SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2002; or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to_________.
Commission file Number: 0-25136
SUITE101.COM INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0464753
-------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation of organization) identification no.)
SUITE 210 - 1122 MAINLAND STREET, VANCOUVER, BC, CANADA V6B 5L1
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(Address of principal executive offices, zip code)
604-682-1400
------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
proceeding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES ___X_____ NO __________
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at November 1, 2002
-------------------------------- -----------------------------------------
COMMON STOCK, PAR VALUE 13,751,222
$.001 PER SHARE
Transitional Small Business Disclosure Format
YES |_| NO |X|
SUITE101.COM, INC.
QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements 3
Independent Accountants' Report 3
Consolidated Balance Sheets - September 30, 2002 and December 31, 2001 4
Consolidated Statements of Operations - Three-Month and
Nine-Month 5 Periods Ended September 30, 2002 and
September 30, 2001 5
Consolidated Statements of Cash Flows - Nine-Month
Periods Ended 6 September 30, 2002 and September 30,
2001 6
Notes to Consolidated Financial Statements - September 30, 2002 and
September 30, 2001 7-15
Item 2. Management's Discussion and Analysis or Plan of Operation 16-22
Item 3. Controls and Procedures 22
PART II OTHER INFORMATION 23
Item 6. Exhibits and Reports on Form 8-K 23-27
2
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
SUITE101.COM, INC.
VANCOUVER, B.C., CANADA
We have reviewed the accompanying consolidated balance sheet of SUITE101.COM,
INC. and subsidiaries as of September 30, 2002, the related consolidated
statements of operations for the nine-month and three-month periods then ended,
and the related statement of cash flows for the nine-month period then ended.
These financial statements are the responsibility of the Corporation's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
N.I. Cameron Inc. (signed)
VANCOUVER, B.C. CHARTERED ACCOUNTANTS
October 31, 2002
3
SUITE101.COM, INC.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
ASSETS
SEPTEMBER 30, DECEMBER 31,
2002 2001
------------- ------------
(UNAUDITED)
CURRENT ASSETS
Cash $ 3,003,827 $4,048,630
Accounts receivable 19,371 42,289
Prepaid expenses 78,103 68,453
----------- ----------
3,101,301 4,159,372
----------- ----------
INVESTMENTS, AT COST (NOTE 3(C)) 1 --
----------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST (NOTE 2)
Computer equipment 2,520 217,394
Furniture and fixtures - 22,352
Leasehold improvements 8,019 7,990
----------- ----------
10,539 247,736
Less: accumulated amortization 4,113 127,295
----------- ----------
6,426 120,441
----------- ----------
TOTAL ASSETS $ 3,107,728 $4,279,813
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 26,739 $ 223,531
----------- ----------
CAPITAL STOCK (NOTES 4, 5 AND 8)
Authorized:
40,000,000 common shares with a par value of $0.001 each
1,000,000 preferred shares with a par value of $0.01 each
Issued:
13,751,222 common shares 13,752 13,155
DEFERRED COMPENSATION - (14,034)
ADDITIONAL PAID-IN CAPITAL 10,526,024 10,377,576
DEFICIT (7,378,246) (6,233,343)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION (80,541) (87,072)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 3,080,989 4,056,282
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,107,728 $4,279,813
=========== ==========
COMMITMENTS (NOTE 8)
The accompanying notes are an integral part of these consolidated
financial statements.
4
SUITE101.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE-MONTH AND THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------------------- -------------------------------
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
2002 2001 2002 2001
-------------- --------------- -------------- -------------
ADMINISTRATIVE EXPENSES $ 75,044 $ 45,111 $ 258,202 $ 139,858
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (75,044) (45,111) (258,202) (139,858)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES)
Loss on disposal of assets (99,887) - (99,887) -
Forfeited deposit - - 45,736 -
Other income, net 12,614 38,654 37,550 166,657
----------- ----------- ----------- -----------
(87,273) 38,654 (16,601) 166,657
----------- ----------- ----------- -----------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS (162,317) (6,457) (274,803) 26,799
LOSS FROM DISCONTINUED OPERATIONS (NOTE 10) - (366,060) (870,100) (1,304,942)
NET LOSS $ (162,317) $ (372,517) $(1,144,903) $(1,278,143)
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS $ (0.01) $ - $ (0.02) $ -
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE
Basic and Diluted $ (0.01) $ (0.03) $ (0.09) $ (0.10)
=========== =========== =========== ===========
Weighted average common shares outstanding 13,697,891 13,155,046 13,430,574 13,155,046
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
5
SUITE101.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
2002 2001
------------- -------------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $ (1,144,903) $ (1,278,143)
Adjustment to reconcile net loss to net cash used in operating activities:
Stock-based compensation 14,034 46,392
Loss on disposal of assets 99,887 7,210
Amortization 17,857 31,795
------------- -------------
(1,013,125) (1,192,746)
Changes in operating assets and liabilities
Accounts receivable 23,322 6,313
Prepaid expenses and deposits (9,196) (29,379)
Accounts payable and accrued expenses (196,906) (19,433)
------------- -------------
Net cash used in operating activities (1,195,905) (1,235,245)
------------- -------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Proceeds on disposal of property, plant and equipment 728 -
Purchase of capital assets (2,360) (44,125)
------------- -------------
Net cash used in investing activities (1,632) (44,125)
------------- -------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Shares issued 149,044 -
------------- -------------
Net cash provided by financing activities 149,044 -
------------- -------------
EFFECT OF EXCHANGE RATES ON CASH 3,690 (25,738)
------------- -------------
NET DECREASE IN CASH (1,044,803) (1,305,108)
CASH AT BEGINNING OF PERIOD 4,048,630 5,671,211
------------- -------------
CASH AT END OF PERIOD $3,003,827 $4,366,103
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
6
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
1. THE COMPANY
Suite101.com Inc. (formerly known as Kinetic Ventures Ltd. (the
"Company")) was incorporated in the State of California, United States
on May 20, 1991, and reincorporated in the State of Delaware, United
States on December 31, 1993. By way of a reverse takeover on December
8, 1998 (see Note 2) the Company acquired a wholly-owned subsidiary
i5ive communications inc. ("i5ive"). Until operations ceased on May 31,
2002 (Note 10) i5ive was 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 September 30, 2002, the Company had
accumulated $7,378,246 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 September 30, 2002, there were no
operations in Endovascular, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles. Because a
precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period
necessarily involves the use of estimates which have been made using
careful judgment by management.
The consolidated financial statements have, in management's opinion,
been properly prepared within reasonable limits of materiality and
within the framework of the significant accounting policies summarized
below:
(a) Property, Plant and Equipment
Property, plant and equipment are capitalized at original cost
and amortized over their estimated useful lives at the following
annual bases and rates:
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements 20% straight-line
One-half the normal amortization is taken in the year of
acquisition.
7
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Research and Development
Research and development costs are expensed as incurred.
(c) Foreign Exchange
Unless otherwise stated, all amounts are in United States
dollars. The functional currency of i5ive is the Canadian
dollar. Hence, all asset and liability accounts have been
translated using the exchange rate as at September 30, 2002
and December 31, 2001 and all revenues and expenses have been
translated using the average exchange rate for each period.
The rates used were as follows:
(equivalent CDN $ per U.S.$) September 30, December 31,
2002 2001
---------------------------------------
Exchange rate .6300 .6278
(d) Net Loss Per Common Share
The Company computes its loss per share in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" ("EPS") issued in February 1997. SFAS No.
128 requires dual presentation of basic EPS and diluted EPS on
the face of the income statement for entities with complex
capital structures. Basic EPS is computed as net income
divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential
dilution that could occur from common shares issuable through
stock options, warrants and other convertible securities.
3. RELATED PARTY TRANSACTIONS
(a) The Company has incurred salaries, termination payments and
consulting fees of $218,039 during the nine months ended
September 30, 2002 (2001 - $103,579) to three directors of the
Company.
(b) Management fees of $104,382 have been paid during the nine
months ended September 30, 2002 to a corporation controlled by
a director of the Company.
(c) During the nine months ended September 30, 2002, the Company
sold its website assets, as defined in the sales agreement, to
a corporation controlled by a director of the Company. In
consideration for this sale, the Company received $100 cash
and 15% of the issued shares of the acquiring corporation. In
addition, if any of these acquired assets are sold within one
year of the closing date (July 17, 2002), the entire proceeds
of that sale are payable to the Company. As at October 31,
2002, none of these assets have been sold. As security for
this obligation, the acquiring corporation has issued a
promissory note in the amount of $120,000 to the Company
payable on July 17, 2003. This note will be forgiven by the
Company provided the acquiring corporation has complied with
the condition concerning sale of any assets. The Company has
recorded its 15% interest in the acquiring corporation at $1
because there are no material assets in the acquiring
corporation other than those acquired in this transaction.
8
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
4. CAPITAL STOCK
(a) In April 1999, the Company completed a private placement of
1,000,000 units for $5,000,000. Each unit was comprised of two
common shares and one warrant entitling the holder to purchase
an additional common share for $4.50 on or before February 29,
2000. During the year ended December 31, 2000, all 1,000,000
warrants were exercised to net the Company $4,500,000. The
Company incurred $163,750 in expenses concerning this share
issuance and issued 15,000 warrants entitling the holder to
purchase an additional common share for $5.50 on or before
February 29, 2002. None of these 15,000 warrants were
exercised prior to their expiry date.
(b) During the year ended December 31, 2000, the Company issued
625,000 warrants as part of the private placement of Notes
payable. Each warrant entitled 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. During the second quarter of 2002, the
exercise price of these warrants was changed to $0.52 and the
expiry date was changed to July 15, 2003. To date, none of
these warrants have been exercised.
(c) During the nine months ended September 30, 2002, the Company
issued 596,176 common shares for total proceeds of $149,044
upon exercise of stock options.
5. STOCK OPTIONS
THE COMPANY'S 1998 STOCK INCENTIVE PLAN
In December 1998, the Company adopted the 1998 Stock Incentive Plan
(the "Plan"). Under the Plan, as amended, 3,900,000 shares of common
stock have been reserved for issuance on exercise of options granted
under the Plan.
On the date of the closing of the transaction with i5ive, outstanding
options granted under i5ive's 1998 Stock Incentive Plan were assumed by
the Company under the Plan and no further option grants will be made
under i5ive's Plan. The assumed options have substantially the same
terms, subject to anti-dilution adjustment, as are in effect for grants
made under the Company's Plan.
The Board of Directors of the Company may amend or modify the Plan at
any time, subject to any required stockholder approval. The Plan will
terminate on the earliest of (i) 10 years after the Plan Effective
Date, (ii) the date on which all shares available for issuance under
the Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain
changes in control or ownership of the Company.
9
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND SEPTEMBER 20, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
5. STOCK OPTIONS (CONTINUED)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (CONTINUED)
The following is a table of stock options under the Plan as at
September 30, 2002:
Balance
Option Expiry Vesting Balance Granted Expires (Exp) Balance Exercisable
Exercise Date Date December 31, During Exercised (E) September 30, September 30,
Price (mm/dd/yy) (mm/dd/yy) 2001 the Period Cancelled (C) 2002 2002
----------- ---------- ----------------- ------------ ---------- ------------- ------------- -------------
$ 1.50 12/04/03 12/04/99 159,037 - 25,510(C) 133,527 133,527
1.50 12/04/03 12/04/00 27,837 - 12,964(C) 14,873 14,873
1.50 02/23/09 (1/3) 02/23/00 50,000 - - 50,000 50,000
(1/3) 02/23/01
(1/3) 02/23/02
1.50 04/27/09 (1/3) 04/27/00 50,000 - - 50,000 50,000
(1/3) 04/27/01
(1/3) 04/27/02
1.50 06/11/09 06/11/00 10,000 - - 10,000 10,000
1.50 10/25/05 (1/2) 10/25/00 100,000 - - 100,000 100,000
(1/2) 10/25/01
1.50 11/13/04 11/13/99 137,900 - 5,500(C) 132,400 132,400
1.50 11/13/04 11/13/00 646,300 - 194,700(C) 451,600 451,600
3.53 01/31/02 (1/2) 01/31/00 4,000 - 4,000(Exp) - -
(1/2) 01/31/01
1.50 03/21/05 03/21/01 20,000 - - 20,000 20,000
1.50 01/31/05 16,668 - 01/31/01 50,000 - 10,000(C) 40,000 40,000
16,666 - 01/31/02
16,666 - 01/31/03
1.50 04/17/05 20,402 - 04/17/00 60,067 - 10,000(C) 50,067 50,067
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 - 10,000(C) 46,443 46,443
17,740 - 07/05/01
17,740 - 07/05/02
17,741 - 07/05/03
0.25 12/21/05 585,476 - 12/21/00 999,236 - 429,554(E) 565,269 565,269
420,677 - 12/21/01 4,413(C)
1.50 06/12/10 06/12/00 10,000 - - 10,000 10,000
0.25 01/04/06 136,073 - 01/04/01 484,410 - 180,415(C) 140,000 140,000
376,507 - 01/04/02 163,995(E)
50,000 - 01/04/03
0.25 05/10/06 05/10/01 4,268 - 1,641 1,641
2,627(E)
0.17 06/04/11 06/04/01 10,000 - - 10,000 10,000
0.25 10/03/06 2,516 - 10/30/01 15,516 - - 15,516 15,516
3,000 - 01/04/02
10,000 - 01/04/03
0.27 02/25/12 50,001 - 02/25/03 - 150,000 - 150,000 -
50,001 - 02/25/04
49,998 - 02/25/05
0.27 02/27/07 16,667 - 02/27/03 - 50,000 - 50,000 -
16/667 - 02/27/04
16/666 - 02/27/05
0.50 06/11/12 06/11/03 - 20,000 - 20,000 -
10
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
5. STOCK OPTIONS (CONTINUED)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (CONTINUED)
As a result of the termination of certain employees and directors, and
a directors' resolution made during the period, changes have been made
to the expiry dates and vesting dates of the above options as follows:
i. All options other than the $0.27 and $0.50 options
became immediately vested.
ii. Of the remaining $1.50 options, the expiry dates are
as follows:
October 16, 2003 43,800
June 30, 2003 1,065,110
iii. The $0.25 options will expire on December 31, 2002.
iv. The $0.17 options will expire December 31, 2002.
The above options are granted for services provided to the Company. Of the
above options, the following options are to non-employees and have been
reflected on the financial statements and valued, using the Black-Scholes
model with a risk-free rate of 5% and no expected dividends:
Number of Exercise Grant Date Value Volatility Expected
Options Price Assumption Options Life
-------------------- ---------------- --------------------- ------------------- -------------------- -------------------
100,000 1.50 October 25, 1999 $ 99,750 272% 5 years
50,000 3.56 January 6, 2000 99,635 60% 5 years
4,000 3.53 January 31, 2000 5,120 60% 2 years
100,000 7.00 February 15, 2000 203,970 20% 5 years
20,000 7.88 March 21, 2000 45,922 20% 5 years
100,000 0.25 January 4, 2001 23,390 275% 5 years
13,000 0.25 October 3, 2001 3,041 275% 5 years
The remaining options issued were to officers, directors and employees. As
the options were granted at exercise prices based on the market price of
the Company's shares at the dates of the grant, no compensation cost is
recognized. However, under SFAS 123, the impact on net income and net
income per share of the fair value of stock options must be measured and
disclosed on a fair value based method on a pro forma basis. The fair
value of the employees' purchase rights under SFAS 123 was estimated using
the Black-Scholes model with the following assumptions used for options:
risk-free rate was 5.0%, expected volatility of 279%, 272% 263% and 257%
for the $1.50 options, 275% for the $0.25 and $0.17 options, and 96% for
the $0.27 options, an expected option life of 5 years and no expected
dividends.
11
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
5. STOCK OPTIONS (CONTINUED)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (CONTINUED)
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the period ended September
30, 2002 would have been as follows:
Net loss
As reported $ (1,144,903)
Pro forma $ (1,212,697)
Basic net loss per share
As reported $ (0.09)
Pro forma $ (0.09)
6. INCOME TAXES
At September 30, 2002, there were deferred income tax assets resulting
primarily from operating loss carryforwards for Canadian tax purposes
totaling approximately $2,187,000 less a valuation allowance of
$2,187,000. The valuation allowance on deferred tax assets increased by
$347,000 during the period ended September 30, 2002.
At September 30, 2002, the Company had net operating loss carryforwards
for Canadian tax purposes of approximately $5,438,000. These
carryforwards begin to expire in 2003.
At September 30, 2002, there were deferred income tax assets resulting
from operating loss carryforwards for U.S. income tax purposes totaling
approximately $656,000 less a valuation allowance of $656,000. The
valuation allowance on deferred tax assets increased by $91,000 during
the period ended September 30, 2002. The Company has approximately
$1,530,000 available in operating loss carryforwards, which may be
carried forward and applied against U.S. operating income.
7. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments consist of cash, accounts
receivable and accounts payable. It is management's opinion that the
Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments. The fair value of these
financial instruments approximates their carrying values.
12
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
8. COMMITMENTS AND SUBSEQUENT EVENTS
(a) On March 23, 1999, the Company entered into a twelve-month
agreement with a consultant, which provided for fees of $5,000
per month. In addition, the consultant was issued a one-year
warrant to purchase 50,000 shares of common stock at a price
of $3.06 per share. This warrant has been valued at $33,420
using the Black-Scholes model as described earlier and is
reflected as compensation on these financial statements.
During the year ended December 31, 2000, this warrant was
exercised to net the Company $153,000. Subsequent to December
31, 1999, this agreement was amended to increase the fees to
$20,900 for the six-month period beginning August 23, 1999,
extend the period of services by six-months, and to issue a
warrant to purchase 25,440 shares of common stock of the
Company at a price of $5.50 per 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. This warrant expired during the current
period without being exercised.
(b) During the year ended December 31, 2000, the Company entered
into a one-year agreement with a consultant. The consultant
was issued a warrant to purchase 14,000 shares of common stock
of the Company at a price of $5.50 per share, expiring on
February 26, 2002. This warrant has been valued at $9,562
using the Black-Scholes model as described earlier and is
reflected as compensation on these financial statements. This
warrant expired during the current period without being
exercised.
(c) The Company has entered into an agreement dated February 17,
2000 for consulting and corporate finance services which
provides for the issue of 2-year warrants at the following
milestones:
Upon execution of consulting agreement - 25,000 (issued)
On signed letter of intent with target customer - 25,000
On signed agreement with target customer - 25,000
On signed agency agreement to market similar program
to others in same industry in North America - 25,000
In addition, the agreement provides for additional warrants to
be issued over 3 years based on 10% of any payout to
participants under the plan developed with customer(s)
resulting from the agency agreement. The warrants to be issued
are based on the average price of the Company's stock for the
10-day period prior to the issuance of the warrants, less a
20% discount.
The initial 25,000 warrants issued had an exercise price of
$4.96 per share and expired February 17, 2002 without being
exercised. They have been valued at $115,060 using the
Black-Scholes model as described earlier and have been
reflected as compensation on these financial statements.
13
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
8. COMMITMENTS AND SUBSEQUENT EVENTS (CONTINUED)
(d) During the year ended December 31, 2001, the Company entered
into an operating lease for its office space. The lease
expires March 31, 2003 and provides for monthly payments
commencing May 1, 2001 of $1,903 plus the Company's
proportionate share of operating costs and taxes (currently
$1,043 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) The Company is obligated under the terms of an agreement to
make monthly payments of $1,418 until April 2003 for the
hosting of its former server.
9. COMPREHENSIVE INCOME (LOSS)
SEPTEMBER 30, SEPTEMBER 30,
2002 2001
------------- -------------
Net lossted $ (1,144,903) $ (1,278,143)
Add (deduct)
Foreign currency translation adjustments 6,531 (24,620)
-------------- -------------
Comprehensive Income (Loss) $ (1,138,372) $ (1,302,763)
============== =============
Accumulated other comprehensive income
Foreign currency translation adjustments
Balance at beginning of period $ (87,072) $ (61,890)
Change during the period 6,531 (24,620)
-------------- -------------
Balance at end of period $ (80,541) $ (86,510)
============== =============
10. DISCONTINUED OPERATIONS
On May 31, 2002, the Company discontinued its internet-based
activities. As at September 30, 2002, the assets and liabilities of
this discontinued business were comprised of the following:
Assets $ 0
============
Liabilities
Accounts payable $ 16,864
============
Revenues from discontinued operations are as follows:
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
------------------ ------------------ ------------------ ------------------
$ -- $ 11,781 $ 6,799 $ 12,043
------ --------- -------- ---------
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction
with, and is qualified in its entirety by, the more detailed information
including our Financial Statements and the Notes thereto included in our Annual
Report on Form 10-KSB for the year ended December 31, 2001. This Quarterly
Report contains forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results discussed in the
forward-looking statements. Factors that may cause or contribute to such
differences include the Risk Factors set forth below as well as the "Risk
Factors" contained in our Annual Report. See "Cautionary Statement for Purposes
of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act
of 1995" herein.
A COMPARISON OF OUR OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2002 AND THE NINE MONTHS ENDED JUNE 30, 2001
Administrative expenses were $258,202 during the nine months ended
September 30, 2002 compared with $139,858 during the nine months ended September
30, 2001. Administrative expenses were $75,044 for the three months ended
September 30, 2002 compared with administrative expenses of $45,111 for the
three months ended September 30, 2001. Administrative expenses for the three
months ended June 30, 2002 were $75,325. The increase in administrative expenses
in 2002 over 2001 was primarily the result of an increase in professional fees
and an increase in stockholder reporting costs resulting primarily from our
efforts to redirect our operations.
Our Loss From Operations was $258,202 during the nine-month period
ended September 30, 2002 compared with $139,858 during the nine-month period
ended September 30, 2001. The increase in our Loss From Operations during the
nine-month periods ended September 30, 2002 compared with the nine-month period
ended September 30, 2001 was the result of the increase in our administrative
expenses.
Other income was $83,286 during the nine-month period ended September
30, 2002 compared to $166,657 during the nine-month period ended September 30,
2001. Included in other income is income attributable to interest earned on bank
balances; during the nine-month period ended September 30, 2002, net interest
income was $37,550 compared to $166,657 during the comparative nine-month period
ended September 30, 2001. The decline in the net interest earned results from
the decline in bank cash balances carried through these periods. Also included
in other income during the nine months ended September 30, 2002 is income from
forfeited deposits of $45,000. Effective March 15, 2002, i5ive communications
inc. ("i5ive"), our wholly-owned subsidiary, entered into an option agreement
with Double B Holdings, LLC, a privately-owned non-affiliated entity organized
for the
15
purpose of acquiring the option. The option granted Double B the right to
purchase the web site assets owned and operated by i5ive. The terms of the
option agreement provided that Double B, in consideration of a non-refundable
payment of $15,000, had 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, had the right to purchase the assets for an additional thirty days.
Both deposits were paid and the option expired on May 14, 2002 and the option
deposits were forfeited.
Included as other expenses during the nine-month period ended September
30, 2002 was a loss on the disposal of assets amounting to $99,887 with no such
loss (or expense) during the nine-month period ended September 30, 2001.
On July 17, 2002, effective June 1, 2002, the Company's wholly-owned
subsidiary, i5ive, completed the sale of its web site assets to Creative
Marketeam Canada, Ltd which resulted in the loss on the disposal of assets of
$99,887. In consideration for the assets, Marketeam issued to i5ive a 15% equity
interest in Marketeam and agreed that in the event the assets are resold by
Marketeam within one (1) year, a sum equal to the proceeds of the sale would be
paid over to i5ive. The sale of web site assets was a result of the
determination of the Board of Directors made in December 2001 to seek to
redirect the Company's activities. The i5ive assets sold to Marketeam were the
subject of the option agreement entered into in March 2002 with Double B which
option agreement expired in May 14, 2002 without having been exercised. The web
site assets were not producing any material revenues and were contributing to an
outflow of cash. The sale of the i5ive assets to Marketeam was unanimously
approved by Messrs. Blumberg, Campbell and Peters constituting all Suite101's
directors not having any interest in the transaction.
On May 31, 2002, the Company discontinued its internet-based
activities. During the nine months ended September 30, 2002 our revenue from
discontinued operations was $6,799 compared with $12,043 during the nine months
ended September 30, 2001. The revenue during the nine-month periods ended
September 30, 2002 and September 30, 2001 were primarily attributable to
revenues generated from two service contracts that we entered into with
Barnes&Noble.com to provide introductions for a series of e-books and to provide
proofreading services for the related digitized books. The net loss during the
nine months ended September 30, 2002 from discontinued operations was $870,100
compared with $1,304,942 during the nine months ended September 30, 2001. The
decrease was primarily the result of a change in our compensation arrangements
with our contributing editors and the cessation of all our marketing activities
focused at promoting our web site activities.
Our Net Loss was $1,144,903 during the nine-month period ended
September 30, 2002 compared with $1,278,143 during the nine-month period ended
September 30, 2001. The decrease in our Net Loss during this nine-month period
ended September 30, 2002 compared with the nine-month period ended September 30,
2001 was the result of the increase in administrative expenditures, from the
loss on disposal of assets, a decrease in other income and a decrease in the
loss from discontinued 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 ability to continue as a going concern due to
our recurring losses. At September 30, 2002, our cash balance was $3,003,827.
16
The majority of these funds are currently held as U.S funds in our bank accounts
earning interest based on the US Base Rate. We believe these cash resources will
be sufficient to meet our ongoing financial commitments through December 31,
2002. Currently, we have no source of revenues.
During the nine months ended September 30, 2002 our cash balances
decreased by $1,044,803 of which approximately $520,000 represents severance
costs paid to our employees and independent contractors upon their termination
from the Company and approximately $200,000 was a reduction in accounts payable.
We estimate our ongoing monthly cash outflow will amount to approximately
$20,000.
The terms of the 625,000 outstanding common stock purchase warrants
that were issued during the year ended December 31, 2000 as part of a private
placement were amended effective May 21, 2002. The purchase price was reduced to
$0.52 from $5.00 and the expiration date was extended to July 15, 2003 from July
15, 2002. The warrants were issued in a private sale of securities in 2000.
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. On February
14, 2002, effective January 31, 2002, the Company entered into an agreement with
Creative Marketeam Canada Ltd., a corporation wholly owned by Douglas Loblaw,
our former Chief Operating Officer and, since February 25, 2002, a Director of
our Company, to provide continuing management and operating services, at
Marketeam's expense, for the day-to-day operations of the Suite101 web site,
known as Suite101.com. Subsequently, on February 25, 2002, Mr. Loblaw was
elected a Director of our Company. In consideration of the services performed by
Marketeam, we paid Marketeam a fee of $26,000 per month, plus an amount equal to
our receipts from our contracts with Barnes&Noble.com. This management and
operating services agreement was terminated on May 31, 2002, subsequent to the
expiry of the Option with Double B. On May 31, 2002 the Company discontinued its
internet-based activities.
On July 17, 2002, effective June 1, 2002, the Company's wholly-owned
subsidiary, i5ive, completed the sale of its web site assets to Creative
Marketeam Canada, Ltd. In consideration for the assets, Marketeam issued to
i5ive a 15% equity interest in Marketeam and agreed that in the event the assets
are resold by Marketeam within one (1) year, a sum equal to the proceeds of the
sale would be paid over to i5ive. The sale of web site assets was a result of
the determination of the Board of Directors made in December 2001 to seek to
redirect the Company's activities. The i5ive assets sold to Marketeam were the
subject of the option agreement entered into in March 2002 with Double B which
option agreement expired in May 14, 2002 without having been exercised. The web
site assets were not producing any material revenues and were contributing to an
outflow of cash. The sale of the i5ive assets to Marketeam was unanimously
approved by Messrs. Blumberg, Campbell and Peters constituting all Suite101's
directors not having any interest in the transaction.
Management of Suite101 is currently seeking to redirect its activities
into another area of business and it is expected that this will involve a
business combination or other material transaction. Our current plan is to
utilize our available cash and other resources, including possibly, shares of
our Common Stock, to redirect our business activities. We believe that these
activities will be unrelated to the operation of an Internet Web site. As of
November 1, 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
17
transaction. Until we complete a transaction resulting in a redirection of our
business activities, we expect to continue to incur expenses without any
material revenues. In addition, we may incur reductions in the carrying value of
our fixed assets in connection with our efforts to redirect our activities.
As a result of our limited operating history and our efforts to
redirect our activities, we have limited meaningful historical financial data
upon which to base planned operating expenses. Accordingly, our anticipated
expense levels in the future are based in part on our estimates. We expect that
these expense levels will become, to a large extent, fixed. Revenues and
operating results generally will depend on our ability to redirect our business
activities into revenue- producing operations.
We may seek to raise additional funds in order to fund the acquisition
of revenue-producing operations. There can be no assurance that any additional
financing will be available on terms favorable to us, or at all. If adequate
funds are not available or not available on acceptable terms, we may not be able
to fund our efforts to redirect our activities. Any such inability could have a
material adverse effect on future success. Additional funds raised through the
issuance of equity or convertible debt securities, will result in reducing the
percentage ownership of our stockholders and, stockholders may experience
additional dilution and such securities may have rights, preferences or
privileges senior to those of the rights of our Common Stock.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed above
and elsewhere in this Quarterly Report are "forward-looking statements" as
defined under the Securities Exchange Act of 1934, as amended, that involve
risks and uncertainties. We intend that such forward-looking statements be
covered by the safe harbor provisions for forward-looking statements contained
in that act and we are including this statement for purposes of complying with
these safe harbor provisions. The forward-looking statements discussed in this
Quarterly Report appear in various places including: "Item 2 - Management's
Discussion and Analysis or Plan of Operations, "Liquidity and Capital
Resources," as well as in "Risk Factors." We caution readers that the risk
factors described in our Annual Report on Form 10-KSB, as well as those
described elsewhere in this Quarterly Report, or in our other filings with the
Commission, in some cases have affected, and in the future could affect our
actual results, could cause our actual results during 2002, 2003 and beyond, to
differ materially from those expressed in any forward-looking statements, and
could cause our development and the development of our business plans to be
different than expressed in those statements. We cannot assure you that our
assumptions in this regard or our views as to the viability of our business
plans will prove to be accurate. Likewise, we cannot assure you that we will be
successful in acquiring any commercial activities. Our ability to realize
revenues cannot be assured. If our assumptions are incorrect or if our plans
fail to materialize, we may be unsuccessful in developing as a viable business
enterprise. Under such circumstance your investment will be in jeopardy. There
can be no assurance that our estimates as to our current rates of cash
expenditures will prove to be accurate or that other factors may not result in
these estimates proving to be incorrect. Our inability to meet our goals and
objectives or the consequences to us from adverse developments in general
economic or capital market conditions could have a material adverse effect on
us. We caution you that various risk factors accompany those forward looking
statements and are described, among other places, under the caption "Risk
Factors" herein, beginning below. They are
18
also described in our Annual Report on Form 10-KSB, and our Current Reports on
Form 8-K. These risk factors could cause our operating results, financial
condition and ability to fulfill our plans to differ materially from those
expressed in any forward-looking statements made in our Annual Report and could
adversely affect our financial condition and our ability to pursue our business
strategy and plans.
RISK FACTORS
An investment in shares of our Common Stock involves a high degree of
risk. You should consider the following factors, in addition to the other
information contained in this quarterly report, in evaluating our business and
proposed activities before you purchase any shares of our common stock. You
should also see the "Cautionary Statement for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1996" regarding
risks and uncertainties relating to us and to forward looking statements in this
quarterly report.
No Material Operations or Revenues. We have no current material operations or
source of revenue. We will sustain continuing administrative expenses
maintaining our office and carrying out our public reporting requirements, as
well as for other possible purposes, at least until the consummation of a
business acquisition. This can be expected to result in us incurring ongoing net
operating losses and an outflow of our cash that could continue until we can
consummate a business acquisition. There can be no assurance that we can
identify a suitable business opportunity and consummate a business acquisition
or that any transaction we consummate will be on favorable terms or result in
profitable operations. We are unable to predict when any such transaction may be
completed.
We May Not Be Successful in Entering Into Agreements In Order to Pursue Our
Business Plans. We have no arrangement, agreement or understanding with respect
to engaging in a merger with, joint venture with or acquisition of, a private or
public entity or any interest in such an entity. No assurances can be given that
we will successfully identify and evaluate a suitable business opportunity or
that we will conclude a business acquisition. We cannot guarantee that we will
be able to negotiate any business transactions on favorable terms or be
successful in redirecting our operations.
Possible Future Dilution As A Result Of Business Transaction. Our business plan
is based upon effectuating a business acquisition or other transaction. Any such
acquisition transaction may result in us issuing securities as part of the
transaction. The issuance of previously authorized and un-issued common shares
could result in substantial dilution to our existing stockholders which could
possibly result in a change in control or management of our company. There can
be no assurance that an acquisition can be completed.
Issuance Of Additional Shares. Our Certificate of Incorporation currently
authorizes our Board of Directors to issue up to 40,000,000 shares of Common
Stock and 1,000,000 shares of Preferred Stock, of which, as of November 1, 2002,
13,751,222 shares of Common Stock are issued and outstanding and no shares of
Preferred Stock are outstanding. At our annual meeting of stockholders held on
June 11, 2002 the stockholders approved the increase the number of shares of
common stock we are authorized to issue under our Certificate of Incorporation
from 40,000,000 to 100,000,000 shares. Subject to the filing with the State of
Delaware of the Certificate of Amendment effectuating the increase in our
authorized number of shares, the 86,248,778 shares of Common Stock and 1,000,000
shares of Preferred Stock that will be authorized but are not issued or
outstanding will be able to be issued by action of our Board of Directors in a
transaction resulting in the redirection of our activities without any
19
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 company or
business that is acquired by us will have to be performed by outside management
or management of the acquired company. We cannot assure investors that we will
be able to obtain experienced and able outside management to run any company or
business that we may acquire.
Continued Control by Existing Management. Our Directors retain significant
control over our present and future activities and our stockholders and
investors may be unable to meaningfully influence the course of our actions. Our
existing management is able to control substantially all matters requiring
stockholder approval, including nomination and election of directors and
approval or rejection of significant corporate transactions. Any transaction we
engage in resulting in a redirection of our business activities may be
structured so as to not require the approval of our stockholders and,
accordingly, our stockholders may have no opportunity to vote on or influence
the redirection of our activities. Although management has no intention of
engaging in such activities, there is also a risk that the existing management
will be viewed as pursuing an agenda which is beneficial to themselves at the
expense of other stockholders.
20
There Is No Assurance Of An Active Public Market For Our Common Stock And The
Price Of Our Common Stock May Be Volatile. Given the relatively minimal public
float and trading activity in our securities, there is little likelihood of any
active and liquid public trading market developing for our shares. If such a
market does develop, the price of the shares may be volatile. Since the shares
do not qualify to trade on any exchange or on NASDAQ, if they do actually trade,
the only available market will continue to be through the OTC Bulletin Board or
in the "pink sheets" or a successor trading market. 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. It is possible that no active public market with
significant liquidity will ever develop. Thus, investors run the risk that
investors may never be able to sell their shares.
Possible Government Regulation. Although we are subject to the periodic
reporting requirements under the Securities Exchange Act of 1934, as amended,
and file annual, quarterly and other reports, management believes it will not be
subject to regulation under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), since it will not be engaged in the business of
investing or trading in securities. If we engage in a business acquisition which
results in us holding passive investment interests in a number of entities, we
could become subject to regulation under the Investment Company Act. If so, we
would be required to register as an investment company and could be expected to
incur significant registration and compliance costs. We have obtained no formal
determination from the Securities and Exchange Commission (the "SEC" or
"Commission") or any opinion of counsel as to our status under the Investment
Company Act. A violation of the Act could subject us to material adverse
consequences.
Our Shares Are Subject To Penny Stock Reform Act Of 1990. Our securities are
subject to certain rules and regulations promulgated by the Commission pursuant
to the U.S. Securities Enforcement Remedies and Penny Stock Reform Act of 1990
(the "Penny Stock Rules"). Such rules and regulations impose strict sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and certain "accredited investors." For
transactions covered by the Penny Stock Rules, a broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent for the transaction prior to sale. Consequently,
such rule may affect the ability of broker-dealers to sell our securities and
may affect investors' abilities to sell any shares they acquire.
The Penny Stock Rules generally define a "penny stock" to be any
security not listed on an exchange or not authorized for quotation on the Nasdaq
Stock Market and has a market price (as defined by the rules) less than $5.00
per share or an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transactions by broker-dealers involving a penny stock
(unless exempt), the rules require delivery, prior to a transaction in a penny
stock, of a risk disclosure document relating to the market for penny stocks.
Disclosure is also required to be made about compensation payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stocks.
Control by Directors, Executive Officers, and Principal Stockholders. As of
November 1, 2002, our Directors, executive officers, and stockholders who own
beneficially 5% or more of our Common Stock, and their respective affiliates, in
the aggregate, beneficially owned (including shares that the he
21
or she has the right to acquire the beneficial ownership within 60 days
following November 1, 2002) approximately 3,489,588 shares or 24.02% of our
outstanding Common Stock. As a result, these stockholders possess significant
influence over us, giving them the ability, among other things, to elect a
majority of our Board of Directors and approve significant corporate
transactions. Such share ownership and control may also have the effect of
delaying or preventing a change in control of us, impeding a merger,
consolidation, takeover or other business combination involving us, or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us which could have a material adverse effect on
the market price of our Common Stock.
No Active Prior Public Market For Common Stock; Possible Volatility Of Stock
Price. Since December 30, 1998, our Common Stock has been quoted on the OTC
Bulletin Board. There can be no assurance that an active trading market for our
Common Stock will be sustained or that the market price of our Common Stock will
not decline based upon market or other conditions. The market price may bear no
relationship to our revenues, earnings, assets or potential and may not be
indicative of our future business performance. The trading price of our Common
Stock has been and can be expected to be subject to wide fluctuations in
response to variations in our quarterly results of operations, delays and
obstacles we encounter in redirecting our business activities, the gain or loss
of significant strategic relationships, unanticipated delays in our development,
other matters discussed elsewhere in this annual report and other events or
factors, many of which are beyond our control.
In addition, the stock market in general has experienced extreme price
and volume fluctuations which have affected the market price for many companies
which have been unrelated to the operating performance of these companies. These
market fluctuations, as well as general economic, political and market
conditions, may have a material adverse effect on the market price of our Common
Stock.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such companies. Such litigation, if instituted, and
irrespective of the outcome of such litigation, could result in substantial
costs and a diversion of management's attention and resources and have a
material adverse effect on our business, results of operations and financial
condition.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including Mitchell G. Blumberg, our President, and Cara Williams, our Vice
President, Finance, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures within 90 days of the filing
date of this quarterly report, and, based on their evaluation, Mr. Blumberg and
Ms. Williams have concluded that these controls and procedures are effective.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed
22
by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to our management, including Mr. Blumberg and Ms.
Williams, as appropriate to allow timely decisions regarding required
disclosure.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Chief Executive Officer's Certification
99.2 Chief Financial Officer's Certification
(b) Reports on Form 8-K
During the quarter ended September 30, 2002, we filed a
Current Reports on Form 8-K for the event dated July 17, 2002
in response to Item 7.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUITE101.COM, INC.
-----------------
(Registrant)
Date: November 14, 2002 /s/Mitchell G. Blumberg
-----------------------
Mitchell G. Blumberg
President and Chief Executive Officer
(Principal Executive Officer, and Director)
/s/Cara M. Williams
---------------------
Cara M. Williams
(Principal Financial and Accounting Officer)
23
CERTIFICATIONS
CERTIFICATION OF PRESIDENT
I, Mitchell G. Blumberg, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Suite101.com, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Mitchell G. Blumberg
Mitchell G. Blumberg
President
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CERTIFICATION OF VICE PRESIDENT, FINANCE
I, Cara M. Williams, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Suite101.com, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Cara M. Williams
Cara M. Williams
Vice President, Finance
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