<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 March 31, 2000; or
/_/ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to ___________.
Commission file Number: 0-25136
SUITE101.COM INC.
-----------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0464753
-------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation of organization) identification no.)
SUITE 390 - 1122 MAINLAND STREET, VANCOUVER, BC, CANADA V6B 5L1
---------------------------------------------------------------
(Address of principal executive offices, zip code)
604-682-1400
------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
proceeding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES X NO
--- ---
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at May 10, 2000
----------------------- ---------------------------
COMMON STOCK, PAR VALUE 13,155,046
$.001 PER SHARE
Transitional Small Business Disclosure Format
YES / / NO /X/
<PAGE>
SUITE 101.COM, INC.
QUARTERLY REPORT ON FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1. Financial Statements 3
Independent Accountants' Report 3
Consolidated Balance Sheets -- March 31, 2000 and 4
March 31, 1999
Consolidated Statements of Operations -- Three Months 5
Ended March 31, 2000 and March 31, 1999
Consolidated Statements of Cash Flows - Three Months 6
Ended March 31, 2000 and March 31, 1999
Notes to Consolidated Financial Statements -- 7-17
March 31, 2000 and March 31, 1999
Item 2. Management's Discussion and Analysis or Plan of Operation 18-37
PART II OTHER INFORMATION 38
Item 2. Changes In Securities 38
Item 6. Exhibits and Reports on Form 8-K 38
</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 March 31, 2000 and the related consolidated
statements of operations and cash flows for the three-month period then ended.
These financial statements are the responsibility of the Corporation's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ N.I. Cameron Inc.
VANCOUVER, B.C. CHARTERED ACCOUNTANTS
May 9, 2000
3
<PAGE>
SUITE101.COM, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
(EXPRESSED IN U.S. DOLLARS)
MARCH 31, MARCH 31,
2000 1999
------------ ------------
(NOTE 1)
<S> <C> <C>
CURRENT ASSETS
Cash $ 9,321,525 $ 2,514,556
Accounts receivable 233,260 3,784
Income taxes recoverable -- 1,020
Prepaid expenses 74,916 12,500
------------ ------------
9,629,701 2,531,860
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 4)
Computer equipment 184,096 51,099
Furniture and fixtures 13,655 700
Leasehold improvements 11,795 16,764
------------ ------------
209,546 68,563
Less: accumulated amortization 62,551 32,662
------------ ------------
146,995 35,901
------------ ------------
TOTAL ASSETS $ 9,776,696 $ 2,567,761
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 10) $ 2,500,000 $ --
Accounts payable 154,913 119,896
------------ ------------
2,654,913 119,896
DUE TO STOCKHOLDERS -- 449,970
DUE TO AFFILIATED COMPANIES -- 23,591
------------ ------------
TOTAL LIABILITIES 2,654,913 593,457
------------ ------------
CAPITAL STOCK (Notes 6, 7 and 11)
Authorized:
40,000,000 common shares with a par value of $0.001 each
1,000,000 preferred shares with a par value of $0.01 each
Issued:
13,146,233 common shares 13,147 10,062
CAPITAL STOCK SUBSCRIBED -- 1,000
DEFERRED COMPENSATION (362,322) --
ADDITIONAL PAID-IN CAPITAL 10,549,032 2,885,260
DEFICIT (3,091,656) (968,640)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION (Note 12) 13,582 46,622
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,121,783 1,974,304
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,776,696 $ 2,567,761
============ ============
COMMITMENTS AND SUBSEQUENT EVENTS (Note 11)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
SUITE101.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
(EXPRESSED IN U.S. DOLLARS)
MARCH 31, MARCH 31,
2000 1999
------------ ------------
(NOTE 1)
<S> <C> <C>
SALES $ 413 $ 416
------------ ------------
OPERATING EXPENSES
General and administrative 645,831 212,051
Marketing 219,216 --
------------ ------------
865,047 212,051
------------ ------------
LOSS FROM OPERATIONS (864,634) (211,635)
------------ ------------
OTHER INCOME (EXPENSES)
Other income, net 78,738 326
------------ ------------
NET LOSS $ (785,896) $ (211,309)
============ ============
INCOME (LOSS) PER SHARE
Basic and Diluted $ (0.06) $ (0.02)
============ ============
Average common shares outstanding 12,510,684 10,061,288
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
SUITE101.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
(EXPRESSED IN U.S. DOLLARS)
MARCH 31, MARCH 31,
2000 1999
----------- -----------
(NOTE 1)
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $ (785,896) $ (211,309)
Adjustment to reconcile net loss to net cash used in operating activities
Stock-based compensation 228,489 --
Amortization 10,832 2,958
----------- -----------
(546,575) (208,351)
Changes in operating assets and liabilities
Accounts receivable (206,109) (1,426)
Prepaid expenses and deposits (36,163) (12,500)
Accounts payable and accrued expenses 66,471 (7,078)
----------- -----------
Net cash used in operating activities (722,376) (229,355)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (12,719) (3,166)
----------- -----------
Net cash used in investing activities (12,719) (3,166)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Increase in notes payable 2,500,000 --
Advances from stockholders -- 254,201
Advances from (to) affiliated companies -- (19,389)
Shares subscriptions -- 2,500,000
Proceeds from issuance of common stock and warrants 4,704,594 --
----------- -----------
Net cash provided by financing activities 7,204,594 2,734,812
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH 4,588 1,721
----------- -----------
NET INCREASE IN CASH 6,474,087 2,504,012
CASH AT BEGINNING OF PERIOD 2,847,438 10,544
----------- -----------
CASH AT END OF PERIOD $ 9,321,525 $ 2,514,556
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
1. COMPARATIVE FIGURES
The financial statements for the period ended March 31, 1999 are neither
audited nor reviewed.
2. THE COMPANY
Suite101.com, Inc. (formerly known as Kinetic Ventures Ltd.) (the
"Company") was incorporated in the State of California, United States on
May 20, 1991, and reincorporated in the State of Delaware, United States on
December 31, 1993. By way of a reverse takeover on December 8, 1998 (see
Note 2) the Company acquired a wholly-owned subsidiary, i5ive
communications inc. ("i5ive"). i5ive is engaged in the creation, operation
and maintenance of a World Wide Web based directory and community.
GOING CONCERN
The accompanying consolidated financial statements have been presented
assuming the Company will continue as a going concern. At March 31, 2000,
the Company had accumulated $3,091,656 in losses and had no material
revenue producing operations. At the date of this report, the Company's
ability to continue as a going concern is dependent upon its ability to
raise additional capital or merge with a revenue producing venture partner.
These matters raises doubt about the Company's ability to continue as a
going concern. No adjustments have been made in the accompanying
consolidated financial statements to provide for this uncertainty.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Endovascular, Inc., a California
corporation and i5ive, a Canadian company. All intercompany accounts and
transactions have been eliminated in consolidation. As at March 31, 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
7
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
3. BUSINESS ACQUISITION BY WAY OF REVERSE TAKEOVER (CONTINUED)
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.
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:
8
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are capitalized at original cost and
amortized over their estimated useful lives at the following annual
bases and rates:
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements 20% straight-line
One-half the normal amortization is taken in the year of acquisition.
(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 March 31, 2000 and March 31, 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>
March 31 rate .6899 .6628
Average rate for the three-month period .6880 .6617
</TABLE>
9
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
4. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) INCOME TAXES
The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109,
"ACCOUNTING FOR INCOME TAXES," which requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns.
Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement and the tax
basis of assets and liabilities using enacted rates in effect for the
year in which the differences are expected to reverse. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
(e) STOCK OPTIONS
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR
STOCK-BASED COMPENSATION," encourages, but does not require, companies
to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed
in Accounting Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES," and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any,
of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock.
(f) 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.
10
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
5. RELATED PARTY TRANSACTIONS
The Company has incurred salaries and consulting fees of $35,640 (1999 -
$6,948) 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 March 31, 2000, all 1,000,000 warrants were
exercised to net the Company $4,500,000.
(b) During the period ended March 31, 2000, the Company issued 34,396
common shares for total proceeds of $51,594 upon exercise of stock
options (See Note 7).
(c) During the period ended March 31, 2000, the Company issued 625,000
warrants as part of the private placement of Notes payable (Note 10).
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.
7. STOCK OPTIONS
THE COMPANY'S 1998 STOCK INCENTIVE PLAN
In December, 1998, the Company adopted the 1998 Stock Incentive Plan (the
"Plan"). The Plan was adopted by the Board of Directors of the Company and
was subject to approval by the stockholders of the Company within twelve
months of the date the Board of Directors adopted the Plan. This approval
was obtained on June 11, 1999. Under the
11
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
Plan, 1,200,000 shares of common stock have been reserved for issuance on
exercise of options granted under the Plan.
On the date of the closing of the transaction with i5ive, outstanding
options granted under i5ive's 1998 Stock Incentive Plan were assumed by the
Company under the Plan and no further option grants will be made under
i5ive's Plan. The assumed options have substantially the same terms,
subject to anti-dilution adjustment, as are in effect for grants made under
the Company's Plan.
The Board of Directors of the Company may amend or modify the Plan at any
time, subject to any required stockholder approval. The Plan will terminate
on the earliest of (i) 10 years after the Plan Effective Date, (ii) the
date on which all shares available for issuance under the Plan have been
issued as fully-vested shares or (iii) the termination of all outstanding
options in connection with certain changes in control or ownership of the
Company.
The following is a table of stock options under the Plan as at March 31,
2000:
<TABLE>
<CAPTION>
Balance
Option Expiry Vesting Balance Granted Balance Exercisable
Exercise Date Date December 31, During Exercised (E) March 31, March 31,
Price (mm/dd/yy) (mm/dd/yy) 1999 the Year Cancelled (C) 2000 1999
------------- ------------- ---------------- ---------------- ------------ --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.50 12/04/03 12/04/99 245,879 - 34,396 (E) 211,483 211,483
- - - -
1.50 12/04/03 12/04/00 38,168 - 1,553 (C) 36,615 -
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 -
(1/3) 04/27/01
(1/3) 04/27/02
4.13 06/11/04 06/11/00 10,000 - - 10,000 -
1.50 10/25/05 (1/2) 10/25/00 100,000 - - 100,000 -
(1/2) 10/25/01
1.50 11/13/04 11/13/99 137,900 - - 137,900 137,900
1.50 11/13/04 11/13/00 762,850 1,400 5,100 (C) 759,150 -
3.56 01/06/05 01/06/01 - 50,000 - 50,000
3.53 01/31/02 (1/2) 01/31/00 - 4,000 - 4,000 2,000
(1/2) 01/31/01
3.53 01/31/05 01/31/01 - 70,000 - 70,000 -
7.00 02/15/05 02/15/01 - 100,000 - 100,000 -
7.88 03/21/05 03/21/00 - 20,000 - 20,000 20,000
</TABLE>
12
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (CONTINUED)
In addition, the Company issued the following options after March 31, 2000:
<TABLE>
<CAPTION>
Number Expiry Vesting
of Exercise Date Date
Options Price (mm/dd/yy) (mm/dd/yy)
-----------------------------------------------------------------
<S> <C> <C> <C>
30,000 2.05 04/17/05 (1/3) 04/17/01
(1/3) 04/17/02
(1/3) 04/17/03
38,000 2.05 04/17/05 4,000 - 04/17/00
8,500 - 04/17/01
8,500 - 04/17/02
8,500 - 04/17/03
8,500 - 04/17/04
32,000 2.05 04/17/05 11,000 - 04/17/00
12,750 - 04/17/00
2,750 - 04/17/02
2,750 - 04/17/03
2,750 - 04/17/04
</TABLE>
As the number of options issued exceeds the 1,200,000 approved by the
stockholders under the Plan, the additional options are conditioned upon
an amendment to the plan to increase the number of shares issuable on
exercise of options to 2,400,000, adopted by the Board of Directors on
November 13, 1999, receiving stockholders' approval.
The above options are granted for services provided to the Company. Of the
above options, the 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>
13
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
7. STOCK OPTIONS (CONTINUED)
The remaining options issued were to officers, directors and employees. As
the options were granted at exercise prices based on the market price of
the Company's shares at the dates of the grant, no compensation cost is
recognized. However, under SFAS 123, the impact on net income and net
income per share of the fair value of stock options must be measured and
disclosed on a fair value based method on a pro forma basis. The fair value
of the employees' purchase rights under SFAS 123 was estimated using the
Black-Scholes model with the following assumptions used for options:
risk-free rate was 5.0%, expected volatility of 272% for the $1.50 options,
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 March 31,
2000 would have been as follows:
Net loss
As reported $ (785,896)
Pro forma $ (1,060,633)
Basic net loss per share
As reported $ (0.06)
Pro forma $ (0.08)
8. INCOME TAXES
At March 31, 2000, there were deferred income tax assets resulting
primarily from operating loss carryforwards for Canadian tax purposes
totaling approximately $990,000 less a valuation allowance of $990,000. The
valuation allowance on deferred tax assets increased by $190,000 during the
period ended March 31, 2000.
At March 31, 2000, the Company had net operating loss carryforwards for
Canadian tax purposes of approximately $2,040,000. These carryforwards
begin to expire in 2003.
At March 31, 2000, there were deferred income tax assets resulting from
operating loss carryforwards for U.S. income tax purposes totaling
approximately $365,000 less a valuation allowance of $365,000. The
valuation allowance on deferred tax assets increased by $150,000 during the
period ended March 31, 2000. The Company has approximately $850,000
available in operating loss carryfowards, which may be carried forward and
applied against U.S. operating income. During the year ended December 31,
1998, the Company's previous U.S. loss carryfowards were eliminated due to
a change in control of the Company and the change in the Company's
operations.
14
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
9. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments consist of cash, accounts receivable,
notes payable 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. NOTES PAYABLE
The notes payable are unsecured, bear interest at the rate of 8% and are
due June 30, 2000. They were repaid subsequent to March 31, 2000.
11. COMMITMENTS AND SUBSEQUENT EVENTS
(a) On March 23, 1999, the Company entered into a twelve-month agreement
with a consultant which provided for fees of $5,000 per month. In
addition, the consultant was issued a one-year warrant to purchase
50,000 shares of common stock at a price of $3.06 per share. This
warrant has been valued at $33,420 using the Black-Scholes model as
described earlier and is reflected as compensation on these financial
statements. During the period ended March 31, 2000, this warrant has
been exercised to net the Company $153,000. Subsequent to December 31,
1999, this agreement was amended to increase the fees to $20,900 for
the six-month period beginning August 23, 1999, extend the period of
services by six-months, and to issue a warrant to purchase 25,440
shares of common stock of the Company at a price of $5.50 per shares
expiring February 28, 2002. This warrant has been valued at $11,750
using the Black-Scholes model and is reflected as compensation on
these financial statements.
(b) Subsequent to December 31, 1999, the Company entered into a one-year
agreement with a consultant. The consultant was issued a warrant to
purchase 14,000 shares of common stock of the Company at a price of
$5.50 per share, expiring on 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.
15
<PAGE>
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
11. COMMITMENTS AND SUBSEQUENT EVENTS (CONTINUED)
(c) The Company has entered into a consulting agreement with a director,
which provides for monthly payments of $5,000 until June 30, 2000.
(d) The Company has entered into an agreement for consulting and corporate
finance services which provides for the issue of 2-year warrants at
the following milestones:
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
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.
16
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SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND MARCH 31, 1999
(UNAUDITED)
12. COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
2000 1999
------------------------------
<S> <C> <C>
Net loss as reported $ (785,896) $ (211,309)
Add (deduct)
Foreign currency translation adjustments 4,225 (3,547)
------------------------------
Comprehensive Income (Loss) $ (781,671) $ (214,856)
==============================
Accumulated other comprehensive income
Foreign currency translation adjustments
Balance at beginning of period $ 9,357 $ 50,169
Change during the period 4,225 (3,547)
------------------------------
Balance at end of period $ 13,582 $ 46,622
==============================
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction
with, and is qualified in its entirety by, the more detailed information
including our Financial Statements and the Notes thereto included in our Annual
Report on Form 10-KSB for the year ended December 31, 1999. This Quarterly
Report contains forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results discussed in the
forward-looking statements. Factors that may cause or contribute to such
differences include the Risk Factors set forth below as well as the "Risk
Factors" contained in our Annual Report. See "Cautionary Statement for Purposes
of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act
of 1995" herein.
OVERVIEW
Suite101.com, Inc. is an Internet company engaged in the creation,
operation and maintenance of a World Wide Web based community, known as
Suite101.com, for Internet users to express themselves, share ideas, interests
and expertise, and publish content accessible to other users with common
interests. Our community includes our visitors and Members who are Internet
users. It also includes Contributing Editors who create our directory of
personalized Web sites organized topically into eleven major Communities of
Interest. Our directory, the "Best-of-Web Guide," was started in 1996. We
believe we were one of the first Internet sites to engage people rather than
software (search engines) to find information on the Internet. At the end of
April 2000, we have over 975 Web guides or "Contributing Editors" searching the
Internet for the best resources in eleven topic areas.
Since 1996, our Contributing Editors, who are typically enthusiasts
with a passion for a particular topic, have created a topically organized
directory with close to 31,500 hand-picked and personally reviewed links. In
addition to compiling the directory, our Contributing Editors have also written
over 25,900 searchable, archived articles and managed over 25,600 discussions in
excess of 990 topics ranging from hitch-hiking, through romance, to gardening.
Our revenue model will concentrate on electronic commerce
("e-commerce"). Using a consensual marketing model, Suite101.com will offer
participating enterprises ("eVendors") access to psycho-demographic information
on Suite101 Members who have consented to participate in the program. eVendors
will then be asked to pay a fee to market their products or services directly to
the participating Member. Revenue from these fees will be shared between
Suite101.com and its Members. Suite101.com intends to receive additional
revenues by participating in completed transactions.
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We intend to realize revenue by sharing in the proceeds of e-commerce
marketing and transaction fees. The marketing effort is expected to be a
collaborative effort: our company, our Members and our eVendors. Our marketing
plan is founded on the Member's consent, our role as custodian of the Members
privacy and the eVendor's commitment to deliver competitive, quality goods and
services on time. We currently intend to limit our involvement to facilitating
the introduction of the buyer to the seller, the seller to the buyer. As
custodian of the Members' psycho-demographic information in our Member-centric
database, we intend to offer our eVendors a unique opportunity to market
one-to-one to a very loyal and focused community.
Unlike traditional marketing campaigns, which typically use print
(newspapers, magazines and direct mail) or the electronic media (radio and
television), our campaigns will direct marketing material to the Member's
personal "HomePage" or personal Web site, significantly reducing the cost of
reaching the consumer. The interactive nature of the Web and the ability to
display attractive graphics and to facilitate Members "clicking" through
directly to the eVendor's site, will enable us to present such offerings 24
hours a day, 7 days a week in a complete, dynamic and timely manner. The
Internet's interactive properties and our dynamic software are, we believe,
compelling reasons why consenting Members and eVendors will utilize our
e-commerce program. Products and services will be marketed and the transaction
will be completed online quickly and easily. This capability offers our Members
electronic one-stop-shopping and our eVendors one-to-one contact with the
consumer, our Member.
As we grow, our operating expenses will increase in connection with our
visitor and Member generation, brand marketing and eVendors promotional efforts,
our increased funding of site development, technology and operating
infrastructure, and the increased general and administrative staff needed to
support our growth. We anticipate that we will incur net losses for the
foreseeable future. The extent of these losses will be contingent, in part, on
the amount and rates of growth in our net revenue from electronic commerce
(e-commerce). We expect our operating expenses to increase significantly,
especially in the areas of sales and marketing and brand promotion. We believe
that period-to-period comparisons of our Member recruitment results are not
meaningful and that the results for any period should not be relied upon as an
indication of future performance. There can be no assurance that our operating
losses will not increase in the future or that we will ever achieve or sustain
profitability.
To date, we have entered into a limited number of license arrangements
and strategic alliances in order to build our communities, provide
community-specific content, generate additional traffic, and increase
membership.
We intend to continue to increase reach and membership and to seek
additional strategic alliances with content and distribution partners, including
alliances that create co-branded sites through which we can market our services.
19
<PAGE>
A COMPARISON OF OUR OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND THE THREE MONTHS ENDED MARCH 31, 1999
During the three months ended March 31, 2000, our sales were $413
compared with sales of $416 during the three months ended March 31, 1999. Sales
in both periods were primarily attributable to software licensing revenues of
i5ive communications inc.
General and administrative expenses were $645,831 in the three months
ended March 31, 2000 compared with $212,051 during the three months ended March
31, 1999. This increase was primarily the result of the increase in the number
of our Contributing Editors, an increase in the number of personnel we employed,
an increase in the use of consultants, and the increased scale of our
operations. Marketing expenses were $219,216 during the three months ended March
31, 2000 compared with $-0- during the same three month period in 1999. This was
the consequence of our marketing activities aimed at increasing membership and
building the Suite101.com brand that commenced during the second quarter of
1999.
Our Loss From Operations was $864,634 in 2000 compared with $211,635 in
1999. The increase in our Loss From Operations in 2000 compared with 1999 was
the result of the increase in our operating expenses.
Other income was $78,738 in 2000 compared with $326 in 1999. The
increase was the result of interest earned on bank balances.
Our Net Loss was $785,896 in 2000 compared with $211,309 in 1999. The
increase in our Net Loss in 2000 compared with 1999 was the result of the
increase in the scale of our operations and the related increase in operating
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The report of our independent auditors on their audit of our financial
statements as of December 31, 1999 contains an explanatory paragraph that
describes an uncertainty as to our ability to continue as a going concern due to
our recurring losses and, as of the date of their report, the lack of liquid
resources. In February 2000, we realized gross proceeds of $4,500,000 from the
exercise of warrants issued in a 1999 private sale of securities. Also, in
February 2000, we realized gross proceeds of $2,500,000 from a private sale of
our securities. During the first quarter of 2000, we also realized gross
proceeds of approximately $205,000 on the exercise of stock options under the
1998 Stock Incentive Plan and from the exercise of warrants. At March 31, 2000,
we had cash of $9,321,525 . In April 2000, we used approximately $2,531,000 of
these funds to prepay the outstanding principal and accrued interest on the
promissory notes we sold in February 2000 which were scheduled to mature on June
30, 2000. 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.
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<PAGE>
We may seek to raise additional funds in order to fund more aggressive
promotions and more rapid expansion, to develop newer or enhanced services, to
enter into strategic alliances, to respond to competitive pressures or to
acquire complementary businesses, technologies or services. There can be no
assurance that any additional financing will be available on terms favorable to
us, or at all. If adequate funds are not available or not available on
acceptable terms, we may not be able to fund our expansion, promote our
e-commerce as we desire, or, develop or enhance services or respond to
competitive pressures. Any such inability could have a material adverse effect
on our business, results of operations and financial condition. Additional funds
raised through the issuance of equity or convertible debt securities, will
result in reducing the percentage ownership of our stockholders and,
stockholders may experience additional dilution and such securities may have
rights, preferences or privileges senior to those of the rights of our Common
Stock.
As a result of our limited operating history, we have limited
meaningful historical financial data upon which to base planned operating
expenses. Accordingly, our anticipated expense levels in the future are based in
part on our expectations as to future revenue from proposed e-commerce
revenue-sharing arrangements, and anticipated growth in visitor traffic and
membership. We expect that these expense levels will become, to a large extent,
fixed. Revenues and operating results generally will depend on the volume of,
timing of and ability to complete transactions, which are difficult to forecast.
In addition, there can be no assurance that we will be able to accurately
predict our net revenue, particularly in light of the intense competition for
the sale of products and services on the Web, revenue-sharing opportunities, our
limited operating history and the uncertainty as to the broad acceptance of the
Web as an e-commerce medium. We may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall or other unanticipated
changes in the e-commerce industry. Any failure by us to accurately make such
predictions would have a material adverse effect on our business, results of
operations and financial condition.
From our inception in April 1996 through June 30, 1998, Northfield
Capital Corporation and 284085 BC Ltd., our principal shareholders, advanced to
us the sums of $270,156 and $197,098, respectively, used for general corporate
purposes and working capital. Such amounts accrued interest at the rate of 6.5%
per annum. At the closing of the sale of i5ive shares to us, Northfield Capital
Corporation and 284085 BC Ltd. converted these advances and accrued interest
into an aggregate of 414,975 and 302,753 shares, respectively, of i5ive Common
Stock. Such shares of i5ive were exchanged for 1,969,057 and 1,436,565 shares,
respectively, of our Common Stock or an effective purchase price, based on the
amounts advanced by such persons through June 30, 1998, of approximately $0.14
per share of Common Stock.
Subsequent to June 30, 1998, Northfield Capital Corporation and 284085
BC Ltd. advanced or incurred additional liabilities on behalf of the Company
aggregating $12,868 through December 31, 1998. Such amounts were repaid out of
the proceeds from the private sale of securities
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<PAGE>
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed above
and elsewhere in this Quarterly Report are "forward-looking statements" as
defined under the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties. The forward-looking statements discussed in this
Quarterly Report appear in various places including: "Item 2 - Management's
Discussion and Analysis or Plan of Operation - Overview", "-Liquidity and
Capital Resources", as well as in "Risk Factors." We caution readers that the
risk factors described in our Annual Report on Form 10-KSB, as well as those
described elsewhere in this Quarterly Report, or in our other filings with the
Commission, in some cases have affected, and in the future could affect our
actual results, could cause our actual results during 2000, 2001 and beyond, to
differ materially from those expressed in any forward-looking statements, and
could cause our development and the development of our business plans to be
different than expressed in those statements. Important factors that may be
encountered, that could cause actual results to differ materially from the
forward-looking statements in this Quarterly Report include, among others, our
early stage of development and absence of material revenues, the possibility
that we will be unable to increase membership in our Communities of Interest
sufficiently to attract e-commerce, the usual unforeseeable risks encountered by
any new enterprise, our inability to attract readership to our Communities, our
potential need for additional capital and our possible inability to attract such
capital on acceptable terms or at all, the uncertainties of the levels of our
future operating expenses, fluctuations in our quarterly revenues and membership
growth, the level of consumer acceptance of e-commerce, our inability to enter
into marketing and other relationships to develop our e-commerce, intense
competition among Internet portals and e-commerce participants, our inability to
manage our growth, the impact of possible future government regulation, our
inability to afford a sufficient level of privacy to our members, the possible
volatility of the market price for our Common Stock, and the impact of
additional shares possibly coming onto the market for sale.
RISK FACTORS
AN INVESTMENT IN SHARES OF OUR COMMON STOCK INVOLVES A HIGH DEGREE OF
RISK. YOU SHOULD CONSIDER THE FOLLOWING FACTORS, IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS QUARTERLY REPORT, IN EVALUATING OUR BUSINESS AND
PROPOSED ACTIVITIES. YOU SHOULD ALSO SEE THE "CAUTIONARY STATEMENT FOR PURPOSES
OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1996" REGARDING RISKS AND UNCERTAINTIES RELATING TO US AND TO FORWARD LOOKING
STATEMENTS HEREIN.
22
<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 March 31, 2000, our total
revenues from our Internet operations activities were negligible. During that
period, we accumulated losses of $3,091,656 . We have not achieved profitability
on a quarterly or annual basis to date, and anticipate that we will continue to
incur net losses for the foreseeable future. The extent of our losses will be
dependent, in part, on the amount and rates of our expenditures and growth in
net revenue from e-commerce transactions. We expect our operating expenses to
increase significantly, especially in the areas of visitor and Member
generation, brand marketing and e-commerce promotion. As a result, we will need
to generate increased amounts of quarterly net revenue if we are to achieve
profitability. We believe that period-to-period comparisons of our operating
results, numbers of Members and page views will not be meaningful and that you
should not rely on the results or those numbers for any period as an indication
of our future performance. To the extent that our net revenues do not grow at
anticipated rates or that increases in our operating expenses exceed our
expectations or are not subsequently followed by commensurate increases in net
revenue, or that we are unable to adjust operating expense levels accordingly,
our business, results of operations and financial condition will be materially
and adversely affected. There can be no assurance that our operating losses will
not increase in the future or that we will ever achieve or sustain
profitability.
We are currently developing our business through efforts to attract
visitors, Members and Contributing Editors to our Web-based community. At April
30, 2000, we had approximately 200,000 Members and had grown from 35
Contributing Editors in October 1996 to over 975 in April 2000. During the month
of April 2000, our site received approximately 4.5 million page views, according
to PC Data Online. We cannot assure you that such growth rates are sustainable.
Our business plan is to continue to expand our numbers of visitors, Members and
Contributing Editors in an effort to reach a sufficient level of critical mass
as well as to continue to improve and enhance our site infrastructure through
the introduction of improved technology. We have not expended significant
efforts to date to realize revenues. Currently, we have twelve full-time
employees. Accordingly, there can be no assurance that our business plan can be
successfully developed or that we will realize any material revenues.
23
<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.
This must be considered, particularly as to companies entering new and rapidly
developing markets like the Internet. These risks include:
- - The lack of broad acceptance of the community concept on the Internet
- - The possibility that the Internet will fail to achieve broad acceptance as
a commercial medium
- - The lack of acceptance by consumers of e-commerce
- - Our ability to attract visitors, or retain Members and Contributing Editors
- - Our inability to generate significant e-commerce-based revenues from our
e-Vendors and Members
- - Risks associated with a new and unproven business concept
- - Our ability to anticipate and adapt to a developing market
- - The failure of our network infrastructure (including our server, hardware
and software) to efficiently handle our Internet traffic
- - Changes in laws and taxes that adversely affect our business
- - The possibility that we will be unable to manage effectively any rapid
expansion of our operations, including the amount and timing of capital
expenditures and other costs relating to any expansion of our operations
- - The introduction and development of different or more extensive communities
by direct and indirect competitors, including those with greater financial,
technical and marketing resources
- - Our inability to maintain and increase levels of traffic on our Website
- - Our inability to attract, retain and motivate qualified personnel,
technical difficulties, system downtime or Internet brownouts
- - The amount and timing of operating costs and capital expenditures relating
to development of our business, operations and infrastructure, and
- - General economic conditions.
To address these risks, we must, among other things:
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<PAGE>
- - Attract visitors and retain Members and Contributing Editors
- - Attract and retain a significant number of e-commerce vendors (eVendors)
- - Respond to competitive developments, form and maintain relationships with
strategic partners
- - Attract and respond to competitive developments
- - Retain and motivate qualified personnel, develop and upgrade our
technologies and commercialize our services incorporating such
technologies, and
- - Be successful in attracting additional substantial capital at the times, in
the amounts and on the terms required.
There can be no assurance that we will be successful in addressing
these risks. Any failure to do so could have a material adverse effect on our
business, results of operations and financial condition. Because of the
foregoing factors, our quarterly net revenue and operating results are difficult
to forecast. Consequently, we believe that period to period comparisons of our
operating results will not necessarily be meaningful and should not be relied
upon as an indication of our future performance. It is likely that in some
future quarter or quarters our operating results may fall below the expectations
of securities analysts and investors. In such event, the trading price of our
Common Stock would likely be materially and adversely affected.
UNPROVEN BUSINESS; DEPENDENCE ON MEMBERS
The success of our business depends upon our ability to expand upon and
develop our community-based platform of Internet access and to generate multiple
revenue streams. Currently, we have no source of material revenues. The
potential success of our business concept is unproven, and, to be successful, we
must, among other things, develop and market concepts that achieve broad market
acceptance by our Members and Internet users. We are and will be substantially
dependent upon our Member-generated content, the promotional efforts of our
Members, the acceptance by our visitors and Members of marketing and other
promotional programs of third parties and us, and our ability and the ability of
our Contributing Editors to attract Web users to our site and to reduce the
demands on our personnel. Our business concept has existed for only a limited
period of time. As a result, it is relatively unproven.
There can be no assurance that our Member-generated content or the
promotional efforts of our Members will continue to attract users to our
Website. There can also be no assurance that our Members and Contributing
Editors will continue to devote time voluntarily to improving our community.
Given the fact that we provide free disk space to our Members and we support the
involvement of our Contributing Editors, third parties may attempt to hold us
responsible for our Contributing Editors' content and/or any of their actions or
omissions. There also can be no assurance that our business, results of
operations and financial condition would not be materially and adversely
affected if a substantial number of Members or Contributing Editors became
dissatisfied with our services or our intention to commercialize those services
or that the Contributing Editors become dissatisfied with the amounts of
compensation we pay to them.
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<PAGE>
Moreover, considering the modest level of compensation paid to
Contributing Editors, there can be no assurance that consistent levels of high
quality Member generated content will be maintained. These levels of
compensation may hinder our efforts in the future to attract Contributing
Editors. Further, there can be no assurance that our community on the Internet
or our services will achieve broad market acceptance. Accordingly, no assurance
can be given that our business will be successful or that we can sustain revenue
growth or generate significant profits.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING
The report of our independent auditors on their audit of our financial
statements as of December 31, 1999 contains an explanatory paragraph that
describes an uncertainty as to our ability to continue as a going concern due to
our recurring losses and, as of the date of their report, the lack of liquid
resources. In February 2000, we realized gross proceeds of $4,500,000 from the
exercise of warrants issued in a 1999 private sale of securities. Also, in
February 2000, we realized gross proceeds of $2,500,000 from a private sale of
our securities. During the first quarter of 2000, we also realized gross
proceeds of approximately $205,000 on the exercise of stock options under the
1998 Stock Incentive Plan and from the exercise of warrants. At March 31, 2000,
we had cash of $9,321,525. In April 2000, we used approximately $2,531,000 of
these funds to prepay the outstanding principal and accrued interest on the
promissory notes we sold in February 2000 which were scheduled to mature on June
30, 2000. We believe these funds will be sufficient to meet our anticipated
needs for working capital and capital expenditures for at least the next 12
months.
We may seek to raise additional funds in order to fund more aggressive
promotions and more rapid expansion, to develop newer or enhanced services, to
respond to competitive pressures or to acquire complementary businesses,
technologies or services.
There can be no assurance that any additional financing will be
available to us on favorable terms, or at all. If adequate funds are not
available or not available on acceptable terms, we may not be able to fund our
expansion, promote our e-commerce as we desire, or, develop or enhance services
or respond to competitive pressures. Any such inability could have a material
adverse effect on our business, results of operations and financial condition.
Additional funds raised through the issuance of equity or convertible debt
securities, will result in reducing the percentage ownership of our stockholders
and, our stockholders may experience additional dilution and such securities may
have rights, preferences or privileges senior to those of the rights of our
Common Stock.
As a result of our limited Internet operating history, we have limited
meaningful historical financial data upon which our planned operating expenses
can be based. Accordingly, our anticipated expense levels in the future are
based in part on our expectations as to future revenue from proposed e-commerce
revenue-sharing arrangements, and anticipated growth in visitor traffic and in
membership and will become, to a large extent, fixed. Revenues and operating
results generally will depend on the volume of, timing of and ability to
complete transactions, which are difficult to forecast.
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In addition, there can be no assurance that we will be able to
accurately predict our net revenue, particularly in light of the unproven manner
in which we intend to derive our Internet revenue, the intense competition for
the sale of products and services on the Web, revenue-sharing opportunities, our
limited operating history and the uncertainty as to the broad acceptance of the
Web as an e-commerce medium. We may be unable to adjust our spending in a timely
manner to compensate for disappointing results of our marketing efforts and
efforts to develop Internet revenue, any unexpected revenue shortfall or other
unanticipated changes in the e-commerce industry. Our failure to accurately make
such predictions or adjustments in our spending would have a material adverse
effect on our business, results of operations and financial condition.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY; UNPREDICTABILITY OF
FUTURE NET REVENUE
We expect our operating results to fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. These factors include:
- - The demand for the products and services we intend to market through our
Web site
- - Our Members' acceptance of e-commerce on the Web site
- - The level of traffic on our Suite101.com site
- - The amount and timing of capital expenditures and other costs relating to
the expansion of our operations
- - The introduction of new or enhanced services by us or our competitors
- - The timing and number of new hires, the availability of desirable products
and services for sale through our Web site
- - Our loss of a key strategic or marketing relationship
- - Changes in our marketing policy or those of our competitors
- - The mix of products and services marketed by our eVendors
- - Engineering or development fees that may be paid in connection with us
adding new Web site development and publishing tools
- - Technical difficulties with our Suite101.com site
- - General economic conditions, and
- - Economic conditions specific to the Internet or all or a portion of the
technology market.
As a strategic response to changes in the competitive environment, we
may from time to time make certain pricing, service or marketing decisions or
business combinations that could have a material adverse effect on our business,
results of operations and financial condition. We expect to experience
seasonality in our business, with user traffic on our Suite101.com site
potentially being lower during the summer and year-end vacation and holiday
periods when overall usage of the Web is lower. Because Web-based e-commerce is
an emerging market, additional seasonal and other patterns may develop in the
future as the market matures. Any seasonality is likely to cause quarterly
fluctuations in our operating results. There can be no
27
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assurance that such patterns will not have a material adverse effect on our
business, results of operations and financial condition.
MANAGEMENT OF GROWTH AND RELATIONSHIPS; BRIEF TENURE OF MANAGEMENT; DEPENDENCE
ON KEY PERSONNEL
In developing our business plan, we expect to be required to establish
and manage multiple relationships with various strategic and eVendors,
distributors, providers of services, technology licensors, Members, marketers
and other third parties. To date, only a limited number of such relationships
have been established. These requirements to enter into these relationships will
be exacerbated in the event of our material growth or in the number of third
party relationships, and there can be no assurance that our systems, procedures
or controls will be adequate to enable us to establish and enter into these
relationships, to support any substantial growth in our operations or that our
management will be able to implement or manage any growth effectively.
To effectively manage growth, we must establish, implement and improve
operational, financial and management information systems and expand, train and
manage our employee base. Our development is and will continue to be
substantially dependent on the abilities and performance of our executive
officers and other key employees. The loss of the services of any of our
executive officers or other key employees could have a material adverse effect
on our prospects, business development, and results of operations and financial
condition. Competition for senior management, experienced sales and marketing
personnel, qualified Web engineers and other employees is and is expected to
continue to be intense. There can be no assurance that we will be successful in
attracting and retaining such personnel. There can be no assurance that we may
not experience difficulty from time to time in hiring and retaining the
personnel necessary to support the growth of our business. Our failure to
successfully manage our personnel requirements would have a material adverse
effect on our business, results of operations and financial condition.
INTENSE COMPETITION
The market for community-based e-commerce on the Internet is new and
rapidly evolving. Competition is expected to increase significantly in the
future. Barriers to entry into the Internet business are relatively
insubstantial. We believe that the principal competitive factors for companies
seeking to create community on the Internet are content, critical mass,
functionality, brand recognition, Member affinity and loyalty, broad demographic
focus and open access for visitors. Other companies who are primarily focused on
creating Web-based community on the Internet are About.com, Geocities, Inc.,
iVillage.com, Inc., Tripod, Inc., a subsidiary of Lycos, Inc., Angelfire
Communications, Xoom.com, Inc. and theglobe.com. Each of these competitors is
significantly larger than us and more well-established and well-known in the
Internet industry and with greater capital resources.
We will likely also face competition in the future from Web
directories, search engines, shareware archives, content sites, commercial
online service providers ("OSPs"), sites maintained by Internet service
providers ("ISPs") and other entities that attempt to or establish
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communities on the Internet by developing their own community or acquiring one
of our competitors. In addition, we could face competition in the future from
traditional media companies, a number of which, including Disney, CBS and NBC
have recently made significant acquisitions of, or investments in, Internet
companies. Further, there can be no assurance that our competitors and potential
competitors will not develop communities that are equal or superior to ours or
that achieve greater market acceptance than our community.
We also compete for visitors and Members with many Internet content
providers and ISPs, including Web directories, search engines, shareware
archives, content sites, commercial online services and sites maintained by
Internet service providers, as well as thousands of Internet sites operated by
individuals and government and educational institutions. These competitors
include free information, search and content sites or services, such as America
Online, Inc. ("AOL"), CNET, Inc. ("CNET"), CNN/Time Warner, Inc. ("CNN/Time
Warner"), Excite, Inc. ("Excite"), Infoseek Corporation ("Infoseek"), Lycos,
Inc. ("Lycos"), Netscape Communications Corporation ("Netscape"), Microsoft
Corporation ("Microsoft"), About.com Inc., and Yahoo! Inc. ("Yahoo!"). We also
compete with traditional forms of media, such as newspapers, magazines, radio
and television. We believe that the principal competitive factors in attracting
strategic partners and other sources of e-commerce business include the amount
of traffic on our Web site, name recognition, customer service, the demographics
of our Members and viewers, our ability to offer targeted audiences and the
overall cost-effectiveness of the e-commerce opportunities we offer. We believe
that the number of Internet companies relying on Web-based e-commerce and
advertising revenue will increase substantially in the future. Accordingly, we
will likely face increased competition, resulting in increased pressures on our
revenue sharing percentages which could, in turn, have a material adverse effect
on our business, results of operations and financial condition.
Substantially all of our existing and potential competitors, including
Web directories and search engines and large traditional media companies, have
longer operating histories in the Web market, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources. Such competitors are able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies and make more attractive offers to potential employees,
visitors, Members, distribution partners, eVendors, marketers and third party
content providers.
There can be no assurance that Internet content providers and ISPs,
including Web directories, search engines, shareware archives, sites that offer
professional editorial content, commercial online services and sites maintained
by ISPs will not be perceived by potential strategic partners, eVendors and
marketers as having more desirable Web sites. In addition, many persons with
whom we would seek to enter into a strategic relationship have already
established collaborative relationships with our competitors or potential
competitors, and other high-traffic Web sites. Accordingly, there can be no
assurance that we will be able to grow our visitor and Membership base, traffic
levels and customer base or retain our current Members, traffic levels or
customers, or that competitors will not experience greater growth in traffic
than we experience as a result of such relationships which could have the effect
of making their Web sites more attractive.
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In addition, for these reasons, our strategic partners may sever or
elect not to renew their agreements with us. There can also be no assurance that
we will be able to compete successfully in the Internet or that competition will
not have a material adverse effect on our business, results of operations and
financial condition.
GROWTH WILL DEPEND ON OUR ABILITY TO DEVELOP OUR BRAND
We believe that establishing broader brand recognition of the
Suite101.com brand is critical to our future success. Accordingly, we intend to
launch a brand-enhancing campaign shortly that will include online advertising,
promotional programs targeted and Members and visitors, and public relations
activities. We intend to incur significant expenditures in our marketing
efforts. If our brand building strategy is unsuccessful, these expenses may
never be recovered and we may be unable to increase our future revenues.
RISK OF RELIANCE ON INTERNALLY AND EXTERNALLY DEVELOPED SYSTEMS
We use and intend to use an internally developed system for our Web
site, as well as systems licensed from others. Our system has not been fully
developed. A key element of our strategy is to generate a higher volume of
traffic to our Web site. Our inability to further develop and modify our system
as necessary to accommodate increased levels of traffic on our Web site may
cause unanticipated system disruptions, slower response times, degradation in
Member satisfaction and service leading to a possible loss of Members and
Contributing Editors, and delays in reporting accurate financial information.
Any of these events could have a material adverse effect on our business,
results of operations and financial condition.
Furthermore, to expand our operations we will introduce new or
complementary enhancements on the Web site which will require us to outsource
development where we may have little control over the speed and quality of the
development. Any decline in the speed or quality of the development could
adversely effect our business, results of operations and financial condition.
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
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our community, increase our cost of doing business, or otherwise have a material
adverse effect on our business, results of operations and financial condition.
Moreover, the applicability to the Internet of existing laws governing
issues such as property ownership, copyright, trademark, trade secret,
obscenity, libel and personal privacy is uncertain and developing. Any new
legislation or regulation, or application or interpretation of existing laws,
could have a material adverse effect on our business, results of operations and
financial condition. There can be no assurance that any legislation will not be
enacted in the future that could expose us to substantial liability. Legislation
could also dampen the growth in the use of the Web generally and decrease the
acceptance of the Web as a communications and commercial medium. The result
could, thereby, have a material adverse effect on our business, results of
operations and financial condition.
It is also possible that our use of "cookies" to track demographic
information and user preferences and to target advertising may become subject to
laws limiting or prohibiting their use. A "cookie" is a bit of information keyed
to a specific server, file pathway or directory location that is stored on a
user's hard drive, possibly without the user's knowledge. A user is generally
able to remove cookies. Germany, for example, has imposed laws limiting the use
of cookies, and a number of Internet commentators, advocates and governmental
bodies in the United States and other countries have urged the passage of laws
limiting or abolishing the use of cookies. Limitations on or elimination of our
use of cookies could limit our effectiveness in targeting of advertisements,
which could have a material adverse effect on our business, results of
operations and financial condition.
In addition, a number of legislative proposals have been made at the
U.S. and Canadian federal, state, provincial and local level that would impose
additional taxes on the sale of goods and services over the Internet and certain
jurisdictions have taken measures to tax Internet-related activities. The U.S.
Congress enacted the Internet Tax Freedom Act on October 21, 1998 which imposes
a national moratorium in the United States on state and local taxes on Internet
access services, online services, and multiple or discriminatory taxes on
electric commerce effective October 1, 1998 and ending three years after its
enactment. There can be no assurance that, once such moratorium is lifted, some
type of U.S. federal and/or state taxes will be imposed upon Internet commerce,
and there can be no assurance that such legislation or other attempts at
regulating commerce over the Internet will not substantially impair the growth
of commerce on the Internet and, as a result, our opportunity to derive
financial benefit from these activities may be adversely affected.
In addition to the foregoing areas of recent legislative activities,
several telecommunications carriers are currently seeking to have
telecommunications over the Web regulated by the U.S. Federal Communications
Commission (the "FCC") in the same manner as other telecommunications services.
In addition, because the growing popularity and use of the Web have burdened the
existing telecommunications infrastructure and many areas with high Web use have
begun to experience interruptions in phone service, local telephone carriers
have petitioned the FCC to regulate ISPs and OSPs in a manner similar to long
distance telephone carriers and to impose access fees on the ISPs and OSPs. If
either of these petitions is granted, or the relief sought is otherwise granted,
the costs of communicating on the Web could increase
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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 existing laws and regulations to the Internet
and other online services could have a material adverse effect on our business,
results of operations and financial condition.
LIABILITY FOR INFORMATION RETRIEVED FROM THE WEB; ABSENCE OF LIABILITY INSURANCE
Because materials may be downloaded by Members and other users of our
Web site and subsequently distributed to others, there is a potential that
claims will be made against us for defamation, negligence, copyright or
trademark infringement, personal injury or other theories based on the nature,
content, publication and distribution of these materials. Such claims have been
brought, and sometimes successfully pressed, against OSPs for example, in the
past. We have received inquiries from time to time from third parties regarding
such matters, all of which have been resolved to date without any payments or
other material adverse effect on us.
In addition, the increased attention focused upon liability issues as a
result of these lawsuits and legislative proposals could impact the overall
growth of Internet use. We could also be exposed to liability with respect to
the offering of third party content that may be accessible through our Web site,
or through content and materials that may be posted by Members on their personal
Web sites or chat rooms, or online discussions offered by us. Such claims might
include, among others, that by directly or indirectly hosting the personal Web
sites of third parties, we are liable for copyright or trademark infringement,
or other wrongful actions by such third parties through such Web sites.
It is also possible that if any third party content information
provided on our web site contains errors, third parties could make claims
against us for losses incurred in reliance on such information. Even to the
extent that such claims do not result in liability to us, we could incur
significant costs in investigating and defending against such claims. The
imposition on us of potential liability for information carried on or
disseminated through our systems could require
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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 adverse effect
on our business, results of operations or financial condition. A party who is
able to penetrate our network security could misappropriate proprietary
information or cause interruptions in our Web site.
In addition, in offering certain payment services, we could become
increasingly reliant on encryption and authentication technology licensed from
third parties to provide the security and authentication necessary to effect
secure transmission of confidential information, such as customer credit card
numbers. We may be required to expend significant capital and resources to
protect against the threat of such security, encryption and authentication
technology breaches or to alleviate problems cause by such breaches.
Concerns over the security of Internet transactions and the privacy of
users may also inhibit the growth of the Internet generally, particularly as a
means of conducting commercial transactions. Security breaches or the
inadvertent transmission of computer viruses could expose us to a risk of loss
or litigation and possible liability. There can be no assurance that contractual
provisions attempting to limit our liability in such areas will be successful or
enforceable, or that other parties will accept such contractual provisions as
part of our agreements, which could have a material adverse effect on our
business, results of operations and financial condition.
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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.
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.
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We currently license from third parties certain technologies
incorporated into our Web site. As we continue to introduce new services that
incorporate new technologies, we may be required to license additional
technology from others. There can be no assurance that these third party
technology licenses will continue to be available to us on commercially
reasonable terms, if at all. Our inability to obtain any of these technology
licenses could result in delays or reductions in the introduction of new
services or could adversely affect the performance of our existing services
until equivalent technology could be identified, licensed and integrated.
DEPENDENCE ON CONTINUED GROWTH IN THE USE OF THE INTERNET; DEPENDENCE ON WEB
INFRASTRUCTURE
Our Company's future success is substantially dependent upon continued
growth in the use of the Internet and the Web in order to support e-commerce
development on our Web site and in the acceptance and volume of e-commerce
transactions on the Internet. There can be no assurance that the number of
Internet users will continue to grow or that e-commerce over the Internet will
become more widespread.
As is typical in the case of a new and rapidly evolving industry,
demand and market acceptance for recently introduced services are subject to a
high level of uncertainty. We cannot predict the extent to which consumers will
be willing to shift their purchasing habits from traditional retailers to online
retailers. The Internet may not prove to be a viable commercial marketplace for
a number of reasons, including lack of acceptable security technologies, lack of
access and ease of use, congestion of traffic, inconsistent quality of service
and lack of availability of cost-effective, high-speed service, potentially
inadequate development of the necessary infrastructure, excessive governmental
regulation, uncertainty regarding intellectual property ownership or timely
development and commercialization of performance improvements, including
high-speed modems.
The success of our Web site will depend in large part upon the
continued development of a Web infrastructure, such as a reliable network
backbone with the necessary speed, data capacity and security, and timely
development of complementary products, such as high-speed modems for providing
reliable Web access and services. Because global e-commerce and online exchange
of information on the Web and other similar open wide area networks are new and
evolving, it is difficult to predict with any assurance whether the Web will
support increasing use or will prove to be a viable commercial marketplace.
The Web has experienced, and is expected to continue to experience,
significant growth in the number of users and the amount of content. To the
extent that the Web continues to experience increased numbers of users,
frequency of use or increased band width requirements of users, there can be no
assurance that the Web infrastructure will continue to be able to support the
demands placed on it by this continued growth or that the performance or
reliability of the Web will not be adversely affected by this continued growth.
In addition, the Web could lose its viability or effectiveness due to delays and
the development or adoption of new standards and protocols to handle increased
levels of activities or due to increased government regulation.
There can be no assurance that the infrastructure or complementary
products or services necessary to make the Web a viable commercial marketplace
will be developed, or, if they are
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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
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 4,321,272 shares or
32.8% of our outstanding Common Stock. As a result, these stockholders possess
significant influence over us, giving them the ability, among other things, to
elect a majority of our Board of Directors and approve significant corporate
transactions. Such share ownership and control may also have the effect of
delaying or preventing a change in control of us, impeding a merger,
consolidation, takeover or other business combination involving us, or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us which could have a material adverse effect on
the market price of our Common Stock.
NO ACTIVE PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK
PRICE
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
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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 May
10, 2000 13,155,046 shares of common stock outstanding. Of such shares,
4,321,272 shares were held by our Directors, 284085 BC Ltd. and Northfield
Capital Corporation. Substantially all of these shares are "restricted
securities" as such term is defined in Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act. We believe that approximately 8,833,774
shares of our Common Stock may be transferred freely under U.S. Federal
securities laws.
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PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
On February 23, 2000, the Registrant completed the sale to five persons
of 250 Units, each Unit consisting of (U.S.)$10,000 principal amount of an 8%
Note due June 30, 2000 and warrants to purchase 2,500 shares of Common Stock.
The Units were sold at a price of (US) $10,000 per Unit.
The Notes bear interest at 8% per annum and are due and payable on June
30, 2000 (such date is herein referred to as the "Maturity Date"). All interest
accrued on the Notes is payable on the Maturity Date. If the principal and
accrued interest on the Notes is not paid on the Maturity Date, the principal
and accrued interest will be convertible into shares of Common stock at a
conversion price of (U.S.) $2.50 per share. The Notes and accrued interest were
prepaid on April 12, 2000.
Each warrant included in the Units is exercisable at a price of (US)
$5.50 per share, subject to anti-dilution adjustment, through July 15, 2000. 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 Registrant'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 Registrant'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.
The Units and the securities included in the Units were offered and
sold in reliance upon the exemption from the registration requirements of the
Securities Act afforded by Section 4(2) thereof and by Regulation D adopted
under the Securities Act. The Units were sold to persons who represented that
they are "accredited investors" as defined under Regulation D and that they were
purchasing the securities for investment and not for distribution. The
securities bear a legend stating the restrictions on resale of the securities.
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 March 31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUITE101.COM, INC.
------------------
(Registrant)
Date: May 12, 2000 /s/ Peter L. Bradshaw
-----------------------------------
Peter L. Bradshaw
President and Chief Operating Officer
(Principal Executive, Financial and
Accounting Officer)
39
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<FISCAL-YEAR-END> DEC-31-2000
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