<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2000; or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________________ to
_____________________.
Commission file Number: 0-25136
SUITE101.COM INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0464753
(State or other jurisdiction of (I.R.S. employer
incorporation of organization) identification no.)
SUITE 390 -- 1122 MAINLAND STREET, VANCOUVER, BC, CANADA V6B 5L1
(Address of principal executive offices, zip code)
604-682-1400
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
proceeding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES /X/ NO / /
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at August 1, 2000
----------------------------------- --------------------------------------
COMMON STOCK, PAR VALUE 13,155,046
$.001 PER SHARE
Transitional Small Business Disclosure Format
YES / / NO /X/
<PAGE>
SUITE 101.COM, INC.
QUARTERLY REPORT ON FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements 3
Independent Accountants' Report 3
Consolidated Balance Sheets -- June 30, 2000 and 4
June 30, 1999
Consolidated Statements of Operations -- Six-Month and 5
Three-Month 5 Periods Ended June 30, 2000 and June 30,
1999
Consolidated Statements of Cash Flows -- Six-Month Periods 6
Ended June 30, 2000 and June30, 1999
Notes to Consolidated Financial Statements -- 7-14
June 30, 2000 and June 30, 1999
Item 2. Management's Discussion and Analysis or Plan of Operation 15-34
PART II OTHER INFORMATION 35
Item 4. Submission of Matters to a Vote of Security Holders 35
Item 6. Exhibits and Reports on Form 8-K 35
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
SUITE101.COM, INC.
VANCOUVER, B.C., CANADA
We have reviewed the accompanying consolidated balance sheet of SUITE101.COM,
INC. and subsidiaries as of June 30, 2000, the related consolidated statements
of operations for the six-month and three-month periods then ended, and the
related statement of cash flows for the six-month period then ended. These
financial statements are the responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ N.I. CAMERON INC.
VANCOUVER, B.C. CHARTERED ACCOUNTANTS
August 1, 2000
3
<PAGE>
SUITE101.COM, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
(EXPRESSED IN U.S. DOLLARS)
JUNE 30, JUNE 30,
2000 1999
------------------- ------------------
(NOTE 1)
<S> <C> <C>
CURRENT ASSETS
Cash $ 6,516,639 $ 4,057,447
Accounts receivable 22,225 9,135
Due from officer (Note 5) 20,801 --
Prepaid expenses and deposits 8,088 71,500
------------------- ------------------
6,567,753 4,138,082
------------------- ------------------
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 4)
Computer equipment 189,801 65,250
Furniture and fixtures 16,219 10,621
Leasehold improvements 11,547 11,350
------------------- ------------------
217,567 87,221
Less: accumulated amortization 72,729 28,768
------------------- ------------------
144,838 58,453
------------------- ------------------
TOTAL ASSETS $ 6,712,591 $ 4,196,535
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 133,270 $ 174,404
------------------- ------------------
CAPITAL STOCK (Notes 7, 8 and 11)
Authorized:
40,000,000 common shares with a par value of $0.001 each 1,000,000
preferred shares with a par value of $0.01 each
Issued:
13,155,046 common shares 13,155 12,062
DEFERRED COMPENSATION (79,249) --
ADDITIONAL PAID-IN CAPITAL 10,351,146 5,220,510
DEFICIT (3,755,486) (1,245,566)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION 49,755 35,125
------------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 6,579,321 4,022,131
------------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,712,591 $ 4,196,535
=================== ==================
COMMITMENTS AND SUBSEQUENT EVENTS (Note 11)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
SUITE101.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH AND THREE-MONTH PERIODS ENDED
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
(EXPRESSED IN U.S. DOLLARS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30, JUNE 30,
2000 1999 2000 1999
----------------- ---------------- ---------------- ----------------
(NOTE 1) (NOTE 1)
<S> <C> <C> <C> <C>
SALES $ 413 $ 426 $ 818 $ 842
----------------- ---------------- ---------------- ----------------
OPERATING EXPENSES
General and administration 432,273 270,721 1,265,771 482,772
Marketing 119,059 41,490 338,276 41,490
----------------- ---------------- ---------------- ----------------
551,332 312,211 1,604,047 524,262
----------------- ---------------- ---------------- ----------------
LOSS FROM OPERATIONS (550,919) (311,785) (1,603,229) (523,420)
----------------- ---------------- ---------------- ----------------
OTHER INCOME (EXPENSES)
Loss on disposal of leasehold improvements -- (8,130) -- (8,130)
Other income, net 69,715 42,987 153,502 43,313
----------------- ---------------- ---------------- ----------------
69,715 34,857 153,502 35,183
----------------- ---------------- ---------------- ----------------
NET LOSS (481,204) (276,928) $ (1,449,727) $ (488,237)
================= ================ ================ ================
INCOME (LOSS) PER SHARE
Basic and Diluted $ (0.04) $ (0.02) $ (0.11) $ (0.04)
================= ================ ================ ================
Weighted average common shares outstanding 13,152,444 11,797,551 12,798,145 10,934,216
================= ================ ================ ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
- 5 -
<PAGE>
SUITE101.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
(EXPRESSED IN U.S. DOLLARS)
JUNE 30, JUNE 30,
2000 1999
------------------ -----------------
(NOTE 1)
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACITIVITIES
Net loss $ (1,449,727) $(488,237)
Adjustment to reconcile net loss to net cash used in operating activities
Stock-based compensation 300,465 --
Loss on disposal of leasehold improvements -- 8,130
Amortization 22,331 7,119
------------------ -----------------
(1,126,931) (472,988)
Changes in operating assets and liabilities
Accounts receivable 4,173 (3,772)
Due from officer (20,801) --
Income taxes -- 1,020
Prepaid expenses and deposits 29,446 (71,500)
Accounts payable and accrued expenses 45,520 44,870
------------------ -----------------
Net cash used in operating activities (1,068,593) (502,370)
------------------ -----------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (25,159) (36,745)
------------------ -----------------
Net cash used in investing activities (25,159) (36,745)
------------------ -----------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Advances from (to) stockholders -- (198,664)
Advances from (to) affiliated companies -- (43,091)
Proceeds from issuance of common stock and warrants 4,717,814 4,836,250
------------------ -----------------
Net cash provided by financing activities 4,717,814 4,594,495
------------------ -----------------
EFFECT OF EXCHANGE RATES ON CASH 45,139 (8,477)
------------------ -----------------
NET INCREASE IN CASH 3,669,201 4,046,903
CASH AT BEGINNING OF PERIOD 2,847,438 10,544
------------------ -----------------
CASH AT END OF PERIOD $6,516,639 $ 4,057,447
================== =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
1. COMPARATIVE FIGURES
The financial statements for the period ended June 30, 1999 are neither
audited nor reviewed.
2. 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
directory and community.
GOING CONCERN
The accompanying consolidated financial statements have been presented
assuming the Company will continue as a going concern. At June 30,
2000, the Company had accumulated $3,755,486 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 raise 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, a Canadian company. All intercompany
accounts and transactions have been eliminated in consolidation. As at
June 30, 2000, there were no operations in Endovascular, Inc.
3. 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.
7
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
3. 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.
4. 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:
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements 20% straight-line
One-half the normal amortization is taken in the year of acquisition.
8
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
4. 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 June 30, 2000 and June 30, 1999 and all revenues and
expenses have been translated using the average exchange rate for
each period. The rates used were as follows:
(equivalent CDN $ per U.S.$) 2000 1999
---------------------
June 30 rate .6754 .6835
Average rate for the three-month period .6756 .6790
(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.
9
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
4. 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.
5. DUE FROM OFFICER
The amount due from officer is interest-free and has been repaid
subsequent to June 30, 2000.
6. RELATED PARTY TRANSACTIONS
The Company has incurred salaries and consulting fees of $70,908 (1999
- $24,077) to three directors of the Company.
7. CAPITAL STOCK
(a) 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.
During the period ended June 30, 2000, all 1,000,000 warrants
were exercised to net the Company $4,500,000.
(b) During the period ended June 30, 2000, the Company issued
43,209 common shares for total proceeds of $64,814 upon
exercise of stock options (See Note 7).
(c) During the period ended June 30, 2000, the Company issued
625,000 warrants as part of a private placement of Notes
payable. 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.
10
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
8. STOCK OPTIONS
THE COMPANY'S 1998 STOCK INCENTIVE PLAN
In December, 1998, the Company adopted the 1998 Stock Incentive Plan
(the "Plan"). Under the Plan, including amendments adopted in 2000,
2,400,000 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 June 30,
2000:
<TABLE>
<CAPTION> Balance
Option Expiry Vesting Balance Granted Balance Exercisable
Exercise Date Date December 31, During Exercised (E) June 30, June 30,
Price (mm/dd/yy) (mm/dd/yy) 1999 the Year Cancelled (C) 2000 2000
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.50 12/04/03 12/04/99 245,879 - 43,209 (E) 198,537 198,537
4,133 (C)
1.50 12/04/03 12/04/00 38,168 - 2,914 (C) 35,254 -
3.34 02/23/04 (1/3) 02/23/00 50,000 - - 50,000 16,667
(1/3) 02/23/01
(1/3) 02/23/02
6.38 04/27/04 (1/3) 04/27/00 50,000 - - 50,000 16,667
(1/3) 04/27/01
(1/3) 04/27/02
4.13 06/11/04 06/11/00 10,000 - - 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 11/13/00 763,050 1,400 19,450 (C) 745,000 -
3.56 01/06/05 01/06/01 - 50,000 50,000 (C) - -
3.53 01/31/02 (1/2) 01/31/00 - 4,000 - 4,000 2,000
(1/2) 01/31/01
7.00 02/15/05 02/15/01 - 100,000 100,000 (C) - -
1.50 03/21/05 03/21/01 - 20,000 - 20,000 -
1.50 01/31/05 23,335 - 01/31/01 - 70,000 - 70,000 -
23,333 - 01/31/02
23,332 - 01/31/03
1.50 04/17/05 20,402 - 04/17/00 - 110,805 - 110,805 20,402
30,137 - 04/17/01
30,133 - 04/17/02
30,133 - 04/17/03
</TABLE>
11
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
8. STOCK OPTIONS (CONTINUED)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (CONTINUED)
The options with an expiry date of January 31, 2005 and March 21, 2005
were originally granted with an exercise price of $3.53 and $7.88
respectively.
In addition, the Company issued the following options after June 30,
2000:
<TABLE>
<CAPTION>
Number Expiry Vesting
of Exercise Date Date
Options Price (mm/dd/yy) (mm/dd/yy)
--------------------------------------------------------------
<S> <C> <C> <C>
56,443 1.50 07/05/05 3,222 - 07/05/00
17,741 - 07/05/01
17,740 - 07/05/02
17,740 - 07/05/03
</TABLE>
The above options are granted for services provided to the Company.
Of the above options, the following options are to non-employees
and have been reflected on the financial statements and valued,
using the Black-Scholes model with a risk-free rate of 5% and no
expected dividends:
<TABLE>
<CAPTION>
Numbers of Exercise Grant Volatility Expected
Options Price Date Value Assumption Options Life
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
100,000 1.50 October 25, 1991 $ 99,750 272% 5 years
50,000 3.56 January 6, 2000 99,635 60% 5 years
4,000 3.53 January 31, 2000 5,120 60% 2 years
100,000 7.00 February 15, 2000 203,970 20% 5 years
20,000 7.88 March 21, 2000 45,922 20% 5 years
</TABLE>
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 279% and 272% for the $1.50
options, 60% for the $3.53 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 period ended June 30,
2000 would have been as follows:
<TABLE>
<S> <C>
Net loss
As reported $ (1,449,727)
Pro forma $ (2,050,266)
Basic net loss per share
As reported $ (0.11)
Pro forma $ (0.16)
</TABLE>
12
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
9. INCOME TAXES
At June 30, 2000, there were deferred income tax assets resulting
primarily from operating loss carryforwards for Canadian tax purposes
totaling approximately $1,200,000 less a valuation allowance of
$1,200,000. The valuation allowance on deferred tax assets increased by
$400,000 during the period ended June 30, 2000.
At June 30, 2000, the Company had net operating loss carryforwards for
Canadian tax purposes of approximately $2,450,000. These carryforwards
begin to expire in 2003.
At June 30, 2000, there were deferred income tax assets resulting from
operating loss carryforwards for U.S. income tax purposes totaling
approximately $437,000 less a valuation allowance of $437,000. The
valuation allowance on deferred tax assets increased by $222,000 during
the period ended June 30, 2000. The Company has approximately
$1,020,000 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.
10. 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.
11. 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. During the period ended June 30,
2000, this warrant has been exercised to net the Company
$153,000. During the period ended June 30, 2000, this
agreement was amended to increase the fees to $20,900 per
month 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. This warrant has been valued at $11,750 using
the Black-Scholes model and is reflected as compensation on
these financial statements.
(b) During the period, 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 February
26, 2002. This warrant has been valued at $9,562 using the
Black-Scholes model as described earlier and is reflected as
compensation on these financial statements.
13
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND JUNE 30, 1999
(UNAUDITED)
11. COMMITMENTS AND SUBSEQUENT EVENTS (CONTINUED)
(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) The Company has entered into an agreement for consulting and
corporate finance services which provides for the issue of
2-year warrants at the following milestones:
<TABLE>
<S> <C>
Upon execution of consulting agreement - 25,000 (issued)
On signed letter of intent with target customer - 25,000
On signed agreement with target customer - 25,000
On signed agency agreement to market similar program
to others in same industry in North America - 25,000
</TABLE>
In addition, the agreement provides for additional warrants to
be issued over 3 years based on 10% of any payout to
participants under the plan developed with customer(s)
resulting from the agency agreement. The warrants to be issued
are based on the average price of the Company's stock for the
10-day period prior to the issuance of the warrants, less a
20% discount.
The initial 25,000 warrants issued have an exercise price of
$4.96 per share and expire February 17, 2002. They have been
valued at $115,060 using the Black-Scholes model as described
earlier and have been reflected as compensation on these
financial statements.
12. COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
2000 1999
-------------------------------
<S> <C> <C>
Net loss as reported $ (1,449,727) $ (488,237)
Add (deduct)
Foreign currency translation adjustments 40,398 (15,043)
-------------------------------
Comprehensive Income (Loss) $ (1,409,329) $ (503,280)
===============================
Accumulated other comprehensive income
Foreign currency translation adjustments
Balance at beginning of period $ 9,357 $ 50,169
Change during the period 40,398 (15,043)
-------------------------------
Balance at end of period $ 49,755 $ 35,126
===============================
</TABLE>
14
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction
with, and is qualified in its entirety by, the more detailed information
including our Financial Statements and the Notes thereto included in our Annual
Report on Form 10-KSB for the year ended December 31, 1999. This Quarterly
Report contains forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results discussed in the
forward-looking statements. Factors that may cause or contribute to such
differences include the Risk Factors set forth below as well as the "Risk
Factors" contained in our Annual Report. See "Cautionary Statement for Purposes
of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act
of 1995" herein.
OVERVIEW
Suite101.com, Inc. is an Internet company engaged in the creation,
operation and maintenance of a Word Wide Web-based community, known as
Suite101.com. Suite101.com is a community that is growing organically where
Internet users can express themselves, share ideas, interests and expertise, and
publish content accessible to other Internet users with common interests. Our
community includes our visitors, our Members and our "Contributing Editors".
Suite101.com's Member-generated Best-of-Web Directory is the accumulated efforts
of our Members and our Contributing Editors (Web guides), all of whom have a
passion for a particular topic, who create our directory of personalized Web
sites organized topically into eleven major Communities of Interest. 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 July 2000,
we have over 1,075 Contributing Editors (Web guides) publishing content and
searching the Internet for the best resources on the Web.
Our Contributing Editors, who are typically enthusiasts with a passion
for a particular topic, publish approximately 2,000 articles per month on our
site and; since 1996, have written almost 30,000 searchable, archived articles.
In addition, our Contributing Editors have created Suite101.com's topically
organized directory with close to 35,000 hand-picked and personally reviewed
links and have managed close to 30,000 discussions on over 1,075 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 participating Members. Suite101.com intends to receive
additional revenues by participating with the eVendors in completed
transactions.
Suite101.com intends 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 between our Company, our Members and our eVendors. Our
marketing plan is founded on Members' consent, our role as custodian of Members'
privacy and eVendors' commitment to deliver competitive, quality goods and
services on time. As custodian of Members' psycho-demographic
15
<PAGE>
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 our 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, to facilitate Members "clicking" through directly
to the eVendor's site, will enable us to present such marketing material to our
Members 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 programs, brand marketing, eVendors promotional
efforts, 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 e-commerce. We expect our
operating expenses to increase significantly, especially in the areas of site
development and infrastructure, sales, marketing, brand promotion and e-commerce
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. Most recently, Suite101.com and Forest Press Distributions, a
subsidiary of OCLC Online Computer Library Center Incorporated, signed a
licensing agreement making it possible for Suite101.com to incorporate the Dewey
Decimal Classification (R) system in our Best-of-Web-Directory. The Dewey
Decimal Classification (R) is used by 95 percent of US schools and public
libraries. By incorporating both the Dewey Decimal Classification (R) and the
Library of Congress Subject Headings (the most widely used English language
thesaurus in the world), Suite101.com will make it easier for visitors and
Members to obtain better and more predictable search results from our site.
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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<PAGE>
A COMPARISON OF OUR OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2000
AND THE SIX MONTHS ENDED JUNE 30, 1999
During the six months ended June 30, 2000, our sales were $818
compared with sales of $842 during the six months ended June 30, 1999. Sales
in both periods were primarily attributable to software licensing revenues of
our wholly-owned subsidiary, i5ive communications inc.
General and administrative expenses were $1,265,771 in the six
months ended June 30, 2000 compared with $482,772 during the six months ended
June 30, 1999. This increase was primarily the result of the increase in the
number of our Contributing Editors, an increase in the number of personnel we
employ, an increase in the use of consultants, increased product development
and the increased scale of our operations. Marketing expenses were $338,276
during the six months ended June 30, 2000 compared with $41,490 during the
six months ended June 30, 1999. This was the consequence of our marketing
activities aimed at increasing membership and building the Suite101.com brand
that commenced during the second quarter of 1999.
Our Loss From Operations was $1,603,229 during the first six months
of 2000 compared with $523,420 during the six months ended June 30,1999. The
increase in our Loss From Operations during the six months ended June 30,
2000 compared with that of the six months ended June 30, 1999 was the result
of the increase in our operating expenses and an increase in our expenses
incurred in marketing.
Other income was $153,502 during the six months ended June 30, 2000
compared with $43,313 during the six months ended June 30, 1999. The increase
was the result of increased interest earned on bank balances.
Our Net Loss was $1,449,727 during the six months ended June 30,
2000 compared with $488,237 during the six months ended June 30, 1999. The
increase in our Net Loss for the six months ended June 30, 2000 compared with
the six months ended June 30, 1999 was the result of the increase in the
scale of our operations, the related increase in operating expenses and an
increase in our marketing expenses.
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. In February 2000, we realized gross proceeds of $4,500,000
from the exercise of warrants issued in a 1999 private sale of securities. Also,
in February 2000, we realized gross proceeds of $2,500,000 from a private sale
of our securities. During the first six months of 2000, we also realized gross
proceeds of approximately $218,000 on the exercise of stock options under the
1998 Stock Incentive Plan and from the exercise of warrants. In April 2000, we
repaid the outstanding principal and accrued interest on the $2,500,000
promissory notes we sold in February 2000, which were scheduled to mature on
June 30, 2000. At June 30, 2000, we had a cash balance of $6,516,639. We believe
these funds will be
17
<PAGE>
sufficient to meet our anticipated needs for working capital and capital
expenditures for at least the next 12 months.
We may seek to raise additional funds in order to fund more
aggressive promotions and more rapid expansion, to develop newer or enhanced
services, to 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 and enhance services or
respond to competitive pressures. Any such inability could have a material
adverse effect on our business, results of operations and financial
condition. Additional funds raised through the issuance of equity or
convertible debt securities, will result in reducing the percentage ownership
of our stockholders and, stockholders may experience additional dilution and
such securities may have rights, preferences or privileges senior to those of
the rights of our Common Stock.
As a result of our limited operating history, we have limited
meaningful historical financial data upon which to base planned operating
expenses. Accordingly, our anticipated expense levels in the future are based
in part on our expectations as to future revenue from proposed e-commerce
revenue-sharing arrangements, and anticipated growth in visitor traffic and
membership. We expect that these expense levels will become, to a large
extent, fixed. Revenues and operating results generally will depend on the
volume of, timing of and ability to complete transactions, which are
difficult to forecast. In addition, there can be no assurance that we will be
able to accurately predict our net revenue, particularly in light of the
intense competition for the sale of products and services on the Web,
revenue-sharing opportunities, our limited operating history and the
uncertainty as to the broad acceptance of the Web as an e-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 communications,
inc. shares to us, Northfield Capital Corporation and 284085 BC Ltd.
converted these advances and accrued interest into an aggregate of 414,975
and 302,753 shares, respectively, of i5ive communications, inc. Common Stock.
Such shares of i5ive communications, inc. were exchanged for 1,969,057 and
1,436,565 shares, respectively, of our Common Stock or an effective purchase
price, based on the amounts advanced by such persons through June 30, 1998,
of approximately $0.14 per share of Common Stock.
Subsequent to June 30, 1998, Northfield Capital Corporation and
284085 BC Ltd. advanced or incurred additional liabilities on behalf of the
Company aggregating $12,868 through December 31, 1998. Such amounts were
repaid out of the proceeds from the private sale of securities.
18
<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical information, the matters discussed
above and elsewhere in this Quarterly Report are "forward-looking statements"
as defined under the Securities Exchange Act of 1934, as amended, that
involve risks and uncertainties. The forward-looking statements discussed in
this Quarterly Report appear in various places including: "Item 2 -
Management's Discussion and Analysis or Plan of Operation - Overview",
"Liquidity and Capital Resources", as well as in "Risk Factors." We caution
readers that the risk factors described in our Annual Report on Form 10-KSB,
as well as those described elsewhere in this Quarterly Report, or in our
other filings with the Commission, in some cases have affected, and in the
future could affect our actual results, could cause our actual results during
2000, 2001 and beyond, to differ materially from those expressed in any
forward-looking statements, and could cause our development and the
development of our business plans to be different than expressed in those
statements. Important factors that may be encountered, that could cause
actual results to differ materially from the forward-looking statements in
this Quarterly Report include, among others, our early stage of development
and absence of material revenues, the possibility that we will be unable to
increase membership in our Communities of Interest sufficiently to attract
e-commerce, the usual unforeseeable risks encountered by any new enterprise,
our inability to attract readership to our Communities, our potential need
for additional capital and our possible inability to attract such capital on
acceptable terms or at all, the uncertainties of the levels of our future
operating expenses, fluctuations in our quarterly revenues and membership
growth, the level of consumer acceptance of e-commerce, our inability to
enter into marketing and other relationships to develop our e-commerce,
intense competition among Internet portals and e-commerce participants, our
inability to manage our growth, the impact of possible future government
regulation, our inability to afford a sufficient level of privacy to our
Members, the possible volatility of the market price for our Common Stock,
and the impact of additional shares possibly coming onto the market for sale.
RISK FACTORS
AN INVESTMENT IN SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
YOU SHOULD CONSIDER THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS QUARTERLY REPORT, IN EVALUATING OUR BUSINESS
AND PROPOSED ACTIVITIES. YOU SHOULD ALSO SEE THE "CAUTIONARY STATEMENT FOR
PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1996" REGARDING RISKS AND UNCERTAINTIES RELATING TO US AND TO
FORWARD LOOKING STATEMENTS HEREIN.
19
<PAGE>
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 June 30, 2000, our total
revenues from our Internet operations activities were negligible. During that
period, we accumulated losses of $3,755,486. 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 site development and infrastructure, sales, marketing, brand
promotion and e-commerce promotion. As a result, we will need to generate
increased amounts of quarterly net revenue if we are to achieve
profitability. We believe that period-to-period comparisons of our operating
results, numbers of Members and page views will not be meaningful and the
results or those numbers should not be relied on for any period as an
indication of our future performance. To the extent that our net revenues do
not grow at anticipated rates or that increases in our operating expenses
exceed our expectations or are not subsequently followed by commensurate
increases in net revenue, or that we are unable to adjust operating expense
levels accordingly, our business, results of operations and financial
condition will be materially and adversely affected. There can be no
assurance that our operating losses will not increase in the future or that
we will ever achieve or sustain profitability.
We are currently developing our business through efforts to attract
visitors, Members and Contributing Editors to our Web-based community. At the
end of July 2000, we had approximately 225,000 Members and had grown from 35
Contributing Editors in October 1996 to over 1,075 at the end of July 2000.
During the month of July 2000, our site received approximately 5.96 million
page views, according to PC Data Online. We cannot assure you that such
growth rates are sustainable. Our business plan is to continue to expand our
numbers of visitors, Members and Contributing Editors in an effort to reach a
sufficient level of critical mass as well as to continue to improve and
enhance our site infrastructure through the introduction, development and
implementation of improved technologies. Currently, we have twenty-one
full-time personnel. We have not expended significant efforts to date to
realize revenues. Accordingly, there can be no assurance that our business
plan can be successfully developed or that we will realize any material
revenues.
20
<PAGE>
LIMITED OPERATING HISTORY; ANTICIPATED LOSSES; NO ASSURANCE OF PROFITABILITY
i5ive communications, inc., 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, particularly, companies entering new and rapidly developing
markets like the Internet. These risks include:
- The lack of broad acceptance of the community concept on the Internet
- The possibility that the Internet will fail to achieve broad acceptance as a
commercial medium
- The lack of acceptance by consumers of e-commerce
- Our ability to attract visitors, or retain Members and Contributing Editors
- Our inability to generate significant e-commerce-based revenues from our
e-Vendors and Members
- Risks associated with a new and unproven business concept
- Our ability to anticipate and adapt to a developing market
- The failure of our network infrastructure (including our server, hardware
and software) to efficiently handle our Internet traffic
- Changes in laws and taxes that adversely affect our business
- The possibility that we will be unable to manage effectively any rapid
expansion of our operations, including the amount and timing of capital
expenditures and other costs relating to any expansion of our operations
- The introduction and development of different or more extensive communities
by direct and indirect competitors, including those with greater financial,
technical and marketing resources
- Our inability to maintain and increase levels of traffic on our Website
- Our inability to attract, retain and motivate qualified personnel
- Our inability to successfully deal with 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.
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<PAGE>
To address these risks, we must, among other things:
- Attract visitors, Members and Contributing Editors
- Retain Members and Contributing Editors
- Attract and retain a significant number of e-commerce vendors (eVendors)
- Form and maintain relationships with strategic partners
- Attract and respond to competitive developments
- Retain and motivate qualified personnel
- Develop and upgrade our technologies and commercialize our services
incorporating such technologies, and
- Be successful in attracting additional substantial capital at the times, in
the amounts and on the terms required.
There can be no assurance that we will be successful in addressing
these risks. Any failure to do so could have a material adverse effect on our
business, results of operations and financial condition. Because of the
foregoing factors, our quarterly net revenue and operating results are
difficult to forecast. Consequently, we believe that period to period
comparisons of our operating results will not necessarily be meaningful and
should not be relied upon as an indication of our future performance. It is
likely that in some future quarter or quarters our operating results may fall
below the expectations of securities analysts and investors. In such event,
the trading price of our Common Stock would likely be materially and
adversely affected.
UNPROVEN BUSINESS; DEPENDENCE ON MEMBERS
The success of our business depends upon our ability to expand upon
and develop our community-based platform of Internet access and to generate
multiple revenue streams. Currently, we have no source of material revenues.
The potential success of our business concept is unproven, and, to be
successful, we must, among other things, develop and market concepts that
achieve broad market acceptance by our Members, Internet users and eVendors.
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. As well, we are dependent upon 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 and, 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.
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<PAGE>
Moreover, considering the modest level of compensation paid to
Contributing Editors, there can be no assurance that consistent levels of
high quality Member generated content will be maintained. These levels of
compensation may hinder our efforts in the future to attract Contributing
Editors. Further, there can be no assurance that our community on the
Internet or our services will achieve broad market acceptance. Accordingly,
no assurance can be given that our business will be successful or that we can
sustain revenue growth or generate significant profits.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The report of our independent auditors on their audit of our
financial statements as of December 31, 1999 contains an explanatory
paragraph that describes an uncertainty as to our ability to continue as a
going concern due to our recurring losses. In February 2000, we realized
gross proceeds of $4,500,000 from the exercise of warrants issued in a 1999
private sale of securities. Also, in February 2000, we realized gross
proceeds of $2,500,000 from a private sale of our securities. During the
first six months of 2000, we also realized gross proceeds of approximately
$218,000 on the exercise of stock options under the 1998 Stock Incentive Plan
and from the exercise of warrants. In April 2000, we repaid the outstanding
principal and accrued interest on the $2,500,000 promissory notes we sold in
February 2000, which were scheduled to mature on June 30, 2000. At June 30,
2000, we had a cash balance of $6,516,639. We believe these funds will be
sufficient to meet our anticipated needs for working capital and capital
expenditures for at least the next 12 months.
We may seek to raise additional funds in order to fund more
aggressive promotions and more rapid expansion, to develop newer or enhanced
services, to respond to competitive pressures or to acquire complementary
businesses, technologies or services.
There can be no assurance that any additional financing will be
available to us on favorable terms, or at all. If adequate funds are not
available or not available on acceptable terms, we may not be able to fund
our expansion, promote our e-commerce as we desire, or, develop or enhance
services or respond to competitive pressures. Any such inability could have a
material adverse effect on our business, results of operations and financial
condition. Additional funds raised through the issuance of equity or
convertible debt securities, will result in reducing the percentage ownership
of our stockholders and, our stockholders may experience additional dilution
and such securities may have rights, preferences or privileges senior to
those of the rights of our Common Stock.
As a result of our limited Internet operating history, we have
limited meaningful historical financial data upon which our planned operating
expenses can be based. Accordingly, our anticipated expense levels in the
future are based in part on our expectations as to future revenue from
proposed e-commerce revenue-sharing arrangements, and anticipated growth in
visitor traffic and in membership and will become, to a large extent, fixed.
Revenues and operating results generally will depend on the volume of, timing
of and ability to complete transactions, which are difficult to forecast.
In addition, there can be no assurance that we will be able to
accurately predict our net revenue, particularly in light of the unproven
manner in which we intend to derive our Internet revenue, the intense
competition for the sale of products and services on the Web, revenue-sharing
opportunities, our limited operating history and the uncertainty as to the
broad acceptance of the Web as an e-commerce medium. We may be unable to
adjust our spending in a timely manner to compensate for disappointing
results of our marketing efforts and efforts to develop Internet
23
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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
- The loss of a key strategic or marketing relationship
- Changes in our marketing policy or those of our competitors
- The mix of products and services marketed by our eVendors
- Engineering or development fees that may be paid in connection with us
adding new Web site development and publishing tools
- Technical difficulties with our Suite101.com site
- General economic conditions, and
- Economic conditions specific to the Internet or all or a portion of the
technology market.
As a strategic response to changes in the competitive environment,
we may from time to time make certain pricing, service or marketing decisions
or business combinations that could have a material adverse effect on our
business, results of operations and financial condition. We expect to
experience seasonality in our business, with user traffic on our Suite101.com
site potentially being lower during certain times of the year such as during
the summer, 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.
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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. The requirements for us to enter into
these relationships will be exacerbated in the event of our material growth
or as the number of third party relationships increase. As well, 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 will 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. There is substantial competition and 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 a Web-based
community or directory on the Internet are About.com Inc., Ask Jeeves, Inc.,
Look Smart Ltd., and dmoz open directory project. 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, sites maintained by Internet service providers and
other entities that attempt to or establish communities on the Internet by
developing their own community or by 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.
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We also compete for visitors and Members with many Internet content
providers and Internet service providers, including Web directories, search
engines, shareware archives, content sites, commercial online services and
sites maintained by Internet service providers, as well as thousands of
Internet sites operated by individuals and government and educational
institutions. These competitors include free information, search and content
sites or services, such as America Online, Inc. ("AOL"), CNET, Inc. ("CNET"),
CNN/Time Warner, Inc. ("CNN/Time Warner"), Excite, Inc. ("Excite"), Infoseek
Corporation ("Infoseek"), Lycos, Inc. ("Lycos"), Netscape Communications
Corporation ("Netscape"), Microsoft Corporation ("Microsoft"), About.com
Inc., and Yahoo! Inc. ("Yahoo!"). We also compete with traditional forms of
media, such as newspapers, magazines, radio and television. We believe that
the principal competitive factors in attracting strategic partners and other
sources of e-commerce business include the amount of traffic on our Web site,
name recognition, customer service, the demographics of our Members and
viewers, our ability to offer targeted audiences and the overall
cost-effectiveness of the e-commerce opportunities we offer. We believe that
the number of Internet companies relying on Web-based e-commerce and
advertising revenue will increase substantially in the future. Accordingly,
we will likely face increased competition, resulting in increased pressures
on our revenue sharing percentages which could, in turn, have a material
adverse effect on our business, results of operations and financial condition.
Substantially all of our existing and potential competitors,
including Web directories and search engines and large traditional media
companies, have longer operating histories in the Web market, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources. Such competitors are able to undertake
more extensive marketing campaigns for their brands and services, adopt more
aggressive advertising pricing policies and make more attractive offers to
potential employees, visitors, Members, distribution partners, eVendors,
marketers and third party content providers.
There can be no assurance that Internet content providers and
Internet service providers, including Web directories, search engines,
shareware archives, sites that offer professional editorial content,
commercial online services and sites maintained by Internet service providers
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.
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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 that will include promotional programs
targeted at 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 may require us to outsource
development where we may have little control over the speed and quality of
the development. Any decline in the speed or quality of the development could
adversely effect our business, results of operations and financial condition.
RISKS WE FACE ARISING OUT OF THE NATURE OF THE INTERNET
GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES
We are not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally. There are
currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing popularity and use
of the Internet, a number of legislative and regulatory proposals are under
consideration by U.S. and Canadian federal, state, provincial, local and
foreign governmental organizations as well as others. It is possible that a
number of laws or regulations may be adopted with respect to the Internet
relating to such issues as user privacy, user screening to prevent
inappropriate uses of the Internet by, for example, minors or convicted
criminals, taxation, infringement, pricing, content regulation, quality of
products and services and intellectual property ownership and infringement.
The adoption of any such laws or regulations may decrease the growth in the
use of the Internet, which could, in turn, decrease the demand for our
community, increase our cost of doing business, or otherwise have a material
adverse effect on our business, results of operations and financial condition.
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
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to substantial liability. Legislation could also dampen the growth in the use
of the Web generally and decrease the acceptance of the Web as a
communications and commercial medium. The result could, thereby, have a
material adverse effect on our business, results of operations and financial
condition.
It is also possible that our use of "cookies" to track demographic
information and user preferences and to target advertising may become subject
to laws limiting or prohibiting their use. A "cookie" is a bit of information
keyed to a specific server, file pathway or directory location that is stored
on a user's hard drive, possibly without the user's knowledge. A user is
generally able to remove cookies. Germany, for example, has imposed laws
limiting the use of cookies, and a number of Internet commentators, advocates
and governmental bodies in the United States and other countries have urged
the passage of laws limiting or abolishing the use of cookies. Limitations on
or elimination of our use of cookies could limit our effectiveness in
targeting of advertisements, which could have a material adverse effect on
our business, results of operations and financial condition.
In addition, a number of legislative proposals have been made at the
U.S. and Canadian federal, state, provincial and local level that would
impose additional taxes on the sale of goods and services over the Internet
and certain jurisdictions have taken measures to tax Internet-related
activities. The U.S. Congress enacted the Internet Tax Freedom Act on October
21, 1998 which imposes a national moratorium in the United States on state
and local taxes on Internet access services, online services, and multiple or
discriminatory taxes on electric commerce effective October 1, 1998 and
ending three years after its enactment. There can be no assurance that, once
such moratorium is lifted, some type of U.S. federal and/or state taxes will
be imposed upon Internet commerce, and there can be no assurance that such
legislation or other attempts at regulating commerce over the Internet will
not substantially impair the growth of commerce on the Internet and, as a
result, our opportunity to derive financial benefit from these activities may
be adversely affected.
In addition to the foregoing areas of recent legislative activities,
several telecommunications carriers are currently seeking to have
telecommunications over the Web regulated by the U.S. Federal Communications
Commission (the FCC) in the same manner as other telecommunications services.
In addition, because the growing popularity and use of the Web have burdened
the existing telecommunications infrastructure and many areas with high Web
use have begun to experience interruptions in phone service, local telephone
carriers have petitioned the FCC to regulate Internet service providers and
online service providers in a manner similar to long distance telephone
carriers and to impose access fees on the Internet service providers and
online service providers. 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 currently originate primarily in British
Columbia, Canada, the governments of various states in the United States and
foreign countries might attempt to regulate our transmissions or prosecute us
for violations of their laws. There can be no assurance that violations of
local laws will not be alleged or charged by state or foreign governments,
that we might not unintentionally violate such laws or that such laws will
not be modified, or new laws enacted, in the future. Any of the
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foregoing developments could have a material adverse effect on our business,
results of operations and financial condition.
In addition, as our services are available over the Internet in
multiple foreign countries, provinces, states and other jurisdictions, such
jurisdictions may claim that we are required to qualify to do business as a
foreign corporation in each of those jurisdictions. We are qualified to do
business only in British Columbia, and our failure to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us
to taxes and penalties and could result in our inability to enforce contracts
in such jurisdictions. Any such new legislation or regulation, the
application of laws and regulations from jurisdictions whose laws do not
currently apply to our business, or the application of existing laws and
regulations to the Internet and other online services could have a material
adverse effect on our business, results of operations and financial condition.
LIABILITY FOR INFORMATION RETRIEVED FROM THE WEB; ABSENCE OF LIABILITY
INSURANCE
Because materials may be downloaded by Members and other users of
our Web site and subsequently distributed to others, there is a potential
that claims will be made against us for defamation, negligence, copyright or
trademark infringement, personal injury or other theories based on the
nature, content, publication and distribution of these materials. Such claims
have been brought, and sometimes successfully pressed, against online service
providers for example, in the past. We have received inquiries from time to
time from third parties regarding such matters, all of which have been
resolved to date without any payments or other material adverse effect on us.
In addition, the increased attention focused upon liability issues
as a result of these lawsuits and legislative proposals could impact the
overall growth of Internet use. We could also be exposed to liability with
respect to the offering of third party content that may be accessible through
our Web site, or through content and materials that may be posted by Members
on their personal Web sites or chat rooms, or online discussions offered by
us. Such claims might include, among others, that by directly or indirectly
hosting the personal Web sites of third parties, we are liable for copyright
or trademark infringement, or other wrongful actions by such third parties
through such Web sites.
It is also possible that if any third party content information
provided on our web site contains errors, third parties could make claims
against us for losses incurred in reliance on such information. Even to the
extent that such claims do not result in liability to us, we could incur
significant costs in investigating and defending against such claims. The
imposition on us of potential liability for information carried on or
disseminated through our systems could require us to implement measures to
reduce our exposure to such liability, which may require the expenditure of
substantial resources and limit the attractiveness of our services to Members
and visitors.
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 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
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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 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
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number of reasons, including lack of acceptable security technologies, lack
of access and ease of use, congestion of traffic, inconsistent quality of
service and lack of availability of cost-effective, high-speed service,
potentially inadequate development of the necessary infrastructure, excessive
governmental regulation, uncertainty regarding intellectual property
ownership or timely development and commercialization of performance
improvements, including high-speed modems.
The success of our Web site will depend in large part upon the
continued development of a Web infrastructure, such as a reliable network
backbone with the necessary speed, data capacity and security, and timely
development of complementary products, such as high-speed modems for
providing reliable Web access and services. Because global e-commerce and
online exchange of information on the Web and other similar open wide area
networks are new and evolving, it is difficult to predict with any assurance
whether the Web will support increasing use or will prove to be a viable
commercial marketplace.
The Web has experienced, and is expected to continue to experience,
significant growth in the number of users and the amount of content. To the
extent that the Web continues to experience increased numbers of users,
frequency of use or increased band width requirements of users, there can be
no assurance that the Web infrastructure will continue to be able to support
the demands placed on it by this continued growth or that the performance or
reliability of the Web will not be adversely affected by this continued
growth. In addition, the Web could lose its viability or effectiveness due to
delays and the development or adoption of new standards and protocols to
handle increased levels of activities or due to increased government
regulation.
There can be no assurance that the infrastructure or complementary
products or services necessary to make the Web a viable commercial
marketplace will be developed, or, if they are developed, that the Web will
achieve broad acceptance. If the necessary infrastructure standards,
protocols, or complementary products, services or facilities are not
developed, or if the Web does not become a viable commercial marketplace, our
business, results of operations and financial condition will be materially
and adversely affected. Even if such infrastructure, standards or protocols
or complementary products, services, or facilities are developed and the Web
becomes 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.
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OTHER RISKS WE FACE
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, NORTHFIELD CAPITAL CORPORATION AND
284085 BC LTD.
Our Directors and Northfield Capital Corporation, and their
respective affiliates, in the aggregate, beneficially own approximately
4,336,272 shares or 33.0% 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
Prior to the closing of our transaction with i5ive communications,
inc., there was no active public market for our Common Stock. Since December
30, 1998, our Common Stock has been quoted on the OTC Bulletin Board. There
can be no assurance that an active trading market for our Common Stock will
be sustained or that the market price of our Common Stock will not decline or
fluctuate based upon market or other conditions. The market price may bear no
relationship to our revenues, earnings, assets or potential and may not be
indicative of our future business performance. The trading price of our
Common Stock has been and can be expected to be subject to wide fluctuations
in response to variations in our quarterly results of operations, the gain or
loss of significant strategic relationships, unanticipated delays in our
development, changes in estimates by analysts, announcements of technological
innovations or new solutions by us or our competitors, general conditions in
the technology and Internet sectors and in Internet-related industries, other
matters discussed elsewhere in this Quarterly Report and other events or
factors, many of which are beyond our control.
In addition, the stock market in general and the technology and
Internet sectors in particular have experienced extreme price and volume
fluctuations which have affected the market price for many companies in
industries similar or related to us and which have been unrelated to the
operating performance of these companies. These market fluctuations, as well
as general economic, political and market conditions, may have a material
adverse effect on the market price of our Common Stock.
In the past, following periods of volatility in the market price of
a company's securities, securities class action litigation has often been
instituted against such companies. Such litigation, if instituted, and
irrespective of the outcome of such litigation, could result in substantial
costs and a diversion of management's attention and resources and have a
material adverse effect on our business, results of operations and financial
condition.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of significant amounts of our Common Stock in the public
market or the perception that such sales will or could occur could materially
and adversely affect the market price of our Common Stock or our future
ability to raise capital through an offering of our equity securities. We
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had, as of August 1, 2000, 13,155,046 shares of common stock outstanding. Of
such shares, 4,336,272 shares were held by our Directors, 284085 BC Ltd. and
Northfield Capital Corporation. Substantially all of these 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 8,818,774 shares of our Common Stock may be transferred
freely under U.S. Federal securities laws.
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PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 12, 2000, the Company held its annual meeting of
stockholders. At the meeting, stockholders were requested to vote on the
election of four persons as Directors of the Company to serve until the
next annual meeting of stockholders in 2001 and until their respective
successors are elected and qualified. The stockholders were also
requested to vote on a proposal to approve the adoption of an amendment to
the 1998 Stock Incentive Plan to increase the number of shares reserved for
the grant of options from 1,200,000 to 2,400,000.
At the meeting, the following persons were elected as Directors and
received the following votes:
<TABLE>
<CAPTION>
--------------------------------------------------
NUMBER OF VOTES RECEIVED
--------------------------------------------------
ABSTAINED
NOMINEES IN FAVOR WITHHELD OR NOT VOTED
<S> <C> <C> <C>
Peter L. Bradshaw 8,821,682 300 11,800
Julia M. Bradshaw 8,820,248 1,734 11,800
Mitchell G. Blumberg 8,821,782 200 11,800
Alfred J. Puchala, Jr. 8,821,482 500 11,800
</TABLE>
The proposal to approve the adoption of an amendment to the 1998
Stock Incentive Plan to increase the number of shares reserved for the grant
of options from 1,200,000 to 2,400,000 was approved by the favorable vote of
a majority of the shares present and voting at the meeting with the following
vote:
In favor - 4,245,255 shares
Against - 98,263
Abstained - 10,900
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
We did not file any Current Reports on Form 8-K during the
quarter ended June 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUITE101.COM, INC.
-----------------
(Registrant)
Date: August 4, 2000 /s/ Peter L. Bradshaw
---------------------------------------
Peter L. Bradshaw
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Cara M. Williams
---------------------------------------
Cara M. Williams
Vice President Finance
(Principal Financial and Accounting Officer)
36
