AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON June 27, 2001
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
POST-EFFECTIVE AMENDMENT #2 TO FORM SB-2 #333-37938
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
STOCKGROUP.COM HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
COLORADO 6282 84-1379282
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code) Identification Number)
SUITE 500 - 750 WEST PENDER STREET
VANCOUVER, BRITISH COLUMBIA, CANADA V6C 2T7 (604) 331-0995
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Executive Offices)
JOSEPH SIERCHIO, ESQ.
SIERCHIO &COMPANY,LLP
150 EAST 58TH STREET
NEW YORK, NEW YORK 10155
(212) 446-9500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
-----------------------
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462 to Rule 426(b) under the Securities Act of 1933, check the following
box and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act of 1933, check the following box and list the Securities Act
Registration Statement number of the earlier Registration Statement for the same
offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act of 1933, check the following box and list the Securities Act
Registration Statement number of the earlier Registration Statement for the same
offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
Page 1 of 101 pages.
Exhibit Index appears on Page 97
CALCULATION OF REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------------
Title Of Each Class Of Securities Number of Shares To Be Proposed Maximum Proposed Maximum Amount of
To Be Registered Registered Offering Price Per Aggregate Offering Price Registration
Share Fee
------------------------------------------------------------------------------------------------------------------------------
Common Stock,
no par share 16,419,487 (1)(2) $ 0.296 (3) $5,754,913 $ 2,897.47
------------------------------------------------------------------------------------------------------------------------------
(1) The shares of common stock being registered can be received by the holders
of convertible debentures and warrants when and if they elect to convert
such debentures and exercise such warrants. The number of shares being
registered represents our good faith estimate of the maximum number of
shares we may issue upon conversion of the debentures and exercise of the
warrants. The amount shown above represents (a) 200% of up to 8,073,380
shares of our common stock, no par value, issuable upon conversion of
$2.175 million in the aggregate principal amount (and up to approximately
$212,137 of accrued interest) of our convertible debentures due March 31,
2002, held by certain selling stockholders at a conversion price of $0.296
per share, plus (b) up to 272,727 shares of common stock issuable upon
exercise of warrants, held by certain selling stockholders.
(2) Pursuant to rule 416 under the Securities Act of 1933, as amended, the
number of shares registered hereby shall include an indeterminate number of
additional shares which may be issued upon the occurrence of certain events
in accordance with the applicable anti-dilution provisions of the
debentures and warrants. If we issue more shares of our common stock than
are hereby registered, we will file a new registration statement or amend
this registration statement to cover such additional shares.
(3) Calculated in accordance with Rule 457(c) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
2
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities, and it is not soliciting an offer to buy these
securities, in any state where the offer or sale is not permitted.
STOCKGROUP.COM HOLDINGS, INC.
16,419,487 SHARES
COMMON STOCK
--------------------------
We have prepared this prospectus to allow certain selling shareholders, or their
pledgees, donees, transferees or other successors in interest, to use a "shelf"
registration process to sell up to 16,419,487 shares of our common stock which
they have acquired or may acquire upon conversion of convertible debentures and
exercise of warrants previously acquired by them in a private placement. We will
receive no proceeds from the sale of these shares, with the exception of the
proceeds, if any, from the exercise of the warrants.
Our common stock is listed on the O-T-C Bulletin Board under the symbol "SWEB."
On June 19, 2001, the closing price of our common stock was $0.45 per share.
--------------------
See "Risk Factors" beginning on page 8 for a discussion of
material issues to consider before purchasing our common stock.
--------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is June 19, 2001.
3
TABLE OF CONTENTS
TABLE OF CONTENTS..............................................................4
PROSPECTUS SUMMARY.............................................................5
SUMMARY FINANCIAL DATA.........................................................6
RISK FACTORS...................................................................7
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS..........................11
USE OF PROCEEDS...............................................................13
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY...............................13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.........................................................14
BUSINESS......................................................................26
MANAGEMENT....................................................................32
SELLING SHAREHOLDERS..........................................................37
PRINCIPAL SHAREHOLDERS........................................................40
DESCRIPTION OF CAPITAL STOCK..................................................43
TRANSFER AGENT AND REGISTRAR..................................................49
SHARES ELIGIBLE FOR FUTURE SALE...............................................49
PLAN OF DISTRIBUTION..........................................................50
LEGAL MATTERS.................................................................51
EXPERTS.......................................................................51
WHERE YOU CAN FIND ADDITIONAL INFORMATION.....................................51
UNAUDITED INTERIM FINANCIAL STATEMENTS........................................53
AUDITED FINANCIAL STATEMENTS..................................................62
EXHIBIT INDEX.................................................................97
"smallcapcenter.com"and "InvestorMarketPlace" are trademarks and
service marks of Stockgroup. All other trademarks, service marks or
trade names referred to in this prospectus are the property of their
respective owners.
4
PROSPECTUS SUMMARY
This summary provides a brief overview of key aspects of this offering and our
company. Because this is only a summary, it does not contain all of the
information that may be important to you. You should read the entire prospectus,
including "Risk Factors" and our financial statements and the related notes,
before making an investment decision regarding our common stock. References
herein to "we", "us", "our", "Company" or "Stockgroup" refer to Stockgroup.com
Holdings, Inc. and its subsidiaries.
Stockgroup is a financial media and technology company. As a Financial Tools and
Content provider, Stockgroup develops custom private labeled financial
communities for media, brokerages, and financial services companies. Its
proprietary technologies enable companies to provide news and data streams
combined with cutting edge fundamental, technical, and productivity tools to
their customers. Stockgroup is a provider of Web site development and Internet
marketing services to small and micro cap companies. Stockgroup is also a
leading online provider of financial news and information services, disseminated
from offices in New York, San Francisco, Toronto, and Vancouver. Stockgroup's
Internet Web site, www.smallcapcenter.com, is a state-of-the-art online research
center for the small cap investor or anyone interested in the small cap sector.
In addition to our corporate headquarters at Suite 500 - 750 Pender Street,
Vancouver, British Columbia, Canada V6C 2T7, we have offices in New York, San
Francisco and Toronto. Our telephone number at our corporate headquarters is
(604) 331-0995.
THE OFFERING
Common stock offered by selling up to 16,419,487 shares
shareholders
Common stock to be outstanding 25,164,671 shares. This number assumes
the issuance of the maximum number of
shares registered under this offering
and does not include shares reserved for
issuance upon exercise of previously
outstanding stock options, warrants or
other convertible securities.
Use of proceeds Other than the proceeds, if any, from
the exercise of the warrants, none of
the proceeds from the sale of the common
stock offered by this prospectus will be
received by us. Any proceeds received by
us will be utilized for working capital
and general purposes.
O-T-C Bulletin Board Symbol: SWEB
Under our registration rights agreement relating to the selling shareholders, we
are required to register one-and-a-half times as many shares of common stock as
are issuable upon conversion of their convertible debentures, assuming they were
fully convertible on the date of this prospectus, and all of the shares that are
issuable upon exercise of their warrants. These numbers are reflected in the
number of shares shown as being offered by the selling shareholders. The number
of shares which the selling shareholders may receive upon conversion of their
convertible debentures may differ from the number of shares registered.
5
SUMMARY FINANCIAL DATA
Set forth below are summary statements of operations data for the three months
ended March 31, 2001 and 2000 and for the years ended December 31, 2000 and
1999, and summary balance sheet data as of March 31, 2001 and December 31, 2000
and 1999. This information should be read in conjunction with the unaudited
consolidated financial statements for the three month periods ended March 31,
2001 and 2000 and the annual audited consolidated financial statements for the
years ended December 31, 2000 and 1999 and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
appearing elsewhere in this prospectus.
For the three months For the Years Ended
Ended March 31 December 31,
2001 2000 2000 1999
---------- ---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
REVENUE
Revenues 1,105,359 1,036,207 4,037,608 1,920,052
Cost of revenues 426,875 397,066 1,800,810 1,208,033
---------- ---------- ---------- ----------
Gross profit 678,484 639,141 2,236,798 712,019
---------- ---------- ---------- ----------
EXPENSES
Sales and marketing 206,823 1,182,636 2,718,992 2,454,473
Product & website development 91,348 161,639 849,335 415,108
General and administrative 642,585 873,424 4,220,455 2,193,582
---------- ---------- ---------- ----------
Total expenses 940,756 2,217,699 7,788,782 5,063,163
---------- ---------- ---------- ----------
Loss from operations (262,272) (1,578,558) (5,551,984) (4,351,144)
Interest income 1,591 16,989 85,138 123,260
Interest (expense) (96,703) -- (3,910,517) (15,610)
Other income (expense) 18,703 554 (4,453) 961
---------- ---------- ---------- ----------
Loss before extraordinary
items (338,681) (1,561,015) (9,381,816) (4,242,533)
Extraordinary gain on convertible
note redemptions, net -- -- 1,048,373 --
---------- ---------- ---------- ----------
Net loss (338,681) (1,561,015) (8,333,443) (4,242,533)
========== ========== ========== ==========
Basic and diluted loss per share:
Net loss before extraordinary gain (0.04) (0.19) (1.13) (0.60)
Net loss (0.04) (0.19) (1.01) (0.60)
BALANCE SHEET DATA as at: Mar 31/01 Dec 31/00 Dec 31/99
---------- ---------- ----------
Total assets 1,263,810 1,203,240 3,873,556
Total liabilities 3,684,695 3,849,168 1,110,507
Total shareholders'
equity / deficiency (2,420,885) (2,645,928) 2,763,049
6
RISK FACTORS
You should consider carefully the following risks before you decide to buy our
common stock. Our business, financial condition or results of operations could
be materially and adversely affected by any of the following risks.
Stockgroup's limited operating history makes it difficult for you to judge its
prospects.
Stockgroup has a limited operating history upon which an evaluation of the
Company, its current business and its prospects can be based. You should
consider any purchase of the Company's shares in light of the risks, expenses
and problems frequently encountered by all companies in the early stages of its
corporate development.
Recent revenue growth may not continue in the future.
There can be no assurance that the revenue growth experienced in recent periods
will continue or increase. Stockgroup's limited operating history makes the
prediction of future results difficult or impossible and, therefore, recent
revenue growth should not be taken as an indication of any growth that can be
expected in the future. Furthermore, the Company's limited operating history
leads it to believe that period-to-period comparisons of operating results may
not be meaningful and that the results for any period should not be relied upon
as an indication of future performance. In 2000 and in 1999, revenues included
significant sales to four customers (40% to three customers in 2000, 35% to one
customer in 1999). These customers were of a contract nature. No further
revenues will be generated from three of these customers; the fourth customer
accounted for 47% of revenue in the quarter ended March 31, 2001 and is not
expected to generate significant further revenues. To the extent that revenues
do not grow at anticipated rates, or that the Company is unable to secure or
retain large contracts similar to those obtained in prior periods, the Company's
business, results of operations and financial condition would be materially and
adversely affected.
Stockgroup may be unable to achieve profitable operations as soon as planned.
Stockgroup has not achieved profitability as at March 31, 2001 and, although it
plans to achieve positive cash flow and profitability in 2001, the Company may
continue to incur net losses for the foreseeable future. The extent and duration
of these losses, if any, will depend, in part, on the amount of growth in
revenues from Services to Public Companies and Financial Tools and Content. As
of March 31, 2001 the Company had an accumulated deficit of $12,931,835. There
can be no assurance that the Company will ever achieve or sustain profitability
or that operating losses will not increase in the future.
Stockgroup's success depends upon the widespread acceptance of the Internet as a
key source of information.
Traditionally, the investing public has obtained current information on public
companies from brokers, securities analysts, newspapers and magazines.
Stockgroup's business is based entirely on the premise that a significant
portion of the investing public will seek to obtain that
7
information via the Internet. If that does not occur, or if it occurs more
slowly than expected, the Company will be materially and adversely affected.
Liquidity and capital resources are uncertain.
Stockgroup expects that increasing revenues resulting from current operations,
combined with the fact that start-up costs are substantially complete, will
reduce use of cash going forward. However, there can be no assurance that
revenue will increase or that costs will be lower going forward. In addition,
cash levels may be insufficient if the Company responds to a prepayment demand
from certain of the noteholders by making a cash prepayment, rather than
electing to have the noteholders convert a portion of their convertible notes
into shares of common stock. To the extent that either of these possibilities
seriously depletes cash levels, the Company may need to seek additional capital.
If it does, there can be no assurance that it will be successful in raising a
sufficient amount of additional capital or in internally generating a sufficient
amount of capital to meet long-term requirements. If the Company is unable to
generate the required amount of additional capital, its ability to meet
obligations and to continue operations may be adversely affected.
Computer equipment problems and failures could adversely affect Stockgroup's
business.
Problems or failures in Internet-related equipment, including file servers,
computers and software, could result in interruptions or slower response times
on the Company's Web site, which could reduce the attractiveness of the Web site
to advertisers and users. Equipment problems and failures could result from a
number of causes, including an increase in the number of users of the Web site,
computer viruses, outside programmers penetrating and disrupting software
systems, human error, fires, floods, power and telecommunications failures, and
internal breakdowns. In addition, any disruption in Internet access provided by
third parties could have a material and adverse effect.
Stockgroup may not be able to compete successfully against current and future
competitors.
Stockgroup currently competes with thousands of corporate and individual Web
sites for viewers, corporate subscribers and advertisers. Many of these have
significantly greater financial resources, name recognition, and technical and
marketing resources, and virtually all of them are seeking to improve their
technology, products and services. Stockgroup can not assure you that it will
have the financial resources or the technological expertise to successfully meet
this competition.
Stockgroup is significantly influenced by its officers, directors and entities
affiliated with them.
In the aggregate, ownership of Stockgroup shares by management represents
approximately 48% of issued and outstanding shares of common stock. These
shareholders, if acting together, will be able to significantly influence all
matters requiring approval by shareholders, including the election of directors
and the approval of mergers or other business combinations transactions.
8
Stockgroup's future performance is dependent on the ability to retain key
personnel.
Stockgroup's performance is substantially dependent on the performance of senior
management and key technical personnel. In particular, the Company's success
depends on the continued efforts of its senior management team. The loss of the
services of any of its executive officers or other key employees could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Future success also depends on the continuing ability to retain and attract
highly qualified technical, editorial and managerial personnel. The Company
anticipates that the number of employees will increase in the next 12 months.
Wages for managerial and technical employees are increasing and are expected to
continue to increase in the foreseeable future due to the competitive nature of
this job market. The Company has experienced difficulty from time to time in
attracting the personnel necessary to support the growth of its business, and
there can be no assurance that it will not experience similar difficulty in the
future. The inability to attract and retain the technical and managerial
personnel necessary to support the growth of its business could have a material
adverse effect upon the Company's business, results of operations and financial
condition.
Stockgroup may be unable to protect intellectual property rights upon which its
business relies.
The Company regards substantial elements of its Web site and underlying
technology as proprietary and attempts to protect them by relying on
intellectual property laws, including trademark, service mark, copyright and
trade secret laws and restrictions on disclosure and transferring title and
other methods. The Company also generally enters into confidentiality agreements
with employees and consultants and in connection with license agreements with
third parties, and seeks to control access to proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain or use the Company's proprietary information without authorization or to
develop similar technology independently. Moreover, effective trademark, service
mark, copyright and trade secret protection may not be available in every
country in which the Company's services are distributed or made available
through the Internet, and policing unauthorized use of proprietary information
is difficult. There can also be no assurance that the Company's business
activities will not infringe upon the proprietary rights of others, or that
other parties will not assert infringement claims against the Company, including
claims that by directly or indirectly providing hyperlink text links to Web
sites operated by third parties, Stockgroup has infringed upon the proprietary
rights of other third parties.
It is unclear how any existing and future laws enacted will be applied to the
Internet industry and what effect such laws will have on Stockgroup.
A number of legislative and regulatory proposals under consideration by federal,
state, provincial, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally,
9
it is uncertain how existing laws will be applied by the judiciary to the
Internet. The adoption of new laws or the application of existing laws may
decrease the growth in the use of the Internet, which could in turn decrease the
demand for Stockgroup's services, increase the cost of doing business or
otherwise have a material adverse effect on the Company's business, results of
operations and financial condition.
Stockgroup may be held liable for online information or products provided by the
Company or third parties.
Because materials may be downloaded by the online or Internet services offered
by Stockgroup or the Internet access providers with which the Company has
relationships, and because third party information may be posted by third
parties on its Web site through discussion forums and otherwise there is the
potential that claims will be made against the Company for defamation,
negligence, copyright or trademark infringement, or other theories. Such claims
have been brought against providers of online services in the past. The
imposition of liability based on such claims could materially and adversely
affect Stockgroup.
Even to the extent such claims do not result in liability, the Company could
incur significant costs in investigating and defending against such claims. The
imposition on the Company of potential liability for information or products
carried on or disseminated through its Web site could require implementation of
measures to reduce exposure to such liability, which may require the expenditure
of substantial resources and limit the attractiveness of services to members and
users.
Stockgroup's general liability insurance may not cover all potential claims to
which it is exposed or may not be adequate to indemnify it for all liability
that may be imposed. Any imposition of liability that is not covered by
insurance or is in excess of insurance coverage could have a material adverse
effect on the Company's business, results of operations and financial condition.
Stockgroup's strategy to commence international operations exposes it to
additional risks.
A part of the Company's growth strategy is to expand into international markets.
The success of any additional foreign operations initiated in the future will be
dependent upon local service providers and/or partners. In addition to the risks
attendant to the Company's business in the United States and Canada, Stockgroup
may experience difficulty in managing international operations as a result of
the following:
o difficulty in locating effective foreign service providers and/or partners;
o competition;
o technical problems;
o local laws and regulations;
o language and cultural differences;
o unexpected changes in regulatory requirements;
o trade barriers;
o fluctuations in currency exchange rates;
o longer payment cycles;
10
o difficulty in enforcing contracts;
o political and economic instability; and
o potential adverse tax consequences.
There can be no assurance that one or more of such factors will not have a
material adverse effect on the Company's future international operations and,
consequently, on the Company's business, results of operations and financial
condition.
Failure to pay the debentures when due may adversely affect Stockgroup's
business
The $500,000 debentures due and payable on December 31, 2003 have no mandatory
conversion provision. Accordingly, if not converted, Stockgroup may need to pay
the principal outstanding balance and accrued and unpaid interest on the
Debentures. Stockgroup may not have the necessary funds to do so and may need to
either raise additional capital through equity and / or debt offerings, the
success of which cannot be assured. Moreover, Stockgroup may need to re-deploy
its available cash and resources which may result in its operations being
materially curtailed.
The value and transferability of Stockgroup's shares may be adversely impacted
by the limited trading market for its shares and the penny stock rules.
There is only a limited trading market for Stockgroup's shares. The Company's
common stock is traded in the over-the-counter market and "bid" and "asked"
quotations regularly appear on the O-T-C Bulletin Board under the symbol "SWEB".
There can be no assurance that the Company's common stock will trade at prices
at or about its present level, and an inactive or illiquid trading market may
have an adverse impact on the market price. In addition, holders of Stockgroup's
common stock may experience substantial difficulty in selling their securities
as a result of the "penny stock rules," which restrict the ability of brokers to
sell certain securities of companies whose assets or revenues fall below the
thresholds established by those rules.
Future sales of shares may adversely impact the value of our stock.
In addition to the shares being offered by this prospectus, we have authorized
and reserved, as of June 19, 2001, 2,300,000 shares of common stock for issuance
upon the exercise of non-qualified stock options. The total amount of shares
covered by this prospectus, plus the shares reserved for such options, would
represent 214% of the number of our outstanding shares on the date of this
prospectus (taking into account that we are registering 200% of the number of
shares that can actually be obtained through the conversion of debentures held
by certain of the selling shareholders). If required, we will seek to raise
additional capital through the sale of our common stock. Under the terms of
outstanding convertible notes and debentures, the number of shares that may be
issued under such instruments may be increased in the event of certain changes
in our capital structure. Future sales of shares by us or our stockholders,
including the selling stockholders, could cause the market price of our common
stock to decline.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
11
This prospectus contains "forward-looking statements." In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "could," "expects," "plans," "intends," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
and other comparable terminology.
These forward-looking statements include, without limitation, statements about:
o our market opportunity;
o our strategies;
o competition;
o expected activities and expenditures as we pursue our business plan;
and
o the adequacy of our available cash resources.
These statements appear in a number of places in this registration document and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to, among other things: (i)
trends affecting the Company's financial condition or results of operations,
(ii) the Company's business and growth strategies, (iii) the Internet and
Internet commerce and (iv) the Company's financing plans. Although we believe
that the expectations reflected in the forward-looking statement are reasonable,
we cannot guarantee future results, levels of activity, performance or
achievements.
The accompanying information contained in this prospectus, including, without
limitation, the information set forth under the headings "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" identify important factors that could adversely
affect actual results and performance. All forward-looking statements
attributable to us are expressly qualified in their entirety by the foregoing
cautionary statement.
12
USE OF PROCEEDS
Other than the proceeds, if any, from the exercise of the warrants, none of the
proceeds from the sale of the common stock offered by this prospectus will be
received by us. The holders of the warrants are not obligated to exercise their
warrants, and there can be no assurance that we will receive any additional
proceeds. If, however, all the warrants were exercised, the gross proceeds to us
would be $899,999. We intend to use such proceeds for currently unspecified
general corporate purposes that may include salaries and wages, investor
relations, legal and accounting, or other operating expenses. Pending these
uses, the proceeds received by us will be invested in short-term, investment
grade instruments, certificates of deposit or direct or guaranteed obligations
of the United States.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock has been quoted for trading on the O-T-C Bulletin Board since
March 17, 1999. Accordingly, there has been a limited public market for our
common stock. The following table sets forth high and low bid prices for the
common stock for the quarterly periods ending March 31, 1999 through to March
31, 2001, the monthly periods ending April 30 and May 31, 2001 and the partial
month from June 1 to June 19, 2001. These prices represent quotations between
dealers without adjustment for retail markup, markdown or commission and may not
represent actual transactions.
Quarter Ending: High Low Volume
-------------------------------------------------------------------------------
March 31, 1999 $ 10.250 $ 6.000 3,339,000
June 30, 1999 $ 9.000 $ 3.125 4,859,200
September 30, 1999 $ 5.000 $ 2.125 3,297,500
December 31, 1999 $ 3.625 $ 1.312 1,927,700
March 31, 2000 $ 5.031 $ 1.562 2,623,600
June 30, 2000 $ 3.500 $ 0.760 1,732,700
September 30, 2000 $ 2.813 $ 0.875 4,983,800
December 31, 2000 $ 1.938 $ 0.563 1,120,500
March 31, 2001 $ 1.000 $ 0.375 1,005,700
April 1 - 30, 2001 $ 0.550 $ 0.280 106,100
May 1 - 31, 2001 $ 0.600 $ 0.300 320,700
June 1 - 19, 2001 (partial month) $ 0.650 $ 0.320 1,540,200
On June 19, 2001, we had 32 registered shareholders owning 8,745,184 shares.
We have not declared, and do not foresee declaring, any dividends now or into
the foreseeable future.
We have authorized and reserved, as of June 19, 2001, an aggregate of 21,254,487
shares of common stock for issuance upon the conversion of notes, debentures and
warrants and upon the exercise of non-qualified stock options.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
Stockgroup should be read in conjunction with the unaudited interim consolidated
financial statements for the three-month periods ended March 31, 2001 and 2000
and the annual audited consolidated financial statements for the years ended
December 31, 2000 and 1999 and notes thereto included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including but not limited to, those set forth under "Risk Factors" and elsewhere
in this prospectus.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000
The first quarter of 2001 has demonstrated the effectiveness of the Company's
efforts undertaken last year and during this quarter. Our loss from operations
for the quarter of $0.3 million ($0.04 per share) is the Company's best
quarterly performance since 1998, and a dramatic improvement over our most
recent quarterly losses. Stockgroup believes it is now poised to leverage its
infrastructure and expertise in 2001 and complete the return to profitable
operations.
Revenue and Gross Profits
--------------------------------------------------------------------------------
Total revenues in the first quarter of 2001 were $1.1 million compared to $1.0
million in 2000, an increase of $0.1 million, or 6.7%. The company's historical
business of Services to Public Companies decreased compared to last year,
shrinking from $0.7 million in 2000 to $0.4 million in 2001, a decrease of $0.3
million or 41.5%. Much of this decrease is attributed to the decrease in public
company Investor Relations spending caused by the recent market volatility.
Growth in revenue and compensation for reductions in Services to Public
Companies came from the company's two other sources of revenue, both an
outgrowth of the Service to Public Companies business. Financial Tools and
Content increased by $110,358 in 2001, while E-business increased $266,445.
Gross profits in 2001 were $0.7 million compared to $0.6 million in 2000, an
increase of $39,343, or 6.2%. Gross profits increased marginally because of the
modest increase in sales.
Stockgroup believes revenues from the Services to Public Companies will grow in
2001. Not only does the Company continue to add tools and content to improve its
product offering, it is also continuously finding new ways to leverage its
successful website. Stockgroup's business development department is always on
the lookout for strategic opportunities, prime examples being the startup of the
Company's Financial Tools and Content business in November, a special Oil and
Gas supplement launched in March 2001, and the Integrat-IR, an automated
Internet disclosure tool launched in March 2001 that helps public companies
comply with SEC Internet continuous disclosure requirements. Stockgroup will
continue to complement the growing popularity of its Services to Public
Companies products by entering new strategic areas.
14
While the revenue from Financial Tools and Content represents less than 10% of
sales in the first quarter of 2001, this is an increase over the 3% of sales it
represented last year. This is a growing source of revenue that is expected to
become a significant line of business as 2001 progresses. Stockgroup started
providing tools and content to other companies' websites and intranets late in
November 2000, using direct and channel sales through Internet syndicators. Each
customer the Company secures typically signs a twelve-month contract in addition
to the start-up fees, providing an on-going revenue stream that is continuously
building. At March 31, 2001, the Company had signed contracts worth $0.5 million
in future revenues. The Company's Financial Tools and Content market and its
Services to Public Companies market both benefit from continuous recurring
revenues derived from a common technology base.
E-business revenue for the first quarter of 2001 was mainly derived from work on
a financial leasing hub for the company's client, OnMark, secured late last
year. This contract is due to be completed in April 2001. Stockgroup was able to
capitalize on opportunities in this area because of the expertise it developed
in building and maintaining its own destination website. The Company plans to
pursue further business opportunities in this area, as it is highly compatible
with the skills and competencies developed in building and maintaining revenues
in the Services to Public Companies and Financial Tools and Content areas.
Operating Expenses
--------------------------------------------------------------------------------
Total operating expenses in the first quarter of 2001 were $0.9 million compared
to $2.2 million in 2000, a decrease of $1.3 million or 57.6%. Stockgroup was
able to make significant reductions in all areas of expenditures during the
quarter, without reducing its ability to earn revenues. Stockgroup will continue
to keep expenses as low as possible as it grows its revenues in an effort to
achieve profitable operations later in 2001.
Sales and Marketing expenses were $0.2 million in the first quarter of 2001
compared to $1.2 million in 2000, a decrease of $1.0 million or 82.5%. These
reductions are a result of the Company's decision late in the third quarter of
2000 that it would be beneficial to change to a strategy of using fewer, more
competent resources concentrated in fewer markets, thus achieving increased
effectiveness and economies. Stockgroup expects these ongoing reductions to have
a continuing beneficial effect on costs in this area in future quarters of 2001.
Product and Website Development expenses in the first quarter of 2001 were $0.1
million compared to $0.2 million in 2000, a decrease of $0.1 million or 43.5%.
The decreases in this area were a result of cost reduction efforts as described
in the previous paragraphs.
General and Administrative expenses in the first quarter of 2001 were $0.6
million compared to $0.9 million in 2000, a decrease of $0.3 million, or 26.4%.
The decreases in this area were a result of cost reduction efforts as described
in the previous paragraphs.
15
Other Income (Expense) and Income Taxes
--------------------------------------------------------------------------------
Interest income in the first quarter of 2001 was $1,591 compared to $16,989 in
2000, a reduction of $15,398 or 90.6%. Interest is earned on short term
investments of available cash, so the reduction is in line with lower cash
levels in 2001 compared to 2000.
Interest expense was $0.1 million in 2001 compared to $0 in 2000, an increase of
$0.1 million. Of this amount, only $6,606 was actually paid in cash; a further
$46,700 is the actual amount that has accrued and will be payable in cash or
shares upon redemption or conversion of the balance of the outstanding
convertible notes. The remaining $0.05 million in interest expense is deemed
interest recorded as a result of the particular nature of the January 19, 2001
$0.5 million convertible debenture's conversion formula which entitles the
holder to an in-the-money conversion rate. Due to the variable nature of the
conversion feature, the effective interest will continuously be re-measured as
the Company's stock price changes, until conversion or maturity of the notes.
Due to its net loss position, the Company did not incur tax in 2000. As at the
most recent year end, Stockgroup had tax loss carry forwards of $6,718,000 in
Canada which expire in 2006 and 2007, and tax loss carry forwards of $2,306,000
in the U.S. which expire in 2019 and 2020.
Net Income
--------------------------------------------------------------------------------
The net loss for the first quarter of 2001 was $0.3 million compared to a loss
of $1.6 million in 2000, a decrease in losses of $1.3 million or 78.3%. This
decrease in losses was a result of cost reduction efforts as described above.
Allowing for the effect of non-cash and unusual items previously discussed
above, management believes profitability is within reach in 2001.
RESULTS OF OPERATIONS - FOR THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31,
1999
In the year 2000 the Company leveraged its expertise in the Services to Public
Companies area, and developed two new revenue streams that are a direct result
of the core competencies developed in Services to Public Companies and in
running its award-winning destination website for investors,
www.smallcapcenter.com. Much of its growth was attributable to the investments
in infrastructure that it made using the equity funds raised in 1999 and 2000,
and the debt financing secured early in 2000. Although the use of these funds
caused the Company to produce deficit operations for the last two years,
management now believes it has completed the majority of the effort to
consolidate its position and develop desirable revenue streams. Stockgroup
believes it is now poised to leverage its infrastructure and expertise in 2001
and complete the transition to profitable operations.
The consolidated financial statements included in this document are prepared in
U.S. Dollars and are prepared in accordance with accounting principles generally
accepted in the United States ("U.S. GAAP"). The comparative figures presented
in the consolidated financial statements for periods prior to the March 11, 1999
reverse acquisition are those of SRG.
16
Revenue and Gross Profits
--------------------------------------------------------------------------------
Total revenues in 2000 were $4.0 million compared to $1.9 million in 1999, an
increase of $2.1 million, or 110.5%. The company's historical business of
Services to Public Companies also increased compared to last year, growing from
$1.9 million in 1999 to $2.6 million in 2000, an increase of $0.6 million or
32.8%. The other growth in revenue came from the company's two new sources of
revenue, both an outgrowth of the Services to Public Companies business.
Financial Tools and Content accounted for $87,728 of the increase in 2000, while
E-Business accounted for the remaining $1.4 million.
Gross profits in 2000 were $2.2 million compared to $0.7 million in 1999, an
increase of $1.5 million, or 214.3%. Gross profits were able to grow faster than
sales because increases in revenue were not dependent on matching increases in
costs, most notably labor costs. This scalability is a result of two main
factors. Stockgroup completed the major effort of building
www.smallcapcenter.com in 1999, allowing it to re-allocate those resources to
new Financial Tools and Content and E-Business revenue sources. Also, the fact
that all three revenue streams have compatible requirements in terms of
programming, design, administration, and management allows the Company to avoid
excess capacity and derive the maximum benefit from investments in staff and
assets such as computer hardware and software.
Stockgroup believes revenues from the Services to Public Companies market will
continue to grow in 2001. Not only does the Company continue to add tools and
content to improve its product offering, it is also continuously finding new
ways to leverage its successful website. Stockgroup's business development
department is always on the lookout for strategic opportunities, prime examples
being the startup of the Company's Financial Tools and Content business in
November, a special Oil and Gas supplement launched in March 2001, and the
Integrat-IR, an automated Internet disclosure tool launched in March 2001 that
helps public companies comply with SEC Internet continuous disclosure
requirements. Stockgroup will continue to complement the growing popularity of
its Services to Public Companies products by entering new strategic areas.
While the revenue from Financial Tools and Content represents less than 2% of
sales in 2000, it is a growing source of revenue that is expected to become a
significant line of business in 2001. Stockgroup started providing tools and
content to other companies' websites and intranets late in November 2000, using
direct and channel sales through internet syndicators. Each customer the Company
secures typically signs a twelve-month contract in addition to the start-up
fees, providing an on-going revenue stream that is continuously building. At
December 31, 2000, the Company had signed contracts worth over $0.5 million in
future revenues. The Company's Financial Tools and Content market and its
Services to Public Companies market both benefit from continuous recurring
revenues derived from a common technology base.
E-Business was also a new area in 2000. Stockgroup started the year with its
Asian product, AsiaXIS.com, and ended the year working on its latest product,
OnMark. These two major projects, along with several minor ones, helped
establish this area as a significant revenue source for the Company in 2000.
Stockgroup was able to capitalize on opportunities in this area because of the
expertise it developed in building and maintaining its own destination
17
website. The Company plans to pursue further business opportunities in this
area, as it is highly compatible with the skills and competencies developed in
building and maintaining revenues in the Services to Public Companies and
Financial Tools and Content areas.
Operating Expenses
--------------------------------------------------------------------------------
Total operating expenses in 2000 were $7.8 million compared to $5.1 million in
1999, an increase of $2.7 million or 52.9%. Of this amount, over $0.6 million
was from non-cash expenses as described below, as well as $1.08 million of
unusual expenses. Much of the increase in operating expenses occurred in the
first half of 2000, as Stockgroup continued to build infrastructure and develop
revenue streams. During the third quarter, the Company undertook an effort to
achieve the most cost-efficient structure possible, in order to benefit from the
infrastructure and revenue gains it had realized but to also start moving toward
profitability. Stockgroup was able to make significant reductions in most areas
of expenditures during the last half of the year, without reducing its ability
to earn revenues. Stockgroup will continue to keep expenses as low as possible
as it grows its revenues in an effort to achieve profitable operations in 2001.
Sales and Marketing expenses were $2.7 million in 2000 compared to $2.5 million
in 1999, an increase of $0.2 million or 10.8%. This increase was primarily the
result of the addition of a Vice President of Sales during the first half of the
year and the strategy of significantly increased staffing and geographic
expansion into offices in Alberta, Ontario, New York, California, and Texas.
Late in the third quarter the company re-evaluated this strategy and concluded
that it would be beneficial to change the strategy from the standpoint of
increasing revenue and reducing costs, by using fewer more competent resources
concentrated in fewer markets, thus achieving increased effectiveness and
economies. Stockgroup expects these reductions to have a continuing beneficial
effect on costs in this area in 2001.
Product and Website Development expenses in 2000 were $0.8 million compared to
$0.4 million in 1999, an increase of $0.4 million or 104.6%. The increases in
this area were a result of over $450,000 in expenses relating to the Company's
expansion into Europe in the spring of 2000, which was discontinued due to
adverse financial market conditions.
General and Administrative expenses in 2000 were $4.2 million compared to $2.2
million in 1999, an increase of $2.0 million, or 90.9%. Major non-cash elements
of this area totaled over $0.6 million and included $243,500 of non-cash
investor relations expenses that were paid in stock, over $140,000 of
stock-based compensation expenses, and $204,000 in amortization expenses. Also
included was bad debts expense of $631,000 relating to collection of large
receivables from two customers, $351,000 of which the Company believes is likely
to be collectible pending the outcome of litigation. Other significant expenses
included rent and office expenses on North American offices, legal and
accounting expenses relating to public company status, and general increases in
administrative staff and associated costs to keep pace with the growth in sales.
Many of these costs have been reduced in the last five months of 2000, and
management expects the effect of these reductions to carry forward into 2001.
18
Other Income (Expense) and Income Taxes
--------------------------------------------------------------------------------
Interest income in 2000 was $85,138 compared to $123,260 in 1999, a reduction of
$38,122 or 30.9%. Interest is earned on short term investments of available
cash, and primarily occurred in the first half of the year.
Interest expense was $3.9 million in 2000 compared to $15,610 in 1999, an
increase of $3.9 million. Of this amount, only $163,000 was actually paid in
cash; a further $132,000 is the actual amount that has accrued and will be
payable in cash or shares upon redemption or conversion of the balance of the
outstanding convertible debentures. The remaining $3.6 million in interest
expense is deemed interest recorded as a result of the particular nature of the
$3.0 million convertible debentures' conversion formula which entitles the
holder to an in-the-money conversion rate. Due to the variable nature of the
conversion feature, the effective interest will continuously be re-measured as
the Company's stock price changes, until conversion, redemption, or maturity of
the notes.
Due to its net loss position, the Company did not incur tax in 2000. At present
Stockgroup has tax loss carry forwards of $6,718,000 in Canada which expire in
2006 and 2007, and tax loss carry forwards of $2,306,000 in the U.S. which
expire in 2019 and 2020.
Net Income
--------------------------------------------------------------------------------
The net loss for 2000 was $8.3 million compared to a loss of $4.2 million in
1999, an increase in losses of $4.1 million or 96.4%. This increase in losses
can be entirely attributed to non-cash items totaling $4.2 million as described
above: the $3.6 million deemed interest on the convertible notes, and the
$631,000 bad debt expense on two customers. The extraordinary gain on note
redemption was recorded in accordance with the appropriate accounting
principles. The portion of the operating loss experienced in 2000 that was not
attributable to non-cash items was primarily due to continuation of
infrastructure and revenue building activities commenced in 1999, the majority
of which were completed by the end of the third quarter of 2000. Allowing for
the effect of non-cash items previously discussed above, management believes
profitability is within reach in 2001.
RESULTS OF OPERATIONS - FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31,
1998
1999 was the most significant period of growth and development in our history.
During the year, the Company expanded the scope of its news division by hiring
10 journalistic professionals, including our Editor in Chief, David Andelman.
During 1999 we also expanded our productive capacity and developed and launched
www.smallcapcenter.com, our state of the art website dedicated to serving the
needs of small cap investors. This project required a significant investment of
resources and, along with other initiatives, resulted in the addition of 31 new
staff to our programming and design teams. The launch of www.smallcapcenter.com
also included the creation of our advertising image based on the slogan `Where
to find the next big thing'. The accompanying ad campaign included commercials
on media such as CNBC and print
19
ads in The Wall Street Journal, U.S. News and World Report and other major
publications.
During 1999, we also expanded our news bureau/sales office branch network
through the addition of offices in San Francisco and New York. Supporting
financing for our strategic plan was raised through private placements of an
aggregate cash proceeds of $5.4 million which were completed after the Company
went public in March.
With respect to the performance of the predecessor company in 1998 and 1999,
prior to its acquisition on March 11, 1999 of Stock Research Group, I-Tech
Holdings Group, Inc. had achieved minimal success in the implementation of its
marketing plan and the operation of its business, the design of websites.
Revenue
--------------------------------------------------------------------------------
1999 was a year of record revenue for Stockgroup.com. During the year ended
December 31, 1999, we generated revenues of $1,920,052 versus $857,591 for the
year ended December 31, 1998. This represents a 123% increase in year over year
revenue.
Revenues in 1999 and 1998 were all Services to Public Companies. A substantial
part of growth in revenues was due to an increase in Advertising and Media
Services sales, which saw year over year growth of 393%. Website Design and
Development also saw gains, with an increase of 61% and Website Maintenance and
Marketing saw a marginal decrease of (12)%. Over the course of 1999 growth in
Website services overall was impacted by resources applied to the development of
our new enterprise financial news media Website www.smallcapcenter.com.
Operating Expenses
--------------------------------------------------------------------------------
The development and launch of www.smallcapcenter.com had a major bearing on the
operating expenses incurred by Stockgroup.com during 1999. Cost of Revenues,
which include items such as data feed costs, Internet connectivity costs, some
of the costs of our Design team and advertising costs for advertising purchased
on behalf of clients, increased from $172,343 in 1998 to $1,208,033 in 1999
representing and increase of 601%. These costs are required to maintain the
infrastructure which support the delivery of financial information services on
the Internet.
Sales and Marketing costs also saw significant increases primarily as a function
of advertising purchases related to the launch of www.smallcapcenter.com and
went from $265,840 in 1998 to $2,454,473 in 1999, an increase of 823%. Funds
expended for advertising have provided us with reach to viewers and are expected
to continue to provide value over the longer term. In 1998, we had not yet
undertaken significant initiatives with respect to Sales and Marketing and our
expenses were largely related to our commissioned sales staff.
Product Development costs, which consist of salaries for programmers and Design
staff seconded to the development of www.smallcapcenter.com increased from
$117,453 in 1998 to $415,108 in 1999, an increase of 253%.
General and Administrative costs also saw a large relative increase from
$443,201 in 1998 to $2,193,582 in 1999, or 395%. Notable expenses in this area
came as a result of the addition of two new offices, the moving of head
20
office to larger premises, amortization of imputed expenses for employee stock
options, increased salaries and wages for new management and executive staff,
and increased legal and accounting fees and consulting fee charges related to
our launch as a public company.
Other Income and Income Taxes
--------------------------------------------------------------------------------
We earned Interest and other income of $124,221 in 1999 primarily on investment
of our cash resources. Due to our net loss position, we did not incur tax in
1999.
Net Income
--------------------------------------------------------------------------------
During 1999 we incurred a net loss of $(4,2424,533) versus a net loss of
$(149,289) in 1998. The loss incurred in 1999 was the result of our strategic
investment in the development of our enterprise financial website and supporting
advertising program, the addition of significant development capacity in our
programming and design teams and the initial investment in our editorial
operations.
The most significant component of investment in 1999 was www.smallcapcenter.com
which was launched on October 5, 1999.
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------
Stockgroup ended the first quarter of 2001 with cash and cash equivalents of
$198,854, a reduction of $139,594 from the previous quarter. This compares
favorably with cash usage of $402,262 and $1,895,597 in the previous two
quarters respectively. In keeping with this downward pattern in cash usage, the
Company has set a corporate goal of achieving positive cash flow and profitable
operations in 2001. Although the Company expects to achieve this without further
need for financing, it may require such financing before it is able to achieve
this goal. Additionally, it will still pursue financing in order to grow the
business to the greatest possible extent. In the first quarter of 2000
Stockgroup ended with cash and cash equivalents of $609,208.
Stockgroup expects that increasing revenues resulting from current operations,
combined with the fact that start-up costs are substantially complete, will
reduce use of cash going forward. However, there can be no assurance that
revenue will increase or that costs will be lower going forward. In addition,
cash levels may be insufficient if the Company responds to a prepayment demand
from certain of the noteholders by making a cash prepayment, rather than
electing to have the noteholders convert a portion of their convertible notes
into shares of common stock. To the extent that either of these possibilities
seriously depletes cash levels, the Company may need to seek additional capital.
If it does, there can be no assurance that it will be successful in raising a
sufficient amount of additional capital or in internally generating a sufficient
amount of capital to meet long-term requirements. If the Company is unable to
generate the required amount of additional capital, its ability to meet
obligations and to continue operations may be adversely affected.
The Emerging Issues Task Force has released EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
21
Company's Own Stock ("EITF 00-19"). EITF 00-19 is effective for derivative
instruments entered into or outstanding at June 30, 2001, and will be applicable
to the Company's callable warrants then outstanding. The number of shares
issuable in the event of exercise of the callable warrants is not subject to an
explicit limit. Accordingly, the callable warrants will be considered a
liability to be recorded at fair value, commencing June 30, 2001, and will be
marked to market in accordance with SFAS 133 thereafter. At March 31, 2001 the
callable warrants have been presented as additional paid in capital in these
financial statements. At June 19, 2001 the company has sufficient authorized
share capital assuming a limit to the number of shares issuable equal to the
number of shares that would have been required to settle the warrants on
September 30, 2000, in accordance with the transition provisions of EITF 00-19.
CORPORATE DEVELOPMENTS
A synopsis of our corporate highlights is as follows:
1. Syndication strategy launched - Early in 2000 Stockgroup began the
implementation of its syndication strategy, signing agreements with Web
content aggregators and distributors. The purpose of the syndication
program is to raise the profile of smallcapcenter.com's content, to drive
traffic to smallcapcenter.com and to generate revenues through licensing
fees and revenue sharing agreements. Stockgroup syndicates content
available from the public access (free) areas of smallcapcenter.com and
some of its proprietary tools. The structure of the terms of each agreement
and the revenue model is dependent on the size of the user base of the
other site and the requirements of the other site. In December 2000
Stockgroup signed a channel agreement with a major Internet syndication
company that distributes tools and content through its website.
2. In March of 2000 Stockgroup completed a placement of $3,000,000 in
convertible notes and warrants as described in Note 7 to the December 31,
2000 balance sheet below.
3. June 5 2000 -Stockgroup and Cybersurf Corporation partnered to develop a
financial channel for the 3Web Network, Cybersurf's free Internet portal.
This channel is now accessible on the 3Web Network. Cybersurf is the second
largest ISP in Canada, with over 350,000 users.
4. In July of 2000 Stockgroup enhanced its award winning smallcapcenter.com
website. With a brand new look and a wide array of sophisticated tools for
investors and public companies, Stockgroup strengthened its community and
improved its base of tools and content available for syndication.
5. August 8 2000 - Stockgroup and AvantGo Team to Deliver the
Smallcapcenter.com Channel to Investors' Handheld Devices. In an agreement
with AvantGo, Inc., a mobile Internet company, Stockgroup agreed to deliver
a small cap stock information channel for handheld and wireless devices.
The AvantGo mobile Internet service will make Stockgroup's content
available for download at www.avantgo.com onto AvantGo's more than 700,000
registered users' Palm OS and Windows CE devices and Internet-enabled
phones.
22
6. Private placement during the third quarter of 2000 - Stockgroup completed a
private placement totaling $0.435 million through the issuance of 116,935
shares of common stock at $3.72 per share. These shares are deemed
"restricted shares" as that term is defined under U.S. securities laws
Regulation "S" of the 1933 Act.
7. October 23, 2000 - Stockgroup launches free real-time quotes and
interactive charts to users of its small cap financial super site,
www.smallcapcenter.com and as an additional feature for its Financial Tools
and Content applications and financial tool offerings to companies. The
quotes, accessible free of charge and in real-time, include all major US
exchanges. The real-time quotes can be tracked by symbol or within a
portfolio. In addition to the Company's real-time quote product, Stockgroup
has also developed a proprietary Interactive Chart, a powerful analytical
tool that gives investors a comprehensive snapshot of the activities for a
given stock or index on the North American exchanges all on one screen.
Interactive charting offers the open, close, high, low, volume and stock
split information for a particular day available by simply dragging a mouse
over the chart. The Interactive Chart offers users an easy way to view
different time frames in line or candle format by simply zooming in and out
and scrolling left and right. The chart also features various technical
analysis features and the option of viewing multiple tickers. The free real
time quotes and interactive charts have also been integrated into the
content and tool offerings and Financial Tools and Content applications for
the company's business-to-business clients. All Internet sites can now
offer their customers complimentary real-time quotes, charts, interactive
tools and content through the licensing of Stockgroup's products.
8. November 20, 2000 - Smallcapcenter.com Posts 10,000th Story - Largest
Smallcap News Archive on the Internet. Stockgroup announced that its news
site, smallcapcenter.com, has reached the 10,000 mark for articles and
columns produced by its staff of journalists.
9. November 30, 2000 - Stockgroup announced a major development project
agreement with Onmark Group, the financial services and e-commerce company.
Stockgroup will contribute its project management, web development and
design services in the delivery of an Onmark Group global marketplace for
web-based leasing, financing and documentation. This marketplace will
enable clients to source tailored asset financing and assets online on a
global scale in multiple currencies. Stockgroup and Onmark Group had been
involved in ongoing projects for several months. This latest initiative as
specified by Onmark Group includes Stockgroup's project management and web
development and design services to deliver the front end and functionality
of Onmark's e-leasing product. Other corporate members of the development
team include Oracle Corporation (NASDAQ: ORCL), the world's largest
provider of software for e-business, and Viewlocity Inc. Onmark Group's
marketplace automates the leasing application process, routing vendor lease
applications to the appropriate funders in real time.
10. On January 19, 2001, Stockgroup closed a $0.5 million financing from a
group of unaffiliated investors pursuant to a Securities Purchase
Agreement. The funding included $0.5 million of 3% Convertible Debentures
and 4-year warrants. The warrants were
23
issued on a pro-rata basis, with each debenture-holder receiving 1 Series A
warrant for each dollar of debentures purchased and 3 Series B warrants for
each five dollars of debentures purchased. The debentures mature on
December 31, 2003 and became convertible into common shares on March 25,
2001.
The maximum and minimum conversion prices for the Notes are $1.00 (the
"Maximum Conversion Price") and $0.50 (the "Minimum Closing Price")
respectively, and the exercise price (the "Exercise Price") of the Warrants
is $1.00 per share for the Series A Warrants and $2.00 per share for the
Series B Warrants. The actual conversion price of the Notes will be
determined upon receipt of a conversion notice and will be the lesser of
(a) the Maximum Conversion Price, or (b) 80% of the 2 lowest closing prices
of Stockgroup's common shares during the 10 trading days prior to the date
of conversion, but in no case less than the Minimum Conversion Price.
The Maximum and Minimum Conversion Prices and the Exercise Price are
subject to adjustment upon the happening of certain events, such as the
payment of a stock dividend, a stock split, a corporate merger or spin-off,
or the issuance of securities at a price below the conversion price.
Interest accrues on the Notes at the rate of 3% per annum, and is payable
on each conversion date, at the end of each calendar quarter and at
maturity. Interest may be paid in the form of cash or shares (which shares,
if any, will be included in the registration statement to be filed), at
Stockgroup's option. The Warrants permit the holders to acquire up to an
aggregate of 800,000 Stockgroup common shares.
Stockgroup filed a registration statement covering these shares, the shares
underlying the Notes, and the shares issuable, if any, in payment of
interest on the Notes, which registration statement became effective on
April 4, 2001. There was no placement agent in the transaction.
11. During the first quarter of 2001, Stockgroup integrated a variety of
financial solutions for new Financial Tools and Content customers including
the US Navy, Unisys, Lancaster Media, Prime Vest and Conseco's
Internet/Intranet sites. Stockgroup.com provides these sites with its
proprietary financial tools, including delayed and real-time quotes,
interactive charting and customizable portfolios. These products are
licensed to clients and delivered in a private-labeled format to the
specifications of the customer.
12. On February 7, 2001, Stockgroup's CEO, Marcus New was recognized as one of
Vancouver's Top 40 under 40 business people, as judged by Business in
Vancouver magazine. He was recognized formally at a function held on
February 7th 2001, alongside his other 40 under 40 peers.
13. On February 13, 2001, Stockgroup announced it had signed a distribution
agreement with COMTEX News Network (OTCBB:CMTX), a leading
business-to-business infomediary, to provide COMTEX' distribution channel
with timely small cap financial news and commentary. Stockgroup.com will
provide COMTEX with news, commentary, and analysis on the small cap public
markets written by their team of financial reporters and columnists, who
write for the leading small cap financial web site,
24
www.smallcapcenter.com. Included in the content distribution are
www.smallcapcenter.com features 'Industry News', which focuses on industry
sectors in the small cap space, 'Market Report', a general recap of the
day's market activity from the small cap market perspective, and 'Small cap
Movers' -- a feature that focuses on the day's biggest movers in the small
cap markets. This relationship with COMTEX provides Stockgroup.com with an
effective channel to deliver our proprietary financial content to a broad
audience of users who want to be kept up to speed on the small cap markets.
25
BUSINESS
GENERAL
Stockgroup is a financial media and technology company.
As a Financial Tools and Content provider, Stockgroup develops custom private
labeled financial communities for media, brokerages, and financial services
companies. Its proprietary technologies enable companies to provide news and
data streams combined with cutting edge fundamental, technical, and productivity
tools to their customers. Stockgroup is also a provider of Web site development
and Internet marketing services to small and micro cap companies.
Stockgroup's suite of financial tools and contents provides its Financial Tools
and Content customers with:
Real-time stock quotes on major U.S. exchanges;
North American 20-minute delayed stock quotes and indices;
Wireless North American stock quotes and indices;
Portfolio management, live portfolio updates and wireless portfolio
updates;
Most active stock updates and wireless updates;
Daily winners/losers updates and wireless updates; and,
Company profiles, stock screening (investment data) and technical analysis.
In addition, Stockgroup is an online provider of financial news and information
services, disseminated from offices in New York, San Francisco, Toronto, and
Vancouver. Stockgroup's Internet Web site, www.smallcapcenter.com, is a
state-of-the-art online research center for the small cap investor or anyone
interested in the small cap sector. Interested individuals can opt-in to
Stockgroup's services and information by completing a free online registration.
In addition to the Financial tools and content listed above, some of the
features available to members of Stockgroup's free opt-in community at
www.smallcapcenter.com include:
Market news from a wide range of data providers
Stockgroup's proprietary Small Cap news
Financial tools and analytical charts
Stockscores to assist in ranking all public stocks using a variety of
methods
26
Small cap express newsletter and News hot line
Investor market place
CORPORATE BACKGROUND
Stockgroup was incorporated under the laws of Colorado on December 6, 1994 under
the name I-Tech Holdings Group, Inc. ("I-Tech"), a United States non-operating
company registered on the NASD OTC Bulletin Board. The financial statements and
supporting information in this report are issued under the name of Stockgroup
but are a continuation of the financial statements and report of operations of
Stock Research Group, Inc. ("SRG"), a British Columbia corporation which was
incorporated on May 4, 1995. On March 11, 1999, pursuant to a reverse
acquisition, SRG acquired the net assets of I-Tech. This transaction is
considered a recapitalization of SRG for accounting purposes and an acquisition
of Stockgroup by SRG. Accordingly, the transaction has been accounted for as a
purchase of the net assets of Stockgroup by SRG, however Stockgroup continues as
the remaining legal entity. Prior to the reverse acquisition, between 1995 and
1999, SRG had carried on active operations based on the business model described
below, which model has also been continued since the reverse acquisition.
Stockgroup operates offices in Vancouver, San Francisco, and Toronto. Stockgroup
was created as a technology and media company that developed Internet financial
tools, content and media forums that assist individual investors with
information about small cap companies. Stockgroup defines "small cap" as
publicly traded companies with less than $750 million market capitalization.
From its original website, www.Stockgroup.com, the Company used its experience
and the funds from a private placement in spring 1999 to launch a more
full-service website at www.smallcapcenter.com. This new website, launched in
October 1999, included unbiased proprietary news and tools for the North
American small cap market. www.smallcapcenter.com is distinct in the financial
news industry in that it supplies information on almost 8,000 smaller public
companies not generally reported by other sites in addition to information on
larger public companies, making www.smallcapcenter.com a comprehensive website
that offers information on most public companies in North America. Throughout
1999 and the first six months of 2000, the Company enhanced its
www.smallcapcenter.com website and its tools and content.
The Company's community on www.smallcapcenter.com has provided a foundation for
growth because of the targeted, opt-in subscriber base (making it appealing to
advertisers and corporate clients) and the recurring, contractual nature of
revenues. Stockgroup improved its position in the Services to Public Companies
sector through a wider offering of services and tools to small cap companies.
Smallcapcenter.com has received recognition for its usefulness and quality to a
wide range of users, and has become a launching pad for the newest sources of
revenue for Stockgroup - Financial Tools and Content and E-Business. These new
revenue sources are a logical extension of products and expertise Stockgroup
gained building and maintaining www.smallcapcenter.com. Stockgroup entered the
Financial Tools and Content market by
27
syndicating, or licensing, financial tools and content to websites that want to
improve their content. The Financial Tools and Content market has created
opportunities for Stockgroup beyond its traditional core market of public small
cap companies, allowing the Company to sell to a wide range of companies of all
sizes. The quality of www.smallcapcenter.com and the expertise gained in
building and maintaining it also gave Stockgroup the credibility and exposure
required to win Financial Tools and Content and E-Business contracts with
companies that want a strong internet presence with a financial focus.
PRODUCTS AND SERVICES
In addition to maintaining the www.smallcapcenter.com community, Stockgroup now
offers three services including Services to Public Companies, Financial Tools
and Content and E-Business.
Services to Public Companies comprises the range of products and services that
Stockgroup offers to its small cap company clients through its monthly marketing
and maintenance programs, in addition to the many products and services that are
available through its www.smallcapcenter.com website. In the monthly programs,
Stockgroup currently serves over 400 corporate clients, and for a monthly fee
offers them a one-stop solution for their Internet corporate disclosure and
corporate advertising requirements. Clients typically sign a twelve-month or
longer agreement, and are featured on a Showcase section of the website, thereby
gaining exposure to smallcapcenter users. Subscribers to the monthly maintenance
program, whereby Stockgroup updates their websites with corporate information,
also helps satisfy SEC requirements for continuous disclosure on the Internet.
Management expects this area of business to grow in light of recent SEC
pronouncements requiring improved Internet disclosure for their registrants,
which will cause an increase in the appeal of this offering. Revenues derived
from the website include banner and button advertising on the website and on
targeted communications to our community, email access to our opt-in community
of qualified investors, and Investor Marketplace where companies can be featured
on a section of the website with guaranteed results. The opt-in nature and the
appealing demographics of Stockgroup's online smallcapcenter community have
improved our ability to generate website revenues in the past. Management
expects this to continue in the future as we endeavor to maintain both the
quality and size of the community and the range of products we offer.
Financial Tools and Content, leveraged from Services to Public Companies
financial tool and content products, is aimed at any company that wishes to add
financial news, tools, market data and in depth fundamental and technical
analysis to their Web site. In its direct sales and through channel agreements,
Stockgroup has already made sales to a wide array of customers including
government agencies, large corporation Intranets and websites, internet
companies, financial services companies and media companies. In addition to the
wide array of customers Stockgroup has access to through channel agreements with
syndicators, possible customers include the 5,000 full service brokers in North
America. The Financial Tools and Content model is attractive because it is a
comprehensive and inexpensive alternative to in-house development or
partnership. It is a strong source of revenue for Stockgroup because of the
recurring, annuity nature of the revenue streams, which are typically generated
through 12-month contracts that renew annually. Other potential customers
include but are not limited to insurance and trust
28
companies, financial news publications, and investor relations firms. Since
launching Financial Tools and Content products, during the second half of 2000
new Financial Tools and Content customers include major technology, banking, and
insurance clients.
E-Business offers data aggregation and management, system design and
development, technology development and project management to business
customers. More involved than the Financial Tools and Content model, Stockgroup
began offering E-Business late in 1999. These customers need completed solutions
to their Web presence and have chosen Stockgroup because of its expertise in the
development and maintenance of Web sites that require the incorporation of
financial technology, content and media. The Company believes it has become
efficient and effective in the development of these types of sites owing to five
years of financial tool and Web site development. One of Stockgroup's
competitive advantages is the ability to develop comprehensive solutions using
proprietary tools in a compressed time frame.
Stockgroup's industry is characterized by rapid technological change, new
product development and evolving industry standards. Inherent in the Company's
business are various risks and uncertainties, including a limited operating
history and the limited history of commerce on the Internet. For a more complete
discussion of the risks associated with the Company's business, see the risk
factors discussion and Management's Discussion and Analysis of Results of
Operations and Financial Condition. Success may depend in part upon the
emergence of the Internet as a communications medium, prospective product
development efforts and the acceptance of the Company's products and services by
the marketplace. As part of its strategic development plans, the Company invests
significant resources in new products and services development.
EMPLOYEES
As of March 31, 2001 Stockgroup employed 50 people on a full-time basis and 2
people on a part-time basis. Stockgroup's success is highly dependent on the
ability to attract and retain qualified employees. Competition for employees is
intense in the Internet industry. To date, the Company believes that it has been
successful in efforts to recruit and retain qualified employees, but there is no
assurance that it will continue to be as successful in the future. None of the
Company's employees are subject to collective bargaining agreements. The Company
believes relations with employees are good.
REGULATORY ISSUES
The Company is not subject to governmental regulation in its Internet publishing
efforts other than local state and municipal sales tax licenses.
A number of legislative and regulatory proposals under consideration by federal,
state, provincial, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain how
existing laws will be applied by the judiciary to the Internet. The adoption of
new laws or the application of existing laws may decrease the growth in the use
of the Internet,
29
which could in turn decrease the demand for Stockgroup's services, increase the
cost of doing business or otherwise have a material adverse effect on the
Company's business, results of operations and financial condition.
SUBSIDIARIES
Stockgroup has five subsidiaries. In Canada, its British Columbia subsidiaries
are Stockgroup.com Media, Inc. and 579818 B.C. Ltd. In the U.S. the Company
operates through Stockgroup.com, Ltd. Stockgroup also owns two non-operating
corporations, Stockgroup.com (Bahamas) Ltd. and Stockgroup.com International,
Inc. which are currently dormant.
PRODUCT AND WEBSITE DEVELOPMENT
During 1999 and 2000 the Company invested approximately $849,335 and $415,108
respectively on research and development related to new products and services,
the introduction of www.smallcapcenter.com, and the development of new markets
in Europe during 2000 that was abandoned in the same year.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND DOMAIN NAMES
We protect our intellectual property through a combination of trademark and
copyright law, trade secret protection and confidentiality agreements with our
employees, customers, independent contractors and strategic partners. We pursue
the registration of our domain names, trademarks and service marks in the United
States and internationally. Effective trademark, service mark, copyright and
trade secret protection may not be available in every country in which our
services and products are made available on-line. We create a majority of our
content and obtain rights to use the balance of our content from third parties.
It is possible that we could become subject to infringement actions based upon
the content obtained from these third parties. In addition, others may use this
content and we may be subject to claims from our licensors. We currently have no
patents or patents pending and do not anticipate that patents will become a
significant part of our intellectual property in the future. We enter into
confidentiality agreements with our employees and independent consultants and
have instituted procedures to control access to and distribution of our
technology, documentation and other proprietary information and the proprietary
information of others from whom it licenses content. The steps we take to
protect our proprietary rights may not be adequate and third parties may
infringe or misappropriate our copyrights, trademarks, service marks and similar
proprietary rights. In addition, other parties may assert claims of infringement
of intellectual property or other proprietary rights against us. The legal
status of intellectual property on the Internet is currently subject to various
uncertainties as legal precedents have not been set and are still to be
determined in many areas of internet law.
LEASEHOLD
We operate four leased offices, all located in recognized financial districts of
their respective cities. Our leaseholds are summarized as follows:
30
City Monthly Payment Lease Expiry Date
-----------------------------------------------------------------------------
Vancouver CDN $19,969 7 years June -- 2006
New York $8,154 7 years August -- 2006
Toronto CDN $4,204 3 years July -- 2002
San Francisco $4,276 3 years January -- 2002
As of May 15, 2001, we have sub-leased the New York premises for the same amount
of our lease expense, resulting in a net expense to us of $0 per month until
April 30, 2004.
EQUIPMENT
We have made an investment in servers and computer equipment required for our
Web site and we have dedicated staff assigned to maintenance and support of
these operations.
LEGAL PROCEEDINGS
We filed a statement of claim in the Supreme Court of British Columbia on
January 3, 2001, against Pacific Capital Markets Inc., James King, Rick Jeffs,
and Heidi Hirst. We are suing Pacific Capital Markets Inc. for $351,180 due to
us under a sales contract we signed with them on September 20, 2000. We are
suing the individuals named above, who are managers of Pacific Capital Markets
Inc., for general damages for misrepresentation. We are seeking payment of the
$351,180 owing, plus interest, damages, costs and such further and other relief
as deemed suitable by the court.
On January 12, 2001, Pacific Capital Markets Inc., James King, Rick Jeffs, and
Heidi Hirst filed a Statement of Defence and Counterclaim. At the time of this
filing, no settlement conferences have been held and no court date has been set.
31
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth, as of June 19, 2001, the name, age and position
of the Company's directors, executive officers and other significant employees.
Name Age Position with the Company
--------------------------------------------------------------------------------
Marcus A. New 30 Chairman of the Board; Chief Executive Officer
David Caddey 51 Director
Louis deBoer II 49 Director
Leslie Landes 56 Director, President and Chief Operating Officer
Craig Faulkner 30 Director, Chief Technology Officer
Lindsay Moyle, CGA 36 Chief Financial Officer, Secretary & Treasurer
--------------------------------------------------------------------------------
The backgrounds of the Company's Directors, Officers and significant employees
are as follows:
Marcus New, Founder, Chairman of the Board and CEO
Marcus New is the founder, and has been Chairman and Chief Executive Officer
since May 1995, of Stockgroup. Mr. New formed the vision for Stockgroup in 1995
and developed the company from an idea to the goal of becoming a leader in
e-business solutions for financial services companies and the dominant single
source for small cap information on the Internet. Over the last five years he
has grown the company by re-investing internally generated capital and has
successfully built a substantial corporate client roster based on development of
his ideas for Internet marketing. Similar to other successful Internet pioneers,
Mr. New created Stockgroup based on identification of the ways in which the
Internet could be used to provide services that were not otherwise available.
David N. Caddey, B.Sc., M.Sc., Director
David Caddey has been a Director of Stockgroup since May 1995 and has over 26
years experience in the business and program management field. Since July 1998
he has served as an Executive Vice President of MacDonald Dettwiler and
Associates Ltd., a space technology and satellite services company that designs,
manufactures, operates and markets a broad range of space products and services.
During this period he has also served as the General Manager of that company's
Space Missions Group where he is responsible for managing the construction of
the Radarsat-2 spacecraft and associated ground infrastructure program, valued
at over $350 million, as well as the construction of the Space Station Mobile
Servicing System. From July 1994 to June 1998, Mr. Caddey worked as a Vice
President and General Manager of the Space and Defense Systems Business Area of
MacDonald Dettwiler and Associates Ltd.. In this capacity he was responsible for
marketing and sales, project management, technical management and post delivery
support. From 1990 to 1994 he served as Vice President and General Manager of
Geo-information Systems of MacDonald Dettwiler and Associates Ltd., where he
managed the development of Radarsat I Ground Segment Program.
32
Louis deBoer II, Director
Louis de Boer has served as a director of Stockgroup since October 1999. Since
May 1998, he has served as President of MediaFutures, Inc., which provides
consulting services to clients in the Internet and cable broadcasting
industries, including such companies as Hearst New Media, Cox Enterprises,
Rainbow Programming as well as several emerging growth companies. From June 1996
to April 1998, he was Chief Executive Officer at New Century Network, an online
company formed by a consortium of the nine leading US newspaper organizations,
including, Advance Communications, Cox Communications, The Chicago Tribune,
Hearst, Gannett, Knight-Ridder, Inc., The New York Times, The Washington Post
and Times-Mirror. At New Century Networks, Mr. de Boer managed the team of
experts that aggregated content and marketed and sold space to over 150
newspaper Web sites. From 1977 to December 1994, Mr. de Boer was employed at HBO
culminating in the positions of Executive Vice President of HBO Inc. and
President of its International division, where he played an instrumental role in
helping negotiate and broker deals that significantly increased that company's
presence in its international markets. Mr. de Boer is also a director of Click
TV, an online television listings service, and Nextplay, both of which are
public companies.
Leslie A. Landes, Director, President and Chief Operating Officer
Leslie Landes has served as Stockgroup's President and Chief Operating Officer
since August 1998 and has been an advisor to Stockgroup since its inception.
Since January 1992, Mr. Landes has served as the President and as a director of
Landes Enterprises Limited, which he founded, and which is an interim turnaround
management consulting company that advised and counseled clients in several
industries, including telecommunications and technology on issues ranging from
mergers and acquisitions to international marketing campaigns. Prior to forming
Landes Enterprises in 1992 Mr. Landes spent 13 years with the Jim Pattison
Group, Canada's third largest privately held company with sales in excess of
CDN$3 Billion, with over 13,000 employees. He served as President of The Jim
Pattison Sign Group, Outdoor Group, and Communications Group, which included
radio and television stations and paid subscription print publications.
Ultimately he was appointed President of Jim Pattison Industries Ltd. and Senior
Vice President of the parent Jim Pattison Group, responsible for the Group's
acquisitions and divestitures, and with involvement in the management of the
Group's 50 diversified companies. He successfully initiated and completed the
acquisitions of other companies in a number of diverse industries in which the
Group was active. Under his direction the Sign Group was built into the largest
electric sign company in the world. Mr. Landes is also a director of TIR Systems
Ltd., a lighting technology company, which is a public company.
Craig Faulkner, Co-Founder, Director, Chief Technology Officer
Craig Faulkner has served as Stockgroup's Chief Technical Officer and as a
member of Stockgroup's board of directors since January 1995. Early in his
career with Stockgroup, Mr. Faulkner led Stockgroup to co-develop one of the
first portfolio tracking tools, LivequoteSRG. Mr. Faulkner manages the
programming and information management team at Stockgroup, initiates solutions
with data and hardware vendors, while maintaining a senior management role
33
and board membership. Under Mr. Faulkner's direction, Stockgroup has implemented
a sophisticated blend of solutions.
Lindsay Moyle, CGA, Chief Financial Officer, Secretary and Treasurer
Lindsay Moyle has served as the Chief Financial Officer of Stockgroup since May
2000. From July, 1995 to April, 1999 he was the Chief Financial Officer of NTS
Computer Systems, a publicly traded specialty computer manufacturer, where he
helped the company grow from annual revenues of CDN$1 Million to CDN$35 Million.
Executive Compensation
The following summary compensation table reflects all compensation awarded to,
earned by, or paid to the Chief Executive Officer and the President for all
services rendered to the Company in all capacities during each of the years
ended December 31, 1998, 1999 and 2000. None of the other executive offices
received salary and bonus exceeding $100,000 during those years.
Summary Compensation Table
Name and Principal Position Year Salary Securities All Other
--------------------------- ---- ------ ---------- ---------
$ Underlying Compensation
- ---------- ------------
Options (#) $
----------- -
Marcus New 2000 $ 147,460 0 $ 0
Chief Executive Officer, 1999 $ 111,073 325,000 $ 0
Chairman and Director 1998 $ 40,192 0 $ 0
Leslie Landes 2000 $ 145,668 0 $ 0
President & Chief Operating Officer 1999 $ 122,654 745,800 $ 0
1998 $ 38,781 0 $ 0
The amount shown above for Leslie Landes 2000 salary differs from the
contractual amount of $150,000 per annum due to payment of the salary in
Canadian dollars, leading to foreign exchange differences in conversion back to
US dollars at average exchange rates for the year.
No Bonuses were paid to named executive officers in any of the above years. No
Restricted Stock Awards, SAR's, or LTIP's were awarded to named executive
officers in any of the above years.
No stock options were granted to any of the named executive officers during 2000
for services rendered to Stockgroup.
The following table summarizes the option holdings of the named executive
officers as at December 31, 2000:
34
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
Number of Shares underlying Value Unexercised
Unexercised Options at In-the-Money Options at
December 31, 2000 December 31, 2000
Shares acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
Marcus New 0 0 65,000 260,000 0 0
Leslie Landes 0 0 0 105,000 0 $ 64,575
0 0 213,280 373,720 0 $ 0
Directors' Compensation
Stockgroup compensates its outside Directors by issuing each one options to
acquire shares of common stock which fully vest after one year of service on the
board of directors. Mr. David Caddey was granted 20,000 such options on March
11, 1999 that have an exercise price of $2.50 per share and became fully vested
and exercisable on March 11, 2000. Mr. Louis deBoer II was granted 20,000 such
options on October 7, 1999 which have a exercise price of $2.75 per share and
became fully vested and exercisable on October 7, 2000. Mr. David Caddey and Mr.
Louis deBoer II were granted 50,000 additional options each on November 8, 2000
that have an exercise price of $1.00 per share and become fully vested and
exercisable on November 8, 2001.
Employment and Severance Agreement
Stockgroup has an employment agreement with the President Leslie Landes. This
agreement was signed on August 4, 1998 and has a term of 5 years. Under the
agreement Mr. Landes is scheduled to receive compensation of $150,000 per annum.
The agreement may be terminated by Stockgroup or Mr. Landes on 30 days notice,
and if termination is initiated by Stockgroup, Mr. Landes is to receive a
severance payment equal to 12 months compensation.
1999 Incentive Stock Option Plan
The purposes of our 1999 Incentive Stock Option Plan are to enhance our
profitability and shareholder value by enabling us to offer stock based
incentives to employees, directors and consultants. The 1999 Stock Option Plan
authorizes the grant, to our, and our subsidiaries, employees, directors,
consultants and advisors, of:
o stock options;
o restricted shares (which would generally provide for a substantial
risk of forfeiture for a period of time);
o deferred shares, which would generally provide for shares to be issued
upon services being rendered; and
o performance shares, which would generally provide for shares to be
issued upon the attainment of specified performance goals.
35
Under the 1999 Stock Option Plan, we may grant incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, and
non-qualified stock options. Incentive stock options may only be granted to our
employees.
The number of shares authorized and reserved for grants under the 1999 Stock
Option Plan is 2,000,000. The 1999 Stock Option Plan is administered by the
board of directors, although the board has the right to appoint a committee of
two or more non-employee directors to administer the Plan. Subject to the
provisions of the Plan, the board and the committee have authority to determine
the employees, directors, consultants and advisors who are to receive awards and
the terms of such awards, including:
o the number of shares subject to the award;
o the fair market value of the shares subject to options;
o the exercise price per share;
o the terms of vesting, including whether vesting accelerates upon a
change of control, which may also be granted to participants at any
time after an award has been granted; and
o other terms.
Grants of options may consist of incentive stock options, non-qualified stock
options, or a combination of both. Incentive stock options must have an exercise
price equal to at least 100% of the fair market value of a share on the date of
the award and non-qualified stock options must have an exercise price at least
equal to 75% of the fair market value of a share on the date of the award. If
the grant of an incentive stock option is to a shareholder holding more than 10%
of our voting stock, the exercise price must be at least 110% of the fair market
value on the date of grant. Terms and conditions of awards are set forth in
written agreements between us and the respective option holders. Awards under
the 1999 Stock Option Plan may not be made after March 11, 2009, and stock
options granted before that date may not have a term beyond that date.
If the employment with us of the holder of a stock option is terminated for any
reason other than as a result of a voluntary termination with the consent of the
board or the holder's death or disability, the holder's stock option terminates
on the same date. If the termination is due to such a voluntary termination the
holder may exercise the option, to the extent exercisable on the date of
termination of employment, until 3 months after the date of termination. If an
option holder dies or becomes disabled, stock options may generally be
exercised, to the extent exercisable on the date of death or disability, by the
option holder or the option holder's survivors until six months after the date
of death or disability.
As of June 19, 2001, options to purchase up to 1,978,500 shares of common stock
had been granted under the 1999 Stock Option Plan, and options to purchase
21,500 shares were available for future grants. We have registered the shares
subject to issuance under our 1999 Stock Option Plan, pursuant to our
registration statement on Form S-8 filed with the Securities and Exchange
Commission on November 16, 1999.
36
2000 Incentive Stock Option Plan
The purposes and description of our 2000 Incentive Stock Option Plan are
identical to the 1999 Stock Option Plan in all respects, save that the amount of
shares authorized and reserved for issuance under the 2000 Stock Option Plan is
500,000 shares. As of June 19, 2001, 500,000 options have been issued under the
2000 Stock Option Plan, of which 200,000 have been exercised and no further
options are available to be granted. We have registered the shares subject to
issuance under our 2000 Stock Option Plan, pursuant to our registration
statement on Form S-8 filed with the Securities and Exchange Commission on May
15, 2001.
LIMITATION OF LIABILITY AND INDEMNIFICATION
We intend to enter into indemnification agreements with our directors and
officers. These agreements will provide, in general, that we will indemnify and
hold harmless such directors and officers to the fullest extent permitted by law
against any judgments, fines, amounts paid in settlement, and expenses incurred
in connection with, or in any way arising out of, any claim, action or
proceeding against, or affecting, such directors and officers resulting from,
relating to or in any way arising out of, the service of such persons as our
directors and officers. Currently, directors and officers are entitled to the
benefits of the limitation of liability provided under our charter documents and
the laws of the State of Colorado.
Insofar as indemnification for liabilities arising under the Securities Act of
1993 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities (other
than our payment of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
SELLING SHAREHOLDERS
This prospectus relates to the offering by the selling shareholders of shares of
our common stock acquired by them upon conversion of convertible debentures and
exercise of warrants that the selling shareholders received in a private
placement. All of the shares of common stock offered by this prospectus are
being offered by the selling shareholders for their own accounts.
Deephaven Private Placement Trading Ltd. ("Deephaven") and Amro International
S.A. ("Amro") purchased an aggregate of $3 million of convertible notes and
warrants from us in a private placement transaction which closed on April 3,
2000. As part of that private placement,
37
Deephaven and Amro were issued notes that may be converted into our common stock
and warrants to acquire our common stock. The notes and the warrants are
described in more detail on page 58 of this prospectus. Holders of the notes and
warrants are prohibited from using them to convert into and acquire shares of
our common stock to the extent that such conversion or acquisition would result
in such holder, together with any affiliate thereof, beneficially owning in
excess of 4.999% and 9.999%, respectively, of the outstanding shares of our
common stock following such conversion or acquisition. This restriction may be
waived by the holder on not less than 61 days' notice to us. Since the number of
shares of our common stock issuable upon conversion of the notes will change
based upon fluctuations of the market price of our common stock prior to a
conversion, the actual number of shares of our common stock that will be issued
under the notes, and consequently the number of shares of our common stock that
will be beneficially owned by Deephaven and Amro, cannot be determined at this
time. Because of this fluctuating characteristic, we have agreed to register a
number of shares of our common stock that exceeds the number of shares
beneficially owned by Deephaven and Amro. The number of shares of our common
stock listed in the table below as being beneficially owned by Deephaven and
Amro includes the shares of our common stock that are issuable to them, subject
to the 4.999% and 9.999%, respectively, limitation, upon conversion of their
notes and exercise of their warrants. However, the 4.999% and 9.999%,
respectively, limitation would not prevent Deephaven and Amro from acquiring and
selling in excess of 4.999% and 9.999%, respectively, of our common stock
through a series of conversions and sales under the notes and acquisitions and
sales under the warrants.
Deephaven is a private investment fund that is owned by its investors and that
is managed by Deephaven Capital Management LLC. Deephaven Capital Management LLC
has voting and investment control over the shares listed above as owned by
Deephaven.
Amro is a private investment fund that is owned by its investors and that is
managed by Ultrafinance. Mr. H.U. Bachofen is a director and principal of
Ultrafinance and as such has investment control over the shares listed above as
owned by Amro.
Jesup is owned 100% by Jesup and Lamont Group Holdings, which is owned 80% by
Mr. Howard F. Curd.
Deephaven and Amro have represented to us that (i) they acquired the securities
listed above in the ordinary course of business, and (ii) they did not have any
agreement or understanding, directly or indirectly, with any person to
distribute the securities at the time that the securities being registered above
were acquired.
In August 2000, the note holders exercised their right to put 25% of the notes,
or $750,000. The Company paid this put in cash in August 2000, with the total
amount paid equal to $750,000 plus the 15% prepayment penalty of $112,500 and
accrued interest of $22,290, for a total of $884,790.
On September 25, 2000, Amro International, S.A. exercised their right to put an
additional 25% of their portion, or $250,000. On October 5, 2000, the Company
served Amro International, S.A., with a Notice of Intention Not to Pay Put
Notice according to the terms of the agreement. Under the agreement, Amro
International, S.A. now has the right to convert $250,000 plus
38
premium and accumulated interest into shares of the Company. On March 5, 2001,
Amro International, S.A. exercised their right to put an additional 25% of their
portion, or $250,000. As of March 15, 2001 Amro had the right to convert this
amount plus premium and accumulated interest into shares of the Company pursuant
to a calculation of share value as specified in the debenture on the conversion
date, if applicable. As of the date of this filing, $50,000 has been converted
into 67,741 shares of the Company pursuant to a Conversion Notice received by
the Company on November 14, 2000 from Amro International, S.A.
On January 12, 2001, Deephaven Capital Management LLC exercised their right to
put an additional 25% of their portion, or $500,000. As of January 22, 2001
Deephaven had the right to convert this amount plus premium and accumulated
interest into shares of the Company pursuant to a calculation of share value as
specified in the debenture on the conversion date, if applicable. As of the date
of this filing, $25,000 has been converted into 67,508 shares of the Company
pursuant to a Conversion Notice received by the Company on January 12, 2001 from
Deephaven Capital Management LLC.
The following table sets forth information with respect to the common stock
beneficially owned by the selling shareholders as of the date of this
prospectus, including shares obtainable under convertible notes and warrants
exercisable within 60 days of such date. To our knowledge, each of the selling
shareholders has sole voting and investment power over the shares of common
stock listed in the table below. No selling shareholder, has had a material
relationship with us during the last three years, other than as an owner of our
common stock or other securities.
---------------------------------------------------------------------------------------------------
SELLING ORIGINAL PRINCIPAL NUMBER OF SHARES NUMBER OF SHARES PERCENT
SHAREHOLDERS AMOUNT OF DEBENTURES REGISTERED OWNED AFTER THE 0F CLASS
ISSUED OFFERING
---------------------------------------------------------------------------------------------------
Deephaven Private 2,000,000 11,071,314 1,884,364 21.5
Placement Trading Ltd.
---------------------------------------------------------------------------------------------------
Amro International 1,000,000 5,257,264 1,730,960 19.8
---------------------------------------------------------------------------------------------------
Jesup and Lamont Securities 0 90,909 90,909 1.0
Corp.
---------------------------------------------------------------------------------------------------
The number of shares of common stock shown for Deephaven, Amro and Jesup
consists of 200% of the number of shares issuable upon conversion of notes,
being 10,950,102 shares and 5,196,658 shares, respectively and 121, 212 shares,
60,606 shares, and 90,909 shares, respectively, issuable upon exercise of
warrants. This estimate is based on the conversion rate of the convertible notes
and the exercise price of the warrants in effect on the date of this prospectus.
The notes may only be converted if we do not make payment on a noteholder's
prepayment request, or if we seek to prepay the notes.
The number of shares owned after the offering has been calculated as the number
of callable warrants that are exercisable within the next sixty (60) days plus
the number of shares issuable pursuant to conversions of that portion of the
convertible notes that has been Put to the Company and not paid in cash as at
the date of this prospectus, plus accrued interest, at the conversion
39
price noted below. Percent of class is calculated on the total shares
outstanding as of the date of this prospectus, prior to any conversions or
exercises.
We have assumed the sale of all of the common stock offered under this
prospectus will be sold. However, as the selling shareholders can offer all,
some or none of their shares of common stock, no definitive estimate can be
given as to the number of shares that the selling shareholders will hold after
this offering. Holders of the notes and warrants are prohibited from using them
to convert into or acquire shares of our common stock to the extent that such
conversion or acquisition would result in such holders, together with any
affiliate thereof, beneficially owning in excess of 4.999% and 9.999%,
respectively, of the outstanding shares of our common stock following such
conversion or acquisition. This restriction may be waived by the holder on not
less than 61 days notice to us.
As of the date of this prospectus the conversion price was $0.296. The number of
shares to be issued upon exercise of the warrants is based upon an exercise
price of $3.30.
PRINCIPAL SHAREHOLDERS
Security Ownership of Certain Beneficial Owners
The following table sets forth as of June 19, 2001 the beneficial ownership of
common stock of each person known to us who owns more than 5% of our issued and
outstanding common stock.
Name and address* of Amount and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
-------------------- ----------------------- ----------
Marcus New 2,968,500 33.94%
Yvonne New 2,666,500 30.49%
518464 B.C. Ltd. 2,245,000 25.67%
Craig Faulkner 912,000 10.42%
569358 B.C. Ltd. 665,000 7.60%
*Unless otherwise referenced, the address for each of the above mentioned
parties is c/o Stockgroup.com Holdings, Inc. Suite 500 - 750 West Pender Street,
Vancouver, B.C. Canada V6C 2T7.
On March 11, 1999, Stockgroup entered into a Share Exchange and Share Purchase
Agreement with 579818 B.C. Limited, a British Columbia wholly-owned subsidiary;
Stock Research Group, Inc., a British Columbia corporation; and all of the
shareholders of Stock Research Group. Under that Agreement the Company acquired
all of the issued and outstanding shares of Stock Research Group, in
consideration of which 579818 B.C. Limited issued to the Stock Research Group
shareholders 3,900,000 Class A Exchangeable Shares. Stockgroup also issued to
Stock Trans, Inc., its transfer agent, 3,900,000 shares of common stock, to hold
as trustee for the benefit of the Stock Research Group shareholders. The
exchangeable shares may be converted, at the option of the holder, into an equal
number of shares of common stock held by the trustee. Pending any such
conversion, each holder of the exchangeable shares may direct the trustee to
vote an
40
equivalent number of shares of common stock. The trustee has no discretion as to
voting or disposition of common stock.
As a result of these transactions, each of the former Stock Research Group
shareholders has the right to vote, or to direct the trustee to vote on their
behalf, a number of shares of common stock equal to the number of exchangeable
shares held of record by them. In the aggregate, shares of common stock issued
to the trustee represent approximately 45% of issued and outstanding shares of
common stock.
The trust created by these transactions will continue until the earliest to
occur of the following events:
o no outstanding exchangeable shares are held by any former Stock Research
Group shareholder;
o each of 579818 B.C. Limited and Stockgroup acts in writing to terminate the
trust and such termination is approved by the holders of the exchangeable
shares; and
o December 31, 2098.
Of the amount shown for Marcus New, 50.15% (or 1,372,500 shares) of the
exchangeable shares are owned by Yvonne New, Mr. New's wife.
Mr. Marcus New owns directly 171,500 Exchangeable shares and his wife, Yvonne
New, owns directly 250,000 exchangeable shares. They both indirectly, through
518464 B.C. Ltd., a British Columbia company owned by Mr. New as to 50% and his
wife Yvonne New as to 50%, 2,245,000 exchangeable shares. Accordingly, Marcus
and Yvonne New beneficially own 2,666,500 exchangeable shares of common stock,
which represent approximately 30.49% of issued and outstanding common stock.
In addition to this amount, 70,000 shares are held in trust for the benefit of
Mr. New. This trust is a non-voting trust. Mr. New also owns 2,000 shares of
common stock which were purchased in the open market. Mr. New was also granted
options to purchase 325,000 shares of common stock at an exercise price of $2.50
per share. The initial vesting of 65,000 options took place on March 11, 2000.
Vesting of a second 65,000 options took place on March 11, 2001. On April 30,
2001, Mr. New was granted further options to purchase 100,000 shares of common
stock at an exercise price of $0.31 per share, with a five year term and full
vesting on April 30, 2001. In combination with Mr. New's 2,666,500 exchangeable
shares, 2,000 shares of common stock, and 70,000 shares of common stock held in
trust, these 230,000 optioned shares, which are exercisable, create a beneficial
ownership position in the company of 2,968,500 shares representing approximately
33.94% of issued and outstanding common stock.
Of the amount shown for Craig Faulkner, Mr. Faulkner owns directly 169,000
exchangeable shares and indirectly, through 569358 B.C. Ltd., a British Columbia
company owned by Mr. Faulkner, 665,000 exchangeable shares. Mr. Faulkner has
also been granted options to acquire 195,000 shares of common stock at an
exercise price of $2.50 per share. Mr. Faulkner was granted these options on
March 11, 1999. The options have a five-year term and vest 20% per year. The
initial vesting of 39,000 options took place on March 11, 2000. Vesting of a
second
41
39,000 options took place on March 11, 2001. In combination with his direct and
indirect holdings of 834,000 exchangeable shares, Mr. Faulkner beneficially owns
912,000 shares representing approximately 10.42% of issued and outstanding
common stock.
Security Ownership of Management
The tables below and the paragraphs that follow present certain information
concerning directors, executive officers and significant employees. Mr. David
Caddey is Mr. Marcus New's wife's uncle. Other than this relationship, none of
the Company's directors, executive officers or significant employees has any
family relationship with any other director, executive officer or significant
employee.
Executive Shares of Common Stock
Officer/Director Beneficially Owned As of Percent of
Name Age Position with Company Since June 19, 2000 Class
Directors:
Marcus A. New 30 Chairman of the Board, Chief 05/04/95 2,968,500 33.94%
Executive Officer, Director
Craig D. Faulkner 30 Chief Technology Officer, 05/04/95 912,000 10.42%
Director
Leslie Landes 56 President, Chief Operating 08/04/98 213,280 2.43%
Officer, Director
David Caddey 51 Director 05/04/95 80,000 0.91%
Louis deBoer II 47 Director 10/07/99 20,000 0.22%
All Directors, Executive Officers and 4,193,780 47.95%
Significant employees as a group
Of the amount shown for Mr. Caddy, 50% (or 30,000 shares) are owned by Ms. Donna
Caddey, Mr. Caddey's wife.
Mr. David Caddey and his wife, Donna Caddey, each own directly 20,000
exchangeable shares. In addition, 20,000 shares of common stock are owned
jointly by David and Donna Caddey. Accordingly, Mr. and Ms. Caddey beneficially
owns 60,000 shares of common stock which represents approximately 0.68% of
issued and outstanding common stock. Mr. Caddey has been granted options to
purchase 20,000 shares of common stock at an exercise price of $2.50 per share.
Mr. Caddey was granted these options on March 11, 1999. The options have a
six-year term and full vesting of the 20,000 options took place on March 11,
2000 and the beneficial ownership calculation here includes 20,000 shares of
common stock underlying these options. On November 8, 2000, Mr. Caddey was
granted further options to purchase 50,000 shares of common stock at an exercise
price of $1.00 per share, with a five-year term and full vesting on November 8,
2001. In combination with his direct and indirect holdings of 40,000
exchangeable
42
shares and direct and indirect holdings of 20,000 shares of common stock, Mr.
Caddey beneficially owns 80,000 shares representing approximately 0.91% of
issued and outstanding common stock.
Mr. Leslie Landes has been granted options to purchase 692,000 shares of common
stock at a price of $0.01 per share as to 105,000 shares and $0.94 per shares as
to the balance. Mr. Landes was granted these options on March 11, 1999. The
options may be exercised, to the extent vested, only after August 1, 2000. As at
August 1, 1999, 106,640 of the options had vested. As at August 1, 2000, a
further 106,640 of the options had vested. In addition, 53,800 of Mr. Landes'
options to purchase shares at a price of $0.94 will vest and be exercisable only
if Stockgroup attains sales performance levels of $28,500,000 in the fiscal year
ending December 31, 2001. As at June 19, 2001, Mr. Landes' options provide him
with beneficial ownership of 213,280 of issued and outstanding common stock.
Mr. Louis deBoer II, has been granted options to purchase 20,000 shares of
common stock at an exercise price of $2.75 per share. Mr. deBoer was granted
these options on October 7, 1999. The options have a six-year term and full
vesting of the 20,000 options occurred on October 7, 2000. On November 8, 2000,
Mr. deBoer was granted further options to purchase 50,000 shares of common stock
at an exercise price of $1.00 per share, with a five year term and full vesting
on November 8, 2001. As at June 19, 2001, Mr. deBoer's options provide him with
beneficial ownership of 20,000 shares of common stock, representing 0.22% of
issued and outstanding common stock.
Mr. Moyle was granted options to acquire 25,000 shares at an exercise price of
$1.56. These options were granted to Mr. Moyle on August 23, 2000, have a
six-year term and vest as to 20% per year starting August 23, 2001. On April 30,
2001, Mr. Moyle was granted further options to purchase 25,000 shares of common
stock at an exercise price of $0.31 per share, with a five year term and full
vesting on October 30, 2001. As at June 19, 2001, Mr. Moyle's vested options are
nil.
DESCRIPTION OF CAPITAL STOCK
The following description of our securities and various provisions of our
Articles of Incorporation and our bylaws are summaries. Statements contained in
this prospectus relating to such provisions are not necessarily complete, and
reference is made to the Articles of Incorporation and bylaws, copies of which
have been filed with the Securities and Exchange Commission as exhibits to our
registration statement of which this prospectus constitutes a part, and
provisions of applicable law. Our authorized capital stock consists of
50,000,000 shares of common stock, no par value, of which 8,745,184 shares were
issued and outstanding as of June 19, 2001, and 5,000,000 shares of preferred
stock, no par value, of which no shares were issued and outstanding as of June
19, 2001. As of June 19, 2001, there were 32 holders of record of our common
stock.
43
COMMON STOCK
Each share of common stock is entitled to share pro rata in dividends and
distributions with respect to the common stock when, as and if declared by the
board of directors from funds legally available therefor. No holder of any
shares of common stock has any pre-emptive right to subscribe for any of our
securities. Upon dissolution, liquidation or winding up of Stockgroup, the
assets will be divided pro rata on a share-for-share basis among holders of the
shares of common stock after any required distribution to the holders of
preferred stock, if any. All shares of common stock outstanding are fully paid
and non-assessable.
Each shareholder of common stock is entitled to one vote per share with respect
to all matters that are required by law to be submitted to shareholders. The
shareholders are not entitled to cumulative voting in the election of directors.
Accordingly, the holders of more than 50% of the shares voting in the election
of directors will be able to elect all the directors if they choose to do so.
Currently, our bylaws provide that shareholder action may be taken at a meeting
of shareholders and may be affected by a consent in writing if such consent is
signed by the holders of the majority of outstanding shares, unless Colorado law
requires a greater percentage. Our Articles of Incorporation provide that they
may be amended by the affirmative vote of a majority of the shares entitled to
vote on such an amendment. These are the only provisions of our bylaws or
Articles of Incorporation that specify the vote required by security holders to
take action.
PREFERRED STOCK
The board of directors is authorized, without further shareholder approval, to
issue from time to time up to an aggregate of 5,000,000 shares of preferred
stock. The preferred stock may be issued in one or more series and the board of
directors may fix the rights, preferences and designations thereof. No shares of
preferred stock are currently outstanding and we have no present plans to issue
any shares of preferred stock. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of our outstanding voting stock.
CONVERTIBLE DEBENTURES, NOTES AND WARRANTS
[A] MOUSTAFA, ASLAN, PANETTA, STONE, MCCORMACK, BRUENING, ALLIOTTS $500,000
On January 19, 2001, we entered into a Securities Purchase Agreement pursuant to
which we obtained $0.5 million in a financing with seven individual private
investors.
The funding included $0.5 million of 3% debentures, and 4-year warrants. The
warrants have been issued on a pro-rata basis to the purchasers of the
debentures, with each receiving 1 Series A warrant for each dollar of debentures
purchased, and 3 Series B warrants for each five dollars of debentures
purchased, for a total of 500,000 Series A and 300,000 Series B warrants that
expire on December 31, 2004. The debentures mature on December 31, 2003 and are
convertible into common stock at any time as of the date of this registration
document. The maximum and
44
minimum conversion prices for the debentures are $1.00 and $0.50 respectively,
and the exercise of the warrants is $1.00 per share for the Series A warrants
and $2.00 per share for the Series B Warrants. The actual conversion price of
the debentures will be determined upon receipt of a conversion notice and will
be the lesser of (a) the maximum conversion price, or (b) 80% of the 2 lowest
closing bid prices of the Company's common shares during the 10 trading days
prior to the date of conversion, but in no case less than the minimum conversion
price. The maximum conversion price and the respective exercise prices are
subject to adjustment upon the happening of certain events, such as the payment
of a stock dividend, a stock split, a corporate merger or spin-off, or the
issuance of warrants at a below market price or at a price below the conversion
price. Interest accrues on the debentures at the rate of 3% per annum, and is
payable on each conversion date and quarterly at the end of each calendar
quarter. Interest may be paid in the form of cash or registered stock, at our
option.
The warrants issued may be exercised at any time during the four-year period
following their issuance. The exercise price for the warrants is subject to
adjustment for stock dividends, stock splits, recapitalizations,
reclassifications, combinations, and dilutive issuances of securities. The
debentures and warrants contain provisions which limit the number of shares of
common stock into which the debentures are convertible and the warrants are
exercisable. Under these provisions, the number of shares of common stock into
which the debentures are convertible and the warrants are exercisable on any
given date, together with any additional shares of common stock held by the
note-holders, will not exceed 9.99% of our then outstanding common stock.
We have agreed that we will not, without the prior consent of the debenture
holders, enter into certain transactions relating to certain offers or sales of
our common stock (or securities convertible into common stock) with any third
party pursuant to a transaction which permits the sale of such common stock or
convertible securities on any date which is earlier than 90 days after the
effective date of this prospectus, which effective date was April 4, 2001. If we
do engage in such a transaction, there may be adjustments to the conversion
price of the selling shareholders' debentures. Following that period, if we
enter into certain transactions for the sale of our securities prior to the end
of eight months after the effective date of this prospectus, certain other
adjustments to the conversion price of the debentures or the exercise price of
the warrants may be applicable.
Each of our directors and principal officers and their respective family members
has signed a Principal's Agreement which provides that, without the prior
consent of the debenture holders in each instance, he will not sell or otherwise
transfer or offer to sell or otherwise transfer (except in a private transaction
in which the transferee agrees to be bound by the Principal's Agreement) any
shares of common stock directly or indirectly held by him prior to 90 days after
the date of this prospectus.
The foregoing has been a brief description of some of the terms of the
debentures and warrants. For a more detailed description of the rights of the
holders of the debentures and warrants, prospective investors are directed to
the actual forms of the debentures and warrants, and the Convertible Note
Purchase Agreement under which they were issued, which were all filed as
exhibits to our Form 8-K filed with the SEC on January 29, 2001.
45
Under a Registration Rights Agreement entered into on January 19, 2001, we
agreed to register the shares of common stock issuable to the selling
shareholders upon conversion of their debentures and exercise of their warrants.
This prospectus is part of the registration statement intended to satisfy this
obligation. The registration rights agreement requires us to file a registration
statement with respect to the shares within a specified period of time and to
have the registration statement be declared effective within a specific period
of time. We must also keep the registration statement effective until all of the
securities offered have been sold. We are responsible for the payment of all
fees and costs associated with the registration of the securities, except that
we are not responsible for legal fees generated by the selling shareholders'
counsel(s), and we are not responsible for brokerage commissions and discounts.
We are required to indemnify and hold harmless the selling shareholders and
their agents and representatives, against:
o any untrue statement of a material fact in a registration statement;
or
o any violation or alleged violation of the Securities Act of 1933 or
the Securities Exchange Act of 1934.
Specific procedures for carrying out such indemnification are set forth in the
Registration Rights Agreement.
[B] DEEPHAVEN AND AMRO $3,000,000
On April 3, 2000, we entered into a Convertible Note Purchase Agreement pursuant
to which we obtained $3 million in a financing with two institutional investors.
The funding included $3 million of 8% Convertible Debenture Notes, and 5-year
Callable Warrants. The notes mature on March 31, 2002 and are convertible into
common stock only after July 31, 2000. The notes may only be converted if we do
not make payment on a note holder's prepayment request, or if we seek to prepay
the notes. The initial conversion price for the notes is $3.72, and the exercise
price of the warrants is $3.30. The initial conversion price and the exercise
price are subject to adjustment upon the happening of certain events, such as
the payment of a stock dividend, or the issuance of warrants at a below market
price and at a price below the conversion price. Prepayments on the notes are
subject to a tiered prepayment schedule that increases as the number of days
between the closing date and the prepayment date increases, being 105%, 110%,
and 115% of principal from days 1-60, 61-120, and after 120 days, respectively.
Interest accrues on the notes at the rate of 8% per annum, and is payable on
each conversion date and at maturity. Interest may be paid in the form of cash
or registered stock, at our option. The lenders have the right to put back to us
up to 25% of the unconverted amount of the notes during any 30 day period after
July 31, 2000. Upon the lenders' exercise of such right, we have the option of
prepaying the portion of the notes sought to be converted, such prepayment to be
in accordance with the tiered prepayment schedule set forth above. If we do not
make such prepayment within 10 days after our receipt of a "put" notice, the
conversion rate of the note changes to the lesser of (a) the initial conversion
price, and (b) 88% of the five lowest closing prices of our common stock during
the 30 trading days prior to the date of conversion.
The warrants issued to Deephaven and Amro permit the holders to acquire up to
181,818 shares of our stock. The warrants may be called by us, at a purchase
price of $.01 per underlying share, if our common stock trades at greater than
$6.51 for any 20 consecutive trading days after the
46
effective date of our registration statement, provided that the holders have the
right to exercise the warrants within 30 days after their receipt of such a
call.
Jesup, the placement agent in the transaction, received warrants to purchase
90,909 shares of common stock on the same terms as the warrants issued to the
lenders. Jesup also received a cash fee of $130,000.
Assuming that the notes were fully convertible as of the date of this
prospectus, conversion of the entire $2,175,000 remaining principal amount of
the convertible notes and accrued interest at 8% thereon, would yield 8,073,380
shares of common stock, given a conversion price of $0.296 per share. Based upon
the interest rate and the conversion price of $0.296 which is subject to
adjustment as described above, the number of shares of common stock issuable
upon conversion of the notes will increase by approximately 1,612 shares daily
until conversion.
If the notes have not been converted or redeemed on March 30, 2002, they will
automatically convert into shares of common stock as of that date. Upon the
occurrence of events specified in the Convertible Note Purchase Agreement, the
holders of the notes may elect to have us redeem the notes at a premium to their
purchase price. These events include, but are not limited to:
o failure by us to issue shares of our common stock upon conversion of
the notes;
o failure by us to keep the specified number of shares of our common
stock reserved for issuance upon conversion of the notes; and
o our making an assignment for the benefit of our creditors or our
bankruptcy, insolvency, reorganization or liquidation.
The warrants issued to Deephaven, Amro and Jesup may be exercised at any time
during the five-year period following their issuance. The exercise price for the
warrants is subject to adjustment for stock dividends, stock splits,
recapitalizations, reclassifications, combinations, and dilutive issuances of
securities. The notes and warrants contain provisions which limit the number of
shares of common stock into which the notes are convertible and the warrants are
exercisable. Under these provisions, the number of shares of common stock into
which the notes are convertible and the warrants are exercisable on any given
date, together with any additional shares of common stock held by Deephaven or
Amro, will not exceed 4.99% of our then outstanding common stock.
The foregoing has been a brief description of some of the terms of the notes and
warrants. For a more detailed description of the rights of the holders of the
notes and warrants, prospective investors are directed to the actual forms of
the notes and warrants, and the Convertible Note Purchase Agreement under which
they were issued, which were all filed as exhibits to our Form 8-K filed with
the SEC on April 18, 2000.
Under a Registration Rights Agreement with Deephaven and Amro entered into on
April 3, 2000, we agreed to register the shares of common stock issuable to
Deephaven and Amro upon conversion of their notes and exercise of their
warrants. We also agreed to register the shares issuable to Jesup upon
conversion of its warrants. The registration rights agreement requires us to
file a registration statement with respect to the shares within a specified
period of time and to
47
have the registration statement be declared effective within a specific period
of time. We must also keep the registration statement effective until all of the
securities offered have been sold. We are responsible for the payment of all
fees and costs associated with the registration of the securities, except that
we are not responsible for legal fees generated by Deephaven's, Amro's and
Jesup's counsel, and we are not responsible for brokerage commissions and
discounts. We are required to indemnify and hold harmless Deephaven, Amro and
Jesup, and their agents and representatives, against:
o any untrue statement of a material fact in a registration statement;
o any untrue statement or alleged untrue statement contained in any
preliminary prospectus if used prior to the effective date of the
registration statement; or
o any violation or alleged violation of the Securities Act of 1933 or
the Securities Exchange Act of 1934.
Specific procedures for carrying out such indemnification are set forth in the
Registration Rights Agreement.
Under the Registration Rights Agreement, Deephaven, Amro and Jesup also have the
right to include all or a part of their common stock in a registration filed by
us for purposes of a public offering in the event that we fail to satisfy our
other obligations as to the registration of the common stock issuable to them
upon conversion of their notes and their warrants.
ANTITAKEOVER EFFECTS OF COLORADO LAW AND OUR ARTICLES OF INCORPORATION AND
BYLAWS
Colorado law does not contain provisions which are intended to have the effect
of delaying or deterring a change in control or management of Stockgroup.
Our Articles of Incorporation permit the issuance of up to 5,000,000 shares of
preferred stock, having such rights, preferences and privileges as the board of
directors may determine. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of our outstanding voting stock.
Provisions of our bylaws which are summarized below may affect potential changes
in control of Stockgroup. The board of directors believes that these provisions
are in the best interests of shareholders because they will encourage a
potential acquirer to negotiate with the board of directors, which will be able
to consider the interests of all shareholders in a change in control situation.
However, the cumulative effect of these terms may be to make it more difficult
to acquire and exercise control of Stockgroup and to make changes in management
more difficult.
The bylaws provide the number of directors of Stockgroup will be established by
the board of directors, but shall be no less than one. Between shareholder
meetings, the board of directors may appoint new directors to fill vacancies or
newly created directorships. A director may be
48
removed from office by the affirmative vote of 66-2/3% of the combined voting
power of the then outstanding shares of stock entitled to vote generally in the
election of directors.
As discussed above, our bylaws further provide that shareholder action may be
taken at a meeting of shareholders and may be effected by a consent in writing
if such consent is signed by the holders of the majority of outstanding shares,
unless Colorado law requires a greater percentage.
We are not aware of any proposed takeover attempt or any proposed attempt to
acquire a large block of our common stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
We believe that provisions of our Articles of Incorporation and bylaws will be
useful to attract and retain qualified persons as directors and officers. Our
Articles of Incorporation limit the liability of directors and officers to the
fullest extent permitted by Colorado law. This is intended to allow our
directors and officers the benefit of Colorado's corporation law which provides
that directors and officers of Colorado corporations may be relieved of monetary
liabilities for breach of their fiduciary duties as directors, except under
circumstances which involve acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or the payment of unlawful
distributions.
We intend to obtain officer and director liability insurance with respect to
liabilities arising out of certain matters, including matters arising under the
Securities Act of 1933.
Insofar as indemnification for liabilities arising under the Securities Act of
1993 may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities (other
than our payment of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
TRANSFER AGENT AND REGISTRAR
StockTrans, Inc. is the transfer agent and registrar for our capital stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this prospectus, 8,745,184 shares of our common stock were
outstanding, 1,978,500 shares of common stock were issuable subject to options
granted under our 1999 stock
49
option plan, 300,000, shares of common stock were issuable subject to options
granted under our 2000 stock option plan, 1,172,727 shares of common stock were
issuable pursuant to warrants granted under private placements, and 9,163,380
shares of common stock were issuable upon exercise of convertible notes. Of the
outstanding shares, 4,063,699 shares of common stock are immediately eligible
for sale in the public market without restriction or further registration under
the Securities Act of 1933, unless purchased by or issued to any "affiliate" of
ours, as that term is defined in Rule 144 promulgated under the Securities Act
of 1933, described below. All other outstanding shares of our common stock are
"restricted securities" as such term is defined under Rule 144, in that such
shares were issued in private transactions not involving a public offering and
may not be sold in the absence of registration other than in accordance with
Rule 144, 144(k) or 701 promulgated under the Securities Act of 1933 or another
exemption from registration.
The shares of common stock issuable upon conversion or exercise of the
convertible debentures and warrants held by the selling shareholders are being
registered in the registration statement of which this prospectus is a part.
Upon effectiveness of that registration statement, such shares will also be
immediately eligible for sale in public market subject to restrictions included
in our agreements with the selling shareholders. We also filed registration
statements to register for resale the 2,000,000 shares of common stock reserved
for issuance under our 1999 stock option plan and the 500,000 shares of common
stock reserved for issuance under our 2000 stock option plan. These registration
statements became effective immediately upon filing. Accordingly, shares covered
by these registration statements are eligible for sale in the public market
subject to vesting restrictions. As of June 19, 2001, 645,580 of these options
were exercisable.
Sales of substantial amounts of our common stock under Rule 144, this prospectus
or otherwise could adversely affect the prevailing market price of our common
stock and could impair our ability to raise capital through the future sale of
our securities.
PLAN OF DISTRIBUTION
The selling shareholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of common stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling shareholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the selling shareholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such method of sale; and
50
o any other method permitted pursuant to applicable law.
The selling shareholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The selling shareholders may also engage in short sales against the box, puts
and calls and other transactions in securities of Stockgroup or derivatives of
our securities and may sell or deliver shares in connection with these trades.
The selling shareholders may pledge their shares to their brokers under the
margin provisions of customer agreements. If a selling shareholder defaults on a
margin loan, the broker may, from time to time, offer and sell pledged shares.
Broker-dealers engaged by the selling shareholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The selling shareholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
The selling shareholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
Stockgroup is required to pay all fees and expenses incident to the registration
of the shares, excluding the fees in excess of an aggregate of $3,500 in total
for all the selling shareholders and disbursements of counsel to the selling
shareholders. Stockgroup has agreed to indemnify the selling shareholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby has been passed
upon for us by Sierchio & Company, LLP, New York, New York.
EXPERTS
The consolidated financial statements of Stockgroup.com Holdings, Inc. at
December 31, 2000 and 1999, and for each of the three years in the period ended
December 31, 2000, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon (which contains an explanatory paragraph describing conditions
that raise substantial doubt about the Company's ability to continue as a going
concern as described in Note 1 to the consolidated financial statements)
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
51
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form SB-2. This prospectus, which is a part of the registration
statement, does not contain all of the information included in the registration
statement. Some information is omitted and you should refer to the registration
statement and its exhibits. With respect to references made in this prospectus
to any contract, agreement or other document of Stockgroup, such references are
not necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract, agreement or other
document. You may review a copy of the registration statement, including
exhibits, at the Securities and Exchange Commission's public reference room at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or Seven World
Trade Center, 13th Floor, New York, New York 10048 or Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661.
The public may obtain information on the operation of the public reference room
by calling the Securities and Exchange Commission at 1-800-SEC-0330.
We will also file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information on file at the public
reference rooms. You can also request copies of these documents, for a copying
fee, by writing to the Securities and Exchange Commission.
Our Securities and Exchange Commission filings and the registration statement
can also be reviewed by accessing the Securities and Exchange Commission's
Internet site at http://www.sec.gov, which contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Securities and Exchange Commission.
52
Stockgroup.com Holdings, Inc.
UNAUDITED INTERIM FINANCIAL STATEMENTS
53
CONSOLIDATED BALANCE SHEETS
(UNAUDITED - Expressed in U.S. Dollars)
[See Note 1 - Nature of Business and Basis of Presentation]
March 31, December 31,
2001 2000
------------ ------------
ASSETS
CURRENT
Cash and cash equivalents $ 198,854 $ 338,448
Accounts receivable [net of allowances for doubtful
accounts of $540,490; December 31, 2000 $471,430] 474,669 218,810
Prepaid expenses 109,626 116,127
------------ ------------
TOTAL CURRENT ASSETS $ 783,149 $ 673,385
Property and equipment, net $ 472,818 $ 529,855
Deferred financing costs 7,843 --
------------ ------------
$ 1,263,810 $ 1,203,240
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Bank indebtedness $ 11,362 $ 14,303
Accounts payable 640,745 796,637
Accrued payroll liabilities 155,852 194,241
Deferred revenue 163,330 181,987
Convertible debenture and accrued interest (note 4) 2,713,406 2,662,000
------------ ------------
TOTAL CURRENT LIABILITIES $ 3,684,695 $ 3,849,168
------------ ------------
TOTAL LIABILITIES $ 3,684,695 $ 3,849,168
------------ ------------
COMMITMENTS AND CONTINGENCIES (note 7)
SHAREHOLDERS' EQUITY (DEFICIENCY)
COMMON STOCK, No Par Value
Authorized shares - 50,000,000
Issued and outstanding shares - 8,545,184 at
March 31, 2001 and 8,467,676 at
December 31, 2000 $ 7,382,923 7,344,483
ADDITIONAL PAID-IN CAPITAL 3,128,027 2,602,743
ACCUMULATED DEFICIT (12,931,835) $(12,593,154)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) $ (2,420,885) $ (2,645,928)
------------ ------------
$ 1,263,810 $ 1,203,240
============ ============
The Accompanying Notes Are An Integral Part
Of These Unaudited Financial Statements.
54
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED - Expressed in U.S. Dollars)
[See Note 1 - Nature of Business and Basis of Presentation]
Three Months Three Months
Ended March Ended March 31,
31, 2001 2000 (restated
- note 1)
------------- -------------
REVENUE
Revenues $ 1,105,359 $ 1,036,207
Cost of revenues 426,875 397,066
------------- -------------
Gross profit $ 678,484 $ 639,141
EXPENSES
Sales and marketing $ 206,823 $ 1,182,636
Product and website development 91,348 161,639
General and administrative 642,585 873,424
------------- -------------
$ 940,756 $ 2,217,699
------------- -------------
LOSS FROM OPERATIONS $ (262,272) $ (1,578,558)
Interest income 1,591 16,989
Interest expense (96,703) --
Other income 18,703 554
------------- -------------
NET LOSS $ (338,681) $ (1,561,015)
============= =============
BASIC AND DILUTED LOSS PER SHARE (0.04) (0.19)
============= =============
Weighted average shares
outstanding for the period 8,515,431 8,195,000
============= =============
The Accompanying Notes Are An Integral Part
Of These Unaudited Financial Statements.
55
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - Expressed in U.S. Dollars)
[See Note 1 - Nature of Business and Basis of Presentation]
Three Months Three Months
Ended March Ended March 31,
31, 2001 2000 (restated
- note 1)
------------- -------------
OPERATING ACTIVITIES
Net Loss $ (338,681) $ (1,561,015)
Add (deduct) non-cash items
Amortization 47,637 28,804
Amortization of deferred financing costs 975 --
Effective interest on convertible notes 90,107 --
Bad debt expense 69,060 (113)
Common stock issued for services 9,690 --
Stock based compensation 26,555 36,286
------------- -------------
(94,657) (1,496,038)
Net changes in non-cash working capital
Accounts receivable (324,919) (280,893)
Due from shareholder -- (243)
Prepaid expenses 6,501 702,161
Accounts payable (155,892) (112,130)
Accrued payroll liabilities (38,389) (97,268)
Deferred revenue (18,657) 239,629
------------- -------------
CASH FROM (FOR) OPERATIONS $ (626,013) $ (1,044,782)
------------- -------------
FINANCING ACTIVITIES
Issuance of convertible debt and
Warrants (net) 479,960 --
Bank indebtedness (2,941) 120,780
------------- -------------
CASH FROM (FOR) FINANCING $ 477,019 $ 120,780
------------- -------------
INVESTING ACTIVITIES
Property and equipment (net) 9,400 (125,614)
------------- -------------
CASH FROM (FOR) INVESTING $ 9,400 $ (125,614)
------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS (139,594) (1,049,616)
Cash and cash equivalents,
beginning of period 338,448 1,658,824
------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 198,854 $ 609,208
============= =============
The Accompanying Notes Are An Integral Part
Of These Unaudited Financial Statements.
56
Stockgroup.com Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 2001
(UNAUDITED)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Stockgroup.com Holdings, Inc. ("Stockgroup.com") is an Internet based media and
technology company that provides services to public companies (including
advertising and media services), financial tools and content, and e-business
services. Stockgroup.com was incorporated under the laws of Colorado on December
6, 1994 under the former name of I-Tech Holdings Group, Inc. ("I-Tech"), a
United States non-operating company registered on the NASD OTC Bulletin Board.
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month periods ended March 31,
2001 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31, 2000.
These financial statements have been prepared by management in accordance with
accounting principles generally accepted in the United States on a going concern
basis, which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future.
The Company incurred an operating loss of $262,272 for the quarter ended March
31, 2001, has an accumulated deficit of $12,931,835 and had a working capital
deficiency of $2,901,546 as at March 31, 2001. These factors raise doubt about
the Company's ability to continue as a going concern. Management has been able,
thus far, to finance the losses, as well as the growth of the business, through
a series of equity and convertible note private placements. Management expects
that increasing revenues resulting from current operations, combined with the
fact that start-up costs are substantially complete, will allow the Company to
achieve profitable operations and positive cash flows in 2001. The Company is
continuing to seek other sources of financing in order to grow the business to
the greatest possible extent. There are no assurances that the Company will be
successful in achieving its goals.
In view of these conditions, the ability of the Company to continue as a going
concern is uncertain and dependent upon achieving a profitable level of
operations and, if necessary, on the ability of the Company to obtain necessary
financing to fund ongoing operations. Management believes that its current and
future plans provide an opportunity to continue as a going concern. These
financial statements do not give effect to any adjustments which would be
necessary should the Company be unable to continue as a going concern and
therefore be required to realize its assets and discharge its liabilities in
57
other than the normal course of business and at amounts different from those
reflected in the accompanying financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Comparative figures
Revenues for the first quarter of 2000 have been reduced by $205,000 to account
for annual adjustments posted at December 31, 2000.
Recent accounting pronouncements
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", ("SFAS No. 133"), as amended by SFAS 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133", and SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", is effective for the Company as of
January 1, 2001. SFAS 133, as amended, requires that an entity recognize all
derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the use of
the derivative. The Company does not expect the adoption of these accounting
pronouncements to have a material effect on its financial position or results of
operations, except as discussed below.
The Emerging Issues Task Force has released EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock ("EITF 00-19"). EITF 00-19 is effective for derivative
instruments entered into or outstanding at June 30, 2001, and will be applicable
to the Company's callable warrants then outstanding. The number of shares
issuable in the event of exercise of the callable warrants is not subject to an
explicit limit. Accordingly, the callable warrants will be considered a
liability to be recorded at fair value, commencing June 30, 2001, and will be
marked to market in accordance with SFAS 133 thereafter. At March 31, 2001 the
callable warrants have been presented as additional paid in capital in these
financial statements. At March 31, 2001 the company has sufficient authorized
share capital assuming a limit to the number of shares issuable equal to the
number of shares that would have been required to settle the warrants on
September 30, 2000, in accordance with the transition provisions of EITF 00-19.
3. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents and trade
receivables. The Company performs ongoing credit evaluations of its customers
and maintains allowances for potential credit losses.
An amount owing of $295,499 from one customer represented 62.2% of the gross
accounts receivable balance at March 31, 2001. An amount owing of $489,417 from
one customer represented 43.1% of the gross accounts receivable balance at
December 31,2000. No other customers represented greater than 10% of the total
balance in any period presented.
4. CONVERTIBLE DEBENTURES AND ACCRUED INTEREST
[a] APRIL 3, 2000 CONVERTIBLE DEBENTURE
The following table summarizes the activity under the agreement:
58
------------------------------------------------------------------------------------------------------
March 31, 2001 December 31, 2000
------------------------------------------------------------------------------------------------------
8% Convertible notes, maturing March 31, 2002 (a)
Principal $ 2,175,000 $ 2,200,000
Prepayment premium 326,250 330,000
Interest 175,700 132,000
------------------------------------------------------------------------------------------------------
$ 2,676,950 $ 2,662,000
------------------------------------------------------------------------------------------------------
3% Convertible debentures, maturing December 31, 2003 (b)
Principal $ 500,000 $ --
Debt discount (289,258) --
Unamortized beneficial conversion feature (177,286) --
Accrued interest 3,000 --
------------------------------------------------------------------------------------------------------
$ 36,456 $ --
------------------------------------------------------------------------------------------------------
Total $ 2,713,406 $ 2,662,000
======================================================================================================
(a) On January 12, 2001, one of the convertible note holders exercised their
right to put $500,000 of the notes back to the company. The Company elected
not to prepay this portion of the notes, and on January 22, 2001 the note
holder obtained the right to convert the $500,000 plus accrued interest
into common shares of the Company.
On February 6, 2001, one of the note holders converted principal of
$25,000, the related prepayment premium, plus accrued interest into 67,508
common shares.
On March 5, 2001, one of the convertible note holders exercised their right
to put $250,000 of the notes back to the company. The Company elected not
to prepay this portion of the notes, and on March 15, 2001 the note holder
obtained the right to convert the $250,000 plus accrued interest into
common shares of the Company.
At March 31, 2001, certain of the noteholders can exercise up to 272,727 of
the callable warrants and can convert up to $925,000 of the notes plus
accrued interest.
(b) On January 19, 2001, the Company entered into a Securities Purchase
Agreement with unaffiliated investors to issue $0.5 million of unsecured 3%
convertible debentures ("debentures"), and 4-year warrants ("warrants").
The debentures mature on December 31, 2003 and are convertible into common
shares upon the earlier to occur of March 25, 2001, or the effective date
of the registration of the shares issuable upon conversion of the
debentures and exercise of the warrants. The maximum and minimum conversion
prices for the debentures are $1.00 and $0.50 respectively. The actual
conversion price of the debentures will be determined upon receipt of a
conversion notice and will be the lesser of (a) the maximum conversion
price, or (b) 80% of the 2 lowest closing prices of the Company's common
shares during the 10 trading days prior to the date of conversion, but in
no case less than the minimum conversion price. Interest accrues on the
debentures at the rate of 3% per annum, and is payable on each conversion
date, at the end of each calendar quarter and at maturity. Interest may be
paid in the form of cash or shares at the Company's option.
The warrants were issued on a pro-rata basis, with each note holder
receiving one Series A warrant for each dollar of debentures purchased and
three Series B warrants for each five dollars of debentures purchased. The
exercise price of the warrants is
59
$1.00 per share for the Series A warrants and $2.00 per share for the
Series B warrants. The warrants permit the holders to acquire up to an
aggregate of 800,000 common shares at any time up to January 31, 2005.
The maximum and minimum conversion prices of the debentures and the
exercise price of the warrants are subject to adjustment upon the happening
of certain events, such as the payment of a stock dividend, a stock split,
a corporate merger or spin-off, or the issuance of securities at a price
below the conversion price.
On April 4, 2001, the Company filed an effective registration statement
covering the common shares issuable on exercise of the warrants, the common
shares underlying the convertible debentures, and the common shares
issuable, if any, in payment of interest on the debentures.
The gross proceeds of $500,000 have been allocated to the convertible
debenture and the Series A and B warrants based on the relative fair value
of each security at the time of issuance. Accordingly, $190,000 was
allocated to the notes and $310,000 was allocated to the Series A and B
warrants in aggregate. The fair value of the warrants was estimated using
the Black-Scholes option pricing model.
The terms of the convertible debenture provide the holders with an
in-the-money variable conversion rate. A beneficial conversion feature on
the convertible debenture of $190,000 has been recognized, and will be
subject to re-measurement each reporting period until conversion,
extinguishment or maturity.
The beneficial conversion feature and the debt discount are subject to
accretion over the term to maturity of the debenture.
5. SHARE CAPITAL
The Company is authorized to issue up to 50,000,000 shares of common stock and
5,000,000 shares of preferred stock. On January 18, 2001, the Company issued
10,000 common shares in exchange for consulting services. The transaction was
recorded at a fair value of $9,690 for the common shares based on the closing
stock price on the date of the agreement. On January 19, 2001, the Company
issued warrants to purchase 800,000 common shares as described in Note 4[b]. The
fair value of the warrants issued, net of financing costs, amounted to $298,778
and was recorded as an increase to additional paid-in capital. On February 6,
2001, the Company issued 67,508 common shares pursuant to a conversion notice
received under the April 3, 2000 convertible debenture as discussed in Note
4[a].
6. SEGMENTED INFORMATION
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, requires a public business enterprise to report financial and
descriptive information about its reportable operating segments. The Company has
concluded that its business activities fall into one identifiable industry
segment with the following sources of revenue:
For the three months ended
Mar 31, 2001 Mar 31, 2000
--------------------------------------------------------------------------------
Services to Public Companies $ 430,425 $ 738,076
Financial Tools and Content 110,358 --
E-business 564,576 298,131
--------------------------------------------------------------------------------
$1,105,359 $1,036,207
================================================================================
60
During the first three months 2001, the Company had one customer from whom
revenue received by the Company represented approximately 47% of total revenue.
During the first three months 2000, the Company had two customers from whom
revenue received by the Company represented approximately 24% of total revenue.
No other customers represented greater than 10% of revenue.
7. LITIGATION
The Company is currently involved in litigation with a customer to collect
amounts owing pursuant to a contract entered into in September 2000. The
defendant provided a $100,000 deposit and contracted the Company to provide
certain lead generation services. The Company delivered the requested services
throughout October and November 2000; however, the defendant defaulted on all
additional payments. The Company is suing the defendant for the $351,000 balance
owing, plus interest and costs. The defendant has filed a statement of defense
and counterclaim to recover the $100,000 deposit. No court date has been set at
this time. Although management currently believes the outcome of the litigation
will be in the Company's favour, the results of litigation are inherently
uncertain, and an adverse outcome is possible. The Company has provided for a
full allowance of the amount to be collected, and any settlement or final award
will be reflected in income as the litigation is resolved.
8. SUBSEQUENT EVENTS
Subsequent to March 31, 2001, the Company granted options to acquire 665,000
common shares at exercise prices of $0.31 as to 465,000 options and $0.37 as to
200,000 options. On May 11, 2001, 200,000 common shares were issued on the
exercise of stock options for proceeds of $74,000.
61
Stockgroup.com Holdings, Inc.
AUDITED FINANCIAL STATEMENTS
62
AUDITORS' REPORT
To the Directors of
Stockgroup.com Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Stockgroup.com
Holdings, Inc. as of December 31, 2000 and December 31, 1999 and the related
consolidated statements of operations, shareholders' equity (deficiency), and
cash flows for each of the three years in the period ended December 31, 2000.
These 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Stockgroup.com
Holdings, Inc. at December 31, 2000 and 1999 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States.
The accompanying financial statements have been prepared assuming that
Stockgroup.com Holdings, Inc. will continue as a going concern. As discussed in
Note 1 to the financial statements, the Company has incurred recurring operating
losses and has a working capital deficiency. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ ERNST & YOUNG LLP
Vancouver, Canada,
February 21, 2001. Chartered Accountants
63
CONSOLIDATED BALANCE SHEETS
[See Note 1 - Nature of Business and Basis of Presentation]
As at December 31 (expressed in US dollars)
2000 1999
$ $
---------------------------------------------------------------------------------------------
ASSETS [note 6]
Current
Cash and cash equivalents 338,448 1,658,822
Accounts receivable [net of allowances for doubtful
accounts of $471,430; 1999 - $20,786] [note 3] 218,810 855,170
Due from shareholder [note 4] -- 31,973
Prepaid expenses 116,127 887,223
---------------------------------------------------------------------------------------------
Total current assets 673,385 3,433,188
---------------------------------------------------------------------------------------------
Property and equipment, net [note 5] 529,855 440,368
---------------------------------------------------------------------------------------------
1,203,240 3,873,556
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current
Bank indebtedness [note 6] 14,303 21,004
Accounts payable 796,637 732,392
Accrued payroll liabilities 194,241 126,566
Deferred revenue 181,987 230,545
Convertible notes and accrued interest [note 7] 2,662,000 --
---------------------------------------------------------------------------------------------
Total current liabilities 3,849,168 1,110,507
---------------------------------------------------------------------------------------------
Commitments and contingencies [note 11]
Shareholders' equity (deficiency)
Common stock, no par value [note 8]
Authorized shares - 50,000,000
Issued and outstanding shares - 8,467,676 in 2000 7,344,483 6,761,483
and 8,195,000 in 1999
Additional paid-in capital 2,602,743 261,277
Accumulated deficit (12,593,154) (4,259,711)
---------------------------------------------------------------------------------------------
Total shareholders' equity (deficiency) (2,645,928) 2,763,049
---------------------------------------------------------------------------------------------
1,203,240 3,873,556
=============================================================================================
See accompanying notes
64
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
[See Note 1 - Nature of Business and Basis of Presentation]
Year ended December 31 (expressed in US dollars)
2000 1999 1998
$ $ $
----------------------------------------------------------------------------------------------------
REVENUE
Revenues [note 9] 4,037,608 1,920,052 857,591
Cost of revenues 1,800,810 1,208,033 172,343
----------------------------------------------------------------------------------------------------
Gross profit 2,236,798 712,019 685,248
----------------------------------------------------------------------------------------------------
EXPENSES
Sales and marketing 2,718,992 2,454,473 265,840
Product and website development 849,335 415,108 117,453
General and administrative 4,220,455 2,193,582 443,201
----------------------------------------------------------------------------------------------------
7,788,782 5,063,163 826,494
----------------------------------------------------------------------------------------------------
Loss from operations (5,551,984) (4,351,144) (141,246)
Interest income 85,138 123,260 --
Interest expense [notes 6 and 7] (3,910,517) (15,610) --
Other income (expense) (4,453) 961 (42,845)
----------------------------------------------------------------------------------------------------
Loss before income taxes and
extraordinary items (9,381,816) (4,242,533) (184,091)
Income tax provision (recovery) [note 10] -- -- (34,802)
----------------------------------------------------------------------------------------------------
Loss before extraordinary items (9,381,816) (4,242,533) (149,289)
Extraordinary gain on convertible note
redemptions [note 7] 1,048,373 -- --
----------------------------------------------------------------------------------------------------
Net loss (8,333,443) (4,242,533) (149,289)
====================================================================================================
Earnings (loss) per share [note 8[e]]
Basic and diluted loss per share
before extraordinary items (1.13) (0.60) (0.04)
Basic and diluted loss per share (1.01) (0.60) (0.04)
====================================================================================================
See accompanying notes
65
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
[See Note 1 - Nature of Business and Basis of Presentation]
Year ended December 31 (expressed in US dollars)
Additional
Common stock Common stock paid-in capital
[note 8] # of shares $ $
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 3,660,000 97 --
Net loss -- -- --
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 3,660,000 97 --
Issuance of common stock pursuant to private placement 240,000 402,451 --
Deemed issuance of common stock pursuant to
reverse acquisition 3,120,000 672 --
Issuance of common stock pursuant to a consulting agreement 75,000 450,000 --
Issuance of common stock pursuant to private placements,
net of share issue costs of $167,737 900,000 5,232,263 --
Issuance of common stock pursuant to an advertising agreement 200,000 676,000 --
Stock based compensation -- -- 261,277
Net loss -- -- --
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 8,195,000 6,761,483 261,277
Issuance of common stock pursuant to private placement 116,935 435,000 --
Issuance of common stock and warrants pursuant to
a consulting agreement 100,000 162,500 81,000
Fair value of detachable warrants pursuant to convertible
note private placement, net of financing costs -- -- 455,546
Intrinsic value of beneficial conversion feature pursuant to convertible
note private placement -- -- 2,751,061
Repurchase of beneficial conversion feature on partial redemption
of outstanding convertible notes -- -- (1,089,166)
Issuance of common stock on partial conversion of
outstanding convertible notes 67,741 57,500 --
Cancellation of common stock (12,000) (72,000) --
Stock based compensation -- -- 143,025
Net loss -- -- --
----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 8,467,676 7,344,483 2,602,743
======================================================================================================================
Year ended December 31 (expressed in US dollars)
Retained earnings Total
(accumulated shareholders'
deficit) equity (deficiency)
[note 8] $ $
----------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 132,111 132,208
Net loss (149,289) (149,289)
----------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 (17,178) (17,081)
Issuance of common stock pursuant to private placement -- 402,451
Deemed issuance of common stock pursuant to
reverse acquisition -- 672
Issuance of common stock pursuant to a consulting agreement -- 450,000
Issuance of common stock pursuant to private placements,
net of share issue costs of $167,737 -- 5,232,263
Issuance of common stock pursuant to an advertising agreement -- 676,000
Stock based compensation -- 261,277
Net loss (4,242,533) (4,242,533)
----------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 (4,259,711) 2,763,049
Issuance of common stock pursuant to private placement -- 435,000
Issuance of common stock and warrants pursuant to
a consulting agreement -- 243,500
Fair value of detachable warrants pursuant to convertible
note private placement, net of financing costs -- 455,546
Intrinsic value of beneficial conversion feature pursuant to convert
note private placement -- 2,751,061
Repurchase of beneficial conversion feature on partial redemption
of outstanding convertible notes -- (1,089,166)
Issuance of common stock on partial conversion of
outstanding convertible notes -- 57,500
Cancellation of common stock -- (72,000)
Stock based compensation -- 143,025
Net loss (8,333,443) (8,333,443)
----------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 (12,593,154) (2,645,928)
==========================================================================================================
See accompanying notes
66
Stockgroup.com Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[See Note 1 - Nature of Business and Basis of Presentation]
Year ended December 31 (expressed in US dollars)
2000 1999 1998
$ $ $
-----------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss (8,333,443) (4,242,533) (149,289)
Add (deduct) non-cash items
Amortization 203,961 85,601 19,459
Amortization of deferred debt financing costs 244,763 -- --
Effective interest on convertible notes 3,633,062 -- --
Extraordinary gain on redemption of convertible notes (1,048,373) -- --
Bad debt expense 730,643 (39,352) 44,715
Consulting services received for common stock and
equivalents 243,500 450,000 --
Advertising services received for common stock -- 676,000 --
Stock based compensation 143,025 261,277 --
-----------------------------------------------------------------------------------------------------------------------
(4,182,862) (2,809,007) (85,115)
Net changes in non-cash working capital
Accounts receivable (166,284) (717,000) (19,539)
Prepaid expenses 771,096 (848,218) (2,312)
Accounts payable 51,633 678,080 43,144
Accrued payroll liabilities 67,675 110,729 (10,524)
Income taxes payable -- -- (199)
Deferred revenue (48,558) 188,843 (39,993)
-----------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (3,507,300) (3,396,573) (114,540)
-----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock 435,000 5,634,714 --
Net proceeds from issuance of convertible notes
and warrants 2,870,000 -- --
Repayments of convertible notes (862,500) -- --
(Repayments) proceeds on bank indebtedness, net (6,701) (80,073) 75,825
Repayments on long-term debt -- (8,260) (17,105)
(Repayments to) advances from shareholders, net 31,973 (26,009) 6,010
Advances from related company -- -- 39,186
-----------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 2,467,772 5,520,372 103,916
-----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment (280,846) (468,249) (21,092)
Net cash acquired in reverse acquisition -- 3,272 --
-----------------------------------------------------------------------------------------------------------------------
Cash used in investing activities (280,846) (464,977) (21,092)
-----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,320,374) 1,658,822 (31,716)
Cash and cash equivalents, beginning of year 1,658,822 -- 31,716
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year 338,448 1,658,822 --
=======================================================================================================================
Supplemental disclosure of cash flow information
Interest paid 33,000 10,500 4,100
Income taxes paid -- -- --
=======================================================================================================================
See accompanying notes
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
[a] Nature of business and continuing entity
Stockgroup.com Holdings, Inc. ("Stockgroup.com") is an internet based media and
technology company that provides services to public companies (including
advertising and media services), financial tools and content solutions, and
e-business services. Stockgroup.com was incorporated under the laws of Colorado
on December 6, 1994 under the former name of I-Tech Holdings Group, Inc.
("I-Tech"), a United States non-operating company registered on the NASD OTC
Bulletin Board.
The financial statements have been prepared by management in accordance with
accounting principles generally accepted in the United States on a going concern
basis, which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future.
The Company incurred an operating loss of $5,551,984 for the year ended December
31, 2000 [1999 - $4,351,144; 1998 - $141,246], and had a working capital
deficiency of $3,175,783 as at December 31, 2000. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management has been able, thus far, to finance the losses, as well as the growth
of the business, through a series of equity and convertible note private
placements. Management expects that increasing revenues resulting from current
operations, combined with the fact that start-up costs are substantially
complete, will allow the Company to achieve profitable operations and positive
cash flows in 2001. Although the Company expects to achieve this without further
need for financing, the Company is continuing to seek other sources of financing
in order to grow the business to the greatest possible extent. There are no
assurances that the Company will be successful in achieving its goals.
In view of these conditions, the ability of the Company to continue as a going
concern is uncertain and dependent upon achieving a profitable level of
operations and, if necessary, on the ability of the Company to obtain necessary
financing to fund ongoing operations. Management believes that its current and
future plans provide an opportunity to continue as a going concern. These
financial statements do not give effect to any adjustments which would be
necessary should the Company be unable to continue as a going concern and
therefore be required to realize its assets and discharge its liabilities in
other than the normal course of business and at amounts different from those
reflected in the accompanying financial statements.
These financial statements are issued under the name of Stockgroup.com but are a
continuation of the financial statements of Stock Research Group Inc. (`SRG"), a
British Columbia corporation which was incorporated on May 4, 1995. On March 11,
1999, pursuant to a reverse acquisition, SRG acquired the net assets of I-Tech.
68
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (cont'd.)
[b] Reverse acquisition of Stockgroup.com
Pursuant to a share exchange agreement dated March 11, 1999, the shareholders of
SRG sold their 100% interest in SRG to Stockgroup.com in consideration for
3,900,000 shares of Stockgroup.com which represented a controlling interest of
approximately 56% of Stockgroup.com. This transaction is considered a
recapitalization of SRG and an acquisition of Stockgroup.com (the accounting
subsidiary/legal parent) by SRG (the accounting parent/legal subsidiary).
Accordingly, the transaction has been accounted for as a purchase of the net
assets of Stockgroup.com by SRG in these consolidated financial statements.
In these consolidated financial statements, SRG's assets and liabilities are
included at their historical carrying amounts. Operating results to March 11,
1999 are those of SRG. For purposes of the acquisition, the fair value of the
net monetary assets of Stockgroup.com of $672 was ascribed to the 3,120,000
previously outstanding common shares of Stockgroup.com deemed to be issued in
the acquisition as follows:
$
--------------------------------------------------------------------------------
Net assets acquired
Cash 3,272
Accounts payable 2,600
--------------------------------------------------------------------------------
672
Deemed consideration
3,120,000 shares of Stockgroup.com 672
================================================================================
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Stockgroup.com
Holdings, Inc. (the "Company") and its wholly owned subsidiaries, Stockgroup.com
Media Inc. (British Columbia, Canada) (formerly Stock Research Group Inc.),
Stockgroup.com, Ltd. (Nevada, United States) and 579818 B.C. Ltd. (British
Columbia, Canada). All significant intercompany accounts and transactions have
been eliminated.
69
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue recognition
The Company generates its revenues from three primary sources; services to
public companies, financial tools and content solutions, and e-business.
Services to public companies consists of small-scale web site development and
maintenance, media services, monthly marketing and maintenance programs,
broadcast services and online advertising. Revenue from small-scale web site
development and periodic web site maintenance is recognized upon completion of
the services provided no significant obligations remain and collection of the
resulting receivable is probable. Revenues from media services, monthly
marketing and maintenance programs, broadcast services and online advertising
are recognized ratably over the contract life as the revenue is earned. Most of
these services require an advance payment which is appropriately recorded as
deferred revenue until the services have been provided.
Financial tools and content solutions consists of real time, time delayed and
wireless quotes and charts, company profiles, investment data and technical
analysis. Revenue from set up fees, periodic maintenance fees and contractual
monthly licensing fees for ongoing use of financial tools and content is
recognized ratably over the contract life, which is typically twelve months, as
the revenue is earned.
E-Business consists of large scale, longer-term technology development, data
aggregation, system design and development and project management services.
Revenue from fixed price long term contracts is recognized on the percentage of
completion method of contract accounting based on the ratio of actual costs
incurred to total estimated contract costs. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.
70
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Foreign exchange
The reporting currency and the functional currency of the Company is the U.S.
dollar. The accounts of the Company's Canadian subsidiary are translated into
U.S. dollars such that monetary assets and liabilities are translated at
exchange rates in effect at the balance sheet date and non-monetary items are
translated at exchange rates prevailing at the transaction date. Operating
revenues and expenses are translated at average exchange rates prevailing during
the year. Any corresponding foreign exchange gains and losses are included in
income.
Foreign currency transactions are translated into U.S. dollars at the rate of
exchange in effect at the date of the transaction. Foreign currency balances of
monetary assets and liabilities are translated using the rate of exchange in
effect at the balance sheet date. Foreign exchange gains and losses on
transactions during the year and on the year end translation of the accounts are
included in income.
Fair value of financial instruments
The Company's financial instruments consist principally of cash and cash
equivalents, accounts receivable, due from shareholder, bank indebtedness,
accounts payable and convertible notes. The carrying values of all financial
instruments approximate fair value due to their short-term maturities.
Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term deposits with original
maturities of ninety days or less and are recorded at amortized cost.
Deferred finance costs
Finance costs associated with the issuance of convertible notes are deferred and
amortized over the term of the notes to earliest conversion. At December 31,
2000, all finance costs have been amortized and included as interest expense in
the statement of operations.
71
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Property and equipment
Property and equipment are carried at cost. Amortization is provided using the
straight line method over the assets estimated useful lives as follows:
Computer equipment 5 years
Computer software 2 years
Office furniture and equipment 5 years
Leasehold improvements Term of the lease
The Company changed its amortization policy in 2000 from the declining balance
method to the straight line method. The cumulative effect of this change in
accounting policy is not significant to the financial statements.
Product development costs
Product development costs are expensed until the technological feasibility of
the product has been established. After technological feasibility is established
and until the product is available for general release, software development,
product enhancements and acquisition costs are capitalized. For all periods
presented, product development costs have been expensed in the period incurred
as the criteria eligible for capitalization have not been met.
Website development costs
Commencing July 1, 2000 the Company accounts for Website development costs in
accordance with the FASB Emerging Issues Task Force ("EITF") 00-2, Accounting
for Website Development Costs. EITF 00-2 requires all costs related to the
development of websites other than those incurred during the application
development stage to be expensed as incurred. Costs incurred during the
application development stage are required to be capitalized and amortized over
the estimated useful life of the software. The Company has adopted EITF 00-2
prospectively from July 1, 2000. Prior to July 1, 2000 Website development costs
were expensed as incurred. Substantially all of the Company's website
development costs since July 1, 2000 are for ongoing operating and maintenance
costs and have been expensed in the period incurred.
72
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Advertising costs
Advertising costs are expensed in the period incurred and are included as a
component of sales and marketing expenses. Advertising expense for the years
ended December 31, 2000, 1999 and 1998 was $1,112,000, $1,670,000 and $23,000
respectively.
Income taxes
The Company utilizes the liability method of accounting for income taxes. Under
this method, deferred taxes are determined based on the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates. A valuation allowance is provided against deferred tax assets for which
it is more likely than not that the asset will not be realized.
Stock-based compensation
The Company accounts for fixed stock-based awards to employees in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations and has adopted the disclosure-only
alternative of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Accordingly, compensation expense for stock options issued to employees is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
Earnings per share
Basic earnings (loss) per share is computed based on the weighted average number
of common shares outstanding during each year. Diluted earnings (loss) per share
reflects the dilutive potential of outstanding securities using the treasury
stock method.
Comprehensive income
Comprehensive income includes all changes in equity except those resulting from
investments by owners and distributions by owners. For the years ended December
31, 2000, 1999 and 1998, comprehensive income comprises only net income.
73
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd.)
Comparative figures
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform to the 2000 presentation.
Recent accounting pronouncements
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", ("SFAS No. 133"), as amended by SFAS 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133", and SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities", is effective for the Company as of
January 1, 2001. SFAS 133, as amended, requires that an entity recognize all
derivatives as either assets or liabilities measured at fair value. The
accounting for changes in the fair value of a derivative depends on the use of
the derivative. The Company does not expect the adoption of these accounting
pronouncements to have a material effect on its financial position or results of
operations, except as discussed below.
The Emerging Issues Task Force has released EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company's Own Stock ("EITF 00-19"). EITF 00-19 is effective for derivative
instruments entered into or outstanding at June 30, 2001, and will be applicable
to the Company's callable warrants then outstanding (note 7). The number of
shares issuable in the event of exercise of the callable warrants is not subject
to an explicit limit. Accordingly, the callable warrants will be considered a
liability to be recorded at fair value, commencing June 30, 2001, and will be
marked to market in accordance with SFAS 133 thereafter. At December 31, 2000
the callable warrants have been presented as additional paid in capital in these
financial statements. At December 31, 2000 the company has sufficient authorized
share capital assuming a limit to the number of shares issuable equal to the
number of shares that would have been required to settle the warrants on
September 30, 2000, in accordance with the transition provisions of EITF 00-19.
74
3. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents and trade
receivables. The Company performs ongoing credit evaluations of its customers
and maintains allowances for potential credit losses.
Amounts owing from two customers represented 31% and 11% respectively of the
total accounts receivable balance in 2000. An amount owing of $575,000 from one
customer represented 67% of the total accounts receivable balance in 1999. No
other customers represented greater than 10% of the total balance in any other
year.
4. DUE FROM SHAREHOLDER
At December 31, 1999, the amounts due from shareholder consisted of $12,850 in
short-term advances and a $19,123 non-interest bearing loan. The loans and
advances were repaid in full in 2000.
5. PROPERTY AND EQUIPMENT
Accumulated Net book
Cost amortization value
$ $ $
--------------------------------------------------------------------------------
2000
Computer equipment 524,636 189,970 334,666
Computer software 107,138 65,700 41,438
Office furniture and equipment 182,181 58,680 123,501
Leasehold improvements 42,310 12,060 30,250
--------------------------------------------------------------------------------
856,265 326,410 529,855
================================================================================
1999
Computer equipment 360,552 85,571 274,981
Computer software 24,074 12,037 12,037
Office furniture and equipment 146,595 21,608 124,987
Leasehold improvements 31,596 3,233 28,363
--------------------------------------------------------------------------------
562,817 122,449 440,368
================================================================================
75
6. BANK INDEBTEDNESS
Bank indebtedness consists of a demand loan which bears interest at prime plus
1%, is repayable in blended monthly principal and interest payments of $635, and
is due December 31, 2002. Interest expense for the years ended December 31,
2000, 1999 and 1998 was $1,300, $1,800 and $1,800 respectively.
The Company also has an approved demand operating line of credit of $100,000
bearing interest at prime plus 1/4%. Interest expense for the years ended
December 31, 2000, 1999 and 1998 was $8,600, $8,400 and $1,300 respectively.
The demand loan and the operating line of credit are collateralized by a general
security agreement on all assets of the Company. The weighted average effective
prime rate for 2000 was 7.23% [1999 - 6.44%; 1998 - 6.60%].
7. CONVERTIBLE NOTES
On April 3, 2000, the Company entered into a Convertible Note Purchase Agreement
with two unaffiliated investors to issue unsecured 8% Convertible Notes
("notes") and 5-year Callable Warrants ("warrants") for gross proceeds of $3
million.
The notes mature on March 31, 2002 and are convertible into common shares only
after July 31, 2000. The notes may only be converted if the Company does not
make payment on a lender's prepayment request, or if the Company seeks to prepay
the notes. The initial conversion price for the notes is $3.72. Prepayments on
the notes are subject to a tiered prepayment schedule that increases as the
number of days between the closing date and the prepayment date increases, being
105%, 110%, and 115% of principal from days 1-60, 61-120, and after 120 days,
respectively. Interest accrues on the notes at the rate of 8% per annum, and is
payable on each conversion date and at maturity. Interest may be paid in the
form of cash or registered stock, at the Company's option. The lenders have the
right to put back to the Company up to 25% of the unconverted amount of the
notes during any 30-day period after July 31, 2000. Upon the lenders' exercise
of such right, the Company has the option of prepaying the portion of the notes
sought to be converted, such prepayment to be in accordance with the tiered
prepayment schedule set forth above. If the Company does not make such a
prepayment within 10 days after its receipt of a "put" notice, the conversion
rate of the notes and any accrued interest changes to the lesser of (a) the
initial conversion price, and (b) 88% of the average of the 5 lowest closing
prices of the Company's common shares during the 30 trading days prior to the
date of conversion.
76
7. CONVERTIBLE NOTES (cont'd.)
In the event the notes are not prepaid or converted prior to March 21, 2002,
they will automatically convert on maturity to common shares at the lesser of
(a) the initial conversion price, and (b) 88% of the average of the 5 lowest
closing prices of the Company's common shares during the 30 trading days prior
to the date of maturity.
The warrants permit the holders to acquire up to 181,818 common shares at an
exercise price of $3.30 at any time up to March 31, 2005. The warrants may be
called by the Company, at a purchase price of $.01 per underlying share, if the
stock price of the Company's common shares exceeds $6.51 for any 20 consecutive
trading days after the effective date of the registration statement, provided
that the holders have the right to exercise the warrants within 30 days after
their receipt of such a call.
The exercise price of the warrants is adjusted upon the occurrence of certain
events, including the issuance of equity or convertible instruments exchangeable
into common shares at a price below the market value of the common shares at the
time of issuance and the exercise price of the warrants. In certain
circumstances, the holders of the warrants could elect on exercise to satisfy
their obligation to pay the cash exercise price to the Company by accepting a
lesser number of common shares.
The gross proceeds of $3 million have been allocated to the convertible notes
and warrants based on the relative fair value of each security at the time of
issuance. Accordingly, $2.7 million was allocated to the notes and $300,000 was
allocated to the 181,818 lender warrants. The fair value of the warrants was
estimated using the Black-Scholes option pricing model. The convertible notes
include a 15% put premium after July 31, 2000. The total premium of $450,000 and
the $300,000 discount for the warrants has been accrued and recorded as interest
expense over the original eight month term to earliest conversion.
The terms of the convertible notes provide the holders with an `in-the-money'
variable conversion rate. A beneficial conversion feature on the convertible
notes was calculated at issuance based on the difference between the effective
conversion price of the allocated proceeds and the market price of the common
stock. The original amount of the beneficial conversion feature was $281,588 at
inception, however, because of the variability of the conversion ratio, it is
remeasured each reporting period until conversion, extinguishment or maturity.
As at year end, the accumulated beneficial conversion feature on the outstanding
principal and accrued interest amounted to $2,751,061. This amount is recorded
as interest expense.
77
7. CONVERTIBLE NOTES (cont'd.)
The Company paid $130,000 in cash for financing costs and issued additional
warrants to the placement agent to acquire up to 90,909 common shares on the
same terms as the warrants issued to the lenders. The financing costs were
allocated to the notes and lender warrants in the same relative fair value
manner. The fair value of the placement agent warrants amounted to $187,273 and
was estimated using the same Black-Scholes pricing assumptions as the lender
warrants.
On August 10 and 17, 2000 respectively, the two note holders exercised their
rights to put 25% of the notes, or $750,000 back to the Company. The Company
extinguished the $750,000 principal, the $112,500 put premium and the $22,290 in
accrued interest for cash of $884,790. The cash redemption resulted in a
$1,048,373 extraordinary gain, which included the repurchase of the beneficial
conversion feature at the date of extinguishment in the amount of $1,089,166 net
of $40,793 in deferred financing costs.
On September 25, 2000, one of the note holders exercised their right to put an
additional 25% of their portion, or $250,000. On October 5, 2000, the Company
notified the lender of its intention not to pay the put notice. Under the
agreement, the note holder had the right to convert the $250,000 plus
accumulated interest into shares of the Company. On November 14, 2000, the note
holder converted $50,000 plus accumulated interest into 67,741 common shares.
As at December 31, 2000, the $2,662,000 in convertible notes reported as a
current liability consists of the remaining $2,200,000 of principal outstanding,
the accrued 15% prepayment premium of $330,000, and accrued interest of
$132,000. The total interest expense of $3,900,114 recorded in the year is
substantially all non-cash with the exception of the $130,000 cash financing
costs and the $22,290 cash interest paid on the August 10 and 17, 2000
redemptions.
78
7. CONVERTIBLE NOTES (cont'd.)
The following table summarizes the activity under the agreement:
Convertible
Notes and Extra-
Accrued Interest ordinary
Interest Warrants Expense (Gain)
---------------------------------------------------------------------------------------------------------------------
Proceeds on issuance of convertible
notes and warrants 2,700,000 300,000 -- --
Agent warrants -- 187,273 -- --
Allocation of finance costs, including
agent warrants -- (31,727) 244,763 40,793
Accretion of put premium 450,000 -- 450,000 --
Accretion of discount attributable to
the warrants 300,000 -- 300,000 --
Beneficial conversion feature -- -- 2,751,061 --
Accrued interest at 8% 154,290 -- 154,290 --
Partial redemption of convertible notes
and payment of accrued interest (884,790) -- -- --
Repurchase of beneficial conversion
feature on partial redemption -- -- -- (1,089,166)
Partial conversion of convertible notes (57,500) -- -- --
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 2,662,000 455,546 3,900,114 (1,048,373)
=====================================================================================================================
On January 12, 2001, the Company received an additional put notice for $500,000.
On February 6, 2001, one of the note holders converted $25,000 plus accrued
interest into 67,508 common shares. As of the date of the audit report, the
Company has outstanding put notices for $675,000 of the outstanding principal
for which the Company has chosen not to settle for cash.
8. SHARE CAPITAL
[a] Authorized
The Company is authorized to issue up to 50,000,000 shares of common stock, no
par value, and up to 5,000,000 shares of preferred stock non-voting, no par
value. No preferred stock are issued and outstanding in the periods presented.
79
8. SHARE CAPITAL (cont'd.)
[b] Common stock
During 1998, SRG effected a split of its common stock on the basis of 18,300
common shares for each common share outstanding which is reflected in these
financial statements for all periods presented.
During January and February of 1999, SRG completed a private placement to
certain institutions and individuals for the issuance of 240,000 common shares
at $1.68 per share for net cash proceeds of $402,451.
By a share exchange agreement dated March 11, 1999, the Company entered into a
series of transactions whereby the 3,900,000 issued and outstanding shares of
SRG were exchanged for 3,900,000 shares of 579818 B.C. Ltd. a Canadian
subsidiary of Stockgroup.com. The exchangeable shares are convertible into
shares of Stockgroup.com through a trustee, Stocktrans Inc. The Company also
issued to the trustee, 3,900,000 common shares, to hold in trust for the SRG
shareholders pursuant to a voting and exchange agreement giving the SRG
shareholders effective control over Stockgroup.com. The holders of the
exchangeable shares may convert their exchangeable shares to an equal number of
common shares of the Company. The common shares are held by the trustee pending
conversion of the exchangeable shares to common shares, whereupon common shares
will be released by the trustee to the SRG shareholders and the exchangeable
shares will be delivered to the Company. The holders of the exchangeable shares
have the right to vote their interests in the Company through the trustee as
holder of the common shares. The holders of the exchangeable shares are entitled
to essentially the same voting, dividend and other rights as the Company's
common stockholders.
On March 15, 1999, the Company issued 75,000 shares in exchange for consulting
services provided in respect of the reverse acquisition. The transaction was
recorded at a fair value of $450,000 based on the closing price of the stock on
the day of the agreement.
During the second quarter of 1999, the Company completed a private placement to
certain institutions and individuals for the issuance of 900,000 common shares
at $6.00 per share for net cash proceeds of $5,232,263.
On September 17, 1999 the Company completed a private placement with a media
company for the issuance of 200,000 common shares in exchange for advertising
services. The transaction was recorded at a fair value of $676,000 based on the
closing price of the stock on the day of the agreement.
80
8. SHARE CAPITAL (cont'd.)
On August 17, 2000, the Company completed a private placement to an investor for
the issuance of 116,935 common shares at $3.72 per share for net cash proceeds
of $435,000.
On August 24, 2000, the Company issued 100,000 common shares and 100,000
warrants in exchange for consulting services. The warrants allow for purchase of
the Company's common stock at $4.00 per share. The warrants expire the earlier
of one year from the effective date of a Registration Statement registering the
underlying shares or two years from the date of issuance. As of December 31,
2000 the warrants had not been registered. The transaction was recorded at a
fair value of $162,500 for the common shares based on the closing stock price on
the date of the agreement and $81,000 for the warrants which was estimated using
the Black-Scholes option pricing model.
[c] Stock options
1999 Incentive Stock Option Plan
The Company's 1999 Incentive Stock Option Plan ("1999 Plan") became effective
March 11, 1999 and entitles directors, employees and consultants to purchase
common shares of the Company.
Under the 1999 Plan, a total of 2,000,000 common shares have been authorized for
issuance. Options issued generally begin vesting one year after grant, at which
time vesting occurs in equal instalments of one-fifth of the grant total per
year for a period of five years. Options immediately become exercisable once
vested. Any options that do not vest as the result of a grantee leaving the
Company are forfeited and the common shares underlying them are returned to the
reserve. The Board has the authority to vary the vesting provisions of grants at
its discretion.
2000 Incentive Stock Option Plan
The Company's 2000 Incentive Stock Option Plan ("2000 Plan") became effective on
November 10, 2000, entitles directors, employees and consultants, to purchase
common shares of the Company and is intended to serve in addition to the 1999
Plan.
Under the 2000 Plan, a total of 500,000 common shares have been authorized for
issuance. Options issued generally begin vesting one year after the grant, at
which time vesting occurs in equal instalments of one-fifth of the grant total
per year for a period of five years. Options immediately become exercisable once
vested. Any options that do not vest as a result of a grantee leaving the
Company are canceled and the common shares underlying them are returned to the
reserve. The Board has the authority to vary the vesting provisions of grants at
its discretion.
81
8. SHARE CAPITAL (cont'd.)
Activity under the 1999 and 2000 Plans is set forth below:
Options Outstanding
---------------------------------------------------
Shares Weighted
available for Number of Price per average
grant shares share exercise price
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 and 1997 -- -- -- --
Shares authorized 2,000,000 -- -- --
Options granted (1,827,800) 1,827,800 0.01 - 5.62 $1.85
Options forfeited 44,500 (44,500) 2.50 - 5.62 $3.92
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 216,700 1,783,300 0.01 - 4.44 $1.80
Shares authorized 500,000 -- -- --
Options granted (586,500) 586,500 0.59 - 4.36 $1.79
Options forfeited 383,800 (383,800) 0.94 - 4.34 $2.28
-----------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 514,000 1,986,000 0.01 - 4.44 $1.70
===========================================================================================================
The weighted average remaining contractual life and weighted average exercise
price of options outstanding and of options exercisable as of December 31, 2000
are as follows:
Options Outstanding Options Exercisable
----------------------------------------- --------------------------
Weighted
average Weighted Weighted
Number of remaining average average
Range of shares contractual exercise Shares exercise
exercise prices outstanding life (years) price exercisable price
--------------------------------------------------------------------------------------------------
$0.01 - 0.99 708,000 3.64 $0.80 213,280 $0.94
$1.01 - 1.99 453,500 4.85 $1.43 40,700 $1.57
$2.01 - 2.99 742,000 4.25 $2.50 179,600 $2.52
$3.01 - 4.99 50,000 4.68 $3.34 9,500 $3.34
$4.01 - 5.99 32,500 4.70 $4.20 4,800 $4.15
--------------------------------------------------------------------------------------------------
1,986,000 4.19 $1.70 447,880 $1.72
==================================================================================================
For the year ended December 31, 2000 the Company recorded $143,025 [1999 -
$261,277; 1998 - $nil] in stock based compensation expense. Of this total,
$128,925 [1999 - $257,077; 1998 - $nil] is a result of options granted to an
employee in 1999 with an exercise price less than the market price of the common
stock on the date of grant. The remaining $14,100 [1999 - $4,200; 1998 - $nil]
is a result of options granted to consultants in exchange for services which
have been measured at fair value on the commitment date.
82
8. SHARE CAPITAL (cont'd.)
As at December 31, 2000, the Company has $177,535 [1999 - $306,460; 1998 - $nil]
in deferred compensation to be expensed in future periods based on the vesting
terms of the underlying fixed plan options.
A total of 53,800 of the outstanding options are performance based with an
exercise price of $0.94 which vest in 2001 if the Company achieves predetermined
annual revenues. These options are classified as variable, whereby, compensation
expense is measured as the excess, if any, of the quoted market price of the
Company's stock at the measurement date over the amount the employee must pay to
acquire the stock. With variable options, the measurement date is established
when it appears probable that the Company will meet the performance targets.
Because of the uncertainty of achieving the annual revenue targets, no
compensation expense has been recorded.
Pro forma disclosure of stock based compensation
Pro forma information regarding results of operations and net income (loss) per
share is required by FASB Statement No. 123 ("SFAS 123") for stock-based awards
to employees as if the Company had accounted for such awards using a valuation
method permitted under SFAS 123.
The fair value of the Company's stock-based awards granted to employees in 2000
and 1999 was estimated using the Black-Scholes option pricing model. The option
pricing assumptions include a dividend yield of 0%, a weighted average expected
life of 4.19 years [1999 - 4.55 years], a risk free interest rate of 5.41% [1999
- 5.06%] and an expected volatility of 205% [1999 - 151%]. The weighted average
fair value of options granted during 2000 was $1.72 [1999 - $1.70]. For pro
forma purposes, the estimated value of the Company's stock-based awards to
employees is amortized over the vesting period of the underlying options. The
effect on the Company's net loss and loss per share of applying SFAS 123 to the
Company's stock-based awards to employees would approximate the following:
2000 1999 1998
$ $ $
--------------------------------------------------------------------------------
Net loss (8,333,443) (4,242,533) (149,289)
Compensation expense (778,095) (848,797) --
--------------------------------------------------------------------------------
Pro forma net loss (9,111,538) (5,091,330) (149,289)
================================================================================
Basic and diluted loss per share
As reported (1.01) (0.60) (0.04)
Pro forma (1.10) (0.72) (0.04)
================================================================================
83
8. SHARE CAPITAL (cont'd.)
[d] Warrants
As at December 31, 2000, common stock issuable pursuant to warrants outstanding
is as follows:
Common
Warrants Warrants shares Exercise
issued exercised issuable price Expiry
# # $ $ date
----------------------------------------------------------------------------------------------------
Series 1 warrants 272,727 -- 272,727 3.30 March 31, 2005
Series 2 warrants 100,000 -- 100,000 4.00 August 24, 2002,
or August 24, 2001
if registered
----------------------------------------------------------------------------------------------------
372,727 372,727
====================================================================================================
[e] Earnings (loss) per share
The following table sets forth the computation of earnings (loss) per share:
2000 1999 1998
$ $ $
----------------------------------------------------------------------------------------------
Numerator:
Loss before extraordinary items (9,381,816) (4,242,533) (149,289)
Net loss (8,333,443) (4,242,533) (149,289)
Denominator:
Weighted average number of common shares
used in computation 8,284,867 7,055,151 3,660,000
Basic and diluted loss per share before
extraordinary items (1.13) (0.60) (0.04)
Basic and diluted loss per share (1.01) (0.60) (0.04)
==============================================================================================
For the years ended December 31, 2000, 1999 and 1998, all of the Company's
common shares issuable upon the exercise of stock options, warrants and other
convertible securities were excluded from the determination of diluted loss per
share as their effect would be anti-dilutive.
84
9. SEGMENTED INFORMATION
The Company operates in one industry segment and derives its revenue from the
following services:
2000 1999 1998
$ $ $
--------------------------------------------------------------------------------
Services to public companies 2,550,373 1,920,052 857,591
Financial tools and content 87,728 -- --
E-Business 1,399,507 -- --
--------------------------------------------------------------------------------
4,037,608 1,920,052 857,591
================================================================================
Revenue from external customers, by country of origin, is as follows:
2000 1999 1998
$ $ $
--------------------------------------------------------------------------------
Canada 3,556,753 1,811,580 857,591
United States 480,855 108,472 --
--------------------------------------------------------------------------------
4,037,608 1,920,052 857,591
================================================================================
During 2000, the Company had three customers whose revenue represented 17%, 12%
and 11% of total revenue, respectively. During 1999, the Company had one
customer whose revenue represented 35% of total revenue. No other customers
represented greater than 10% of the revenue in any other year.
Substantially all of the Company's property and equipment are located in Canada.
10. INCOME TAXES
The Company is subject to United States federal and state income taxes at an
approximate rate of 40%. The Company's Canadian subsidiary is subject to
Canadian federal and provincial combined tax rates of approximately 45%. For
1998 and prior years, the Canadian subsidiary qualified as a Canadian Controlled
Private Corporation and was subject to a lower tax rate of 22%. The Canadian
subsidiary is no longer eligible for this low tax rate.
85
10. INCOME TAXES (cont'd.)
The reconciliation of the provision (recovery) for income taxes before the
extraordinary gain, at the United States federal statutory rate compared to the
Company's income tax expense as reported is as follows:
2000 1999 1998
$ $ $
-----------------------------------------------------------------------------------------------
Tax expense (recovery) at U.S. statutory rates (3,753,000) (1,698,000) (74,000)
Lower (higher) effective income taxes of
Canadian subsidiary (467,000) (170,000) 33,000
Change in valuation allowance 2,348,000 1,744,000 --
Non-deductible expenses 1,872,000 124,000 6,198
-----------------------------------------------------------------------------------------------
Income tax provision (recovery) -- -- (34,802)
===============================================================================================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company has
recognized a valuation allowance for those deferred tax assets for which it is
more likely than not that realization will not occur. Significant components of
the Company's deferred tax assets as of December 31 are as follows:
2000 1999
$ $
--------------------------------------------------------------------------------
Net operating loss carryforwards 3,987,000 1,744,000
Property and equipment 105,000 --
--------------------------------------------------------------------------------
Total deferred tax assets 4,092,000 1,744,000
Valuation allowance (4,092,000) (1,744,000)
--------------------------------------------------------------------------------
Net deferred tax assets -- --
================================================================================
86
10. INCOME TAXES (cont'd.)
The net operating loss carryforwards expire as follows:
$
--------------------------------------------------------------------------------
Canada
2006 2,833,000
2007 3,885,000
--------------------------------------------------------------------------------
6,718,000
U.S.
2019 1,173,000
2020 1,133,000
--------------------------------------------------------------------------------
2,306,000
--------------------------------------------------------------------------------
Total 9,024,000
================================================================================
11. COMMITMENTS AND CONTINGENCIES
[a] The Company has operating lease commitments with respect to office premises
with minimum annual payments as follows:
$
--------------------------------------------------------------------------------
2001 348,000
2002 285,000
2003 261,000
2004 261,000
2005 and thereafter 409,000
--------------------------------------------------------------------------------
1,564,000
================================================================================
Rental expense included in general and administrative expenses for the years
ended December 31, 2000, 1999 and 1998 was $371,000, $204,000 and $72,000
respectively.
87
11. COMMITMENTS AND CONTINGENCIES (cont'd.)
[b] The Company is currently involved in litigation with a customer to collect
amounts owing pursuant to a contract entered into in September, 2000. The
defendant provided a $100,000 deposit and contracted the Company to provide
certain lead generation services. The Company delivered the requested
services throughout October and November, 2000, however, the defendant
defaulted on all additional payments. The Company is suing the defendant
for the $351,000 balance owing, plus interest and costs. The defendant has
filed a statement of defense and counterclaim to recover the $100,000
deposit. No court date has been set at this time. Although management
currently believes the outcome of the litigation will be in the Company's
favour, the results of litigation are inherently uncertain, and an adverse
outcome is possible. The Company has provided a full allowance for the
amount to be collected and any settlement or final award will be reflected
in income as the litigation is resolved.
12. SUBSEQUENT EVENTS
On January 19, 2001, the Company entered into a Securities Purchase Agreement
with unaffiliated investors to issue $0.5 million of unsecured 3% convertible
debentures ("debentures"), and 4-year warrants ("warrants").
The debentures mature on December 31, 2003 and are convertible into common
shares upon the earlier to occur of March 25, 2001, or the effective date of the
registration of the shares issuable upon conversion of the debentures and
exercise of the warrants. The maximum and minimum conversion prices for the
debentures are $1.00 and $0.50 respectively. The actual conversion price of the
debentures will be determined upon receipt of a conversion notice and will be
the lesser of (a) the maximum conversion price, or (b) 80% of the 2 lowest
closing prices of the Company's common shares during the 10 trading days prior
to the date of conversion, but in no case less than the minimum conversion
price. Interest accrues on the debentures at the rate of 3% per annum, and is
payable on each conversion date, at the end of each calendar quarter and at
maturity. Interest may be paid in the form of cash or shares at the Company's
option.
The warrants were issued on a pro-rata basis, with each note holder receiving
one Series A warrant for each dollar of debentures purchased and three Series B
warrants for each five dollars of debentures purchased. The exercise price of
the warrants is $1.00 per share for the Series A warrants and $2.00 per share
for the Series B warrants. The warrants permit the holders to acquire up to an
aggregate of 800,000 common shares at any time up to January 31, 2005.
88
12. SUBSEQUENT EVENTS (cont'd.)
The maximum and minimum conversion prices of the debentures and the exercise
price of the warrants are subject to adjustment upon the happening of certain
events, such as the payment of a stock dividend, a stock split, a corporate
merger or spin-off, or the issuance of securities at a price below the
conversion price.
The Company has agreed to file a registration statement covering the common
shares issuable on exercise of the warrants, the common shares underlying the
convertible debentures, and the common shares issuable, if any, in payment of
interest on the debentures. There was no placement agent in the transaction.
89
STOCKGROUP.COM HOLDINGS, INC.
16,419,487 Shares of
Common Stock
--------------------
PROSPECTUS
--------------------
June 19, 2001
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Colorado Law provides that a corporation may indemnify a person made a party to
a proceeding because the person is or was a director against liability incurred
in the proceeding if:
(a) the person conducted himself or herself in good faith; and
(b) the person reasonably believed:
(I) in the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best
interests; and
(II) in all other cases, that his or her conduct was at least not
opposed to the corporation's best interest.
The law also provides that a corporation may not indemnify a director:
(a) in connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation; or
(b) in connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving action
in an official capacity, in which proceeding the director was adjudged
liable on the basis that he or she derived an improper personal
benefit.
Indemnification permitted under Colorado law in connection with a proceeding by
or in the right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding. Unless limited by its articles of incorporation,
Colorado law provides that a corporation shall indemnify a person who was wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which the person was party because the person is or was a director, against
reasonable expenses incurred by him or her in connection with the proceeding.
Colorado law further provides that a corporation may pay for or reimburse the
reasonable expenses incurred by
90
a director who is a party to a proceeding in advance of final disposition of the
proceeding if:
(a) the director furnishes to the corporation a written affirmation of the
director's good faith belief that he or she met the standard of
conduct described in the law;
(b) the director furnishes to the corporation a written undertaking,
executed personally or on the director's behalf, to repay the advance
if it is ultimately determined that he or she did not meet the
standard of conduct; and
(c) a determination is made that the facts then known to those making the
determination would not preclude indemnification under Colorado law.
A corporation may not indemnify a director under Colorado law unless authorized
in the specific case after a determination has been made that indemnification of
the director is permissible in the circumstances because the director has met
the standard of conduct set forth in the law. A corporation may not advance
expenses to a director unless authorized in the specific case after the written
affirmation and undertaking required by the law are received and the
determination required by the law has been made.
The determinations required by Colorado law shall be made:
(a) by the board of directors by a majority vote of those present at a
meeting at which a quorum is present, and only those directors not
parties to the proceeding shall be counted in satisfying the quorum;
or
(b) if a quorum cannot be obtained, by a majority vote of a committee of
the board of directors designated by the board of directors, which
committee shall consist of two or more directors not parties to the
proceeding; except that directors who are parties to the proceeding
may participate in the designation of directors for the committee.
Alternatively, the determination required to be made by the law may be made:
(a) by independent legal counsel selected by a vote of the board of
directors or the committee in the manner specified above or, if a
quorum of the full board cannot be obtained and a committee cannot be
established, by independent legal counsel selected by a majority vote
of the full board of directors; or
(b) by the shareholders.
Authorization of indemnification and advance of expenses shall be made in the
same manner as the determination that indemnification or advance of expenses is
permissible; except that, if the determination that indemnification or advance
of expenses is permissible is made by independent legal counsel, authorization
of indemnification and advance of the expenses shall be made by the body that
selected such counsel.
Colorado law also provides that, unless otherwise provided in the articles of
incorporation:
(a) an officer is entitled to mandatory indemnification, and is entitled
to apply for court-ordered indemnification, in each case to the same
extent as a director;
(b) a corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as
to a director; and
91
(c) a corporation may also indemnify and advance expenses to an officer,
employee, fiduciary, or agent who is not a director to a greater
extent, if not inconsistent with public policy, and if provided for by
its bylaws, general or specific action of its board of directors or
shareholders, or contract.
Colorado law further provides a corporation may purchase and maintain insurance
on behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the corporation, or who, while a director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another domestic or foreign corporation or other person or of an
employee benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, or agent, whether or not the corporation would
have power to indemnify the person against the same liability under Colorado
law.
Our articles of incorporation provide that the board of directors has the power
to:
(a) Indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an
action by or in the right Stockgroup), by reason of the fact that he or she
is or was a director, officer, employee or agent of Stockgroup or is or was
serving at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding if he or she acted in good faith and
in a manner he reasonably believed to be in our best interests and, with
respect to any criminal action or proceedings, had no reasonable cause to
believe his or her conduct was unlawful.
(b) Indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the
right of Stockgroup.com to procure a judgment in its favor by reason of the
fact that he or she is or was a director, officer, employee or agent of
Stockgroup or is or was serving at our request as a director, officer,
employee or agent of Stockgroup request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's
fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and
in a manner he or she reasonably believed to be in our best interests; but
no indemnification shall be made in respect of any claim, issue or matter
as to which such person has been adjudged to be liable for negligence or
misconduct in the performance of his or her duty to Stockgroup unless and
only to the extent that the court in which such action or suit was brought
determines upon application that, despite the adjudication of liability,
but in view of all circumstances of the case, such person is fairly and
reasonably entitled to indemnification for such expenses which such court
deems proper.
(c) Indemnify a director, officer, employee or agent of Stockgroup to the
extent that such person has been successful on the merits in defense of any
action, suit or proceeding referred to in subparagraph (a) or (b) above or
in defense of any claim, issue, or matter therein, against expenses
(including attorney's fees) actually and reasonable incurred by him or her
in connection therewith.
(d) Authorize indemnification under subparagraph (a) or (b) above (unless
ordered by a court) in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standard of conduct set
forth in subparagraph (a) or (b). Such determination shall be made by the
board of directors by a majority vote of a quorum consisting of directors
who were not parties to such action, suit or proceeding, or, if such a
92
quorum is not obtainable or even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
by the shareholders.
(e) Authorize payment of expenses (including attorney's fees) incurred in
defending a civil or criminal action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding as authorized in
subparagraph (d) above upon receipt of an undertaking by or on behalf of
the director, officer, employee or agent to repay such amount if it is
ultimately determined that he or she is not entitled to be indemnified by
Stockgroup.
(f) Purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of Stockgroup or who is or was serving
at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him or her in any such
capacity or arising our of his or her status as such, whether or not we
would have the power to indemnify him or her against such liability under
the provision of our Articles of Incorporation.
The indemnification provided by our Articles of Incorporation is not exclusive
of any other rights to which those indemnified may be entitled under the bylaws,
any agreement, vote of shareholders or disinterested directors or otherwise, and
any procedure provided for by any of the foregoing, both as to action in his or
her official capacity and as to action in another while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of heirs, executors and administrators
of such a person.
Our by-laws give effect to the foregoing provisions of our Articles of
Incorporation.
We intend to enter into indemnification agreements with our directors and
officers. These agreements provide, in general, that we will indemnify such
directors and officers for, and hold them harmless from and against, any and all
amounts paid in settlement or incurred by, or assessed against, such directors
and officers arising out of or in connection with the service of such directors
and officers as a director or officer of Stockgroup or its affiliates to the
fullest extent permitted by Colorado law.
The Company intends to obtain liability insurance for its directors and officers
covering, subject to exceptions, any actual or alleged negligent act, error,
omission, misstatement, misleading statement, neglect or breach of duty by such
directors or officers, individually or collectively, in the discharge of their
duties in their capacity as directors or officers of Stockgroup.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of various expenses, all of which
we will pay, in connection with the sale and distribution of the securities
being registered. All of the amounts shown are estimates, except the Securities
and Exchange Commission registration fee.
Securities and Exchange Commission Registration Fee $ 2,897.47
Accounting Fees and Expenses $25,000.00
Legal Fees and Expenses $25,000.00
Miscellaneous $ 3,500.00
Total $47,897.47
93
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth in chronological order is information regarding shares of common stock
issued and options and warrants and other convertible securities granted by us
during the past three years. Also included is the consideration, if any,
received by us for such shares and options and information relating to the
section of the Securities Act of 1933 (the "1933 Act"), or rule of the
Securities and Exchange Commission under which exemption from registration was
claimed.
1. Pursuant to a Share Exchange and Share Purchase Agreement dated March 11,
1999 (the "SEA") by and among I-Tech, 579818 B.C. Ltd., a British Columbia,
Canada corporation wholly-owned by I-Tech (the "Subsidiary"), Stock
Research Group Inc., a British Columbia, Canada corporation ("Stock Group")
and all of the shareholders of Stock Group, being nine persons
(collectively, the "Stock Group Shareholders"), I-Tech acquired (the
"Acquisition") all of the issued and outstanding common shares of Stock
Group from the Stock Group Shareholders in consideration of the issuance by
(i) the Subsidiary to the Stock Group Shareholders, on a pro-rata basis, of
3,900,000 Class A Exchangeable Shares (the "Exchangeable Shares") and (ii)
by I-Tech issuing to StockTrans, Inc. as trustee for the Stock Group
Shareholders (the "Trustee") 3,900,000 shares of common stock (the
"Corporation's Shares") to be held under the terms of an Exchange and
Voting Agreement dated March 11, 1999 (the "Trust Agreement") by and among
I-Tech, the Trustee, the Subsidiary and the Stock Group Shareholders. These
shares were issued to the trustee under the exemption provided by Section
4(2) of the 1933 Act and to the Stock Group Shareholders pursuant to
Regulation S promulgated under the 1933 Act, and the shares were deemed
restricted.
2. On March 15, 1999, Stockgroup issued 75,000 shares in exchange for
consulting services. The transaction was recorded at a fair value of
$450,000 based on the closing price of the stock on the day of the
agreement. The issuances were made under Section 4(2) of the 1933 Act and
were made without general solicitation or advertising. The purchasers were
sophisticated investors with access to all relevant information necessary
to evaluate these investments, and who represented to Stockgroup that the
shares were being acquired for investment. The shares were deemed
restricted.
3. During the spring and summer of 1999, Stockgroup completed a private
placement to five Non -U.S. institutions and one Non-U.S. individual for
the issuance of 900,000 common shares at $6.00 per share for net cash
proceeds of $5,232,263. The issuances were made under Regulation S and the
shares deemed "restricted."
4. On September 17, 1999 Stockgroup completed a private placement with
Southam, Inc. a media company in Canada for the issuance of 200,000 common
shares in exchange for advertising services. The transaction was recorded
at a fair value of $676,000 based on the closing price of the stock on the
day of the agreement. The issuances were made under Regulation S and the
shares deemed "restricted."
5. On April 3, 2000, Stockgroup entered into a Convertible Note Purchase
Agreement pursuant to which it obtained $3 million in a financing led by
Deephaven Capital Management LLC, a subsidiary of Knight/Trimark. Amro
International S.A., managed by Rhino Advisors was an additional lender in
the funding. The funding included $3 million of 8% Convertible Notes (the
"Notes"), and 5 year Callable Warrants (the "Warrants"). The Notes are
convertible into common stock only after July 31, 2000. The Notes may only
be converted if Stockgroup does not make payment on a noteholder's
prepayment request and is in receipt of a properly completed and executed
Conversion Notice at any time thereafter, or if Stockgroup seeks to prepay
the Notes. Interest may be paid in the form of cash or registered stock, at
the option of Stockgroup. The Warrants permit the holders to acquire up to
181,818 shares of common stock. The placement agent in the transaction
received Warrants to purchase 90,909 common shares on the same terms as the
Warrants issued to the lenders. The issuances were made under Section
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4(2) of the 1933 Act and/or Regulation D promulgated under the Securities
Act of 1933 and were made without general solicitation or advertising. The
purchasers were sophisticated investors with access to all relevant
information necessary to evaluate these investments, and who represented to
Stockgroup that the shares were being acquired for investment.
6. On August 17, 2000, Stockgroup completed a private placement with
Mediastream Limited, a media company in Singapore, for the issuance of
116,935 shares at $3.72 each, for gross cash proceeds of $435,000. The
issuances were made under Regulation S and the shares deemed "restricted."
7. On August 24, 2000, Stockgroup completed a private placement with
Continental Capital & Equity Corporation, a financial relations and direct
marketing advertising firm in Canada, for the issuance of 100,000 shares
and 100,000 warrants in exchange for publicity services. The transaction
was recorded at a fair value of $162,500 for the shares based on the
closing price of the stock on the day of the agreement and $81,000 for the
warrants based on the fair value of the warrants under the Black-Scholes
option pricing formula. The issuances were made under Regulation S and the
shares deemed "restricted."
8. On November 14, 2000, Amro International S.A. converted $50,000 of its
convertible note plus premium and accumulated interest into 67,741 common
shares.
9. On January 18, 2001, the Company issued 10,000 common shares to Value
Relations IR Services GmbH in exchange for consulting services. The
transaction was recorded at a fair value of $9,690 for the common shares
based on the closing stock price on the date of the agreement.
10. On January 19, 2001, Stockgroup closed a $0.5 million financing from a
group of unaffiliated investors pursuant to a Securities Purchase
Agreement. The funding included $0.5 million of 3% Convertible Debentures
and 4-year warrants. The warrants were issued on a pro-rata basis, with
each debenture-holder receiving 1 Series A warrant for each dollar of
debentures purchased and 3 Series B warrants for each five dollars of
debentures purchased. The debentures mature on December 31, 2003 and are
convertible into common shares upon the earlier to occur of March 25, 2001,
or the effective date of the registration of the shares issuable upon
conversion of the debentures and exercise of the warrants.
The maximum and minimum conversion prices for the Notes are $1.00 (the
"Maximum Conversion Price") and $0.50 (the "Minimum Closing Price")
respectively, and the exercise price (the "Exercise Price") of the Warrants
is $1.00 per share for the Series A Warrants and $2.00 per share for the
Series B Warrants. The actual conversion price of the Notes will be
determined upon receipt of a conversion notice and will be the lesser of
(a) the Maximum Conversion Price, or (b) 80% of the 2 lowest closing prices
of Stockgroup's common shares during the 10 trading days prior to the date
of conversion, but in no case less than the Minimum Conversion Price.
The Maximum and Minimum Conversion Prices and the Exercise Price are
subject to adjustment upon the happening of certain events, such as the
payment of a stock dividend, a stock split, a corporate merger or spin-off,
or the issuance of securities at a price below the conversion price.
Interest accrues on the Notes at the rate of 3% per annum, and is payable
on each conversion date, at the end of each calendar quarter and at
maturity. Interest may be paid in the form of cash or shares (which shares,
if any, will be included in the registration statement to be filed), at
Stockgroup's option. The Warrants permit the holders to acquire up to an
aggregate of 800,000 Stockgroup common shares.
Stockgroup filed a registration statement covering these shares, the shares
underlying the Notes, and the shares issuable, if any, in payment of
interest on the Notes, which registration statement became
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effective on April 4, 2001. There was no placement agent in the
transaction.
11. On February 6, 2001, Deephaven Capital Management LLC converted $25,000 of
its convertible note plus premium and accumulated interest into 67,508
common shares.
12. On May 11, 2001, an employee of Stockgroup exercised an option and acquired
200,000 Common shares for net proceeds to Stockgroup of $74,000.
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ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
The following Exhibits are either attached hereto incorporated herein by
reference or will be filed by amendment:
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT AND FILING REFERENCE
2.1 Share Exchange and Share Purchase Agreement dated March 11, 1999, among
I-Tech Holdings Group, Inc. (the "Registrant") the former shareholders
of the Registrant, 579818 B.C. Ltd. ("B.C. Ltd"), Stock Research Group,
Inc. ("SRG"), and the former shareholders of SRG effecting a change in
control of Registrant. (incorporated by reference to the Exhibits filed
with Form 8K filed March 19, 1999, Form 8K/A filed March 24, 1999 and
Form 8K/A filed May 10, 1999)
3.1 Articles of Incorporation (incorporated by reference to the Exhibits
filed with Form 10SB12G filed January 29, 1998, and Amendments to
Articles of Incorporation filed herewith)
*3.2 Amended and Restated Bylaws
4.1 1999 Stock Incentive Plan (incorporated by reference to the Exhibits
filed with Form S-8 filed November 16, 1999)
4.2 Convertible Note Purchase Agreement, ("Note Purchase Agreement") dated
March 21, 2000, among the Registrant, Deephaven Private Placement
Trading Ltd. ("Deephaven") and Amro International, S.A. ("Amro")
(incorporated by reference to Form SB-2 and Form SB-2/A filed May 26,
2000 and August 1, 2000 respectively)
4.3 Form of 8% Convertible Note issued to each of Deephaven and Amro
pursuant to the Note Purchase Agreement (incorporated by reference to
Form SB-2 and Form SB-2/A filed May 26, 2000 and August 1, 2000
respectively)
4.4 Form of Callable Warrant issued to Deephaven, Amro, and Jesup and Lamont
Securities Corporation pursuant to the Note Purchase Agreement
(incorporated by reference to Form SB-2 and Form SB-2/A filed May 26,
2000 and August 1, 2000 respectively)
4.5 Registration Rights Agreement, dated March 31, 2000, among the
Registrant, Deephaven and Amro (incorporated by reference to Form SB-2
and Form SB-2/A filed May 26, 2000 and August 1, 2000 respectively)
4.6 Securities Purchase Agreement, dated January 19, 2001, among the
Registrant and a group of unaffiliated investors (incorporated by
reference to Form SB-2 and Form SB-2/A filed March 20, 2001 and April 3,
2001 respectively)
4.7 Form of 3% Convertible Debenture, dated January 19, 2001, among the
Registrant and a group of unaffiliated investors (incorporated by
reference to Form SB-2 and Form SB-2/A filed March 20, 2001 and April 3,
2001 respectively)
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4.8 Form of Warrant, dated January 19, 2001, among the Registrant and a
group of unaffiliated investors (incorporated by reference to Form SB-2
and Form SB-2/A filed March 20, 2001 and April 3, 2001 respectively)
4.9 Registration Rights Agreement, dated January 19, 2001, among the
Registrant and a group of unaffiliated investors (incorporated by
reference to Form SB-2 and Form SB-2/A filed March 20, 2001 and April 3,
2001 respectively)
**5.1 Opinion of Sierchio &Company, LLP, regarding the legality of the
securities being registered
9.1 Exchange and Voting Agreement dated March 11, 1999, among the
Registrant, B.C. Ltd., SRG and the individual signatories thereto,
incorporated by reference to the Exhibits filed with Form 8K filed on
March 19, 1999
*10.1 Enterprise Financial Website Development & Software Licensing Agreement,
dated January 2000, between the Registrant and Asia Exchange Information
Service PTE Ltd.
*10.2 Employment Agreement, dated August 1, 1998, between the Registrant and
Leslie Landes.
16.1 Letter regarding change in certifying accountant (incorporated by
reference to Exhibits filed with Form 8K filed July 9, 1999)
21.1 Subsidiaries of the Company (incorporated by reference to Exhibits filed
with Form 10KSB/A filed May 1, 2000)
**23.1 Consent of Sierchio & Company LLP (included in Exhibit 5.1)
**23.5 Consent of Ernst & Young LLP
**24.1 Power of Attorney. Reference is made to II-11.
----------------------
* Previously filed.
** Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules omitted because the information is included in the
Financial Statements of notes thereto.
ITEM 28. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of
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its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually, or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) (230.424(b) of this Chapter)
if, in the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
Offering.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Vancouver, Province of British Columbia, on June 19, 2001.
STOCKGROUP HOLDINGS INC.
By: /S/ Marcus New
Marcus New
Chief Executive Officer
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