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, 2002; 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 210 - 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 9, 2002
------------------------------------- -------------------------------------
COMMON STOCK, PAR VALUE 13,249,519
$.001 PER SHARE
Transitional Small Business Disclosure Format
Yes [ ] No [X]
SUITE101.COM, INC.
QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PAGE NO.
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements 3
Independent Accountants' Report 3
Consolidated Balance Sheets - March 31, 2002
and December 31, 2001 4
Consolidated Statements of Operations - Three-Month
Periods Ended March 31, 2002 and March 31, 2001 5
Consolidated Statements of Cash Flows - Three-Month
Periods Ended March 31, 2002 and March 31, 2001 6
Notes to Consolidated Financial Statements -
March 31, 2002 and March 31, 2001 7-14
Item 2. Management's Discussion and Analysis or Plan of Operation 15-23
PART II OTHER INFORMATION 24
Item 6. Exhibits and Reports on Form 8-K 24
2
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' 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 Sutie101.com,
Inc. and subsidiaries as of March 31, 2002 and the related consolidated
statements of operations and cash flows for the three-month period the 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. -------------------------------------
May 8, 2002 CHARTERED ACCOUNTANTS
3
SUITE101.COM, INC.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
MARCH 31, DECEMBER 31,
2002 2001
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 3,091,654 $ 4,048,630
Accounts receivable 33,249 42,289
Prepaid expenses 50,806 68,453
----------- -----------
3,175,709 4,159,372
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 2)
Computer equipment 208,489 217,394
Furniture and fixtures 22,268 22,352
Leasehold improvements 7,960 7,990
----------- -----------
238,717 247,736
Less: accumulated amortization 125,549 127,295
----------- -----------
113,168 120,441
----------- -----------
TOTAL ASSETS $ 3,288,877 $ 4,279,813
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 47,720 $ 223,531
Deposits (Note 8 (f)) 14,673 --
----------- -----------
TOTAL LIABILITIES 62,393 223,531
----------- -----------
CAPITAL STOCK (Notes 4, 5 and 8)
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:
13,234,197 common shares 13,235 13,155
DEFERRED COMPENSATION -- (14,034)
ADDITIONAL PAID-IN CAPITAL 10,397,285 10,377,576
DEFICIT (7,096,745) (6,233,343)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION (87,291) (87,072)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 3,226,484 4,056,282
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,288,877 $ 4,279,813
=========== ===========
COMMITMENTS AND SUBSEQUENT EVENTS (NOTES 3 AND 8)
The accompanying notes are an integral part of these
consolidated financial statements.
4
SUITE101.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
MARCH 31, MARCH 31,
2002 2001
----------- -----------
SALES $ 6,658 $ 262
COST OF SALES 3,563 --
----------- -----------
GROSS PROFIT 3,095 262
----------- -----------
OPERATING EXPENSES
General and administrative 862,207 402,574
Marketing 16,409 94,585
----------- -----------
878,616 497,159
----------- -----------
LOSS FROM OPERATIONS (875,521) (496,897)
----------- -----------
OTHER INCOME
Other income, net 12,119 73,430
----------- -----------
NET LOSS $ (863,402) $ (423,467)
=========== ===========
INCOME (LOSS) PER SHARE
Basic and Diluted $ (0.07) $ (0.03)
=========== ===========
Average common shares outstanding 13,201,405 13,155,046
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
5
SUITE101.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
MARCH 31, MARCH 31,
2002 2001
----------- -----------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $ (863,402) $ (423,467)
Adjustment to reconcile net loss to net cash used
in operating activities
Stock-based compensation 14,034 15,606
Amortization 8,573 8,114
---------- ----------
(840,795) (399,747)
Changes in operating assets and liabilities
Accounts receivable 8,906 27,783
Prepaid expenses and deposits 17,522 18,797
Accounts payable and accrued expenses (175,502) (15,227)
Deposits 14,713 --
---------- ----------
Net cash used in operating activities (975,156) (368,394)
---------- ----------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of capital assets (2,360) (2,532)
Proceeds on disposal of capital assets 627 --
---------- ----------
Net cash used in investing activities (1,733) (2,532)
---------- ----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants 19,788 --
---------- ----------
Net cash provided by financing activities 19,788 --
---------- ----------
EFFECT OF EXCHANGE RATES ON CASH 125 (9,799)
---------- ----------
NET DECREASE IN CASH (956,976) (380,725)
CASH AT BEGINNING OF YEAR 4,048,630 5,671,211
---------- ----------
CASH AT END OF YEAR $3,091,654 $5,290,486
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
6
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
1. THE COMPANY
Suite101.com Inc. (formerly known as Kinetic Ventures Ltd. (the "Company"))
was incorporated in the State of California, United States on May 20, 1991,
and reincorporated in the State of Delaware, United States on December 31,
1993. By way of a reverse takeover on December 8, 1998 (see Note 2) the
Company acquired a wholly-owned subsidiary i5ive communications inc.
("i5ive"). i5ive is engaged in the creation, operation and maintenance of a
World Wide Web based community.
Going Concern
-------------
The accompanying consolidated financial statements have been presented
assuming the Company will continue as a going concern. Based on the current
level of expenditures, the Company has sufficient funds to meet expenses
for at least one year. At March 31, 2002, the Company had accumulated
$7,096,745 in losses and had no material revenue producing operations. At
the date of this report, the Company's ability to continue as a going
concern is dependent upon its ability to raise additional capital or merge
with a revenue producing venture partner. These matters raise doubt about
the Company's ability to continue as a going concern. No adjustments have
been made in the accompanying consolidated financial statements to provide
for this uncertainty.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Endovascular, Inc., a California
corporation and i5ive communications inc., a Canadian company. All
intercompany accounts and transactions have been eliminated in
consolidation. As at March 31, 2002, there were no operations in
Endovascular, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles. Because a precise
determination of many assets and liabilities is dependent upon future
events, the preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful judgment
by management.
The consolidated financial statements have, in management's opinion, been
properly prepared within reasonable limits of materiality and within the
framework of the significant accounting policies summarized below:
(a) Property, Plant and Equipment
Property, plant and equipment are capitalized at original cost and
amortized over their estimated useful lives at the following annual
bases and rates:
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements 20% straight-line
One-half the normal amortization is taken in the year of acquisition.
7
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(b) Research and Development
Research and development costs are expensed as incurred.
(c) Foreign Exchange
Unless otherwise stated, all amounts are in United States dollars. The
functional currency of i5ive is the Canadian dollar. Hence, all asset
and liability accounts have been translated using the exchange rate as
at March 31, 2002 and December 31, 2001 and all revenues and expenses
have been translated using the average exchange rate for each period.
The rates used were as follows:
(equivalent CDN $ per U.S.$) March 31, December 31,
2002 2001
-------------------------------
Exchange rate .6255 .6278
(d) 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.
3. RELATED PARTY TRANSACTIONS
(a) The Company has incurred salaries, termination payments and consulting
fees of $205,372 during the period ended March 31, 2002 (2001 -
$34,756) to three directors of the Company.
(b) Management fees of $51,594 have been paid during the period ended
March 31, 2002 to a corporation controlled by a director of the
Company. Effective January 31, 2002, the Company entered into a
management agreement with this corporation. The agreement calls for a
monthly management fee of $26,000 plus an amount equal to the receipts
received from any contracts with Barnes&Noble.com, LLC and may be
terminated by either party upon giving ten days notice.
8
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
4. 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. During the year ended
December 31, 2000, all 1,000,000 warrants were exercised to net the
Company $4,500,000. 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. None of these 15,000 warrants were exercised
prior to their expiry date.
(b) During the year ended December 31, 2000, the Company issued 625,000
warrants as part of the private placement of Notes payable. Each
warrant entitles the holder to purchase one common share at a price of
$5.00 up to July 15, 2002. In the event that at any time prior to July
15, 2002 (a) the shares of common stock issuable on exercise of the
warrants have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and (b) the average of the closing bid
and asked prices for the Company's common stock as quoted on the OTC
Bulletin Board (or such other automated trading system or national
securities exchange as is the principal market for the Company's
common stock) exceeds (U.S.) $9.00 per share for a period of ten (10)
business days, then the warrants will expire at 5:00 PM, New York City
time, on a date sixty (60) days thereafter. To date, none of these
warrants have been exercised.
(c) During the current period, the Company issued 79,151 common shares for
total proceeds of $19,788 upon exercise of stock options.
5. STOCK OPTIONS
THE COMPANY'S 1998 STOCK INCENTIVE PLAN
---------------------------------------
In December 1998, the Company adopted the 1998 Stock Incentive Plan (the
"Plan"). Under the Plan, as amended, 3,900,000 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.
9
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
5. STOCK OPTIONS (Continued)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (Continued)
---------------------------------------------------
The following is a table of stock options under the Plan as at December 31,
2001:
Balance
Option Expiry Vesting Balance Granted Expires (Exp) Balance Exercisable
Exercise Date Date December 31, During Exercised(E) March 31, March 31,
Price (mm/dd/yy) (mm/dd/yy) 2001 the Period Cancelled(C) 2002 2002
------------------------------------------------------------------------------------------------------------------------
$1.50 12/04/03 12/04/99 159,037 -- 11,874(C) 147,163 147,163
1.50 12/04/03 12/04/00 27,837 -- 6,375(C) 21,462 21,462
1.50 02/23/09 (1/3) 02/23/00 50,000 -- -- 50,000 50,000
(1/3) 02/23/01
(1/3) 02/23/02
1.50 04/27/09 (1/3) 04/27/00 50,000 -- -- 50,000 50,000
(1/3) 04/27/01
(1/3) 04/27/02
1.50 06/11/09 06/11/00 10,000 -- -- 10,000 10,000
1.50 10/25/05 (1/2) 10/25/00 100,000 -- -- 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 11/13/00 646,300 -- 30,300(C) 616,000 616,000
3.53 01/31/02 (1/2) 01/31/00 4,000 -- 4,000(Exp) -- --
(1/2) 01/31/01
1.50 03/21/05 03/21/01 20,000 -- -- 20,000 20,000
1.50 01/31/05 16,668 - 01/31/01 50,000 -- 6,666(C) 43,334 43,334
16,666 - 01/31/02
16,666 - 01/31/03
1.50 04/17/05 20,402 - 04/17/00 60,067 -- 6,666(C) 53,401 53,401
30,137 - 04/17/01
30,133 - 04/17/02
30,133 - 04/17/03
1.50 07/05/05 3,222 - 07/05/00 56,443 -- 6,666(C) 49,777 49,777
17,740 - 07/05/01
17,740 - 07/05/02
17,741 - 07/05/03
0.25 12/21/05 585,476 - 12/21/00 999,236 -- 72,416(E) 926,820 926,820
420,677 - 12/21/01
1.50 06/12/10 06/12/00 10,000 -- -- 10,000 10,000
0.25 01/04/06 136,073 - 01/04/01 484,410 -- 54,610(C) 423,065 423,065
376,507 - 01/04/02 6,735(E)
50,000 - 01/04/03
0.25 05/10/06 05/10/01 4,268 -- -- 4,268 4,268
0.17 06/04/11 06/04/01 10,000 -- -- 10,000 10,000
0.25 10/03/06 2,516 - 10/30/01 15,516 -- -- 15,516 15,516
3,000 - 01/04/02
10,000 - 01/04/03
0.27 02/25/12 50,001 - 02/25/03 -- 150,000 -- 150,000 --
50,001 - 02/25/04
49,998 - 02/25/05
0.27 02/27/07 16,667 - 02/27/03 -- 50,000 -- 50,000 --
16/667 - 02/27/04
16/666 - 02/27/05
10
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
5. STOCK OPTIONS (Continued)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (Continued)
---------------------------------------------------
As a result of the termination of certain employees and directors, and a
directors' resolution made during the period, changes have been made to the
expiry dates and vesting dates of the above options as follows:
a) All options other than the $0.27 options became immediately
vested.
b) Of the remaining $1.50 options, the expiry dates are as follows:
July 7, 2002 3,334
July 31, 2002 67,668
June 30, 2003 1,065,110
December 4, 2003 64,025
November 13, 2004 108,900
c) Of the remaining $0.25 options, the expiry dates are as follows:
July 7, 2002 6,702
July 31, 2002 104,138
December 31, 2002 1,124,309
January 4, 2006 134,520
d) The $0.17 options will expire December 31, 2002.
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:
Number of Exercise Volatility Expected
Options Price Grant Date Value Assumption Options Life
---------------------------------------------------------------------------
100,000 1.50 October 25, 1999 $ 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
100,000 0.25 January 4, 2001 23,390 275% 5 years
13,000 0.25 October 3, 2001 3,041 275% 5 years
The remaining options issued were to officers, directors and employees. As
the options were granted at exercise prices based on the market price of
the Company's shares at the dates of the grant, no compensation cost is
recognized. However, under SFAS 123, the impact on net income and net
income per share of the fair value of stock options must be measured and
disclosed on a fair value based method on a pro forma basis. The fair value
of the employees' purchase rights under SFAS 123 was estimated using the
Black-Scholes model with the following assumptions used for options:
risk-free rate was 5.0%, expected volatility of 279%, 272% 263% and 257%
for the $1.50 options, 275% for the $0.25 and $0.17 options, and 96% for
the $0.27 options, an expected option life of 5 years and no expected
dividends.
11
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
5. STOCK OPTIONS (Continued)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (Continued)
---------------------------------------------------
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,
2002 would have been as follows:
Net loss
As reported $(863,402)
Pro forma $(925,543)
Basic net loss per share
As reported $ (0.07)
Pro forma $ (0.07)
6. INCOME TAXES
At March 31, 2002, there were deferred income tax assets resulting
primarily from operating loss carryforwards for Canadian tax purposes
totaling approximately $2,125,000 less a valuation allowance of $2,125,000.
The valuation allowance on deferred tax assets increased by $285,000 during
the period ended March 31, 2002.
At March 31, 2002, the Company had net operating loss carryforwards for
Canadian tax purposes of approximately $5,680,000. These carryforwards
begin to expire in 2003.
At March 31, 2002, there were deferred income tax assets resulting from
operating loss carryforwards for U.S. income tax purposes totaling
approximately $615,000 less a valuation allowance of $615,000. The
valuation allowance on deferred tax assets increased by $50,000 during the
period ended March 31, 2002. The Company has approximately $1,435,000
available in operating loss carryforwards, which may be carried forward and
applied against U.S. operating income.
7. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments consist of cash, accounts receivable
and accounts payable. It is management's opinion that the Company is not
exposed to significant interest, currency or credit risks arising from
these financial instruments. The fair value of these financial instruments
approximates their carrying values.
12
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
8. 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 year ended December 31, 2000, this warrant was
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. This warrant expired during the current
period without being exercised.
(b) During the year ended December 31, 2000, 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. This warrant expired during the current period without
being exercised.
(c) The Company has entered into an agreement dated February 17, 2000 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 had an exercise price of $4.96 per
share and expired February 17, 2002 without being exercised. 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.
13
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002 AND MARCH 31, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
8. COMMITMENTS AND SUBSEQUENT EVENTS (CONTINUED)
(d) During the year ended December 31, 2001, the Company entered into an
operating lease for its office space. The lease expires March 31, 2003
and provides for monthly payments commencing May 1, 2001 of $1,890
plus the Company's proportionate share of operating costs and taxes
(currently $1,036 per month). Under the terms of the lease, the
Company has an option to renew the lease for a further period of three
years.
(e) During the period ended March 31, 2002, the Company entered into a
services agreement. The agreement provides for monthly payments of
$4,691 until June 30, 2002, but may be renewed on a month-to-month
basis under the same terms and conditions.
(f) During the period ended March 31, 2002, i5ive entered into an option
agreement expiring May 15, 2002 under which the optionee may purchase
the Website assets of i5ive. To exercise the option, the optionee is
required to make the following payments:
i) $155,000 cash, less any option payments made;
ii) 26% of the shares of the optionee (a private company);
iii) 5% of the issued and outstanding shares of Blue Frogg
Enterprises, Inc. another private company.
Under the terms of the agreement, i5ive at closing will pay the
optionee $155,000 less any payments made after March 1, 2002 under the
management services agreement referred to in Note 3(b). To March 31,
2002, i5ive had received $15,000 in option payments. Subsequent to
March 31, 2002, an additional $30,000 in option payments have been
received. These option payments are non-refundable.
9. COMPREHENSIVE INCOME (LOSS)
MARCH 31, MARCH 31,
2002 2001
--------- ---------
Net loss as reported $(863,402) $(423,467)
Add (deduct)
Foreign currency translation adjustments (219) (7,652)
--------- ---------
Comprehensive Income (Loss) $(863,621) $(431,119)
========= =========
Accumulated other comprehensive income
Foreign currency translation adjustments
Balance at beginning of period $ (87,072) $ (61,890)
Change during the period (219) (7,652)
--------- ---------
Balance at end of period $ (87,291) $ (69,542)
========= =========
14
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, 2001. 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.
A COMPARISON OF OUR OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2002
AND THE THREE MONTHS ENDED MARCH 31, 2001
During the three months ended March 31, 2002, our sales were $6,658
compared with sales of $262 during the three months ended March 31, 2001. Sales
during the three month period ended March 31, 2002 were primarily attributable
to revenues generated from two service contracts that we entered into with
Barnes&Noble.com to provide introductions for a series of e-books and to provide
proofreading services for the related digitized books. During the three month
period ended March 31, 2001, the $262 in sales were primarily attributable to
software licensing revenues of i5ive communications inc. (i5ive), our
wholly-owned subsidiary. These licenses have expired and consequently, this
source of revenue has ceased.
General and administrative expenses were $862,207 during the three months
ended March 31, 2002 compared with $402,574 during the three months ended March
31, 2001. This increase was primarily the result of severance costs paid to our
employees and independent contractors upon their termination from the Company
during this quarter, which was offset to a limited extent by the savings
realized by us from the change in our compensation arrangements with our
contributing editors - effective January 1, 2002 we are no longer paying for
articles posted to our web site by our contributing editors. Marketing expenses
were $16,409 during the three months ended March 31, 2002 compared with $94,585
during the three-months ended March 31, 2001. This decrease was primarily due to
the cessation of all our marketing activities focused at promoting our web site
activities.
Our Loss From Operations was $875,521 during the three-month period ended
March 31, 2002 compared with $496,897 during the three-month period ended March
31, 2001. The increase in our Loss From Operations during the three-month period
ended March 31, 2002 compared with the three-month period ended March 31, 2001
was the result of the increase in our general and administrative expenses.
15
Other income was $12,119 during the three-month period ended March 31, 2002
compared with $73,430 during the three-month period ended March 31, 2001. Other
income in both periods was attributable to interest earned on bank balances, the
decline in the interest earned during these comparative three-month periods
results from the decline in bank cash balances carried through these periods.
Our Net Loss was $863,402 during the three-month period ended March 31,
2002 compared with $423,467 during the three-month period ended March 31, 2001.
The increase in our Net Loss during this three-month period ended March 31, 2002
compared with the three-month period ended March 31, 2001 was the result of the
increase in our general and administrative expenditures and a decrease in our
other income.
LIQUIDITY AND CAPITAL RESOURCES
The report of our independent auditors on their audit of our financial
statements as of December 31, 2001 contains an explanatory paragraph that
describes an uncertainty as to our ability to continue as a going concern due to
our recurring losses. At March 31, 2002, our cash balance was $3,091,654. We
believe these cash resources will be sufficient to meet our ongoing financial
commitments through December 31, 2002. Currently, we had no source of material
revenues.
During the first quarter of 2002 our cash balances decreased by $957,976 of
which approximately $520,000 represents severance costs paid to our employees
and independent contractors upon their termination from the Company and
approximately $176,000 was a reduction in accounts payable. We estimate our
ongoing monthly cash outflow will amount to approximately $40,000, which sum
includes our monthly payment of approximately $26,000 under the terms of the
management services agreement. That agreement can be terminated on ten days
written notice.
In December 2001, we announced that our Board of Directors was engaged in a
review of our activities with a view to the possible redirection of our
operations in an effort to enhance and maximize shareholder values. Thereafter,
in a series of steps, we reduced our staff to one employee and revised our
monthly compensation arrangements with our Contributing Editors by terminating
the payment of the compensation to Contributing Editors. The changes we made in
our staffing and compensation arrangements we believe were appropriate in the
light of our limited revenues and enhance our ability to enter into a business
combination or other restructuring transaction by reducing current levels of
overhead. We believe that these revised compensation arrangements are in line
with current practices of other Internet communities.
On February 14, 2002, effective January 31, 2002, we entered into an
agreement with Creative Marketeam Canada Ltd., a corporation wholly owned by
Douglas Loblaw, our former chief operating officer and, since February 25, 2002,
a Director of our company, to provide continuing management and operating
services, at Marketeam's expense, for the day-to-day operations of the Suite101
Web site, known as Suite101.com. Subsequently, on February 25, 2002, Mr. Loblaw
was elected a Director of our Company. In consideration of the services
performed by Marketeam, we pay Marketeam a fee of $26,000 per month, plus an
amount equal to our receipts from our contracts with Barnes&Noble.com.
16
Our current business plan is to utilize our available cash and other
resources, including possibly, shares of our Common Stock, to redirect our
activities out of the operation and maintenance of a Web-based community into
other areas of business. We believe that these future activities will be
unrelated to the operation of an Internet Web site. As of May 9, 2002, there are
no definitive agreements or agreements in principal relating to the acquisition
of any other business activities by us and we are unable to state the nature of
the business activities that may be undertaken in the future. It is expected
that the redirection of our business activities will involve us in a business
combination or other material transaction. Until we complete a transaction
resulting in a redirection of our business activities, we expect to continue to
incur expenses without any material revenues. In addition, we may incur
reductions in the carrying value of our fixed assets in connection with our
efforts to redirect our activities.
As a result of our limited operating history and our efforts to redirect
our activities, 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 estimates. We expect that these expense
levels will become, to a large extent, fixed. Revenues and operating results
generally will depend on our ability to redirect our business activities into
revenue-producing operations.
We may seek to raise additional funds in order to fund the acquisition of
revenue-producing operations. 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 efforts to redirect our activities. Any such inability could have a
material adverse effect on future success. 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.
Effective March 15, 2002, i5ive Communications Inc., our wholly owned
subsidiary, entered into an option agreement with Double B Holdings, LLC, a
privately-owned non-affiliated entity organized for the purpose of acquiring the
option. The option grants Double B the right to purchase the website assets
owned and operated by i5ive. These assets, which include primarily property,
plant and equipment, had a book value of $120,000, as of December 31, 2001,
after accumulated amortization of $127,000. During the three years ended
December 31, 2001, these assets produced revenues of $1,925, $1,620 and $40,067,
respectively. During the three years ended December 31, 2001, the Company had
other income, net, which was primarily interest income, of $146,000, $378,000
and $188,000, respectively. The terms of the option agreement provide that
Double B, in consideration of a non-refundable payment of $15,000, has the right
to purchase the assets for a period of thirty days and, in consideration of a
further non-refundable payment of an additional $30,000, has the right to
purchase the assets for an additional thirty days. Double B exercised its right
to extend the option. The option, unless further extended, will expire on May
14, 2002.
The purchase price for the assets under the option agreement is $155,000
less the non-refundable payments which are applied to the purchase price, plus a
26% interest in Double B and a 5% common stock interest held by Double B in Blue
Frogg Enterprises, Inc., a privately-owned company controlled by the owners of
Double B. In the event the option is exercised, i5ive is required to pay at the
closing to
17
Double B $155,000 less a sum equal to the management fees paid to Creative
Marketeam Canada, Ltd. from March 1, 2002 through the closing. Double B is
assigned and assumes at the closing i5ive's rights and obligations under various
vendor and supplier contracts and leases. The option agreement contains
representations and warranties of the parties and covenants relating to the
fulfillment of the transaction and confidentiality. The closing under the option
is subject to the fulfillment of certain closing conditions and the absence of
any court, governmental or regulatory authority action prohibiting, restricting
or making illegal the consummation of the transaction and no such action shall
have been commenced or threatened by any person.
i5ive and Double B intend to enter into a separate agreement that will
establish a value for i5ive's interest in Double B in the event Double B is
acquired by Blue Frogg. The definitive terms of that agreement are to be
negotiated; however, the value of Double B is to be based on the higher of four
times the EBITDA of Double B or $350,000, with i5ive entitled to receive 26% of
that sum in the event of the acquisition of Double B by Blue Frogg.
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. We intend that such forward-looking statements be covered by the
safe harbor provisions for forward-looking statements contained in that act and
we are including this statement for purposes of complying with these safe harbor
provisions. The forward-looking statements discussed in this Quarterly Report
appear in various places including: "Item 2 - Management's Discussion and
Analysis or Plan of Operations, "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 2002, 2003 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. We cannot assure you that our assumptions in this regard or our
views as to the viability of our business plans will prove to be accurate.
Likewise, we cannot assure you that we will be successful in acquiring any
commercial activities. Our ability to realize revenues cannot be assured. If our
assumptions are incorrect or if our plans fail to materialize, we may be
unsuccessful in developing as a viable business enterprise. Under such
circumstance your investment will be in jeopardy. There can be no assurance that
our estimates as to our current rates of cash expenditures will prove to be
accurate or that other factors may not result in these estimates proving to be
incorrect. Our inability to meet our goals and objectives or the consequences to
us from adverse developments in general economic or capital market conditions
could have a material adverse effect on us. We caution you that various risk
factors accompany those forward looking statements and are described, among
other places, under the caption "Risk Factors" herein, beginning below. They are
also described in our Annual Report on Form 10-KSB, and our Current Reports on
Form 8-K. These risk factors could cause our operating results, financial
condition and ability to fulfill our plans to differ materially from those
expressed in any forward-looking statements made in our Annual Report and could
adversely affect our financial condition and our ability to pursue our business
strategy and plans.
18
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 before you purchase any shares of our common stock. You should also
see the "Cautionary Statement for Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1996" regarding risks and
uncertainties relating to us and to forward looking statements in this quarterly
report.
No Material Operations or Revenues. We have no current material operations or
source of revenue. We will, in all likelihood, sustain continuing operating
expenses maintaining our current activities and seeking to enter into a
transaction without corresponding revenues at least until the consummation of a
business acquisition. This can be expected to result in us incurring ongoing net
operating losses and an outflow of our cash that could continue until we can
consummate a business acquisition. There can be no assurance that we can
identify a suitable business opportunity and consummate a business acquisition
or that any transaction we consummate will be on favorable terms or result in
profitable operations. We are unable to predict when any such transaction may be
completed.
We May Not Be Successful in Entering Into Agreements In Order to Pursue Our
Business Plans. We have no arrangement, agreement or understanding with respect
to engaging in a merger with, joint venture with or acquisition of, a private or
public entity or any interest in such an entity. No assurances can be given that
we will successfully identify and evaluate a suitable business opportunity or
that we will conclude a business acquisition. We cannot guarantee that we will
be able to negotiate any business transactions on favorable terms or be
successful in redirecting our operations.
Possible Future Dilution As A Result Of Business Transaction. Our business plan
is based upon effectuating a business acquisition or other transaction. Any such
acquisition transaction may result in us issuing securities as part of the
transaction. The issuance of previously authorized and un-issued common shares
could result in substantial dilution to our existing stockholders which could
possibly result in a change in control or management of our company. There can
be no assurance that an acquisition can be completed.
Issuance Of Additional Shares. Our Certificate of Incorporation currently
authorizes our Board of Directors to issue up to 40,000,000 shares of Common
Stock and 1,000,000 shares of Preferred Stock, of which, as of May 9, 2002,
13,249,519 shares of Common Stock are issued and outstanding and no shares of
Preferred Stock are outstanding. The 26,750,481 shares of Common Stock and
1,000,000 shares of Preferred Stock that are authorized but are not issued or
outstanding are able to be issued by action of our Board of Directors in a
transaction resulting in the redirection of our activities without any
requirement of further action being taken by our stockholders to authorize the
issuance of the shares or to approve the transaction or the redirected business
activities. Any additional issuances of any of our securities will not require
the approval of our stockholders and may have the effect of further diluting the
equity interest of stockholders.
Proposal to Amend Certificate of Incorporation to Increase Authorized Shares.
Our management is submitting a proposal to stockholders to be voted on at our
annual meeting of stockholders scheduled to be held on June 11, 2002 to increase
the number of shares of common stock we are authorized to issue
19
under our Certificate of Incorporation from 40,000,000 to 100,000,000 shares. If
this proposal is approved by stockholders and our Certificate of Incorporation
is amended, these shares would be available to be issued by action of our Board
of Directors without the necessity for any further approvals or action by our
stockholders. The availability of those shares for issuance in a transaction
relating to the redirection of our activities could result in additional
dilution to our existing stockholders.
Possible Need to Raise Additional Capital. Any transaction we enter into
involving the redirection of our activities may require that we raise additional
capital which may also involve the issuance of shares of our Common Stock and be
dilutive to our existing stockholders.
No Requirement of Stockholder Approval. Any transaction we enter into in
redirecting our business activities may be structured on terms whereby the
approval of our existing stockholders is not required which would result in our
existing stockholders being unable to vote in favor of or against the
transaction and the redirection of our business activities.
Any Business We May Possibly Acquire May Never Become Profitable. There can be
no assurance that we will enter into an acquisition with or acquire an interest
in a business having a significant or successful operating history. Any such
business may have a history of losses, limited or no potential for earnings,
limited assets, negative net worth or other characteristics that are indicative
of development stage companies. There can be no assurance that after any
acquisition of a business that the business will be operated so as to develop
significant revenues and cash flow and become profitable.
Management May Not Devote a Sufficient Amount of Time to Seeking a Target
Business. While seeking a business acquisition, our officers and Directors will
devote only a portion of their time to pursuing these activities. As a result,
we may expend a considerable period of time identifying and negotiating with an
acquisition candidate. This extended period of time may result in continuing
losses to us and an outflow of our cash.
Dependence On Part-Time Management. Currently, we have no fulltime employees.
Our officers and Directors devote only a portion of their time to our
activities. It is our intention to continue to limit our employees until such
time as we find a suitable business opportunity or we complete the acquisition
of another business. Therefore, the day-to-day operations of any company or
business that is acquired by us will have to be performed by outside management
or management of the acquired company. We cannot assure investors that we will
be able to obtain experienced and able outside management to run any company or
business that we may acquire.
Continued Control by Existing Management. Our Directors retain significant
control over our present and future activities and our stockholders and
investors may be unable to meaningfully influence the course of our actions. Our
existing management is able to control substantially all matters requiring
stockholder approval, including nomination and election of directors and
approval or rejection of significant corporate transactions. Any transaction we
engage in resulting in a redirection of our business activities may be
structured so as to not require the approval of our stockholders and,
accordingly, our stockholders may have no opportunity to vote on or influence
the redirection of our activities. Although management has no intention of
engaging in such activities, there is also a risk that the existing management
will be viewed as pursuing an agenda which is beneficial to themselves at the
expense of other stockholders.
20
There Is No Assurance Of An Active Public Market For Our Common Stock And The
Price Of Our Common Stock May Be Volatile. Given the relatively minimal public
float and trading activity in our securities, there is little likelihood of any
active and liquid public trading market developing for our shares. If such a
market does develop, the price of the shares may be volatile. Since the shares
do not qualify to trade on any exchange or on NASDAQ, if they do actually trade,
the only available market will continue to be through the OTC Bulletin Board or
in the "pink sheets". It is possible that no active public market with
significant liquidity will ever develop. Thus, investors run the risk that
investors may never be able to sell their shares.
Possible Government Regulation. Although we are subject to the periodic
reporting requirements under the Securities Exchange Act of 1934, as amended,
and file annual, quarterly and other reports, management believes it will not be
subject to regulation under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), since it will not be engaged in the business of
investing or trading in securities. If we engage in a business acquisition which
results in us holding passive investment interests in a number of entities, we
could become subject to regulation under the Investment Company Act. If so, we
would be required to register as an investment company and could be expected to
incur significant registration and compliance costs. We have obtained no formal
determination from the Securities and Exchange Commission (the "SEC" or
"Commission") or any opinion of counsel as to our status under the Investment
Company Act. A violation of the Act could subject us to material adverse
consequences.
Our Shares Are Subject To Penny Stock Reform Act Of 1990. Our securities are
subject to certain rules and regulations promulgated by the Commission pursuant
to the U.S. Securities Enforcement Remedies and Penny Stock Reform Act of 1990
(the "Penny Stock Rules"). Such rules and regulations impose strict sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and certain "accredited investors." For
transactions covered by the Penny Stock Rules, a broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent for the transaction prior to sale. Consequently,
such rule may affect the ability of broker-dealers to sell our securities and
may affect investors' abilities to sell any shares they acquire.
The Penny Stock Rules generally define a "penny stock" to be any security
not listed on an exchange or not authorized for quotation on the Nasdaq Stock
Market and has a market price (as defined by the rules) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transactions by broker-dealers involving a penny stock
(unless exempt), the rules require delivery, prior to a transaction in a penny
stock, of a risk disclosure document relating to the market for penny stocks.
Disclosure is also required to be made about compensation payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stocks.
Limited Market for Common Stock. There has been a very limited market for our
Common Stock and the market price of our shares has been subject to material
fluctuation. Accordingly, although quotations for shares of our Common Stock
have been, and continue to be, published on the OTC Bulletin Board and the "pink
sheets" published by the National Quotation Bureau, Inc., these quotations, in
the light of our operating history, continuing losses and financial condition,
are not
21
necessarily indicative of our value. Such quotations are inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
Control by Directors, Executive Officers, and Principal Stockholders. As of May
1, 2002, our Directors, executive officers, and stockholders who own
beneficially 5% or more of our Common Stock, and their respective affiliates, in
the aggregate, beneficially owned (including shares that the he or she has the
right to acquire the beneficial ownership within 60 days following May 1, 2002)
approximately 3,539,688 shares or 25.27% 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. Since December 30, 1998, our Common Stock has been quoted on the
OTC Bulletin Board. There can be no assurance that an active trading market for
our Common Stock will be sustained or that the market price of our Common Stock
will not decline based upon market or other conditions. The market price may
bear no relationship to our revenues, earnings, assets or potential and may not
be indicative of our future business performance. The trading price of our
Common Stock has been and can be expected to be subject to wide fluctuations in
response to variations in our quarterly results of operations, delays and
obstacles we encounter in redirecting our business activities, the gain or loss
of significant strategic relationships, unanticipated delays in our development,
other matters discussed elsewhere in this annual report and other events or
factors, many of which are beyond our control.
In addition, the stock market in general has experienced extreme price and
volume fluctuations which have affected the market price for many companies
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.
22
OTHER RISKS WE FACE
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND PERSONS WHO OWN BENEFICIALLY 5% OR
MORE OF OUR COMMON STOCK
As of May 1, 2002, our Directors, Executive Officers and persons known by
us to own beneficially 5% or more of our Common Stock, and their respective
affiliates, in the aggregate, beneficially owned (including shares that they, he
or she has the right to acquire the beneficial ownership within 60 days
following May 1, 2002) approximately 3,539,588 shares or 25.27% 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
Since December 30, 1998, our Common Stock has been quoted on the OTC
Bulletin Board. There can be no assurance that an active trading market for our
Common Stock will be sustained or that the market price of our Common Stock will
not decline based upon market or other conditions. The market price may bear no
relationship to our revenues, earnings, assets or potential and may not be
indicative of our future business performance. The trading price of our Common
Stock has been and can be expected to be subject to wide fluctuations in
response to variations in our quarterly results of operations, the gain or loss
of significant strategic relationships, unanticipated delays in our development,
changes in estimates by analysts, announcements of technological innovations or
new solutions by us or our competitors, general conditions in the technology and
Internet sectors and in Internet-related industries, other matters discussed
elsewhere in this annual 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.
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b Reports on Form 8-K
During the quarter ended March 31, 2002, we filed the following
Current Reports on Form 8-K:
(a) Current Report on Form 8-K for event dated January 8,
2002. Item 7.
(b) Current Report on Form 8-K for event dated February 15,
2002. Items 5 and 7.
(c) Current Report on Form 8-K for event dated February 25,
2002. Item 7.
(d) Current Report on Form 8-K for event dated March 15,
2002. Items 5 and 7.
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 14, 2002 /s/Mitchell G. Blumberg
------------------------------
Mitchell G. Blumberg
President and Chief Executive Officer
(Principal Executive Officer, and Director)
/s/Cara M. Williams
------------------------------
Cara M. Williams
Vice President - Finance
(Principal Financial and Accounting Officer)
24