants issued in
a 1999 private sale of securities. Also in February 2000, we realized gross
proceeds of $2.5 million from a private sale of our securities. We anticipate
expending a substantial portion of these funds in connection with entering into
strategic alliances to promote the Suite101 community. We believe these cash
resources will be sufficient to meet our ongoing financial commitments through
December 31, 2000. We have promissory notes due on June 30, 2000 in the
principal amount of $2.5 million issued in the February 2000 private sale of our
securities. We anticipate repaying these notes together with accrued interest
when due out of the proceeds from the exercise of outstanding common stock
purchase warrants, the sale of other equity securities and out of our available
cash. We may seek to raise additional funds in order to fund more aggressive
promotions and more rapid expansion, to develop newer or enhanced services, to
respond to competitive pressures or to acquire complementary businesses,
technologies or services.
There can be no assurance that any additional financing will be
available to us on favorable terms, or at all. If adequate funds are not
available or not available on acceptable terms, we may not be able to fund our
expansion, promote our e-commerce as we desire, or, develop or enhance services
or respond to competitive pressures. Any such inability could have a material
adverse effect on our business, results of operations and financial condition.
Additional funds raised through the issuance of equity or convertible debt
securities, will result in reducing the percentage ownership of our stockholders
and, our stockholders may experience additional dilution and such securities may
have rights, preferences or privileges senior to those of the rights of our
Common Stock.
As a result of our limited Internet operating history, we have limited
meaningful historical financial data upon which our planned operating expenses
can be based. Accordingly, our anticipated expense levels in the future are
based in part on our expectations as to future revenue from proposed e-commerce
revenue-sharing arrangements, and anticipated growth in visitor traffic and in
membership and will become, to a large extent, fixed. Revenues and operating
results generally will depend on the volume of, timing of and ability to
complete transactions, which are difficult to forecast.
In addition, there can be no assurance that we will be able to
accurately predict our net revenue, particularly in light of the unproven manner
in which we intend to derive our Internet revenue, the intense competition for
the sale of products and services on the Web, revenue-sharing opportunities, our
limited operating history and the uncertainty as to the broad
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acceptance of the Web as an e-commerce medium. We may be unable to adjust our
spending in a timely manner to compensate for disappointing results of our
marketing efforts and efforts to develop Internet revenue, any unexpected
revenue shortfall or other unanticipated changes in the e-commerce industry. Our
failure to accurately make such predictions or adjustments in our spending would
have a material adverse effect on our business, results of operations and
financial condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY; UNPREDICTABILITY OF
FUTURE NET REVENUE
We expect our operating results to fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. These factors include:
- The demand for the products and services we intend to market
through our Web site
- Our Members' acceptance of e-commerce on the Web site
- The level of traffic on our Suite101.com site
- The amount and timing of capital expenditures and other costs
relating to the expansion of our operations
- The introduction of new or enhanced services by us or our
competitors
- The timing and number of new hires, the availability of
desirable products and services for sale through our Web site
- Our loss of a key strategic or marketing relationship
- Changes in our marketing policy or those of our competitors
- The mix of products and services marketed by our eVendors
- Engineering or development fees that may be paid in connection
with us adding new Web site development and publishing tools
- Technical difficulties with our Suite101.com site
- General economic conditions, and
- Economic conditions specific to the Internet or all or a
portion of the technology market.
As a strategic response to changes in the competitive environment, we
may from time to time make certain pricing, service or marketing decisions or
business combinations that could have a material adverse effect on our business,
results of operations and financial condition. We expect to experience
seasonality in our business, with user traffic on our Suite101.com site
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potentially being lower during the summer and year-end vacation and holiday
periods when overall usage of the Web is lower. Because Web-based e-commerce is
an emerging market, additional seasonal and other patterns may develop in the
future as the market matures. Any seasonality is likely to cause quarterly
fluctuations in our operating results. There can be no assurance that such
patterns will not have a material adverse effect on our business, results of
operations and financial condition.
MANAGEMENT OF GROWTH AND RELATIONSHIPS; BRIEF TENURE OF MANAGEMENT; DEPENDENCE
ON KEY PERSONNEL
In developing our business plan, we expect to be required to establish
and manage multiple relationships with various strategic and eVendors,
distributors, providers of services, technology licensors, Members, marketers
and other third parties. To date, only a limited number of such relationships
have been established. These requirements to enter into these relationships will
be exacerbated in the event of our material growth or in the number of third
party relationships, and there can be no assurance that our systems, procedures
or controls will be adequate to enable us to establish and enter into these
relationships, to support any substantial growth in our operations or that our
management will be able to implement or manage any growth effectively.
To effectively manage growth, we must establish, implement and improve
operational, financial and management information systems and expand, train and
manage our employee base. Our development is and will continue to be
substantially dependent on the abilities and performance of our executive
officers and other key employees. The loss of the services of any of our
executive officers or other key employees could have a material adverse effect
on our prospects, business development, and results of operations and financial
condition. Competition for senior management, experienced sales and marketing
personnel, qualified Web engineers and other employees is and is expected to
continue to be intense. There can be no assurance that we will be successful in
attracting and retaining such personnel. There can be no assurance that we may
not experience difficulty from time to time in hiring and retaining the
personnel necessary to support the growth of our business. Our failure to
successfully manage our personnel requirements would have a material adverse
effect on our business, results of operations and financial condition.
INTENSE COMPETITION
The market for community based e-commerce on the Internet is new and
rapidly evolving. Competition is expected to increase significantly in the
future. Barriers to entry into the Internet business are relatively
insubstantial. We believe that the principal competitive factors for companies
seeking to create community on the Internet are content, critical mass,
functionality, brand recognition, Member affinity and loyalty, broad demographic
focus and open access for visitors. Other companies who are primarily focused on
creating Web-based
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community on the Internet are About.com, Geocities, Inc., iVillage.com,
Inc.Tripod, Inc., a subsidiary of Lycos, Inc., Angelfire Communications,
Xoom.com, Inc. and theglobe.com. Each of these competitors is significantly
larger than us and more well-established and well-known in the Internet industry
and with greater capital resources.
We will likely also face competition in the future from Web
directories, search engines, shareware archives, content sites, commercial
online service providers ("OSPs"), sites maintained by Internet service
providers ("ISPs") and other entities that attempt to or establish communities
on the Internet by developing their own community or acquiring one of our
competitors. In addition, we could face competition in the future from
traditional media companies, a number of which, including Disney, CBS and NBC
have recently made significant acquisitions of or investments in Internet
companies. Further, there can be no assurance that our competitors and potential
competitors will not develop communities that are equal or superior to ours or
that achieve greater market acceptance than our community.
We also compete for visitors and Members with many Internet content
providers and ISPs, including Web directories, search engines, shareware
archives, content sites, commercial online services and sites maintained by
Internet service providers, as well as thousands of Internet sites operated by
individuals and government and educational institutions. These competitors
include free information, search and content sites or services, such as 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"), About.com Inc., and Yahoo! Inc. ("Yahoo!"). We also
compete with traditional forms of media, such as newspapers, magazines, radio
and television. We believe that the principal competitive factors in attracting
strategic partners and other sources of e-commerce business include the amount
of traffic on our Web site, name recognition, customer service, the demographics
of our Members and viewers, our ability to offer targeted audiences and the
overall cost-effectiveness of the e-commerce opportunities we offer. We believe
that the number of Internet companies relying on Web-based e-commerce and
advertising revenue will increase substantially in the future. Accordingly, we
will likely face increased competition, resulting in increased pressures on our
revenue sharing percentages which could, in turn, have a material adverse effect
on our business, results of operations and financial condition.
Substantially all of our existing and potential competitors, including
Web directories and search engines and large traditional media companies, have
longer operating histories in the Web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources. Such competitors are able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies and make more attractive offers to potential employees,
visitors, Members, distribution partners, eVendors, marketers and third party
content providers.
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There can be no assurance that Internet content providers and ISPs,
including Web directories, search engines, shareware archives, sites that offer
professional editorial content, commercial online services and sites maintained
by ISPs will not be perceived by potential strategic partners, eVendors and
marketers as having more desirable Web sites. In addition, many persons with
whom we would seek to enter into a strategic relationship have already
established collaborative relationships with our competitors or potential
competitors, and other high-traffic Web sites. Accordingly, there can be no
assurance that we will be able to grow our visitor and Membership base, traffic
levels and customer base or retain our current Members, traffic levels or
customers, or that competitors will not experience greater growth in traffic
than we experience as a result of such relationships which could have the effect
of making their Web sites more attractive.
In addition, for these reasons, our strategic partners may sever or
elect not to renew their agreements with us. There can also be no assurance that
we will be able to compete successfully in the Internet or that competition will
not have a material adverse effect on our business, results of operations and
financial condition.
GROWTH WILL DEPEND ON OUR ABILITY TO DEVELOP OUR BRAND
We believe that establishing broader brand recognition of the
Suite101.com brand is critical to our future success. Accordingly, we intend to
launch a brand-enhancing campaign shortly that will include online advertising,
promotional programs targeted and Members and visitors, and public relations
activities. We intend to incur significant expenditures in our marketing
efforts. If our brand building strategy is unsuccessful, these expenses may
never be recovered and we may be unable to increase our future revenues.
RISK OF RELIANCE ON INTERNALLY AND EXTERNALLY DEVELOPED SYSTEMS
We use and intend to use an internally developed system for our Web
site, as well as systems licensed from others. Our system has not been fully
developed. A key element of our strategy is to generate a higher volume of
traffic to our Web site. Our inability to further develop and modify our system
as necessary to accommodate increased levels of traffic on our Web site may
cause unanticipated system disruptions, slower response times, degradation in
Member satisfaction and service leading to a possible loss of Members and
Contributing Editors, and delays in reporting accurate financial information.
Any of these events could have a material adverse effect on our business,
results of operations and financial condition.
Furthermore, to expand our operations we will introduce new or
complementary enhancements on the Web site which will require us to outsource
development where we may have little control over the speed and quality of the
development. Any decline in the speed or quality of the development could
adversely effect our business, results of operations and financial condition.
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RISKS WE FACE ARISING OUT OF THE NATURE OF THE INTERNET
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally. There are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, a number of legislative and regulatory proposals are under
consideration by U.S. and Canadian federal, state, provincial, local and foreign
governmental organizations. It is possible that a number of laws or regulations
may be adopted with respect to the Internet relating to such issues as user
privacy, user screening to prevent inappropriate uses of the Internet by, for
example, minors or convicted criminals, taxation, infringement, pricing, content
regulation, quality of products and services and intellectual property ownership
and infringement. The adoption of any such laws or regulations may decrease the
growth in the use of the Internet, which could, in turn, decrease the demand for
our community, increase our cost of doing business, or otherwise have a material
adverse effect on our business, results of operations and financial condition.
Moreover, the applicability to the Internet of existing laws governing
issues such as property ownership, copyright, trademark, trade secret,
obscenity, libel and personal privacy is uncertain and developing. Any new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on our business, results of operations and
financial condition. There can be no assurance that any legislation will not be
enacted in the future that could expose us to substantial liability. Legislation
could also dampen the growth in the use of the Web generally and decrease the
acceptance of the Web as a communications and commercial medium. The result
could, thereby, have a material adverse effect on our business, results of
operations and financial condition.
It is also possible that our use of "cookies" to track demographic
information and user preferences and to target advertising may become subject to
laws limiting or prohibiting their use. A "cookie" is a bit of information keyed
to a specific server, file pathway or directory location that is stored on a
user's hard drive, possibly without the user's knowledge. A user is generally
able to remove cookies. Germany, for example, has imposed laws limiting the use
of cookies, and a number of Internet commentators, advocates and governmental
bodies in the United States and other countries have urged the passage of laws
limiting or abolishing the use of cookies. Limitations on or elimination of our
use of cookies could limit our effectiveness in targeting of advertisements,
which could have a material adverse effect on our business, results of
operations and financial condition.
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In addition, a number of legislative proposals have been made at the
U.S. and Canadian federal, state, provincial and local level that would impose
additional taxes on the sale of goods and services over the Internet and certain
jurisdictions have taken measures to tax Internet-related activities. The U.S.
Congress enacted the Internet Tax Freedom Act on October 21, 1998 which imposes
a national moratorium in the United States on state and local taxes on Internet
access services, on-line services, and multiple or discriminatory taxes on
electric commerce effective October 1, 1998 and ending three years after its
enactment. There can be no assurance that, once such moratorium is lifted, some
type of U.S. federal and/or state taxes will be imposed upon Internet commerce,
and there can be no assurance that such legislation or other attempts at
regulating commerce over the Internet will not substantially impair the growth
of commerce on the Internet and. As a result, our opportunity to derive
financial benefit from these activities may be adversely affected.
In addition to the foregoing areas of recent legislative activities,
several telecommunications carriers are currently seeking to have
telecommunications over the Web regulated by the U.S. Federal Communications
Commission (the "FCC") in the same manner as other telecommunications services.
In addition, because the growing popularity and use of the Web have burdened the
existing telecommunications infrastructure and many areas with high Web use have
begun to experience interruptions in phone service, local telephone carriers
have petitioned the FCC to regulate ISPs and OSPs in a manner similar to long
distance telephone carriers and to impose access fees on the ISPs and OSPs. If
either of these petitions is granted, or the relief sought is otherwise granted,
the costs of communicating on the Web could increase substantially, potentially
slowing growth in use of the Web. This could, in turn, decrease demand for our
services or increase our cost of doing business.
Due to the global nature of the Web, it is possible that, although our
transmissions 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 our transmissions or prosecute us for violations of
their laws. There can be no assurance that violations of local laws will not be
alleged or charged by state or foreign governments, that we might not
unintentionally violate such laws or that such laws will not be modified, or new
laws enacted, in the future. Any of the foregoing developments could have a
material adverse effect on our business, results of operations and financial
condition.
In addition, as our services are available over the Internet in
multiple foreign countries, provinces, states and other jurisdictions, such
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each of those jurisdictions. We are qualified to do
business only in British Columbia, and our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us to
taxes and penalties and could result in our inability to enforce contracts in
such jurisdictions. Any such new legislation or regulation, the application of
laws and regulations from jurisdictions whose laws do not currently
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apply to our business, or the application of existing laws and regulations to
the Internet and other online services could have a material adverse effect on
our business, results of operations and financial condition.
LIABILITY FOR INFORMATION RETRIEVED FROM THE WEB; ABSENCE OF LIABILITY INSURANCE
Because materials may be downloaded by Members and other users of our
Web site and subsequently distributed to others, there is a potential that
claims will be made against us for defamation, negligence, copyright or
trademark infringement, personal injury or other theories based on the nature,
content, publication and distribution of these materials. Such claims have been
brought, and sometimes successfully pressed, against OSPs for example, in the
past. We have received inquiries from time to time from third parties regarding
such matters, all of which have been resolved to date without any payments or
other material adverse effect on us.
In addition, the increased attention focused upon liability issues as a
result of these lawsuits and legislative proposals could impact the overall
growth of Internet use. We could also be exposed to liability with respect to
the offering of third party content that may be accessible through our Web site,
or through content and materials that may be posted by Members on their personal
Web sites or chat rooms, or on-line discussions offered by us. Such claims might
include, among others, that by directly or indirectly hosting the personal Web
sites of third parties, we are liable for copyright or trademark infringement,
or other wrongful actions by such third parties through such Web sites.
It is also possible that if any third party content information
provided on our web site contains errors, third parties could make claims
against us for losses incurred in reliance on such information. Even to the
extent that such claims do not result in liability to us, we could incur
significant costs in investigating and defending against such claims. The
imposition on us of potential liability for information carried on or
disseminated through our systems could require us to implement measures to
reduce our exposure to such liability, which may require the expenditure of
substantial resources and limit the attractiveness of our services to Members
and visitors.
We also intend to enter into agreements with eVendors and sponsors
whereby it is intended that we will be entitled to receive a share of any
revenue from the purchase of goods and services through direct links from our
Web site. Such arrangements may expose us to additional legal risks and
uncertainties, including potential liabilities to consumers of such products and
services by virtue of our involvement in providing access to such products or
services, even if we do not provide such products or services. While our
agreements with these parties are intended to provide that we will be
indemnified against such liabilities, there can be no assurance that such
indemnification, if available, will be adequate.
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Currently, we do not carry general liability insurance intended to
protect us from any liability arising out of the foregoing. In any event,
however, insurance may not cover all potential claims to which we are exposed or
may not be adequate to indemnify us for all liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in excess of our
insurance coverage would have a material adverse effect on our business, results
of operations and financial condition. In addition, the increased attention
focused upon liability issues as a result of these lawsuits and legislative
proposals could impact the overall growth of Internet use.
SECURITY RISKS
There can be no assurance that experienced programmers or "hackers" may
not from time to time attempt to penetrate our network security. To date, none
of this activity has occurred. However, in the event any such attempts should
occur and be successful, such a penetration may have a material adverse effect
on our business, results of operations or financial condition. A party who is
able to penetrate our network security could misappropriate proprietary
information or cause interruptions in our Web site.
In addition, in offering certain payment services, we could become
increasingly reliant on encryption and authentication technology licensed from
third parties to provide the security and authentication necessary to effect
secure transmission of confidential information, such as customer credit card
numbers. We may be required to expend significant capital and resources to
protect against the threat of such security, encryption and authentication
technology breaches or to alleviate problems cause by such breaches.
Concerns over the security of Internet transactions and the privacy of
users may also inhibit the growth of the Internet generally, particularly as a
means of conducting commercial transactions. Security breaches or the
inadvertent transmission of computer viruses could expose us to a risk of loss
or litigation and possible liability. There can be no assurance that contractual
provisions attempting to limit our liability in such areas will be successful or
enforceable, or that other parties will accept such contractual provisions as
part of our agreements, which could have a material adverse effect on our
business, results of operations and financial condition.
RELIANCE ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our technology as proprietary and attempt to protect it by
relying on trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. We
currently have no patents or patents pending and do not anticipate that patents
will become a significant part of our intellectual property in the foreseeable
future. We also generally enter into confidentiality or license agreements with
our employees and consultants, and generally control access to and distribution
of our documentation and other proprietary information. Despite these
precautions, it may be possible for a third party
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to copy or otherwise obtain and use our proprietary information without
authorization or to develop similar technology independently.
We pursue the registration of our trademarks and service marks in the
United States and Canada and internationally, and intend to apply for the
registration in the United States and Canada for a number of our service marks
There can be no assurance that such registration will be granted or, if granted,
that we will derive any material commercial benefit from such registration.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our services are distributed or made
available through the Internet, and policing unauthorized use of our proprietary
information is difficult.
Legal standards relating to the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related businesses are
uncertain and still evolving. No assurance can be given as to the future
viability or value of any of our proprietary rights or other companies within
this market. There can be no assurance that the steps taken by us will prevent
misappropriation or infringement of our proprietary information. Any such
infringement or misappropriation, should it occur, could have a material adverse
effect on our business, results of operations and financial condition.
In addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation might
result in substantial costs and diversion of resources and management attention
and could have a material adverse effect on our business, results of operations
and financial condition and we may not have available the resources necessary to
pursue such litigation.
Furthermore, there can be no assurance that our business activities
will not infringe upon the proprietary rights of others, or that other parties
will not assert infringement claims against us. It can be expected that we will
be subjected to claims in the ordinary course of our business, including claims
of alleged infringement of the trademarks, service marks and other intellectual
property rights of third parties by us and the content generated by its Members.
Although such claims have not occurred to date, such claims and any resultant
litigation, should it occur, might subject us to significant liability for
damages and might result in invalidation of our proprietary rights and even if
not meritorious, could be time consuming and expensive to defend and could
result in the diversion of management time and attention, any of which might
have a material adverse effect on our business, results of operations and
financial condition.
We currently license from third parties certain technologies
incorporated into our Web site. As we continue to introduce new services that
incorporate new technologies, we may be required to license additional
technology from others. There can be no assurance that these third party
technology licenses will continue to be available to us on commercially
reasonable terms, if at all. Our inability to obtain any of these technology
licenses could result in delays or
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reductions in the introduction of new services or could adversely affect the
performance of our existing services until equivalent technology could be
identified, licensed and integrated.
DEPENDENCE ON CONTINUED GROWTH IN THE USE OF THE INTERNET; DEPENDENCE ON WEB
INFRASTRUCTURE
Our Company's future success is substantially dependent upon continued
growth in the use of the Internet and the Web in order to support e-commerce
development on our Web site and in the acceptance and volume of e-commerce
transactions on the Internet. There can be no assurance that the number of
Internet users will continue to grow or that e-commerce over the Internet will
become more widespread.
As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for recently introduced services are subject to a
high level of uncertainty. We cannot predict the extent to which consumers will
be willing to shift their purchasing habits from traditional retailers to online
retailers. The Internet may not prove to be a viable commercial marketplace for
a number of reasons, including lack of acceptable security technologies, lack of
access and ease of use, congestion of traffic, inconsistent quality of service
and lack of availability of cost-effective, high-speed service, potentially
inadequate development of the necessary infrastructure, excessive governmental
regulation, uncertainty regarding intellectual property ownership or timely
development and commercialization of performance improvements, including
high-speed modems.
The success of our Web site will depend in large part upon the
continued development of a Web infrastructure, such as a reliable network
backbone with the necessary speed, data capacity and security, and timely
development of complementary products, such as high-speed modems for providing
reliable Web access and services. Because global e-commerce and online exchange
of information on the Web and other similar open wide area networks are new and
evolving, it is difficult to predict with any assurance whether the Web will
support increasing use or will prove to be a viable commercial marketplace.
The Web has experienced, and is expected to continue to experience,
significant growth in the number of users and the amount of content. To the
extent that the Web continues to experience increased numbers of users,
frequency of use or increased band width requirements of users, there can be no
assurance that the Web infrastructure will continue to be able to support the
demands placed on it by this continued growth or that the performance or
reliability of the Web will not be adversely affected by this continued growth.
In addition, the Web could lose its viability or effectiveness due to delays and
the development or adoption of new standards and protocols to handle increased
levels of activities or due to increased government regulation.
There can be no assurance that the infrastructure or complementary
products or services necessary to make the Web a viable commercial marketplace
will be developed, or, if they are developed, that the Web will achieve broad
acceptance. If the necessary infrastructure standards,
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protocols, or complementary products, services or facilities are not developed,
or if the Web does not become a viable commercial marketplace, our business,
results of operations and financial condition will be materially and adversely
affected. Even if such infrastructure, standards or protocols or complementary
products, services, or facilities are developed and the Web becomes a viable
commercial marketplace, there can be no assurance that we will not be required
to incur substantial expenditures in order to adapt our services to changing Web
technologies, which could have a material adverse effect on our business,
results of operations and financial condition.
SALES TAX COLLECTION
One or more states, provinces or countries may seek to impose sales tax
collection obligations on out-of-state or out-of-province or foreign companies
such as us which engage in online commerce. Any new operation or facilities in
the United States or Canada or elsewhere could subject shipments into such
states or provinces to state or provincial or foreign sales taxes. A successful
assertion by one or more states or provinces or any foreign country that we
should collect sales or other similar taxes on the sale of merchandise could
have a material adverse effect on our business, prospects, financial condition
and results of operations
OTHER RISKS WE FACE
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, NORTHFIELD CAPITAL CORPORATION AND
284085 BC LTD.
As of February 29, 2000, two of our Directors and Northfield Capital
Corporation, and their respective affiliates, in the aggregate, beneficially
owned approximately 4,368,272 shares or 34.8% of our outstanding Common Stock.
As a result, these stockholders possess significant influence over us, giving
them the ability, among other things, to elect a majority of our Board of
Directors and approve significant corporate transactions. Such share ownership
and control may also have the effect of delaying or preventing a change in
control of us, impeding a merger, consolidation, takeover or other business
combination involving us, or discourage a potential acquiror from making a
tender offer or otherwise attempting to obtain control of us which could have a
material adverse effect on the market price of our Common Stock.
NO ACTIVE PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
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Prior to the closing of our transaction with i5ive, there was no active
public market for our Common Stock. Since December 30, 1998, our Common Stock
has been quoted on the OTC Bulletin Board. There can be no assurance that an
active trading market for our Common Stock will be sustained or that the market
price of our Common Stock will not decline based upon market or other
conditions. The market price may bear no relationship to our revenues, earnings,
assets or potential and may not be indicative of our future business
performance. The trading price of our Common Stock has been and can be expected
to be subject to wide fluctuations in response to variations in our quarterly
results of operations, the gain or loss of significant strategic relationships,
unanticipated delays in our development, changes in estimates by analysts,
announcements of technological innovations or new solutions by us or our
competitors, general conditions in the technology and Internet sectors and in
Internet-related industries, other matters discussed elsewhere in this
Prospectus and other events or factors, many of which are beyond our control.
In addition, the stock market in general and the technology and
Internet sectors in particular have experienced extreme price and volume
fluctuations which have affected the market price for many companies in
industries similar or related to us and which have been unrelated to the
operating performance of these companies. These market fluctuations, as well as
general economic, political and market conditions, may have a material adverse
effect on the market price of our Common Stock.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such companies. Such litigation, if instituted, and
irrespective of the outcome of such litigation, could result in substantial
costs and a diversion of management's attention and resources and have a
material adverse effect on our business, results of operations and financial
condition.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of significant amounts of our Common Stock in the public market
or the perception that such sales will or could occur could materially and
adversely affect the market price of our Common Stock or the future ability of
the Company to raise capital through an offering of its equity securities. We
had, as of February 29, 2000, 13,048,724 shares of common stock outstanding. Of
such shares, 4,408,272 shares were held by Directors of the Company, 284085 BC
Ltd. and Northfield Capital Corporation. Substantially all of such shares are
"restricted securities" as such term is defined in Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if they qualify for an exemption from registration under Rules 144, 144(k) or
701 promulgated under the Securities Act. We believe that approximately
8,640,452shares of our Common Stock may be transferred freelyunder U.S. Federal
securities laws. The sale of those shares or the perception that such sales will
or could occur could materially and adversely affect the market price for our
Common Stock.
-41-
<PAGE>
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:
We terminated the engagement of our prior accounting firm, Raimondo
Pettit Group, on January 25, 1999. Our Board of Directors recommended the change
in accountants. During our two fiscal years ended December 31, 1998 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 our ability to continue as a going concern, the audit reports of
Raimondo Pettit Group on our 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 our two fiscal years ended December 31, 1998 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.
Our newly engaged independent accountants are N.I. Cameron Inc. N.I.
Cameron Inc. was engaged by us on January 25, 1999. During our two most recent
fiscal years and any subsequent interim period prior to the engagement of N.I.
Cameron Inc., neither we nor anyone on our behalf consulted N.I. Cameron Inc.
regarding the matters referred to in Item 304(a)(2) of Regulation S-K.
-42-
<PAGE>
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT:
Our Directors and Executive Officers and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE EMPLOYMENT HISTORY
- -------------------------------------- ---------- ------------------------------------------------------------------
<S> <C> <C>
Peter L. Bradshaw 65 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 our 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 InStep Mobile Communications, Inc.)
("eDispatch.com"), which also develops and markets 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 36 Ms. Bradshaw, a co-founder of i5ive, has been a Director of
i5ive since April 1996 and a Director of
-43-
<PAGE>
our 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 BA degree
from the University of British Columbia with a major in French
Literature. Ms. Bradshaw is the daughter of Peter L. Bradshaw.
Mitchell G. Blumberg 56 Mr. Blumberg was elected a Director of our 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. Prior to June 1994, he
was an Executive Vice President of RKO Pictures, Inc. Mr.
Blumberg is also a Director of eDispatch.com. Mr. Blumberg
holds undergraduate and law degrees from the University of
Pennsylvania, and an MBA from Harvard University.
Alfred J. Puchala, Jr. 38 Mr. Puchala was elected a Director of our company in April
1999. Mr. Puchala is a Managing Partner of Signal Equity
Partners, LLC and a Principal of New York-based Signal
Capital Partners, LP, positions he has held since April
1996 and June 1998, respectively. From April 1989 to April
1996, he was employed by Lazard Freres & Co. LLC, most
recently as a Vice President. Mr. Puchala has a BA degree
from Yale University, a JD degree from Georgetown
University and a M. Econ. degree from New York University.
</TABLE>
Each of Mr. Bradshaw, Ms. Bradshaw, Mr. Blumberg and Mr. Puchala will serve as
Directors until our annual meeting of stockholders in 2000 and the election and
qualification of his or her successor.
EXECUTIVE AND DIRECTOR COMPENSATION
-44-
<PAGE>
DIRECTOR AND OFFICER SECURITIES REPORTS
The Federal securities laws require our Directors and executive
officers, and persons who own more than ten percent (10%) of a registered class
of our equity securities to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of any of our
equity securities. Copies of such reports are required to be furnished to us. To
our knowledge, based solely on a review of the copies of such reports and other
information furnished to us, all persons subject to these reporting requirements
filed the required reports on a timely basis with respect to the year ended
December 31, 1999.
ITEM 10 - EXECUTIVE COMPENSATION:
During the year ended December 31, 1999, none of our officers or
Directors received compensation for serving in that capacity. Mr. Peter L.
Bradshaw is currently receiving compensation at the rate of (US) $72,000 per
annum.
Our Directors do not receive any cash compensation for serving in that
capacity; however, they are reimbursed for their out-of-pocket expenses in
attending meetings. Pursuant to the terms of our 1998 Stock Incentive Plan, each
non-employee Director automatically receives an option grant for 50,000 shares
on the date such person joins the Board. In addition, on the date of each annual
stockholder meeting, each non-employee Board member who is to continue to serve
as a non-employee Board member will automatically be granted an option to
purchase 5,000 shares. Each such option has a term of five years, subject to
earlier termination following such persons cessation of Board service, and is
subject to certain vesting provisions.
From time to time, we use consultants to assist us, and we plan to compensate
them by the issuance of options to them.
-45-
<PAGE>
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 us to own beneficially 5% or more of our Common Stock, and
the Common Stock ownership of each of our Directors and all Directors and
officers as a group, as of February 29, 2000. As of February 29, 2000, we had
13,048,724 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner (1) Number of Shares Beneficially Percentage of Outstanding Common
Owned(2) Stock
- ---------------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Peter L. Bradshaw 1,436,565 (3) 11.4%
Julie M Bradshaw 807,571 6.4%
Mitchell G. Blumberg 75,000 (4) 0.6%
833 Moraga Drive - #12
Los Angeles, CA 90049
Alfred J. Puchala, Jr. 135,000 (5) 1.1%
Signal Partners, LLC
10 East 53rd Street
New York, NY 10022
Northfield Capital Corporation 2,124,136 16.9%
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 11.4%
All officers and directors as a group
(4 persons) 2,454,136 19.3%
</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 February 29, 2000.
(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 options.
(5) Includes 60,000 shares of Common Stock and options to purchase 75,000 shares
of Common Stock.
-46-
<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 BC Ltd. for an aggregate purchase
price of $73.
From its inception in April 1996 through June 30, 1998 Northfield
Capital Corporation and 284085 BC 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 Suite101, Northfield Capital Corporation and 284085
BC Ltd. converted these advances and accrued interest into an aggregate of
414,975 and 302,753 shares, respectively, of i5ive. Such shares of i5ive were
exchanged for 1,969,057 and 1,436,565 shares, respectively, of our Common Stock
or an effective purchase price, based on the amounts advanced by such persons
through June 30, 1998, of approximately $0.14 per share of our Common Stock.
Subsequent to June 30, 1998, Northfield Capital Corporation and 284085
BC Ltd. advanced or incurred additional liabilities on behalf of i5ive
aggregating $92,721 through November 30, 1998. Such amounts were repaid out of
the proceeds of a private sale of our securities completed in April, 1999.
-47-
<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.
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
</TABLE>
-48-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ---------------------------- ----------------------------------------------------------------------------------
Name State or Jurisdiction of Incorporation
- ---------------------------- ------------------------------------------------------------
<S> <C>
i5ive communications Inc. British Columbia, Canada
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.
-49-
<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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/Peter L. Bradshaw President (Principal March 28,2000
- ------------------------------ Executive Officer and Director)
Peter L. Bradshaw
/s/ Julie M. Bradshaw Director March 28,2000
- ------------------------------
Julie M. Bradshaw
/s/ Mitchell G. Blumberg Director March 28,2000
- ------------------------------
Mitchell G. Blumberg
/s/ Alfred J. Puchala, Jr. Director March 28,2000
- ------------------------------
Alfred J. Puchala, Jr.
</TABLE>
-50-
<PAGE>
SUITE101.COM INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<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-14
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Suite101.com Inc.
We have audited the accompanying consolidated balance sheets of Suite101.com
Inc. as of December 31, 1999 and December 31, 1998 and the related consolidated
statements of operations, stockholders' equity (deficit) 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 the Company as of
December 31, 1999 and December 31, 1998, 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 experienced accumulated losses and has had
no material revenue producing operations to date. 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.
/s/ N.I. Cameron Inc.
VANCOUVER, B.C. CHARTERED ACCOUNTANTS
March 14, 2000
F-2
<PAGE>
SUITE101.COM INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,847,438 $ 10,544
Accounts receivable 27,241 5,129
Income taxes recoverable -- 1,020
Prepaid expenses 38,664 --
----------- -----------
2,913,343 16,693
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 3)
Computer equipment 173,004 47,159
Furniture and fixtures 12,774 688
Leasehold improvements 11,845 16,495
----------- -----------
197,623 64,342
Less: accumulated amortization 51,907 29,222
----------- -----------
145,716 35,120
----------- -----------
TOTAL ASSETS $ 3,059,059 $ 51,813
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 88,688 $ 126,338
DUE TO STOCKHOLDERS -- 193,691
DUE TO AFFILITATED COMPANIES -- 42,623
----------- -----------
TOTAL LIABILITIES 88,688 362,652
----------- -----------
CAPITAL STOCK (Notes 5, 6 and 10)
Authorized:
40,000,000 common shares with a par value of $0.001 each
Issued:
12,061,837 common shares 12,062 10,062
DEFERRED COMPENSATION (99,792) --
ADDITIONAL PAID-IN CAPITAL 5,354,504 386,261
DEFICIT (2,305,760) (757,331)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION 9,357 50,169
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 2,970,371 (310,839)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,059,059 $ 51,813
----------- -----------
----------- -----------
COMMITMENTS AND SUBSEQUENT EVENTS (NOTE 10)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
SUITE101.COM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
SALES $ 1,925 $ 18,769
------------ ------------
OPERATING EXPENSES
General and administrative 1,443,790 396,057
Marketing 244,060 --
------------ ------------
1,687,850 396,057
------------ ------------
LOSS FROM OPERATIONS (1,685,925) (377,288)
------------ ------------
OTHER INCOME (EXPENSES)
Other income, net 145,626 3,521
Loss on disposal of leasehold improvements (8,130) --
------------ ------------
137,496 3,521
------------ ------------
NET LOSS $ (1,548,429) $ (373,767)
------------ ------------
------------ ------------
INCOME (LOSS) PER SHARE
Basic and Diluted $ (0.13) $ (0.10)
------------ ------------
------------ ------------
Average common shares outstanding 11,502,387 3,825,020
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
SUITE101.COM INC.
CONSOLIDATED OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
Equity
Adjustment
From Total
Additional Foreign Stockholders'
Common Stock Paid-in Deferred Currency Accumulated Equity
Shares Amount Capital Compensation Translation Deficit (Deficit)
----------- ----------- ------------- -------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1998 100 $ 73 $ -- $ -- $ 13,347 $ (383,564) $ (370,144)
Capitalization of stockholder
loans (Note 5) 717,703 468,078 -- -- -- -- 468,078
Adjustment of shares to reflect
capital stock as of date
reverse takeover 5,937,863 (461,495) 461,495 -- -- -- --
Issuance of shares to effect
reverse takeover (Note2) 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
----------- ----------- ------------- -------------- ----------- ------------- -----------
Balances, December 31, 1998 10,061,288 10,062 386,261 -- 50,169 (757,331) (310,839)
Private placement 2,000,000 2,000 4,834,250 -- -- -- 4,836,250
Stock options exercised 549 -- 823 -- -- -- 823
Stock options issued to
non-employees -- -- 133,170 (133,170) -- -- --
Stock compensation vested -- -- -- 33,378 -- -- 33,378
Net loss for the year ended
December 31, 1999 -- -- -- -- -- (1,548,429) (1,548,429)
Translation adjustments for
the year ended
December 31, 1999 -- -- -- -- (40,812) -- (40,812)
----------- ----------- ------------- -------------- ----------- ------------- -----------
Balances, December 31, 1999 12,061,837 $ 12,062 $ 5,354,504 $ (99,792) $ 9,357 $ (2,305,760) $ 2,970,371
----------- ----------- ------------- -------------- ----------- ------------- -----------
----------- ----------- ------------- -------------- ----------- ------------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
SUITE101.COM INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACITIVITIES
Net loss $(1,548,429) $ (373,767)
Adjustment to reconcile net loss to net cash used in operating activities
Loss on disposition of leasehold improvements 8,130 --
Amortization 29,352 --
Stock-based compensation 33,378 13,392
----------- -----------
(1,477,569) (360,375)
Changes in operating assets and liabilities
Accounts receivable (21,307) 1,602
Prepaid expenses and deposits (38,394) --
Accounts payable and accrued expenses (40,752) 113,611
Income taxes 1,020 (1,020)
----------- -----------
Net cash used in operating activities (1,577,002) (246,182)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (143,495) (7,763)
----------- -----------
Net cash used in operating activities (143,495) (7,763)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Advances from (to) stockholders (198,664) (124,408)
Advances from (to) affiliated companies (43,091) (23,523)
Shares issued to effect reverse takeover -- 3,406
Cost of reverse takeover -- (75,234)
Proceeds from issuance of common stock and warrants 4,837,073 468,078
----------- -----------
Net cash provided by financing activities 4,595,318 248,319
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH (37,927) 17,748
----------- -----------
NET INCREASE IN CASH 2,836,894 12,122
CASH (DEFICIENCY) AT BEGINNING OF YEAR 10,544 (1,578)
----------- -----------
CASH AT END OF YEAR $ 2,847,438 $ 10,544
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
SUITE101.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
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,
1999, the Company had accumulated $2,305,760 in losses and had no
material revenue producing operations. At the date of this report, the
Company's 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 raises 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, 1999, there were no
operations in 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. The business combination was 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 replaced the stockholders' deficit of the Company.
F-7
<PAGE>
SUITE101.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
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. 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 judgment 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
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, 1999
and December 31, 1998 and all revenues and expenses have
been translated using the average exchange rate for each
period. The rates used were as follows:
<TABLE>
<CAPTION>
(equivalent CDN $ per U.S.$) 1999 1998
---------------------
<S> <C> <C>
December 31 rate .6929 .6522
Average rate for the year .6731 .6743
</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.
(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-9
<PAGE>
SUITE101.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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. RELATED PARTY TRANSACTIONS
The Company has incurred salaries and consulting fees of $128,174
(1998 - $28,319) to three directors of the Company.
5. CAPITAL STOCK
(a) In December, 1998, i5ive issued 717,703 common shares to
eliminate debt to stockholders of $468,078.
(b) In December, 1998, 3,405,622 shares were issued for the
purchase of i5ive (see Note 2).
(c) In April, 1999, the Company completed a private placement of
1,000,000 units for $5,000,000. Each unit was comprised of two
common shares and one warrant entitling the holder to purchase
an additional common share for $4.50 on or before February 29,
2000. The Company incurred $163,750 in expenses concerning
this share issuance and issued 15,000 warrants entitling the
holder to purchase an additional common share for $5.50 on or
before February 29, 2002.
Subsequent to December 31, 1999, all 1,000,000 warrants were
exercised to net the Company $4,500,000.
(d) During the year ended December 31, 1999, the Company issued
549 common shares for total proceeds of $823 upon exercise of
stock options (See Note 6).
F-10
<PAGE>
SUITE101.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
6. 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 was subject to approval by the stockholders of the Company
within twelve months of the date the Board of Directors adopted the
Plan. This approval was obtained on June 11, 1999. 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 are in effect for grants
made under the Company's Plan.
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.
The following is a table of stock options under the Plan as at December
31, 1999:
<TABLE>
<CAPTION>
Balance
Option Expiry Vesting Balance Granted Balance Exercisable
Exercise Date Date December 31, During Exercised (E) December 31, December 31,
Price (mm/dd/yy) (mm/dd/yy) 1998 the Year Cancelled (C) 1999 1999
------------- ------------- ---------------- ---------------- ------------ --------------- ---------------- ----------------
------------- ------------- ---------------- ---------------- ------------ --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.50 12/04/03 12/04/99 278,207 - 549 (E) 245,879 245,879
- 31,779 (C) - -
1.50 12/04/03 12/04/00 54,903 - 16,735 (C) 38,168 -
3.34 02/23/04 (1/3) 02/23/00 - 50,000 - 50,000 -
(1/3) 02/23/01
(1/3) 02/23/02
6.38 04/27/04 (1/3) 04/27/00 - 50,000 - 50,000 -
(1/3) 04/27/01
(1/3) 04/27/02
4.13 06/11/04 06/11/00 - 10,000 - 10,000 -
1.50 10/25/05 (1/2) 10/25/00 - 100,000 - 100,000 -
(1/2) 10/25/01
1.50 11/13/04 11/13/99 - 137,900 - 137,900 137,900
1.50 11/13/04 11/13/00 - 762,850 - 762,850 -
</TABLE>
F-11
<PAGE>
SUITE101.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
6. STOCK OPTIONS
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (CONTINUED)
In addition, the Company issued the following options after December
31, 1999:
<TABLE>
<CAPTION>
Number Expiry Vesting
of Exercise Date Date
Options Price (mm/dd/yy) (mm/dd/yy)
------------- ------------- ---------------- ----------------
<S> <C> <C> <C>
70,000 3.53 01/31/05 01/31/01
4,000 3.53 01/31/02 (1/2) 01/31/00
(1/2) 01/31/01
50,000 3.56 01/06/05 01/06/01
100,000 7.00 02/15/05 02/15/01
</TABLE>
As the number of options issued exceeds the 1,200,000 approved by the
stockholders under the Plan, the additional options are conditioned
upon an amendment to the plan to increase the number of shares issuable
on exercise of options to 2,400,000, adopted by the Board of Directors
on November 13, 1999, receiving stockholders' approval.
The above options are granted for services provided to the Company. Of
the above options, the 100,000 granted on October 25, 1999 are to
non-employees and the fair value of $99,750 has been reflected on the
financial statements as required by SFAS 123. This fair value was
determined using the Black-Scholes model with the following assumptions
used: risk-free rate was 5%, expected volatility of 272%, an expected
option life of 5 years and no expected dividends.
The remaining options issued were to officers, directors and employees.
As the options were granted at exercise prices based on the market
price of the Company's shares at the dates of the grant, no
compensation cost is recognized. However, under SFAS 123, the impact on
net income and net income per share of the fair value of stock options
must be measured and disclosed on a fair value based method on a pro
forma basis. The fair value of the employees' purchase rights under
SFAS 123 was estimated using the Black-Scholes model with the following
assumptions used for options: risk-free rate was 5.0%, expected
volatility of 272% for the $1.50 options and 50% for others, an
expected option life of 5 years and no expected dividends.
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the year ended December
31, 1999 would have been as follows:
<TABLE>
<CAPTION>
<S> <C>
Net loss
As reported $ (1,548,429)
Pro forma $ (1,855,497)
Basic net loss per share
As reported $ (0.13)
Pro forma $ (0.16)
</TABLE>
F-12
<PAGE>
SUITE101.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
7. INCOME TAXES
At December 31, 1999, there were deferred income tax assets resulting
primarily from operating loss carryforwards for Canadian tax purposes
totaling approximately $800,000 less a valuation allowance of $800,000.
The valuation allowance on deferred tax assets increased by $500,000
and $135,300 during 1999 and 1998, respectively.
At December 31, 1998, the Company had net operating loss carryfowards
for Canadian tax purposes of approximately $1,650,000. These
carryforwards begin to expire in 2003.
At December 31, 1999, there were deferred income tax assets resulting
from operating loss carryforwards for U.S. income tax purposes totaling
approximately $215,000 less a valuation allowance of $215,000. The
valuation allowance on deferred tax assets increased by $215,000 during
1999. The Company has approximately $500,000 available in operating
loss carryfowards, which may be carried forward and applied against
U.S. operating income. During the year ended December 31, 1998, the
Company's previous U.S. loss carryfowards were eliminated due to a
change in control of the Company and the change in the Company's
operations.
8. EARNINGS PER SHARES (EPS)
Earnings per share for the years ended December 31, were computed as
follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net loss $ (1,548,429) $ (373,767)
Weighted average common shares outstanding 11,507,387 3,825,020
------------ ------------
Basic and diluted EPS $ (0.13) $ (0.10)
------------ ------------
------------ ------------
</TABLE>
9. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments consist of cash, accounts
receivable and accounts payable. 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>
SUITE101.COM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND DECEMBER 31, 1998
10. COMMITMENTS AND SUBSEQUENT EVENTS
(a) On March 23, 1999, the Company entered into a twelve-month
agreement with a consultant which provided for fees of $5,000
per month. In addition, the consultant was issued a one-year
warrant to purchase 50,000 shares of common stock at a price
of $3.06 per share. This warrant has been valued at $33,420
using the Black-Scholes model as described earlier and is
reflected as compensation on these financial statements.
Subsequent to December 31, 1999, this agreement was amended to
increase the fees to $20,900 for the six-month period
beginning August 23, 1999, extend the period of services by
six-months, and to issue a warrant to purchase 25,440 shares
of common stock of the Company at a price of $5.50 per shares
expiring February 28, 2002.
(b) Subsequent to December 31, 1999, the Company entered into a
one-year agreement with a consultant. The consultant was
issued a warrant to purchase 14,000 shares of common stock of
the Company at a price of $5.50 per share, expiring on January
15, 2001.
(c) The Company has entered into a consulting agreement with a
director, which provides for monthly payments of $5,000 until
June 30, 2000.
(d) Subsequent to December 31, 1999, the Company completed a
private placement of 250 units. Each unit consists of a
$10,000, 8% note payable due June 30, 2000 and warrants to
purchase 2,500 shares. Each warrant entitles the holder to
purchase one common share at a price of $5.00 up to July 15,
2002. In the event that at any time prior to July 15, 2002 (a)
the shares of common stock issuable on exercise of the
warrants have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and (b) the average
of the closing bid and asked prices for the Company's common
stock as quoted on the OTC Bulletin Board (or such other
automated trading system or national securities exchange as is
the principal market for the Company's common stock) exceeds
(U.S.) $9.00 per share for a period of ten (10) business days,
then the warrants will expire at 5:00 PM, New York City time,
on a date sixty (60) days thereafter.
11. COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Net loss as reported $(1,548,429) $ (373,767)
Add (deduct)
Foreign currency translation adjustments (40,812) 36,822
----------- -----------
Comprehensive Income (Loss) $(1,589,241) $ (336,945)
----------- -----------
----------- -----------
Accumulated other comprehensive income
Foreign currency translation adjustments
Balance at beginning of year $ 50,169 $ 13,347
Change during the year (40,812) 36,822
----------- -----------
Balance at end of year $ 9,357 $ 50,169
----------- -----------
----------- -----------
</TABLE>
F-14
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form SB-2 (File No.
333-85547) of our report dated March 14, 2000, on our audits of the
consolidated financial statements of Suite101.com, Inc. and Subsidiaries.
/s/ N.I. Cameron Inc.
Chartered Accountants
Vancouver, BC
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> DEC-31-2000
<CASH> 2,847,438
<SECURITIES> 0
<RECEIVABLES> 27,241
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,913,343
<PP&E> 197,623
<DEPRECIATION> 51,907
<TOTAL-ASSETS> 3,059,059
<CURRENT-LIABILITIES> 88,688
<BONDS> 0
0
0
<COMMON> 12,062
<OTHER-SE> 2,958,309
<TOTAL-LIABILITY-AND-EQUITY> 3,059,059
<SALES> 1,925
<TOTAL-REVENUES> 139,421
<CGS> 0
<TOTAL-COSTS> 1,687,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,548,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,548,429)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,548,429)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
