SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
Mark One:
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the fiscal year ended DECEMBER 31, 2001; 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 NO. 0-25136
SUITE101.COM, INC
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(Name of Small Business Issuer in its Charter)
DELAWARE 33-0464753
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1122 MAINLAND STREET - SUITE 210, VANCOUVER, BRITISH COLUMBIA, CANADA V6B 5L1
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(Address of Principal Executive Offices) (Zip Code)
604-682-1400
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
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None
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Securities Registered Pursuant to Section 12(g) of the Exchange Act:
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Common Stock, par value $.001 per share
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(Title of Each Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve (12) months (or
for such shorter period that the Issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
|X| Yes | | No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB, or any amendment to
this Form 10-KSB. |X|
State Issuer's revenues for its most recent fiscal year: $40,067.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 19, 2002, was $10,447,207.
(Non-affiliates have been determined on the basis of holdings set forth in Item
11 of this Annual Report on Form 10-KSB.)
The number of shares outstanding of each of the Issuer's classes of
common equity, as of March 19, 2002, was 13,217,462.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM 1 - DESCRIPTION OF BUSINESS:
SUITE101.COM, INC.
Suite101.com, Inc. has been engaged since 1996 in the creation,
operation and maintenance of a World Wide Web-based community, known as
Suite101.com. Its emphasis has been on creating an online community growing
organically where Internet users can express themselves, share ideas, interests
and expertise, and publish content accessible to other Internet users with
common interests. Our community includes our Members, our Editors, and our
visitors. Suite101.com's Member-generated Best-of-Web Directory, which was
started in 1996, is the accumulated efforts of our Members and our Editorial
Team - which includes our Senior, Managing and Contributing Editors (Web
guides). Our Best-of-Web Directory is organized into ten (10) categories using
the Dewey Decimal Classification (R) system (DDC)(1) and the Library of Congress
Subject Headings (LCSH). Our Contributing Editors publish content and search the
Internet for the best resources (links) on the Web.
Since our inception, Suite101.com's community of writers has been using
Suite101.com's online publishing tools, which includes proprietary software we
developed, to publish original, organic content. These user-friendly publishing
tools make it easy for writers to create and publish their content online.
Without the availability of these online publishing tools, writers would have to
post their works on their own web site or to another community portal in order
for their works to be published on the Internet. Suite101.com allows writers to
produce articles off-line and then, using our proprietary software, post the
articles to our site without the need to know complex computer languages or
programming. Once posted, the articles are automatically published in Web format
on our site, catalogued by topic and categorized using the DDC system and form
part of Suite101.com's Best-of-Web Directory.
Suite101.com has used its exclusive online management structure,
referred to as our "Enabling Platform", to manage and maintain our remote team
of as many as in excess of 1,000 Contributing Editors. The Enabling Platform is
an online system of distributed management and intellect. By making use of the
Internet and its inherent ability to connect users and facilitate communication
worldwide, Suite101.com has been able to develop and manage its community of
writers with only a two (2) person head office editorial staff - our
Editor-in-Chief and our Editorial Coordinator.
_____________________________
(1) Suite101.com utilizes the Dewey Decimal Classification system as the
organization structure for our Best-of-Web Directory. The Dewey Decimal
Classification system is(C)1996-2001 OCLC Online Computer Library Center,
Incorporated.(R)"OCLC," "Dewey," "Dewey Decimal Classification," & "DDC," are
registered trademarks of OCLC Online Computer Library Center, Incorporated.
"Organized by Dewey" is a trademark of OCLC. Used under License.
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Through the interconnection of users and communication over the
Internet and using our internally developed software, Suite101.com's Enabling
Platform has allowed our Editorial Team to vet, edit, publish and enhance the
quality of our original, Member-generated content efficiently and
cost-effectively. We believe our Enabling Platform has provided the means to
efficiently find and produce good quality content on the Internet,
cost-effectively.
RECENT DEVELOPMENTS
Background. Since early 1999, using approximately $6.1 million out of
total proceeds of $9.5 million we raised in private sales of our securities in
1999 and 2000, we have endeavored to develop our activities into revenue
generating operations. During the period January 1, 1999 through December 31,
2001, our total revenues were $43,600 and our available cash fell from
$9,321,525 at the end of March 2000 to $4,048,630 at the end of December 2001.
Also, since 1999, there have been enormous changes in the stock market's
perception of the likelihood of success for Internet-based enterprises which has
affected substantially our ability to raise capital and achieve our business
objectives. Accordingly, by unanimous action of our Board of Directors taken in
the fourth quarter of 2001, we determined to review our business activities with
a view to redirecting those activities.
On December 21, 2001, we announced in a press release dated that date
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. We stated that no definitive agreements had been
entered into at that time.
On January 8, 2002, we issued a further press release dated that date
and stated that in furtherance of our previously announced efforts to re-direct
our operations under consideration by our Board of Directors, we were inviting
companies and other persons with a possible strategic interest in Suite101.com
to consider entering into discussions with us looking to a possible business
combination, restructuring or other reorganization transaction. We stated that
we were seeking initial responses on or before January 25, 2002.
We also announced in the January 8, 2002 press release that in
conjunction with our efforts to re-direct our operations, we had reduced our
staff by five people to 14 employees and had revised our monthly compensation
arrangements with our Contributing Editors. Previously, the Contributing Editors
had received compensation of up to $25 per month, based on the number of
articles written. As of December 31, 2001, we terminated the payment of the
monthly compensation to Contributing Editors. Managing Editors and Senior
Managing Editors continue
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to receive compensation. We further stated that as we continued our efforts to
re-direct our activities, further changes in staffing and compensation
arrangements may be made.
The changes we made in our staffing and compensation arrangements we
believe were appropriate in the light of our limited revenues. We also believe
these changes 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.
Since January 8, 2002, we have further reduced our staff and currently
our only employee is our President and Chief Executive Officer. In place of our
staff, 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, 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.
Our press release dated January 8, 2002 invited persons with a possible
strategic interest in the Suite101 Web site and community to consider entering
into a restructuring or other reorganization transaction with us. This press
release was supplemented by correspondence and personal contacts with senior
executive officers at approximately ten (10) corporations and other entities
that we believed may have an interest in entering into a strategic business
combination or other similar transaction or relationship with us. We received
two responses, further described below, we believed merited further discussions.
One response involved an interest expressed on behalf of a group of persons
interested in acquiring 1,625,617 million of the shares of our common stock held
by Peter Bradshaw and his daughter, Julia Bradshaw, and having representation on
our Board of Directors. The second response was from a corporation interested in
acquiring an option to purchase the assets of the Suite101 Web site, known as
Suite101.com.
The Management Agreement. The management agreement with Marketeam was
for an initial one-month period commencing January 31, 2002 and continues from
month to month thereafter until terminated by either party on ten (10) days'
notice. In consideration of the services to be performed by Marketeam, we pay
Marketeam a fee of $26,000 per month, plus an amount equal to our receipts from
our contracts with BarnesandNoble.com, LLC. Marketeam provides continuing
management and operating services, at its expense, over the day-to-day
operations of the Suite101 Web site. It is responsible to our Board of Directors
for all phases of the day-to-day management and operations of the Suite101 Web
site, including accounting and bookkeeping, making payments at its expense to
Senior and Managing Editors, providing administration, oversight and fulfillment
of our duties and responsibilities under our agreements with BarnesandNoble.com,
LLC, providing Internet access to the Web site, hosting email, providing
property maintenance, implementing software upgrades, and arranging intellectual
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property licensing, among other matters. Marketeam is responsible for the
implementation, management and operation of such aspects of any programs
relating to the planning, operation, management and control of the Suite101.com
Web site as are necessary to the continuing uninterrupted operation of the
Suite101.com Web site. The agreement prohibits Marketeam from (i) negotiating or
entering into any agreements regarding the issuance of any of our capital stock,
the sale of any of our assets or any transaction involving any merger,
consolidation or business combination involving us, (ii) negotiating or entering
into any employment agreements relating to the employment of any person as an
employee, consultant or other provider of services to us, (iii) negotiating or
entering into any agreement relating to any purchase or lease of personal or
real property by us, (iv) negotiating or entering into any agreements relating
to the expenditure of any money by us, or (v) representing to any person that it
or any of its officers or employees are authorized to enter into any agreement
on our behalf or making any commitment involving us. The agreement contains
provisions prohibiting Marketeam from disclosing any of our confidential
information, engaging in business in competition with us unless expressly
authorized in writing by our Board of Directors, and requiring Marketeam to keep
our assets segregated and apart and preserving our Web site assets for the
purpose of facilitating and enhancing the sale of those assets. Employees of
Marketeam are required to agree to similar restrictions on their activities. The
agreement provides that we have no liability for any of the debts or obligations
of Marketeam, and Marketeam will indemnify us against loss for actions its
personnel take in violation of the agreement.
The Bradshaw Agreements. On February 13, 2002, Peter Bradshaw and Julie
Bradshaw, both then Directors of our company and Mr. Bradshaw was our Chairman
and Chief Executive Officer, entered into agreements to sell, at a price of
$0.25 per share, an aggregate of 1,625,617 of their shares of Common Stock. The
sale was completed on February 25, 2002. The purchasers of the shares were five
investors none of whom acquired more than five percent of our shares outstanding
and none of whom are residents of the United States. The shares sold include all
of the shares held by Peter Bradshaw, other than options to purchase 418,545
shares exercisable at prices ranging from $0.25 to $1.50 per share. Julie
Bradshaw retained 618,519 shares and options to purchase 85,000 shares
exercisable at $1.50 per share.
Change of Majority of the Board of Directors. Concurrently with the
sale of the shares, on February 25, 2002, Peter Bradshaw and Julie Bradshaw
resigned as Directors, and Peter Bradshaw resigned as our Chairman and Chief
Executive Officer. At the same meeting of Directors held on February 25, 2002,
Douglas F. Loblaw, John J. Campbell and Brent J. Peters, were elected to our
Board of Directors to fill the vacancies created by the resignations of Peter
Bradshaw and Julie Bradshaw as Directors on February 25, 2002 and the
resignation of Alfred J. Puchala, Jr. as a Director on February 13, 2002.
Our Board of Directors intends to continue the efforts begun in
December 2001 to seek to redirect our activities into other areas of business.
We believe that these future activities will be
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unrelated to the operation of a Web-based community or Web site. As of March 19,
2002, there are no definitive agreements or agreements in principle 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.
As a consequence of the sale of the shares by the Bradshaws and their
resignations as Directors, a change of control of our company may be deemed to
have occurred.
Possible Transaction Involving Web Site Assets. We continue to own the
assets related to the operation and maintenance of our World Wide Web-based
directory and online publishing community known as Suite101.com. These assets,
which include primarily our property, plant and equipment, as of December 31,
2001, had a book value of $120,441, after accumulated amortization of $127,295.
During the three years ended December 31, 2001, these assets produced revenues
of $1,925, $1,620 and $40,067, respectively. During those three years, we had
other income, net, which was primarily interest income, of $145,626, $378,448
and $188,631, respectively.
In response to our invitation of January 8, 2002 seeking persons who
may have a strategic interest in our Web site activities, we engaged in
negotiations with an unaffiliated privately-owned entity that has expressed an
interest in acquiring an option to acquire the Web site assets. As a consequence
of those negotiations, on 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. 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.
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 Double B $155,000 less a sum equal to the
management fees paid to Marketeam 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
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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. Although the
definitive terms of the agreement have not been negotiated or agreed to, EBITDA
is generally understood to be an entity's earnings before deducting interest,
taxes, depreciation and amortization expenses.
INFRASTRUCTURE AND OPERATIONS
In the operation of our Web site, we have developed a web application
framework that is built on Allaire's Cold Fusion Application Server 4.5.1 for MS
Windows NT and 2000 and MS SQL Server 7.0 and 2000. The web site traffic is load
balanced on multiple Windows NT and Windows 2000 servers running Microsoft
Internet Information Server 4.0 and 5.0 using F5 BigIP 3.0 load balancing
hardware/software technology. Data is backed up daily onto a Quantum 110/220 GB
SDLT internal tape drive. Web site internal network runs on router/switch
technology from Cisco. Web site security is implemented using FreeBSD Fire Wall
technologies. In an event that a web server was to become non-operational, all
website traffic will failover to other web server nodes and a system alert is
sent to technical operations staff via email and pager. Affected web server(s)
are designed to restart automatically after a pre-determined length of time.
Suite101.com's production environment has been designed to allow upwards
scalability. In the event of substantial increase in user traffic to the site,
additional web/database servers could be added to the current system
architecture in order to increase load capacity. Currently, system resource
utilization is approximately 40%.
Member-generated content is stored on multiple Microsoft SQL Server
7.0 and 2000 databases. During 2001, we upgraded our hardware/software for
database servers to an IBM eServer xSeries 350 running MS Windows 2000 Advanced
Server and MS SQL server 2000. We believe this upgrade resulted in a substantial
increase in the storage and processing capacity of the web site database. We
believe this upgrade increased our database capacity by a factor of 10.
Our network servers are co-located at Telus Advanced Communications
data center in Vancouver, British Columbia. Site connectivity to the Internet is
provided via a dedicated 100Mb/s line provided on a 24-hour per day, seven days
per week basis by the data center.
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Any interruption in the service received from other tier-1 network access
providers, or any failure of the data center to handle higher volumes of
Internet users to the Suite101.com site could have a material adverse effect on
our business, results of operations and financial condition. We will continue to
upgrade and expand our server and networking infrastructure in an effort to
improve its fast and reliable access to our web site.
EMPLOYEES
As of December 31, 2001, we had 19 full-time personnel, including 15 in
operations and development and four (4) in administration. As described above,
during the month of January 2002, we downsized our operating staff and entered
into an agreement as of January 31, 2002 with Marketeam to manage and operate
our Website. As of March 19, 2002, we have one (1) employee.
COMPETITION
The market for community based publishing and ecommerce on the Internet
is relatively 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 online publishing, online directories or community on the
Internet are About.com, Fatbrain.com, and Abuzz.com. Some of these competitors
are significantly larger than us and more well-established and well-known in the
Internet industry and have greater capital resources.
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ITEM 2 - DESCRIPTION OF PROPERTY:
Our executive offices and operations are currently located at 1122
Mainland Street, Suite 210, Vancouver, British Columbia V6B 5L1. Our telephone
number is 604-682-1400, and our Internet address is www.suite101.com. Our
premises include approximately 2,500 square feet of office space. The premises
are subleased from a non-affiliated person for a term expiring on March 31, 2003
and provide for an annual rental of $36,250, plus our share of certain expenses
of the premises.
ITEM 3 - LEGAL PROCEEDINGS:
No material legal proceedings are pending against us.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
No matter was submitted during the fourth quarter of the year ended
December 31, 2001 to a vote of securityholders through the solicitation of
proxies or otherwise.
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PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS:
Our Common Stock has been quoted on the OTC Bulletin Board since
December 30, 1998 under the symbol BOWG. The following table sets forth the high
and low bid quotations on the OTC Bulletin Board for our Common Stock for the
period January 1, 2000 through March 18, 2002. Prior to December 30, 1998 there
was no active market for our Common Stock.
BID
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CALENDAR QUARTER HIGH LOW
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2000: First Quarter $11.00 $2.97
2000: Second Quarter $7.38 $0.94
2000: Third Quarter $1.56 $0.63
2000: Fourth Quarter $0.69 $0.14
2001: First Quarter $0.39 $0.17
2001: Second Quarter $0.23 $0.14
2001: Third Quarter $0.44 $0.12
2001: Fourth Quarter $0.21 $0.08
2002: First Quarter (through $0.55 $0.20
March 19, 2002)
The foregoing amounts, represent inter-dealer quotations without
adjustment for retail markups, markdowns or commissions and do not represent the
prices of actual transactions. On March 19, 2002, the closing bid quotation for
the Common Stock, as reported on the OTC Bulletin Board was $0.48.
As of March 19, 2002, we had approximately 140 shareholders of record.
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DIVIDEND POLICY
We do not intend to pay any dividends on our Common Stock for the
foreseeable future. Any determination as to the payment of dividends on our
Common Stock in the future will be made by our Board of Directors and will
depend on a number of factors, including future earnings, capital requirements,
financial condition and future prospects as well as such other factors as our
Board of Directors may deem relevant.
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ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
GENERAL
The following discussion and analysis of our financial condition or
plan of operation should be read in conjunction with, and is qualified in its
entirety by, the more detailed information including our Financial Statements
and the related Notes appearing elsewhere in this Annual Report. This Annual
Report contains forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results and business plans
discussed in the forward-looking statements. Factors that may cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere in this Annual Report.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001 AND 2000
During the year ended December 31, 2001, our sales were $40,067
compared with sales of $1,620 during 2000. Sales during 2001 were primarily
attributable to revenue generated from two service contracts that we entered
into with BarnesandNoble.com to provide introductions for a series of e-books
and to provide proofreading services for the related digitized e-books. During
2001, $258 in sales and all our sales in 2000 were primarily attributable to
software licensing revenues. These licenses have expired and therefore this
source of revenue has ceased.
Operating expenses decreased during the year ended December 31, 2001 to
$1,843,268 from $2,666,021 during the year ended December 31, 2000. Expenses
during 2001 primarily related to general and administrative expenses of i5ive
and marketing expenses. The decrease in general and administrative expenses was
primarily the result of decrease in consulting fees paid to third parties, a
decrease in professional fees paid and a decline in software purchases. The
decrease in marketing expenses resulted from the decrease in our marketing
activities aimed at increasing Membership and building the Suite101.com brand.
The loss from operations for the year ended December 31, 2001 was $1,823,051
compared with $2,664,401 during 2000.
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Other income (net) in 2001 was $181,421 compared with $378,448 in 2000.
The decrease was primarily the result of decreased interest earned on bank cash
balances carried throughout 2001 and the write-off in 2001 of the leasehold
improvements of our former office premises.
Our net loss in 2001 was $1,641,630 compared with a net loss of
$2,285,953 in 2000. The decreased net loss was the result of a decrease in our
general, administrative and marketing expenditures in 2001 compared to 2000.
YEARS ENDED DECEMBER 31, 2000 AND 1999
During the year ended December 31, 2000, our sales were $1,620 compared
with sales of $1,925 during 1999. Sales during 2000 and 1999 were primarily
attributable to software licensing revenues of our wholly-owned subsidiary,
i5ive.
Operating expenses increased during the year ended December 31, 2000 to
$2,666,021 from $1,687,850 during the year ended December 31, 1999. Expenses
during 2000 primarily related to general and administrative expenses of i5ive
and marketing expenses. The increase in general and administrative expenses was
primarily the result of the increase in the number of personnel and consultants
we employ, the increase in the number of Contributing Editors, increased product
development and the increased scale of our operations. In 2000 and 1999, we paid
each of our Contributing Editors between $15 and $25 per month. The increase in
marketing expenses resulted from the increase in our marketing activities aimed
at increasing Membership and building the Suite101.com brand. The loss from
operations for the year ended December 31, 2000 was $2,664,401 compared with
$1,685,925 during 1999.
Other income in 2000 was $378,448 compared with $137,496 in 1999. The
increase was primarily the result of interest earned on higher cash balances
carried throughout 2000.
Our net loss in 2000 was $2,285,953 compared with a net loss of
$1,548,429 in 1999. The increased net loss was the result of our increase in the
number of personnel and consultants we employ, the increase in the number of
Contributing Editor, increased product development, the increase in our
marketing activities and the increased scale of our operations.
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
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ability to continue as a going concern due to our recurring losses. At January
1, 2001, we had cash of $5,671,211. At December 31, 2001, our cash balance was
$4,048,630. We believe these cash resources will be sufficient to meet our
ongoing financial commitments through December 31, 2002. At December 31, 2001,
we had no source of material revenues.
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.
In place of our staff, on February 14, 2002, effective January 31,
2002, we entered into an agreement with Marketeam, 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 BarnesandNoble.com.
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 March 19, 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.
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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.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1996
With the exception of historical matters, the matters discussed in this
annual report are "forward-looking statements" as defined under the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended,
that involve risks and uncertainties. Forward-looking statements made herein
include, but are not limited to, the statements in this annual report regarding
our plans and objectives of management for our future operations, including
plans or objectives relating to the redirection of our business activities, our
efforts to enter into a transaction relating thereto, and our ability to limit
or curtail our current expenses. These statements appear, among other places,
under the following captions: "Business of the Company", "Risk Factors",
"Dividend Policy", and "Management's Discussion and Analysis of Financial
Condition or Plan of Operation". Forward-looking statements made in this annual
report include the assumptions made by management as to our future business
direction and our ability to redirect our activities. We cannot assure you that
our assumptions in this regard or our views as to the viability of our business
plans discussed herein 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. 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,
- 15 -
under the caption "Risk Factors" herein, beginning below. They are also
described in our Quarterly Reports on Form 10-QSB, and our Current Reports on
Form 8-K. These risk factors could cause our operating results, financial
condition and ability to fulfill our plans to differ materially from those
expressed in any forward-looking statements made in this Annual Report and could
adversely affect our financial condition and our ability to pursue our business
strategy and plans.
RISK FACTORS
An investment in shares of our Common Stock involves a high degree of
risk. You should consider the following factors, in addition to the other
information contained in this annual report, in evaluating our business and
proposed activities before you purchase any shares of our common stock. You
should also see the "Cautionary Statement for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1996" regarding
risks and uncertainties relating to us and to forward looking statements in this
annual report.
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
- 16 -
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 March 19, 2002,
13,217,462 shares of Common Stock are issued and outstanding and no shares of
Preferred Stock are outstanding. The 26,782,538 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.
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
- 17 -
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.
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
- 18 -
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 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
March 19, 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 March 19,
2002) approximately 3,541,688 shares or 25.34% 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
- 19 -
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.
ITEM 7 - FINANCIAL STATEMENTS:
The response to this Item is included in a separate section of this
report. See page F-1.
ITEM 8 - CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE:
During the two fiscal years ended December 31, 2001, we have not filed
any Current Report on Form 8-K reporting any change in accountants in which
there was a reported disagreement on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.
- 20 -
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT:
Our Directors and Executive Officers and their ages are as follows:
NAME AGE EMPLOYMENT HISTORY
-------------------------------------- ---------- ------------------------------------------------------------------
Mitchell G. Blumberg 58 Mr. Blumberg was elected a Director of our company in
February 1999. He was elected President and CEO of our
company in February 2002. Mr. Blumberg has held several
senior level management positions in the entertainment
business in Los Angeles, CA. Since June 1994, he has been
engaged as a film producer and talent manager in Los
Angeles, California initially with Blumberg Productions,
then with Blumberg Productions and Management and thereafter
as President of Ardent Entertainment, a film production and
talent management firm. Prior to June 1994, he was an
Executive Vice President of RKO Pictures, Inc., where he was
head of business and legal affairs for the company. Mr.
Blumberg was also a Director of eDispatch.com until its
merger with AirIQ in September 2001. Since the merger of
eDispatch.com with AirIQ, Mr. Blumberg continues as a
Director of AirIQ, a publicly traded company located in
Toronto, Ontario, Canada. He also holds the position of
Managing Director of AirIQ. A native of Philadelphia, PA,
Mr. Blumberg is a graduate of the University of
Pennsylvania, the University of Pennsylvania Law School, and
Harvard Business School. Mr. Blumberg received his MBA
degree from Harvard with High Honors where he graduated as a
Baker Scholar (top 5% of class). Mr. Blumberg resides and
has offices in Beverly Hills, CA.
.
Cara Williams 39 Ms. Williams was employed as Vice President, Finance and
principal accounting officer of our company from April
2000 to February 2002. She is a Chartered Accountant.
She was employed by
- 21 -
NAME AGE EMPLOYMENT HISTORY
-------------------------------------- ---------- ------------------------------------------------------------------
PricewaterhouseCoopers LLP from October 1997 to March 2000
and by Ellis Foster, Chartered Accountants, from February 1993
to September 1997. She received a BBA degree with a major in
accounting from Simon Fraser University in 1987.
Douglas F. Loblaw 61 Mr. Loblaw was employed as Chief Operating Officer of our
company from January 2001 to January 2002 and from June to
December 2000, he was employed as our Director of
Operations. He was elected a Director of our company in
February 2002. He has been employed by Capilano College
as in instructor since 1976. Commencing January 1995 to
the present, he has been employed as a tutor for the B.C.
Open College. Since January 1994 Creative Marketeam
Canada Ltd has engaged him as a marketing consultant. He
received a BA degree from the University of Toronto with a
major in French Language and Literature.
John K. Campbell 69 Mr. Campbell has been President of Transamerica Industries
Ltd., a natural resource company, for more than the past
five years. He is a former practicing lawyer and he is
presently a retired member of the British Columbia Law
Society. He was elected a Director of our company in
February 2002.
Brent J. Peters 29 Mr. Peters has been Vice President of Finance and
Treasurer of Northfield Capital Corporation, a publicly
traded investment company acquiring shares in public and
private corporations since 1997. He was elected a
Director of our company in February 2002. He is a
director of Cubacan Exploration Inc., Konexus Technologies
Limited (formerly Dotcom 2000 Inc.), and Endeavor
Resources Inc. Mr. Peters has a Bachelor of Business
Administration degree, specializing in accounting.
- 22 -
Each of Mr. Blumberg, Mr. Loblaw, Mr. Campbell and Mr. Peters will
serve as Directors until our annual meeting of stockholders in 2002 and the
election and qualification of his successor.
DIRECTOR AND OFFICER SECURITIES REPORTS
The Federal securities laws require our Directors and executive
officers, and persons who own more than ten percent (10%) of a registered class
of our equity securities to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of any of our
equity securities. Copies of such reports are required to be furnished to us. To
our knowledge, based solely on a review of the copies of such reports and other
information furnished to us, all persons subject to these reporting requirements
filed the required reports on a timely basis with respect to the year ended
December 31, 2001.
ITEM 10 - EXECUTIVE COMPENSATION:
The following table sets forth the annual and long-term compensation
paid during the Company's three fiscal years ended December 31, 2001 to the
Company's chief executive officer and the Company's other most highly
compensated executive officers who received compensation exceeding $100,000 and
who served in such capacities at December 31, 2001:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
--------------------------------------------------------------------------------
COMPENSATION
-----------------------------
OTHER LONG-TERM ALL
NAME AND ANNUAL ANNUAL AWARDS/ OPTION OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMP. (#) COMP.
Peter L. Bradshaw(1)
1999 $ 57,000(2) $700 Nil 120,000 shares Nil
2000 $113,000(3) $700 Nil 150,000 shares Nil
2001 $114,000(4) Nil Nil 148,545 shares Nil
------------------------
(1) Mr. Bradshaw resigned as Chairman, Chief Executive Officer and a Director on
February 25, 2002.
(2) In lieu of $16,150 salary, Mr. Bradshaw was granted options to purchase
40,000 shares exercisable at $1.50 per share.
- 23 -
(3) In lieu of $16,150 salary, Mr. Bradshaw was granted options to purchase
40,000 shares exercisable at $1.50 per share.
(4) In lieu of $32,000 salary, Mr. Bradshaw was granted options to purchase
254,545 shares exercisable at $0.25 per share.
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 2001.
The following table provides information with respect to the above
named executive officers regarding options granted to such persons during the
Company's year ended December 31, 2000.
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/ MARKET
UNDERLYING SARS/ SARS GRANTED TO EXERCISE OR PRICE ON
OPTIONS GRANTED EMPLOYEES IN BASE PRICE DATE OF
NAME (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE GRANT
----------------------------------------------------------------------------------------------------------------------
Peter L. Bradshaw 148,545(1) 46.4% $0.25 December 31, 2002 $0.2031
-----------------------
(1) Of which, options to purchase 74,273 shares became exercisable on
January 4, 2001 and options to purchase the remaining 74,272 shares
became exercisable on January 4, 2002.
STOCK OPTION HOLDINGS AT DECEMBER 31, 2001.
The following table provides information with respect to the above
named executive officers regarding Company options held at the end of the
Company's year ended December 31, 2000 (such officers did not exercise any
options during the most recent fiscal year).
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 2000(1) AT DECEMBER 31, 2000(2)
NAME EXERCISABLE UNEXERCISABLE(3) EXERCISABLE UNEXERCISABLE
-----------------------------------------------------------------------------------------------------------------
Peter L. Bradshaw 344,273 74,272 Nil Nil
(1) The options are exercisable at prices ranging from $0.25 to $1.50 per
share.
(2) Based on the closing sales price on December 31,2001 of $0.21.
(3) These options became exercisable on January 4, 2002.
- 24 -
Our Directors do not receive any cash compensation for serving in that
capacity; however, they are reimbursed for their out-of-pocket expenses in
attending meetings. Pursuant to the terms of our 1998 Stock Incentive Plan, each
non-employee Director automatically receives an option grant for 50,000 shares
on the date such person joins the Board. Accordingly, effective February 25,
2002, each of Messrs. Loblaw, Campbell and Peters was granted options to
purchase 50,000 shares exercisable at $0.27 per share. In addition, on the date
of each annual stockholder meeting, each non-employee Board member who is to
continue to serve as a non-employee Board member will automatically be granted
an option to purchase 5,000 shares. Each such option has a term of five years,
subject to earlier termination following such person's cessation of Board
service, and is subject to certain vesting provisions.
Mr. Blumberg is currently receiving compensation of $2,000 per month
for his services.
Pursuant to a service contract with Mr. Blumberg, we paid Mr. Blumberg
$30,000 during 2000. This contract ended in June 2000 and was not renewed. No
payments were made to Mr. Blumberg pursuant to the service contract in 2001.
- 25 -
ITEM 11 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
Set forth below is information concerning the Common Stock ownership of
all persons known by us to own beneficially 5% or more of our Common Stock, and
the Common Stock ownership of each of our Directors and all Directors and
officers as a group, as of March 19, 2002. As of March 19, 2002, we had
13,217,462 shares of Common Stock outstanding.
Name and Address of Number of Shares Percentage of Outstanding
Beneficial Owner (1) Beneficially Owned(2) Common Stock
------------------------------------- --------------------- ------------------------
Mitchell Blumberg 280,000(3) 2.09%
1439 Claridge Drive
Beverly Hills, CA 90210
Douglas Loblaw 198,966(4) 1.48%
6111 LeClair Street
Abbotsford, BC V4X 2C9
John Campbell 50,000(5) 0.38%
750 West Pender Street - Suite 710
Vancouver, BC V6C 2T7
Brent Peters 57,000(6) 0.43%
c/o Northfield Capital Corporation
347 Bay Street - Suite 301
Toronto, Ontario M5H 2R7
Julie M. Bradshaw 703,519(7) 5.29%
TO 352 Kamari
Santorini, Greece
Northfield Capital Corporation(8) 2,019,136 15.28%
347 Bay Street, Suite 301
Toronto, Ontario, Canada M5H 2R7
All officers and directors as a group
(5 persons) 819,033 5.90%
--------------------------------
(1) Unless otherwise indicated, the address of such person is c/o the
Company.
(2) For purposes of the above table, a person is considered to
"beneficially own" any shares with respect to which he or she exercises
sole or shared voting or investment power or of which he or she has the
right to acquire the beneficial ownership within 60 days following
March 19, 2002.
(3) Includes 125,000 shares of Common Stock and options to purchase 155,000
shares of Common Stock.
- 26 -
(4) Includes 600 shares of Common Stock and options to purchase 198,366
shares of Common Stock.
(5) The 50,000 shares are issuable on exercise of a stock option.
(6) Includes 7,000 shares of Common Stock and options to purchase 50,000
shares of Common Stock.
(7) Includes 618,519 shares of Common Stock and options to purchase 85,000
shares of Common Stock.
(8) Mr. Peters, an employee of Northfield Capital Corp., disclaims a
beneficial interest in the shares held by Northfield Capital Corp.
- 27 -
ITEM 12 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
On February 14, 2002, effective January 31, 2002, we entered into a
Management and Operating Services Agreement with Marketeam, a corporation owned
by Douglas Loblaw, our former Chief Operating Officer and currently a Director
of our company. The execution of the agreement was unanimously approved by our
Board of Directors at a meeting held on February 14, 2002. Mr. Loblaw was
elected a Director of our company on February 25, 2002. The management agreement
with Marketeam is for an initial one-month period commencing January 31, 2002
and continues from month to month thereafter until terminated by either party on
ten (10) days' notice. In consideration of the services to be performed by
Marketeam, we pay Marketeam a fee of $26,000 per month, plus an amount equal to
the Company's receipts from our contracts with BarnesandNoble.com. Marketeam is
to provide continuing management and operating services, at its expense, over
the day-to-day operations of the Suite101 Web site. It is responsible to our
Board of Directors for all phases of the day-to-day management and operations of
the Suite101.com Web site, including accounting and bookkeeping, making payments
at its expense to Senior and Managing Editors, providing administration,
oversight and fulfillment of our duties and responsibilities under our
agreements with BarnesandNoble.com, providing Internet access to the Web site,
hosting email, property maintenance, providing postage, implementing software
upgrades, and arranging intellectual property licensing, among other matters.
Marketeam is responsible for the implementation, management and operation of
such aspects of any programs relating to the planning, operation, management and
control of the Suite101.com Web site as are necessary to the continuing
uninterrupted operation of the Suite101.com Web site. The agreement prohibits
Marketeam from (i) negotiating or entering into any agreements regarding the
issuance of any capital stock, the sale of any of our assets or any transaction
involving any merger, consolidation or business combination involving us, (ii)
negotiating or entering into any employment agreements relating to the
employment of any person as an employee, consultant or other provider of
services to us, (iii) negotiating or entering into any agreement relating to any
purchase or lease of personal or real property by us, (iv) negotiating or
entering into any agreements relating to the expenditure of any money by us, or
(v) representing to any person that it or any of its officers or employees are
authorized to enter into any agreement on our behalf or make any commitment
involving us. The agreement contains provisions prohibiting Marketeam from
disclosing any of our confidential information, engaging in business in
competition with us unless expressly authorized in writing by our Board of
Directors, and requiring Marketeam to keep segregated and apart our assets and
preserve our Web site assets for the purpose of facilitating and enhancing the
sale of those assets. Employees of Marketeam are required to agree to similar
restrictions on their activities. The agreement provides that we have no
liability for any of the debts or obligations of Marketeam, and Marketeam will
indemnify us against loss for actions its personnel take in violation of the
agreement.
- 28 -
PART IV
ITEM 13 -- EXHIBITS AND REPORTS ON FORM 8-K:
(a) EXHIBITS:
EXHIBIT DESCRIPTION
------- -----------------------------------------------------------------------
3.1 Certificate of Incorporation of the Registrant, as amended.(1)
3.2 Bylaws of the Registrant, as amended.(1)
3.3 Certificate of Amendment filed with the State of Delaware on November
25, 1998.(3)
3.4 Certificate of Amendment filed with the State of Delaware on December
4, 1998.(3)
4.1 Specimen stock certificate of the Registrant.(1)
10.1 Restated 1993 Stock Incentive Plan.(1)
10.2 1994 Directors Stock Option Plan.(1)
10.3 1994 Stock Option Plan.(1)
10.4 1993 Stock Incentive Plan.(1)
10.5 Form of Indemnification Agreement between the Registrant and its
officers and directors.(1)
10.6 Stock Purchase and Option Agreement dated July 17, 1995 between the
Registrant and Ballard Medical Products, including all exhibits
thereto.(2)
10.7 Amendment dated November 18, 1998 to Purchase Agreement among
Registrant and Northfield Capital Corporation, 284085 B.C. Ltd. and
i5ive communications inc.(3)
10.8 Amendment dated December 1, 1998 to Purchase Agreement among Registrant
and Northfield Capital Corporation, 284085 B.C. Ltd. and i5ive
communications inc.(3)
10.9 Amendment dated December 3, 1998 to Purchase Agreement among Registrant
and Northfield Capital Corporation, 284085 B.C. Ltd. and i5ive
communications inc.(3)
10.10 1998 Stock Incentive Plan.(3)
10.11 Management and Operating Services Agreement dated February 14, 2002
with Creative Marketeam Canada, Ltd.(4)
10.12 Option Agreement dated March 15, 2002 with Double B Holdings, LLC.(5)
21.0 Subsidiaries of the Registrant.
- 29 -
EXHIBIT DESCRIPTION
------- -----------------------------------------------------------------------
Name State or Jurisdiction of Incorporation
------------------------- --------------------------------------
i5ive communications inc. British Columbia, Canada
23 Consent of experts and counsel:
23.1 Consent of N.I. Cameron, Inc.
--------------------------
(1) Filed as an Exhibit to Neuro Navigational Corporation Form 10-KSB No.
0-25136 dated September 30, 1994.
(2) Filed as Exhibit to Neuro Navigational Corporation Form 8-K dated July
17, 1995.
(3) Filed as an Exhibit to our Current Report on Form 8-K dated December
10, 1998.
(4) Filed as an Exhibit to our Current Report on Form 8-K dated February
14, 2002.
(5) Filed as an Exhibit to our Current Report on Form 8-K dated March 15,
2002.
(b) REPORTS ON FORM 8-K
During the quarter ended December 31, 2001, we did not file any
Current Reports on Form 8-K.
- 30 -
SUITE101.COM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND DECEMBER 31, 2000
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in
Stockholders' Equity F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 to F-14
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Suite101.com, Inc.
We have audited the accompanying consolidated balance sheets of Suite101.com,
Inc. as of December 31, 2001 and December 31, 2000 and the related consolidated
statements of operations, stockholders' equity and cash flows for the two years
then ended. The financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2001 and December 31, 2000, and the results of their operations and
their cash flows for the two years then ended, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has experienced accumulated losses and has had
no material revenue producing operations to date. The Company's ability to
continue as a going concern is dependent upon its ability to raise additional
capital or to merge with a revenue producing venture partner. These matters
raise doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ N.I. Cameron Inc.
VANCOUVER, B.C. CHARTERED ACCOUNTANTS
February 7, 2002
F-2
SUITE101.COM, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2001 AND DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
2001 2000
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 4,048,630 $ 5,671,211
Accounts receivable 42,289 34,458
Prepaid expenses 68,453 50,306
----------- -----------
4,159,372 5,755,975
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at cost (Note 2)
Computer equipment 217,394 200,540
Furniture and fixtures 22,352 17,677
Leasehold improvements 7,990 11,401
----------- -----------
247,736 229,618
Less: accumulated amortization 127,295 95,796
----------- -----------
120,441 133,822
----------- -----------
TOTAL ASSETS $4,279,813 $ 5,889,797
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 223,531 $ 220,874
----------- -----------
TOTAL LIABILITIES 223,531 220,874
----------- -----------
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:
13,155,046 common shares 13,155 13,155
DEFERRED COMPENSATION (14,034) (41,775)
ADDITIONAL PAID-IN CAPITAL 10,377,576 10,351,146
DEFICIT (6,233,343) (4,591,713)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION (87,072) (61,890)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,056,282 5,668,923
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,279,813 $ 5,889,797
=========== ===========
COMMITMENTS AND SUBSEQUENT EVENTS (NOTE 8)
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
SUITE101.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
2001 2000
----------- -----------
SALES $ 40,067 $ 1,620
COST OF SALES 19,850 --
----------- -----------
GROSS PROFIT 20,217 1,620
----------- -----------
OPERATING EXPENSES
General and administrative 1,603,470 2,148,139
Marketing 239,798 517,882
----------- -----------
1,843,268 2,666,021
----------- -----------
LOSS FROM OPERATIONS (1,823,051) (2,664,401)
----------- -----------
OTHER INCOME (EXPENSES)
Other income, net 188,631 378,448
Loss on disposal of leasehold improvements (7,210) --
----------- -----------
181,421 378,448
----------- -----------
NET LOSS $(1,641,630) $(2,285,953)
=========== ===========
INCOME (LOSS) PER SHARE
Basic and Diluted $ (0.12) $ (0.18)
=========== ===========
Average common shares outstanding 13,155,046 12,994,200
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
SUITE101.COM, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
Equity
Adjustment
From
Additional Foreign Total
Common Stock Paid-in Deferred Currency Accumulated Stockholders'
Shares Amount Capital Compensation Translation Deficit Equity
---------- ------- ----------- ------------ ----------- ----------- ------------
Balances, January 1, 2000 12,061,837 $12,062 $ 5,354,504 $ (99,792) $ 9,357 $(2,305,760) $ 2,970,371
Warrants exercised 1,050,000 1,050 4,651,950 -- -- -- 4,653,000
Stock options exercised 43,209 43 64,770 -- -- -- 64,813
Stock options or warrants
issued to non-employees -- -- 279,922 (279,922) -- -- --
Stock compensation vested -- -- -- 337,939 -- -- 337,939
Net Loss for the year ended
December 31, 2000 -- -- -- -- -- (2,285,953) (2,285,953)
Translation adjustment for the
year ended December 31, 2000 -- -- -- -- (71,247) -- (71,247)
---------- ------- ----------- --------- -------- ----------- -----------
Balances, December 31, 2000 13,155,046 13,155 10,351,146 (41,775) (61,890) (4,591,713) 5,668,923
Stock options issued to
non-employees -- -- 26,430 (26,430) -- -- --
Stock compensation vested -- -- -- 54,171 -- -- 54,171
Net loss for the year ended
December 31, 2001 -- -- -- -- -- (1,641,630) (1,641,630)
Translation adjustment for the
year ended December 31, 2001 -- -- -- -- (25,182) -- (25,182)
---------- ------- ----------- --------- -------- ----------- -----------
13,155,046 $13,155 $10,377,576 $ (14,034) $(87,072) $(6,233,343) $ 4,056,282
========== ======= =========== ========= ======== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
SUITE101.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
2001 2000
----------- -----------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $(1,641,630) $(2,285,953)
Adjustment to reconcile net loss to net cash used in operating activities
Loss on disposition of leasehold improvements 7,210 --
Amortization 42,005 46,339
Stock-based compensation 54,171 337,939
----------- -----------
(1,538,244) (1,901,675)
Changes in operating assets and liabilities
Accounts receivable (9,558) (8,332)
Prepaid expenses and deposits (19,775) (12,970)
Accounts payable and accrued expenses 15,135 134,168
----------- -----------
Net cash used in operating activities (1,552,442) (1,788,809)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (43,662) (39,905)
----------- -----------
Net cash used in investing activities (43,662) (39,905)
----------- -----------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants -- 4,717,813
----------- -----------
Net cash provided by financing activities -- 4,717,813
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH (26,477) (65,326)
----------- -----------
NET INCREASE (DECREASE) IN CASH (1,622,581) 2,823,773
CASH AT BEGINNING OF YEAR 5,671,211 2,847,438
----------- -----------
CASH AT END OF YEAR $ 4,048,630 $ 5,671,211
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND DECEMBER 31, 2000
(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 December 31, 2001, the Company had
accumulated $6,233,343 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 December 31, 2001, 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.
F-7
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND DECEMBER 31, 2000
(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 December 31, 2001 and December 31, 2000 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.$) 2001 2000
------ ------
December 31 rate .6278 .6668
(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 and consulting fees of $147,174
(2000 - $215,855) to three directors of the Company. These items
have been recorded at the exchange amount.
(b) Accounts payable include $146,158 (2000 - $118,632) due to a
director for wages and expenses.
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.
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.
F-8
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
4. CAPITAL STOCK (CONTINUED)
During the year ended December 31, 2000, all 1,000,000 warrants
were exercised to net the Company $4,500,000.
(b) During the year ended December 31, 2000, the Company issued 34,396
common shares for total proceeds of $51,594 upon exercise of stock
options.
(c) 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.
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.
F-9
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND DECEMBER 31, 2000
(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 Balance Exercisable
Exercise Date Date December 31, During Exercised (E) December 31, December 31,
Price (mm/dd/yy) (mm/dd/yy) 2000 the Period Cancelled (C) 2001 2001
-------------------------------------------------------------------------------------------------------------------------
$1.50 12/04/03 12/04/99 184,649 -- 25,612 (C) 159,037 159,037
1.50 12/04/03 12/04/00 36,114 -- 8,277 (C) 27,837 29,556
1.50 02/23/09 (1/3) 02/23/00 50,000 -- -- 50,000 33,334
(1/3) 02/23/01
(1/3) 02/23/02
1.50 04/27/09 (1/3) 04/27/00 50,000 -- -- 50,000 33,334
(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 11/13/00 720,000 -- 73,700 (C) 646,300 646,300
3.53 01/31/02 (1/2) 01/31/00 4,000 -- -- 4,000 4,000
(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 70,000 -- 20,000 (C) 50,000 16,668
16,666 - 01/31/02
16,666 - 01/31/03
1.50 04/17/05 20,402 - 04/17/00 110,805 -- 50,738 (C) 60,067 30,047
30,137 - 04/17/01
30,133 - 04/17/02
30,133 - 04/17/03
1.50 07/05/05 3,222 - 07/05/00 56,443 -- -- 56,443 20,962
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 1,012,578 -- 13,342 (C) 999,236 999,236
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 -- 569,505 85,095 (C) 484,410 134,773
376,507 - 01/04/02
50,000 - 01/04/03
0.25 05/10/06 05/10/01 -- 5,939 1,671 (C) 4,268 4,268
0.25 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 2,516
3,000 - 01/04/02
10,000 - 01/04/03
F-10
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND DECEMBER 31, 2000
(EXPRESSED IN U.S. DOLLARS)
5. STOCK OPTIONS (CONTINUED)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (CONTINUED)
Of the above options, the following options were originally granted
with exercise prices as follows:
New Option Exercise Price Expiry Date Original Exercise Price
----------------------------------------------------------------------
1.50 02/23/09 3.34
1.50 04/27/09 6.38
1.50 06/11/09 4.13
1.50 01/31/05 3.53
1.50 03/21/05 7.88
1.50 06/12/10 2.375
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, and 275%
for the $0.25 options, an expected option life of 5 years and no
expected dividends.
F-11
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND DECEMBER 31, 2000
(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 year ended December
31, 2001 would have been as follows:
Net loss
As reported $(1,641,630)
Pro forma $(1,926,395)
Basic net loss per share
As reported $(0.12)
Pro forma $(0.15)
Subsequent to December 31, 2001, 52,416 options were exercised to net
the Company $13,104.
6. INCOME TAXES
At December 31, 2001, there were deferred income tax assets resulting
primarily from operating loss carryforwards for Canadian tax purposes
totaling approximately $1,840,000 less a valuation allowance of
$1,840,000. The valuation allowance on deferred tax assets increased by
$290,000 during the year ended December 31, 2001.
At December 31, 2001, the Company had net operating loss carryforwards
for Canadian tax purposes of approximately $4,606,000. These
carryforwards begin to expire in 2003.
At December 31, 2001, there were deferred income tax assets resulting
from operating loss carryforwards for U.S. income tax purposes totaling
approximately $565,000 less a valuation allowance of $565,000. The
valuation allowance on deferred tax assets increased by $85,000 during
the year ended December 31, 2001. The Company has approximately
$1,320,000 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.
F-12
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND DECEMBER 31, 2000
(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 share
expiring February 28, 2002. This warrant has been valued at
$11,750 using the Black-Scholes model and is reflected as
compensation on these financial statements.
(b) During the 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.
(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 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.
F-13
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001 AND DECEMBER 31, 2000
(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 $1,897 plus the Company's proportionate share of operating
costs and taxes (currently $1,040 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) Subsequent to December 31, 2001, the Company terminated virtually
all its employees. In connection with this, the Company paid
$535,000 in severance pay.
9. COMPREHENSIVE INCOME (LOSS)
DECEMBER 31, DECEMBER 31,
2001 2000
---------------------------
Net loss as reported $(1,641,630) $(2,285,953)
Add (deduct)
Foreign currency translation adjustments (25,182) (71,247)
-----------------------------
Comprehensive Income (Loss) $(1,666,812) $(2,357,200)
=============================
Accumulated other comprehensive income
Foreign currency translation adjustments
Balance at beginning of period $ (61,890) $ 9,357
Change during the period (25,182) (71,247)
-----------------------------
Balance at end of period $ (87,072) $ (61,890)
=============================
F-14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SUITE101.COM, INC.
BY: /s/ Mitchell G. Blumberg
------------------------
MITCHELL G. BLUMBERG, PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Mitchell G. Blumberg President (Principal March 27, 2002
-------------------------- Executive Officer)
Mitchell G. Blumberg and Director
/s/ Cara M. Williams Vice President - Finance March 27, 2002
--------------------- (Principal Financial
Cara M. Williams and Accounting Officer)
/s/ Douglas Loblaw Director March 27, 2002
-------------------
Douglas Loblaw
/s/ John Campbell Director March 27, 2002
------------------
John Campbell
/s/ Brent Peters Director March 27, 2002
-----------------
Brent Peters
- 31 -