UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 2001
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission File No. 000-26899
COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
(Name of Small Business Issuer in Its Charter)
DELAWARE 33-0809711
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification
Number)
150-1875 CENTURY PARK EAST
CENTURY CITY, CALIFORNIA 90067
(Address of Principal Executive Offices) (Zip Code)
(877) 739-3812
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports); and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 14, 2001, the Company had 28,883,760 shares of its par
value $0.001 common stock issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2001
and March 31, 2001...............................................2
Condensed Consolidated Statements of Losses and Comprehensive
Losses for the Three Months Ended September 30, 2001 and 2000
and for the Six Months Ended September 30, 2001 and 2000.........3
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 2001 and 2000 and for the Six
Months Ended September 30, 2001 and 2000.........................4
Notes to Consolidated Financial Statements September 30, 2001........5
Item 2. Management's Discussion and Analysis or Plan of Operation............7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................17
Item 2. Changes in Securities...............................................17
Item 3. Defaults Upon Senior Securities.....................................17
Item 4. Submission of Matters to a Vote of Security Holders.................17
Item 5. Other Information...................................................17
Item 6. Exhibits and Reports on Form 8-K....................................17
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
Sep 30, March 31,
2001 2001
(UNAUDITED)
------------- -------------
ASSETS
------
Current assets:
Cash and equivalents $ - $ 8,573
Accounts receivable, less allowance for
doubtful accounts 181,179 99,589
Prepaid expenses - 254
------------- -------------
Total current assets 181,179 108,416
Property and equipment - at cost, less
accumulated depreciation 179,807 186,441
Other assets:
Financing charges net of amortization 145,926 196,927
Deposits and other assets - -
------------- -------------
$ 506,912 $ 491,784
============= =============
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
--------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses 709,407 1,150,630
Convertible debentures 3,100,000 3,200,000
Notes payable - Related Parties 1,596,386 1,492,431
------------- -------------
Total current liabilities 5,405,793 5,843,061
Deficiency in Stockholders' equity
Preferred stock - -
Common stock 29,145 23,854
Additional paid-in capital 22,706,126 21,893,872
Stock subscription receivable (1,000,000) (1,000,000)
Deficiency in retained earnings (26,634,152) (26,269,003)
------------- -------------
Total deficiency in stockholders' equity (4,898,881) (5,351,277)
------------- -------------
$ 506,912 $ 491,784
============= =============
The accompanying notes are an integral part of these financial statements
2
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COLLABORATIVE FINANCIAL NETWORK GROUP, INC
CONDENSED CONSOLIDATED STATEMENTS OF LOSSES AND COMPREHENSIVE LOSSES
(UNAUDITED)
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
Sep 30, Sep 30, Sep 30, Sep 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Revenues:
Management fees $ 533,826 $ 1,290,243 $ 1,121,926 $ 1,755,068
Mortgage placement fees 230,630 - 466,872 -
Insurance commissions 1,969 - - -
------------- -------------
766,425 1,290,243 1,590,767 1,755,068
Costs and expenses:
Selling, general and
administrative 986,387 2,816,775 1,820,378 7,592,361
Deprecation and
amortization 25,500 26,569 63,116 -
Interest expense 46,500 110,485 72,422 152,696
------------- -------------
1,058,387 2,927,260 - 7,745,057
------------- -------------
Operating loss (291,962) (1,637,017) (365,149) (5,989,989)
Interest income - 1,203 - -
Realized gain or (loss) on
securities
available-for-sale - (11,192) - (43,166)
------------- -------------
Net loss before provision
for income tax (291,962) (1,676,929) (365,149) (6,033,155)
Income tax (benefit) or expense - -
Net Loss $ (291,962) $ (1,676,929) (365,149) (6,033,155)
------------- -------------
Other comprehensive income,
net of tax:
Unrealized holding gains
losses) on securities
available-for-sale arising
during the period - (6,582) - -
-------------
Comprehensive Loss $ (291,962) $ (1,683,511) (365,149) (6,033,155)
============= =============
Net loss per common
share (basic and
assuming dilution) $ (0.01) $ (0.09) $ (0.01) $ (0.37)
============= =============
Weighted average common
shares Outstanding 28,811,538 19,237004 27,107,066 16,335,803
The accompanying notes are an integral part of these financial statements
3
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COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the Six For the Six
Months Ended Months Ended
Sep 30, Sep 30,
2001 2000
------------- -------------
Cash flows from operating activities:
Net income (loss) from operating activities $ (365,149) $ (6,033,155)
Adjustments to reconcile net income to net cash:
Depreciation and amortization 63,116 43,166
Common stock issued in exchange for services 2,295 3,669,706
Common stock issued in exchange for debt 815,250 -
(Increase) decrease in:
Accounts receivable (81,590) (452,864)
Other assets and adjustments 254 188,349
Marketable securities - 43,166
Increase (decrease) in:
Accounts payable, accrued expenses and other (530,306) 2,804,038
------------- -------------
Net cash used by operating activities (96,127) 611,040
Cash flows used in investing activities:
Capital expenditures (103,955) (563,939)
Note receivable - 1,000,000)
Capitalized software & Development (2,206,307)
------------- -------------
Net cash used in investing activities (103,955) (3,770,246)
Cash flows (used in)/provided by
financing activities:
Repayment of loans (745) -
Proceeds from convertible debentures - 3,100,000
Proceeds from sale of common stock - 56,250
------------- -------------
Net cash flows from financing activities (745) 3,156,250
Net increase (decrease) in cash and cash equivalents (8,573) (2,956)
Cash and cash equivalents at beginning of period 8,573 11,859
------------- -------------
Cash and cash equivalents at end of period $ - $ 8,903
============= =============
Supplemental Information:
Interest paid $ - $ -
Taxes paid - -
Common stock issued in exchange for services 2,295 3,097,040
Common stock issued in exchange for acquisitions - 13,005,000
Common stock issued in reduction of debt 815,250 -
The accompanying notes are an integral part of these financial statements
4
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COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE A - SUMMARY OF ACCOUNTING POLICIES
General
- -------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-QSB, and therefore, do not
include all the information necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
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 period ended September 30, 2001 are not
necessarily indicative of the results that may be expected for the year ended
March 31, 2002. The unaudited condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and footnotes
thereto included in the Company's March 31, 2001 annual report included in SEC
Form 10-KSB, as amended
Basis of Presentation
- ---------------------
Collaborative Financial Network Group, Inc., formerly eFinancial Depot.com,
Inc., ("the Company"), which is incorporated under the state laws of Delaware,
is an Internet financial portal, offering a full spectrum of financial services
and investment information on the World Wide Web. The Company is developing a
proprietary information system consisting of integrated financial web pages and
featuring an online investment-related community through Talk-stock.com ("Talk
Stock"), management services to a broker dealer of securities through
Trade-Fast, Inc. ("Trade-Fast"), mortgage services through Westcor Mortgage,
Inc. ("Westcor") and commercial insurance brokerage services through Eznow
Insurance, Inc. ("Eznow") These activities are conducted primarily in North
America.
The consolidated financial statements include the accounts of the Company, and
its wholly owned subsidiaries, Westcor Mortgage, Inc., Eznow Insurance, Inc. and
Trade-Fast, Inc. Significant intercompany transactions have been eliminated in
consolidation.
Change in Year End
- ------------------
In March 2000, the Company's Board of Directors approved a change in the fiscal
year end of the Company from December 31, to March 31, effective with the year
beginning April 1, 2000.
Reclassification
- ----------------
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
earnings.
5
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COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(UNAUDITED)
NOTE B - SEGMENT INFORMATION
The Company's operations are classified into three reportable segments: real
estate financial services (including insurance activities), management services
and consulting fees. The Company's three reportable segments are managed
separately based on fundamental differences in their operations.
The real estate financial services segment places mortgages secured by
residential and commercial real estate to customers located primarily in Canada.
The segment also provides insurance services to those customers.
The management services segment provides services to New World Securities, a
registered broker-dealer, who licenses a securities trading platform providing
securities trading services using proprietary software. The segment's customers
are located primarily in North America.
The consulting segment develops, markets and operates an internet web site
devoted to the research of U.S. and Canadian equity issues. The segment's
customers are located primarily in North America.
Segment operating income is total segment revenue reduced by operating expenses
identifiable with that business segment. Corporate includes general corporate
administrative costs.
The Company evaluates performance and allocates resources based upon operating
income. The accounting policies of the reportable segments are the same as those
described in the summary of accounting policies. There are no inter-segment
sales.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, included elsewhere within
this Report.
Description of Company
- ----------------------
The Company is an Internet financial based company, offering a full spectrum of
financial services and investment information on the World Wide Web. The Company
is developing a proprietary information system consisting of integrated
financial web pages and featuring online trading services through Trade-Fast,
Inc., and mortgage services through Westcor Mortgage, Inc.
Forward Looking Statements
- --------------------------
This Form 10-QSB contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. All statements included
herein that address activities, events or developments that the Company expects,
believes, estimates, plans, intends, projects or anticipates will or may occur
in the future, are forward-looking statements. Actual events may differ
materially from those anticipated in the forward-looking statements. Important
risks that may cause such a difference include: general domestic and
international economic business conditions, increased competition in the
Company's markets and products. Other factors may include, availability and
terms of capital, and/or increases in operating and supply costs. Market
acceptance of existing and new products, rapid technological changes,
availability of qualified personnel also could be factors. Changes in the
Company's business strategies and development plans and changes in government
regulation could adversely affect the Company. Although the Company believes
that the assumptions underlying the forward-looking statements contained herein
are reasonable, any of the assumptions could be inaccurate. There can be no
assurance that the forward-looking statements included in this filing will prove
to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a regarded as a representation by the Company that the
objectives and expectations of the Company would be achieved.
7
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THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Revenue
- -------
The Company's revenues decreased $ 523,818, or 41 % to $ 766,425 during the
second quarter of 2001 as compared to $ 1,290,243 of revenues during the same
period in 2000. Trade-Fast, which was purchased on June 8, 2000, generated
approximately $ 533,826 of revenues during the three months ended September 30,
2001.
Costs and Expenses
- ------------------
The Company's costs and expenses decreased from $ 2,927,260 during the quarter
ended September 30, 2000 to $ 1,058,387 during the second quarter of 2001.
Selling, general and administrative expenses decreased $ 1,830,388.
During the three months ended September 30, 2001, the Company incurred $46,500
of interest expense in connection with its $3,100,000 of convertible debt
outstanding at September 30, 2001.
SIX MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
Revenue
- -------
The Company's revenues decreased $ 164,301, or 9 % to $ 1,590,767 during the Six
months ended September 30, 2001 as compared to $ 1,755,068 of revenues during
the same period in 2000. Trade-Fast, which was purchased on June 8, 2000,
generated approximately $ 1,121,926 of revenues during the six months ended
September 30, 2001.
Costs and Expenses
- ------------------
The Company's costs and expenses decreased from $ 4,817,817 during the six
months ended September 30, 2000 to $ 1,955,916 during the same period of 2001.
Selling, general and administrative expenses decreased $ 3,789,219. In addition
to incurring costs associated with implementing the Company's business plan (i.
e., travel, transportation, professional fees, and consulting fees) during the
six months ended September 30, 2001; the Company issued common stock to
consultants and employees in lieu of compensation.
During the six months ended September 30, 2001, the Company incurred $72,422 of
interest expense in connection with its $3,100,000 of convertible debt
outstanding at September 30, 2001.
8
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LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 2001, the Company had a deficit in working capital of
$5,224,614 compared to a deficit of $ 5,734,645 at March 31, 2001, an increase
in working capital of $ 510,031. The increase in working capital was
substantially due to the exchange of $ 815,250 of the Company's common stock for
amounts due vendors at September 30, 2001 as compared to March 31, 2001.
While the Company has raised capital to meet its working capital requirements,
additional financing is required in order to complete the acquisition of related
businesses. The Company is seeking financing in the form of equity and debt in
order to provide for these acquisitions and for working capital. There are no
assurances the Company will be successful in raising the funds required.
In prior periods, the Company has borrowed funds from significant shareholders
of the Company in the past to satisfy certain obligations.
As the Company continues to expand, the Company will incur additional costs for
personnel. In order for the Company to attract and retain quality personnel, the
Company anticipates it will continue to offer competitive salaries, issue common
stock to consultants and employees, and grant Company stock options to current
and future employees
The Company's independent certified public accountants have stated in their
report included in the Company's March 31, 2001 Form 10KSB, as amended, that the
Company has incurred operating losses since its inception, and that the Company
is dependent upon management's ability to develop profitable operations. These
factors among others may raise substantial doubt about the Company's ability to
continue as a going concern.
The effect of inflation on the Company's revenue and operating results was not
significant The Company's operations are located primarily in North America and
there are no seasonal aspects that would have a material effect on the Company's
financial condition or results of operations
The past six months have seen the domestic markets reeling from economic stress.
Additionally, the events surrounding September 11th have also stifled the equity
markets and venture capitalists. This malaise is having a broad effect on
operations. The Company is aggressively seeking additional capital from various
sources, while we endeavor to decrease spending and streamline operations to
maximize efficiencies.
Currently, finance is needed for:
a) Completion of funding for the Trade Fast business plan expansion
b) Completion of funding for acquisition and expansion of Westcor Mortgage
Inc.
c) Completion and funding for acquisition and build out of EZ-Now
Insurance Inc.
d) Completion of the Build out of the IMI Web licensed application
e) Finalization of a business basis with Metanology Inc.
f) A global marketing campaign
g) Working Capital
The previous estimates of a total of 10 million dollars to accomplish the above
is still valid for the next 12 months. The opportunities which present
themselves in this market may be in the form of strategic alliances with
financial institutions seeking to outsource and expand their base of operations
without large capital expenditures. The Company has broadened its search for
growth catalysts, and has adopted a more forward thinking, "outside of the box"
mentality. It is our belief that with a renewed vigor on the senior management
level, we will be successful in identifying the appropriate path. The financial
condition of the Company continues to be weak. The resolve of Management is
quite determined and focused.
9
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The Traditional avenues of venture capital continue to be restricted as has been
the case over the past year and half. Our greatest potential for growth and
profitability likely will come in the form of a Strategic Alliance or merger.
Operating capital for the company has come mainly from its principals and key
shareholders.
The absence of growth capital has stymied the expansion of our operating
divisions. Westcor has enjoyed record growth due in part to the reduction of
mortgage lending rates and the unprecedented appetite for refinancing. While
TradeFast has experienced a reduction in transaction activity due in part from
the events surrounding September 11th and the temporary close of the domestic
securities market.
The Company is currently reliant on the continued growth of Westcor and an
improving securities trading environment. Devoid of these events the company
would suffer dramatically. . If the company is able to obtain the required
funding in the near term, to allow sufficient development capital to be applied
to growing the business these results could possibly improve radically. If
sufficient funding is not obtained in a timely manner, these results could be
negatively effected, or in fact cease entirely.
TRENDS, RISKS AND UNCERTAINTIES
The Company has sought to identify what it believes to be the most significant
risks to its business, but cannot predict whether or to what extent any of such
risks may be realized nor can there be any assurances that the Company has
identified all possible risks that might arise. Investors should carefully
consider all of such risk factors before making an investment decision with
respect to the Company's stock.
Limited operating history; Anticipated Losses; Uncertainly of Future Results.
- -----------------------------------------------------------------------------
Collaborative Financial Network Group, Inc., has only a limited operating
history upon which an evaluation of the Company and its prospects can be based.
The Company's prospects must be evaluated particularly in light of the
uncertainties relating to the new and evolving distribution methods with which
the Company intends to operate and the acceptance of the Company's business
model. The Company will be incurring costs to develop, introduce and enhance its
interactive website, to establish marketing relationships, to acquire and
develop products that will compliment each other and to build an administrative
organization. To the extent that such expenses are not subsequently followed by
commensurate revenues, the Company's business, results of operations and
financial condition will be materially adversely affected. There can be no
assurance that the Company will be able to generate sufficient revenues from the
sale of their services and products. If cash generated by operations is
insufficient to satisfy the Company's liquidity requirements, the Company may be
required to sell additional equity or debt securities. The sale of additional
equity or convertible debt securities would result in additional dilution to the
Company's stockholders.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, most of which are outside the
Company's control, including: the level of use of the Internet; the demand for
high-tech services and products; seasonal trends in both Internet use, the
amount and timing of capital expenditures and other costs relating to the
expansion of the Company's Internet operation; price competition or pricing
changes in the industry; technical difficulties or system downtime; general
economic conditions, and economic conditions specific to the Internet and
Financial Services Industry. The Company's quarterly results may also be
significantly impacted by the impact of the accounting treatment of
acquisitions, financing transactions or other matters. Particularly at the
Company's early stage of development, such accounting treatment can have a
material impact on the results for any quarter. Due to the foregoing factors,
among others, it is likely that the Company's operating results will fall below
the expectations of the Company or investors in some future quarter.
10
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LIMITED PUBLIC MARKET, POSSIBLE VOLATILITY OF SHARE PRICE
The Company's Common Stock is currently quoted on the NASD OTC Bulletin Board
under the ticker symbol CFNF. As of November 14, 2001, there were approximately
28,883,760 shares of Common Stock outstanding. There can be no assurance that a
trading market will be sustained in the future. Factors such as, but not limited
to, technological innovation, new products, acquisitions or strategic alliances
entered into by the Company or its competitors, failure to meet security
analysts' expectations, government regulatory action patent or proprietary
rights developments, and market conditions for technology stocks in general
could have a material effect on the volatility of the Company's stock price.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Forward Looking Statements
- --------------------------
When included in this Quarterly Report on Form 10-QSB, the words "expects,"
"intends," "plans," "projects," and "estimates," and analogous or similar
expressions are intended to identify forward-looking statements. Such statements
are inherently subject to a variety of risks and uncertainties that could cause
actual results to differ materially from those reflected in such forward-looking
statements. These forward-looking statements speak only as of the date of this
Quarterly Report on Form 10-QSB. The Company expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
Penny Stock Rules
- -----------------
The Company's common shares are subject to rules promulgated by the SEC relating
to "penny stocks," which apply to companies whose shares are not traded on a
national stock exchange or on the NASDAQ system, trade at less than $5.00 per
share, or who do not meet certain other financial requirements specified by the
SEC. These rules require brokers who sell "penny stocks" to persons other than
established customers and "accredited investors" to complete certain
documentation, make suitability inquiries of investors, and provide investors
with certain information concerning the risks of trading in the such penny
stocks. These rules may discourage or restrict the ability of brokers to sell
the Company's common shares and may affect the secondary market for the
Company's common shares. These rules could also hamper the Company's ability to
raise funds in the primary market for the Company's common shares.
Unpredictability of Future Revenues
- -----------------------------------
As a result of the Company's limited operating history and the emerging nature
of the markets in which it competes, the Company is unable to accurately
forecast its revenues. The Company's current and future expense levels are based
largely on its investment plans and estimates of future revenues and are to a
large extent fixed.
Sales and operating results generally depend on the Company's ability to develop
a base of users and businesses who will pay to utilize the Websites or to
advertise their products and services on the Websites. The Company may be unable
to adjust spending in a timely manner to compensate for any unexpected revenue
shortfall. Accordingly, any significant shortfall in estimated revenues in
relation to the Company's planned expenditures would have an immediate, adverse
effect on the Company's business, prospects, financial condition and results of
operations.
Further, as a strategic response to changes in the competitive environment, the
Company may from time to time make certain pricing, service or marketing
decisions that could have a materially adverse effect on its business and
financial condition and results of operations.
11
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Liquidity and Capital Resources
- -------------------------------
While the Company has, in the past, raised capital to meet its working capital
requirements, additional financing is required in order to complete the
acquisition of related businesses. The Company continues to seek financing in
the form of equity and debt in order to provide for these acquisitions and for
working capital. There are no assurances the Company will be successful in
raising the funds required. In the past, the Company has borrowed funds from an
entity related to a significant shareholder of the Company share's to satisfy
certain obligations.
Limited Operating History
- -------------------------
The Company recently initiated the Website, and as a result, it has only a
limited operating history. The Company's prospects must be considered in light
of the risks, uncertainties, expenses and difficulties frequently encountered by
companies in their early stages of development, particularly companies in new
and rapidly evolving markets like the one faced by the Company. Some of these
risks and uncertainties relate to the Company's ability to attract and maintain
a large base of users, develop and introduce desirable services and original
content to users, establish and maintain relationships with advertisers and
advertising agencies, respond effectively to competitive and technological
developments, and build an infrastructure to support the Company's business. The
Company cannot be sure that it will be successful in addressing these risks and
uncertainties and its failure to do so could have a material adverse effect on
its financial condition.
Potential Fluctuations in Quarterly Operating Results
- -----------------------------------------------------
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include but are not limited to:
- - the Company's ability to retain existing users of the Websites, attract
new users at a steady rate and maintain user satisfaction;
- - the Company's ability to develop a base of businesses willing to pay to
advertise their products and services on the Websites;
- - the Company's ability to develop a base of businesses willing to
utilize the Websites to conduct transactions;
- - the announcement or introduction of new services and products by the
Company and its competitors;
- - the continued use of the Internet and online services and increasing
consumer acceptance of the Internet and other online services for the
purchase of consumer products and services such as those offered by the
Company;
- - the Company's ability to upgrade and develop its systems and
infrastructure in connection with the Website and attract new personnel
in a timely and effective manner;
- - the level of traffic on the Websites;
- - technical difficulties, system downtime or Internet outages;
- - the amount and timing of operating costs and capital expenditures
relating to expansion of the Company's business, operations and
infrastructure;
- - governmental regulation;
- - general economic conditions; and
- - economic conditions specific to the Internet and online commerce.
12
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Seasonality
- -----------
The Company expects that it will experience seasonality in its business,
reflecting a combination in seasonal fluctuations in Internet usage and
traditional retail seasonality patterns. Due to the foregoing factors, one or
more of the future quarters the Company's operating results may fall below the
expectations of securities analysts and investors. In such event, the financial
performance of the Company would likely be materially adversely affected.
Capacity Constraints
- --------------------
A key element of the Company's strategy is to generate a high volume of traffic
on, and use of, the Websites. Accordingly, the satisfactory performance,
reliability and availability of the Websites, transaction processing systems and
network infrastructure are critical to the Company's reputation and its ability
to attract and retain users and maintain adequate user service levels.
The Company's revenues depend on the number of users who visit and purchase
goods and services through the Websites and the number of businesses who utilize
the Websites to advertise and sell their products and services. Any system
interruptions that result in the unavailability of the Websites or reduced order
fulfilment performance would reduce the volume of goods sold and the
attractiveness of the Company's product and service offerings.
Any substantial increase in the volume of traffic on the Websites or the number
of businesses utilizing the Websites will require the Company to expand and
upgrade further its technology, transaction-processing systems and network
infrastructure. There can be no assurance that the Company will be able to
accurately project the rate or timing of increases, if any, in the use of the
Websites or timely expand and upgrade its systems and infrastructure to
accommodate such increases.
Marketing
- ---------
The Company has not incurred significant advertising, sales and marketing
expenses to date. To increase awareness for the Websites, the Company expects to
spend significantly more on advertising, sales and marketing in the future. If
the Company's marketing strategy is unsuccessful, it may not be able to recover
these expenses or even generate any revenues. The Company will be required to
develop a marketing and sales campaign that will effectively demonstrate the
advantages of the Websites, services and products. To date, the Company's
experience with respect to marketing the Websites is very limited. The Company
may also elect to enter into agreements or relationships with third parties
regarding the promotion or marketing of the Websites, and the products and
services available through the Websites. There can be no assurance that the
Company will be able to establish adequate sales and marketing capabilities,
that it will be able to enter into marketing agreements or relationships with
third parties on financially acceptable terms, or that any third parties with
whom it enters into such arrangements will be successful in marketing and
promoting the Websites, and the products and services offered on the Websites.
Online Commerce Security Risks
- ------------------------------
A significant barrier to online commerce and communications is the secure
transmission of confidential information over public networks. The Company
relies on encryption and authentication technology licensed from third parties
to provide the security and authentication necessary to effect secure
transmission of confidential information, such as customer credit card numbers.
There can be no assurance that advances in computer capabilities, new
discoveries in the field of cryptography, or other events or developments will
not result in a compromise or breach of the algorithms used by the Company to
protect customer transaction data.
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If any such compromise of the Company's security were to occur, it could have a
materially adverse effect on the Company's reputation, business, prospects,
financial condition and results of operations. A party who is able to circumvent
the Company's security measures could misappropriate proprietary information or
cause interruptions in the Company's operations. The Company may be required to
expend significant capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches.
Concerns over the security of the Internet and other online transactions, and
the privacy of users may also inhibit the growth of the Internet and other
online services generally, and the Internet in particular, especially as a means
of conducting commercial transactions. To the extent that activities of the
Company or third-party contractors involve the storage and transmission of
proprietary information, such as credit card numbers, security breaches could
damage the Company's reputation and expose the Company to a risk of loss or
litigation and possible liability. There can be no assurance that the Company's
security measures will prevent security breaches or that failure to prevent such
security breaches will not have a materially adverse effect on the Company's
business, prospects, financial condition and results of operations.
Risks Associated with Entry into New Business Areas
- ---------------------------------------------------
The Company may choose to expand its operations by improving the Websites or
even developing new websites, promoting new or complementary products or sales
formats, expanding the breadth and dept of products and services offered on the
Websites or expanding its market presence through relationships with third
parties. In addition, the Company may pursue the acquisition of new or
complementary businesses, products or technologies, although it has no present
understandings, commitments or agreements with respect to any material
acquisitions or investments. There can be no assurance that the Company would be
able to expand its efforts and operations in a cost-effective or timely manner
or that any such efforts would increase overall market acceptance. Expansion of
the Company's operations in this manner would also require significant
additional expenses and development, operations and editorial resources and may
strain the Company's management, financial and operational resources. The lack
of market acceptance of such efforts or the Company's inability to generate
satisfactory revenues from such expanded services or products to offset their
cost could have a materially adverse effect on the Company's business,
prospects, financial condition and results of operations.
Uncertain Ability to Manage Growth
- ----------------------------------
The Company's ability to achieve its planned growth is dependent upon a number
of factors including, but not limited to, its ability to hire, train and
assimilate management and other employees, the adequacy of the Company's
financial resources, the Company's ability to identify and efficiently provide
such new products and perform services as the Company's customers may require in
the future, and its ability to adapt its own systems to accommodate its expanded
operations. In addition, there can be no assurance that the Company will be able
to achieve its planned expansion or that it will be able to successfully manage
such expanded operations. Failure to manage anticipated growth effectively and
efficiently could have a materially adverse effect on the Company.
Dependence Upon Key Personnel
- -----------------------------
The Company's future success depends in large part on the continued services of
its key product development, technical, marketing, sales and management
personnel, and its ability to continue to attract, motivate and retain highly
qualified employees. Although the Company's management personnel serve at the
pleasure of the Board of Directors, there can be no assurance that such
arrangements will continue in the future. Competition for such employees is
intense, and the process of locating key technical, product development and
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management personnel with the combination of skills and attributes required to
execute the Company's strategy is often lengthy. Accordingly, the loss of
services of key personnel or an inability to attract additional personnel as
needed could have a material adverse effect upon the Company.
The success of the Company is therefore dependent to a large degree upon its
ability to identify, hire and retain additional qualified personnel, for whose
services the Company will be in competition with other prospective employers,
many of which may have significantly greater resources than the Company.
Additionally, demand for qualified personnel conversant with certain
technologies is intense and may outstrip supply as new and additional skills are
required to keep pace with evolving telecommunications technology. There can be
no assurance that the Company will be able to hire and, if so, retain such
additional qualified personnel. Failure to attract and retain such personnel
could have a materially adverse effect upon the Company.
Government Regulation
- ---------------------
Although there are few laws and regulations directly applicable to the Internet,
it is likely that new laws and regulations will be adopted in the United States
and elsewhere, to govern issues such as music licensing, broadcast license fees,
copyrights, privacy, pricing, sales taxes and characteristics and quality of
Internet services. It is possible that governments will enact legislation that
may be applicable to the Company in areas such as content, network security,
encryption and the use of key escrow, data and privacy protection, electronic
authentication or "digital" signatures, illegal and harmful content, access
charges and retransmission activities.
The adoption of restrictive laws or regulations could slow Internet growth. The
application of existing laws and regulations governing Internet issues such as
property ownership, libel, defamation, content, taxation and personal privacy is
also uncertain. The majority of such laws were adopted before the widespread use
and commercialization of the Internet and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Any new law
or regulation pertaining to the Internet, or the application or interpretation
of existing laws, could decrease demand for the Websites and services provided
by the Company, increase its cost of doing business or otherwise have a
materially adverse effect on its success and continued operations. Laws and
regulations may be adopted in the future that address Internet-related issues,
including online content, user privacy, pricing and quality of products and
services. The growing popularity and use of the Internet has burdened the
existing telecommunications infrastructure in many areas, as a result of which
local exchange carriers have petitioned the FCC to regulate Internet service
providers in a manner similar to long distance telephone carriers and to impose
access fees on the Internet service providers. The Company cannot guarantee that
the United States, Canada or foreign nations will not adopt legislation aimed at
protecting Internet users' privacy. Any such legislation could negatively affect
the Company's business. Moreover, it may take years to determine the extent to
which existing laws governing issues such as property ownership, libel,
negligence and personal privacy are applicable to the Internet.
Liability for Website Information
- ---------------------------------
The Company may be subjected to claims for negligence, copyright, patent,
trademark, defamation, indecency and other legal theories based on the nature
and content of the materials that it broadcasts. Such claims have been brought,
and sometimes successfully litigated, against Internet content distributors. In
addition, the Company could be exposed to liability with respect to the content
or unauthorized duplication or broadcast of content. Any imposition of liability
that is not covered by insurance, is in excess of insurance coverage or is not
covered by an indemnification by a content provider could adversely affect the
Company's business.
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Market for the Company's Securities and Possible Volatility of Share Prices The
trading price of the Company's common shares (the "Common Shares") has been and
may continue to be subject to wide fluctuations. Trading prices of the Common
Shares may fluctuate in response to a number of factors, many of which are
beyond the Company's control. In addition, the stock market in general, and the
market for Internet-related and technology companies in particular, has
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs and
reflect price earnings ratios substantially above historical levels. There can
be no assurance that these trading prices and price earnings ratios will be
sustained. These broad market and industry factors may adversely affect the
market price of the Common Shares, regardless of the Company's operating
performance.
In the past, following periods of volatility in the market price of a company's
securities, securities class-action litigation has sometimes been instituted.
Such litigation, if instituted, could result in substantial costs for the
Company and a diversion of management's attention and resources.
Dilution and Dividend Policy
- ----------------------------
The grant and exercise of warrants of creditors or otherwise or stock options
would likely result in a dilution of the value of the Common Shares. Moreover,
the Company may seek authorization to increase the number of its authorized
shares and to sell additional securities and/or rights to purchase such
securities at any time in the future. Dilution of the value of the Common Shares
would likely result from such sales.
Anti-Takeover Provisions
- ------------------------
At the present time, the Company's Board of Directors has not adopted any
shareholder rights plan or any anti-takeover provisions in its Articles.
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PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In October 2000, DLN Financial filed a complaint against the Company and
Trade-Fast, Inc. in San Diego Superior Court. The complaint alleged a breach of
contract. On July 31, 2001, parties to the litigation executed a settlement
agreement and mutual release wherein the Company committed to issue 250,000
shares of the Company's common stock to the plaintiffs. Management believes the
ultimate outcome of this matter will not have a material adverse effect on the
Company's consolidated financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES.
(a) None
(b) None
(c) Sales of Unregistered Securities
From May to June 2001, the Company issued an aggregate of approximately
2,295,000 shares of its restricted common stock in connection with certain
consulting agreements for services rendered.
On August 3, 2001, the Company returned 1,000,000 shares of the Company's
restricted common stock to treasury pursuant to an agreement with a Director and
former president of the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On August 9, 2001, the Company filed with the SEC a Registration Statement on
Form S-8 registering 2,860,000 shares of the Company's common stock issuable to
certain employees and consultants pursuant to a Stock Option Agreements and
Consulting Agreements.
On September 21, 2001 the Company appointed Mr. Jeff Michel to the position of
President and Director. Mr. Paul Lemmon, as previous president, will remain as a
director.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
99.1 Letter of Intent
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
By: /s/ Jeff Michel
----------------------------------
Jeff Michel, President
Date: November 14, 2001
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