<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly Report pursuant to Section 13 or 15(d)of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 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
---------------------------------------
COMMON STOCK, PAR VALUE
$.001 PER SHARE
Outstanding at October 20, 2000
-------------------------------------------
13,155,046
Transitional Small Business Disclosure Format
YES / / NO /X/
1
<PAGE>
SUITE 101.COM, INC.
QUARTERLY REPORT ON FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Independent Accountants' Report 3
Consolidated Balance Sheets - September 30, 2000 and 4
September 30, 1999
Consolidated Statements of Operations - Nine-Month and 5
Three-Month Periods Ended September 30, 2000 and September
30, 1999
Consolidated Statements of Cash Flows - Nine-Month Periods 6
Ended September 30, 2000 and September 30, 1999
Notes to Consolidated Financial Statements - 7-14
September 30, 2000 and September 30, 1999
Item 2. Management's Discussion and Analysis or Plan of Operation 15-34
PART II OTHER INFORMATION 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 September 30, 2000, the related consolidated
statements of operations for the nine-month and three-month periods then ended,
and the related consolidated statement of cash flows for the nine-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.(SIGNED)
VANCOUVER, B.C. CHARTERED ACCOUNTANTS
October 25, 2000
3
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
---------------------------------
<S> <C> <C>
CURRENT
Cash $ 6,070,172 $3,493,140
Accounts receivable 26,896 18,922
Prepaid expenses and deposits 58,915 56,569
---------------------------------
6,155,983 3,568,631
---------------------------------
PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTE 4)
Computer equipment 192,701 96,265
Furniture and fixtures 15,972 10,589
Leasehold improvements 11,371 11,650
---------------------------------
220,044 118,504
Less: accumulated amortization 83,167 35,402
---------------------------------
136,877 83,102
---------------------------------
TOTAL ASSETS $ 6,292,860 $3,651,733
=================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILTIES
Accounts payable $ 139,511 $ 95,718
---------------------------------
CAPITAL STOCK ( NOTES 6, 7 AND 10)
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 (59,832) -
ADDITIONAL PAID-IN CAPITAL 10,351,146 5,220,510
DEFICIT (4,076,948) (1,708,556)
EQUITY ADJUSTMENT FROM FOREIGN CURRENCY
TRANSLATION (74,172) 31,999
---------------------------------
TOTAL STOCKHOLDERS' EQUITY 6,153,349 3,556,015
---------------------------------
TOTAL LIABILTIES AND STOCKHOLDERS' EQUITY $ 6,292,860 $3,651,733
=================================
</TABLE>
COMMITMENTS AND SUBSEQUENT EVENTS (NOTE 10)
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE-MONTH AND THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
THREE-MONTHS ENDED NINE-MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
-------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 405 $ 404 $ 1,223 $ 1,246
------------------------------------------------------
OPERATING EXPENSES
General and administrative 303,288 386,582 1,569,059 869,354
Marketing 109,974 108,413 448,250 149,903
-------------------------------------------------------
413,262 494,995 2,017,309 1,019,257
-------------------------------------------------------
LOSS FROM OPERATIONS (412,857) (494,591) (2,016,086) (1,018,011)
-------------------------------------------------------
OTHER INCOME (EXPENSES)
Loss on disposal of leasehold improvements - - - (8,130)
Other income, net 91,395 31,602 244,897 74,915
-------------------------------------------------------
91,395 31,602 244,897 66,785
-------------------------------------------------------
NET LOSS $ (321,462) $ (462,989) $(1,771,189) $ (951,226)
=======================================================
INCOME (LOSS) PER SHARE
Basic and Diluted $ (0.02) $ (0.04) $ (0.14) $ (0.08)
=======================================================
Weighted average common shares outstanding 13,155,046 12,061,288 12,940,182 11,314,036
=======================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SUITE101.COM INC.
(FORMERLY KNOWN AS KINETIC VENTURES LTD.)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
-------------------------------
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $ (1,771,189) $(951,226)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock-based compensation 319,882 -
Loss on disposal of leasehold improvements - 8,130
Amortization 34,043 13,756
-------------------------------
(1,417,264) (929,340)
Changes in operating assets and liabilities
Accounts receivable (909) (13,464)
Income taxes - 1,020
Prepaid expenses and deposits (21,671) (56,492)
Accounts payable and accrued expenses 53,910 (32,323)
-------------------------------
Net cash used in operating activities (1,385,934) (1,030,599)
-------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (31,033) (67,895)
-------------------------------
Net cash used in operating activities (31,033) (67,895)
-------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Advances from (to) stockholders - (198,664)
Advances from (to) affiliated companies - (43,091)
Shares issued 4,717,814 4,836,250
-------------------------------
4,717,814 4,594,495
-------------------------------
EFFECT OF EXCHANGE RATES ON CASH (78,113) (13,405)
-------------------------------
NET INCREASE IN CASH 3,222,734 3,482,596
CASH AT BEGINNING OF PERIOD 2,847,438 10,544
-------------------------------
CASH AT END OF PERIOD $ 6,070,172 $3,493,140
===============================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
1. COMPARATIVE FIGURES
The financial statements for the period ended September 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 3) 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 September 30,
2000, the Company had accumulated $4,076,948 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 September 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
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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:
<TABLE>
<S> <C>
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements 20% straight-line
</TABLE>
One-half the normal amortization is taken in the year of
acquisition.
8
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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 September 30, 2000 and September 30, 1999 and all revenues and
expenses have been translated using the average exchange rate for each
period. The rates used were as follows:
<TABLE>
<CAPTION>
(equivalent CDN $ per U.S.$) 2000 1999
------------------
<S> <C> <C>
September 30 rate .6651 .6815
Average rate for the three-month period .6747 .6729
</TABLE>
(d) INCOME TAXES
The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109,
"ACCOUNTING FOR INCOME TAXES," which requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns.
Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and the tax
basis of assets and liabilities using enacted rates in effect for the
year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
(e) STOCK OPTIONS
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," encourages, but does not require, companies
to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES," and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
9
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
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. RELATED PARTY TRANSACTIONS
During the nine-month period, the Company incurred salaries and consulting
fees of $91,148 (1999 - $75,424) to three directors of the Company.
6. 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 September 30, 2000, all 1,000,000 warrants
were exercised to net the Company $4,500,000.
(b) During the period ended September 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 September 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
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
7. 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 September
30, 2000:
<TABLE>
<CAPTION>
Balance
Option Expiry Vesting Balance Granted Balance Exercisable
Exercise Date Date December 31, During Exercised (E) September 30, September 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) 188,412 188,412
14,258 (C)
1.50 12/04/03 12/04/00 38,168 - 1,816 (C) 36,352 -
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 27,950 (C) 736,500 -
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
1.50 07/05/05 3,222 - 07/05/00 - 56,443 - 56,443 3,222
17,740-07/05/01
17,740-07/05/02
17,741-07/05/03
</TABLE>
11
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
7. 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.
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 Value Volatility Expected
Options Price Date 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%, 272% and 263% 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 September
30, 2000 would have been as follows:
<TABLE>
<S> <C>
Net loss
As reported $ (1,771,189)
Pro forma $ (2,641,354)
Basic net loss per share
As reported $ (0.14)
Pro forma $ (0.20)
</TABLE>
12
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
8. INCOME TAXES
At September 30, 2000, there were deferred income tax assets resulting
primarily from operating loss carryforwards for Canadian tax purposes
totaling approximately $1,370,000 less a valuation allowance of $1,370,000.
The valuation allowance on deferred tax assets increased by $570,000 during
the period ended September 30, 2000.
At September 30, 2000, the Company had net operating loss carryforwards for
Canadian tax purposes of approximately $2,764,000. These carryforwards
begin to expire in 2003.
At September 30, 2000, there were deferred income tax assets resulting from
operating loss carryforwards for U.S. income tax purposes totaling
approximately $462,000 less a valuation allowance of $462,000. The
valuation allowance on deferred tax assets increased by $247,000 during the
period ended September 30, 2000. The Company has approximately $1,080,000
available in operating loss carryforwards, 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.
9. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments consist of cash, accounts receivable
and accounts payable. It is management's opinion that the Company is not
exposed to significant interest, currency or credit risks arising from
these financial instruments. The fair value of these financial instruments
approximate their carrying values.
10. COMMITMENTS AND SUBSEQUENT EVENTS
(a) On March 23, 1999, the Company entered into a twelve-month agreement
with a consultant which provided for fees of $5,000 per month. In
addition, the consultant was issued a one-year warrant to purchase
50,000 shares of common stock at a price of $3.06 per share. This
warrant has been valued at $33,420 using the Black-Scholes model as
described earlier and is reflected as compensation on these financial
statements. During the period ended September 30, 2000, this warrant
has been exercised to net the Company $153,000. During the period
ended September 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
SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
10. COMMITMENTS AND SUBSEQUENT EVENTS (CONTINUED)
(c) 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.
11. COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
---------------------------------
<S> <C> <C>
Net loss as reported $ (1,771,189) $ (951,226)
Add (deduct)
Foreign currency translation adjustments (83,529) (18,170)
---------------------------------
Comprehensive Income (Loss) $ (1,854,718) $ (969,396)
=================================
Accumulated other comprehensive income
Foreign currency translation adjustments
Balance at beginning of period $ 9,357 $ 50,169
Change during the period (83,529) (18,170)
---------------------------------
Balance at end of period $ (74,172) $ 31,999
=================================
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with,
and is qualified in its entirety by, the more detailed information including our
Financial Statements and the Notes thereto included in our Annual Report on Form
10-KSB for the year ended December 31, 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 Members, our "Contributing Editors", and our visitors.
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. Our Best-of-Web Directory is organized into ten broad subject categories
or "Communities of Interest" using the Dewey Decimal Classification (R) system
(DDC) and the Library of Congress Subject Headings (LCSH). We believe we were
one of the first Internet sites to engage people rather than software (search
engines) to find information on the Internet. At the end of October 2000, we
have over 1,230 Contributing Editors 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, collectively publish close to 2,000 articles per month on
our site and; since 1996, have written over 35,000 searchable, archived
articles. In addition, our Contributing Editors have created Suite101.com's
Best-of-Web-Directory with close to 40,000 hand-picked and personally reviewed
links and have managed close to 35,000 discussions on over 1,230 topics ranging
from hitch-hiking, through romance, to gardening.
Our revenue model will concentrate on electronic commerce ("ecommerce").
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 our marketing 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 our
ecommerce marketing and transaction fees. The marketing effort is expected to be
a collaborative effort between our Company, our Editors, 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
information in our
15
<PAGE>
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 "MySuite Page", a customized personal start-page, 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 ecommerce 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 ecommerce. We expect our
operating expenses to increase significantly, especially in the areas of site
development and infrastructure, sales, marketing, brand promotion and ecommerce
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 develop our directory, build our communities,
provide community-specific content, generate additional traffic, and increase
membership. We intend to continue to increase reach and membership and to
proactively seek additional strategic alliances with content and distribution
partners, including alliances that create co-branded sites.
A COMPARISON OF OUR OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2000 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
During the nine months ended September 30, 2000, our sales were $1,223
compared with sales of $1,246 during the nine months ended September 30, 1999.
Sales in both periods were attributable to software licensing revenues.
General and administrative expenses were $1,569,059 in the nine months
ended September 30, 2000 compared with $869,354 during the nine months ended
September 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
and consultants we employ, increased product development and the increased scale
of our operations. Marketing expenses were $448,250 during the nine months ended
September 30, 2000 compared with $149,903 during the nine months ended September
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.
16
<PAGE>
Our Loss From Operations was $2,016,086 during the nine months ended
September 30, 2000 compared with $1,018,011 during the nine months ended
September 30,1999. The increase in our Loss From Operations during the nine
months ended September 30, 2000 compared with that of the nine months ended
September 30, 1999 was the result of the increase in our operating expenses and
an increase in our expenses incurred in marketing.
Other income was $244,897 during the nine months ended September 30, 2000
compared with $74,915 during the nine months ended September 30, 1999. The
increase was the result of increased interest earned on bank balances.
Our Net Loss was $1,771,189 during the nine months ended September 30, 2000
compared with $951,226 during the nine months ended September 30, 1999. The
increase in our Net Loss for the nine months ended September 30, 2000 compared
with the nine months ended September 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 promissory notes and warrants. During the first nine months of 2000, we also
realized gross proceeds of approximately $218,000 from the exercise of stock
options 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
September 30, 2000, we had a cash balance of $6,070,172 . 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
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
ecommerce 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 ecommerce 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.
17
<PAGE>
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 ecommerce 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 ecommerce 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 for 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 ecommerce, 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, expenses and
membership growth, the level of consumer acceptance of ecommerce, our inability
to enter into marketing and other relationships to develop our ecommerce,
intense competition among Internet portals and ecommerce participants, our
inability to manage our growth, the impact of possible future government
regulation on the Internet and the imposition of taxes on ecommerce by various
governmental authorities, our inability to afford a sufficient level of privacy
to our Members, the possible volatility of the market price for our Common
Stock, the impact of additional shares possibly coming onto the market for sale,
and increased difficulties in raising capital to fund Internet based
enterprises.
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 September 30, 2000, our total revenues from
our Internet operations activities were negligible. During that period, we
accumulated losses of $4,076,948. 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 ecommerce transactions. We expect our operating expenses to
increase significantly, especially in the areas of site development and
infrastructure, sales, marketing, brand promotion and ecommerce 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, that our ecommerce revenues fail to materialize as
anticipated 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
beginning of November 2000, we had over 285,000 Members and had grown from 35
Contributing Editors in October 1996 to over 1,230 at the beginning of November
2000. During the month of October 2000, our site received approximately 5.8
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 22 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 ecommerce
- Our ability to attract visitors and eVendors or retain Members and
Contributing Editors
- Our inability to generate significant ecommerce-based revenues from our
eVendors and Members
- Risks associated with a new and unproven business concept
- Our ability to anticipate and adapt to a developing market
- The failure of our network infrastructure (including our servers, 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 effectively manage 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 Web site
- 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.
21
<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 eVendors
- Successfully develop and implement a revenue model
- 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 or financial condition 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 Web
site. 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 intentions and efforts to commercialize
those services or that the Contributing Editors become dissatisfied with the
amounts of compensation we pay to them.
22
<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 attain or 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 promissory notes and warrants. During the first nine months of 2000, we also
realized gross proceeds of approximately $218,000 from the exercise of stock
options 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
September 30, 2000, we had a cash balance of $6,070,172. 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 ecommerce 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 ecommerce
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 ecommerce medium. We may be unable to adjust our spending in a timely manner
to compensate for disappointing results of our marketing efforts and efforts to
develop Internet revenue, any unexpected revenue shortfall or other
unanticipated changes in the ecommerce 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.
23
<PAGE>
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 ecommerce on our Web site
- The level of traffic on our Web 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 by eVendors
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 Web 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 may not meet with broad acceptance or otherwise may
be unsuccessful 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 ecommerce 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.
24
<PAGE>
MANAGEMENT OF GROWTH AND RELATIONSHIPS; BRIEF TENURE OF MANAGEMENT; DEPENDENCE
ON KEY PERSONNEL
In developing our business plan, we expect to be required to establish and
manage multiple relationships with various strategic 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 ecommerce 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.
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
25
<PAGE>
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 ecommerce 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
ecommerce opportunities we offer. We believe that the number of Internet
companies relying on Web-based ecommerce 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 successfully compete in the Internet or that competition will
not have a material adverse effect on our business, results of operations and
financial condition.
26
<PAGE>
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 have launched a
brand-enhancing campaign that includes 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 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.
27
<PAGE>
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 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
28
<PAGE>
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.
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
29
<PAGE>
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 caused 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 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.
30
<PAGE>
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 ecommerce
development on our Web site and in the acceptance and volume of ecommerce
transactions on the Internet. There can be no assurance that the number of
Internet users will continue to grow or that ecommerce over the Internet will
become more widespread.
As is typical in the case of a new and rapidly evolving industry, demand
and market acceptance for recently introduced services are subject to a high
level of uncertainty. We cannot predict the extent to which consumers will be
willing to shift their purchasing habits from traditional retailers to online
retailers. The Internet may not prove to be a viable commercial marketplace for
a number of reasons, including lack of acceptable security technologies, lack of
access and ease of use, congestion of traffic, inconsistent quality of service
and lack of availability of cost-effective, high-speed service, potentially
inadequate development of the necessary infrastructure, excessive governmental
regulation, uncertainty regarding intellectual property ownership or timely
development and commercialization of performance improvements, including
high-speed modems.
The success of our Web site will depend in large part upon the continued
development of a Web infrastructure, such as a reliable network backbone with
the necessary speed, data capacity and security, and timely development of
complementary products, such as high-speed modems for providing reliable Web
access and services. Because global ecommerce 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
31
<PAGE>
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.
32
<PAGE>
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 had, as of
October 20, 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
33
<PAGE>
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 offered and sold publicly under U.S. Federal
securities laws.
34
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
We did not file any Current Reports on Form 8-K during the
quarter ended September 30, 2000.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUITE101.COM, INC.
-----------------
(Registrant)
Date: November 10, 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
