UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 to
FORM 10-QSB/A
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended June 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)
2250-1875 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 February 14, 2002, 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 ]
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of December 31, 2001 and
March 31, 2001
Condensed Consolidated Statements of Losses and Comprehensive Losses
for the Three Months Ended December 31, 2001 and 2000 and for the
Nine Months Ended December 31, 2001 and 2000
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended December 31, 2001 and 2000 and for the Nine Months Ended
December 31, 2001 and 2000
Notes to Consolidated Financial Statements December 31, 2001
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
Dec 31,2001 March 31, 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 120,426 196,927
Deposits and other assets -- --
------------- -------------
$ 481,412 $ 491,784
============= =============
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
--------------------------------------------------
Current liabilities:
Cash disbursed in excess of available balances $ -- $ --
Accounts payable and accrued expenses 738,659 1,150,630
Convertible debentures 3,100,000 3,200,000
Notes payable - Related Parties 1,596,386 1,492,431
------------- -------------
Total current liabilities 5,435,045 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 (26,688,904) (26,269,003)
------------- -------------
Total deficiency in stockholders' equity (4,953,633) (5,351,277)
------------- -------------
$ 481,412 $ 491,784
============= =============
The accompanying notes are an integral part of these financial statements
2
COLLABORATIVE FINANCIAL NETWORK GROUP, INC
CONDENSED CONSOLIDATED STATEMENTS OF LOSSES AND COMPREHENSIVE LOSSES
(UNAUDITED)
For the Three For the Three For the Nine For the nine
Months Ended Months Ended Months Ended Months Ended
Dec 31, 2001 Dec 31, 2000 Dec 31, 2001 Dec 31, 2000
------------- ------------- ------------- -------------
Revenues:
Fee income $ 546,395 $ 1,175,322 $ 2,137,162 $ 2,915,190
------------- ------------- ------------- -------------
546,395 1,175,322 2,137,162 2,915,190
Costs and expenses:
Selling, general and 526,804 3,644,513 2,347,182 10,758,909
administrative
Deprecation and 25,500 186,435 88,616 419,181
amortization
Interest expense 48,843 75,555 121,265 204,071
------------- ------------- ------------- -------------
601,147 3,906,503 2,557,063 11,382,161
------------- ------------- ------------- -------------
Operating loss (54,752) (2,731,181) (419,901) (8,466,971)
Interest income --
Realized gain or (loss) on -- 7,938
securities
available-for-sale
------------- ------------- ------------- -------------
Net loss before provision for (54,752) (2,731,181) (419,901) (8,459,033)
income tax
Income tax (benefit) or expense -- --
------------- ------------- ------------- -------------
Net Loss $ (54,752) $ (2,731,181) $ (419,901) $ (8,459,033)
------------- ------------- ------------- -------------
Other comprehensive income, net of tax:
Unrealized holding gains -- --
losses on securities
available-for-sale arising
during the period
------------- ------------- ------------- -------------
Comprehensive Loss $ (54,752) $ (2,731,181) $ (419,901) $ (8,459,033)
============= ============= ============= =============
Net loss per common $ (0.01) $ (0.13) $ (0.18) $ (0.47)
share (basic and
assuming dilution)
============= ============= ============= =============
Weighted average 28,811,538 20,659,179 27,419,238 18,162,775
common shares
Outstanding
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements
3
COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For the nine For the nine
Months Ended Months Ended
Dec 31, 2001 Dec 31, 2000
------------- -------------
Cash flows from operating activities:
Net income (loss) from operating activities $ (419,901) $ (8,459,033)
Adjustments to reconcile net income to net cash:
Depreciation and amortization 88,616 419,181
Common stock issued in exchange for services 2,295 5,697,445
Common stock issued in exchange for debt 815,250 2,146,392
(Increase) decrease in:
Accounts receivable (81,590) --
Other assets and adjustments 254 (691,499)
Increase (decrease) in:
Accounts payable, accrued expenses and other (511,971) 2,517,510
------------- -------------
Net cash used by operating activities (107,047) 1,637,934
Cash flows used in investing activities:
Capital expenditures (5,481) (177,613)
Note receivable -- --
Capitalized software & Development -- (2,206,307)
------------- -------------
Net cash used in investing activities (5,481) (2,383,920)
Cash flows (used in)/provided by
financing activities:
Repayment of loans 103,955 --
Proceeds from convertible debentures -- 750,000
Proceeds from sale of common stock -- 66,250
------------- -------------
Net cash flows from financing activities 103,955 816,250
Net increase (decrease) in cash and cash equivalents (8,573) (70,264)
Cash and cash equivalents at beginning of period 8,573 24,671
------------- -------------
Cash and cash equivalents at end of period $ -- $ 94,935
============= =============
Supplemental Information:
Interest paid $ -- $ 8,733
Taxes paid -- --
Common stock issued in exchange for services 2,295 5,697,445
Common stock issued in exchange for acquisitions -- 13,913,724
Common stock issued in reduction of debt 815,250 2,146,392
The accompanying notes are an integral part of these financial statements
4
COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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 June 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"), and , 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
COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 servicesSA . 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
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 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.
THREE MONTHS ENDED DECEMBER 31, 2001 AND 2000
Revenue
- -------
The Company's revenues decreased $628,927, or 54% to $546,395 during the third
quarter of 2001 as compared to $1,175,322 of revenues during the same period in
2000. Trade-Fast, which was purchased on June 8, 2000, generated approximately
$359,053 of revenues during the three months ended December 31, 2001.
7
Costs and Expenses
- ------------------
The Company's costs and expenses decreased from $3,906,503 during the quarter
ended December 31, 2000 to $690,870 during the second quarter of 2001. Selling,
general and administrative expenses decreased $3,027,986.
During the three months ended December 31, 2001, the Company incurred $48,843 of
interest expense in connection with its $3,100,000 of convertible debt
outstanding at December 31, 2001.
NINE MONTHS ENDED DECEMBER 31, 2001 AND 2000
Revenue
- -------
The Company's revenues decreased $778,028, or 27% to $2,137,162 during the nine
months ended December 31, 2001 as compared to $2,915,190 of revenues during the
same period in 2000. Trade-Fast, which was purchased on June 8, 2000, generated
approximately $1,450,951 of revenues during the nine months ended December 31,
2001.
Costs and Expenses
- ------------------
The Company's costs and expenses decreased from $11,382,161 during the nine
months ended December 31, 2000 to $2,646,786 during the same period of 2001.
Selling, general and administrative expenses decreased $8,322,004. In addition
to incurring costs associated with implementing the Company's business plan
(i.e., travel, transportation, professional fees, and consulting fees) during
the nine months ended December 31, 2001; the Company issued common stock to
consultants and employees in lieu of compensation.
During the nine months ended December 31, 2001, the Company incurred $121,265 of
interest expense in connection with its $3,100,000 of convertible debt
outstanding at December 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of December 31, 2001, the Company had a deficit in working capital of
$5,253,866 compared to a deficit of $5,734,645 at March 31, 2001, an increase in
working capital of $ 480,779. 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 December 31, 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 sustain itself, 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
8
The past nine months have seen the domestic markets reeling from economic stress
due greatly to the events surrounding September 11th The equity markets and
venture capitalists have imploded leaving a great void for companies in the need
of growth capital. This malaise has had a broad effect on operations. The
Company is contemplating any and all alternatives to enhance shareholder value.
Currently, finance is needed for:\
a) Completion of funding for acquisition and expansion of Westcor
Mortgage Inc.
b) Completion and funding for acquisition and build out of EZ-Now
Insurance Inc.
c) Completion of the Build out of the IMI Web licensed
application
d) A global marketing campaign
e) Working Capital
The opportunities that 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 or a company seeking
entry to the public markets. The Company has broadened its search for growth
catalysts, and has continued on a more forward thinking, "outside of the box"
mentality. The financial condition of the Company continues to be weak. The
resolve of Management continues to be determined and focused on improving
shareholder value.
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
division. Westcor has continued to reach record growth due in part to the
reduction of mortgage lending rates and the unprecedented appetite for
refinancing.
The Company was noticed on the default of the Convertible Debenture held by the
Canadian Advantage Limited Partnership (CALP) of approximately 5.5 million
dollars. CALP has agreed to the transfer of TradeFast and future consideration
to satisfy the debt. CALP is working amicably with The Company on the resolution
of this matter and the future of The Company. The Company anticipates closing on
this transaction during the current quarter. It should be noted that Tradefast
has been the dominant operating entity of The Company and this event will have a
significant effect on The Company's ability to continue to operate.
If the company were 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.
GENERAL
- -------
The Company is an internet financial portal, which will offer a full spectrum of
financial services and investment information on the World Wide Web through its
website "www.efinancialdepot.com" (the "Website"). The Company is currently
developing a proprietary information system consisting of integrated financial
web pages and featuring an online investment-related community through the Talk
Stock Website. The Website and the Talk Stock Website are collectively referred
to in this Quarterly Report as the "Websites".
Products & Services
TRADING OFFICES/SYSTEMS & ON LINE FINANCIAL SERVICES
The Company's trading technology has a sophisticated web-based user-friendly
interface that provides direct and immediate access to all U.S. equity markets
and is geared to ease trading execution, without third party involvement with
maximum security and speed. This interface is a competitive advantage over the
vast majority of online brokers.
9
ONLINE TRADING APPLICATION. The online trading application, IMIweb, is
exclusively licensed from IMI Bank S.p.A of Milano, Italy ("IMI Bank"). The
system allows access to most major U.S. and European stock exchanges, providing:
Real-time stock quotes, Market news, Other coveted financial services, Very fast
execution technology, and International Order Routing System. In order to
maintain the licensing exclusivity, the Company must meet certain minimums.
There can be no assurances however that the Company can meet these minimums, and
failure to do so, may result in material changes to the Company's online trading
services. IMI Bank also has certain co-branded agreements in London, Ireland,
and Scotland.
FUTURE SERVICES
ONLINE MORTGAGES. Through its subsidiary, Westcor Mortgage, the Company will
have the ability to offer online competitive mortgages, as well as direct to
consumer loans in Canada and in the near future the U.S. Westcor has a history
of profitability and has a very strong lending alliance that will attribute to
the aggressive plan for the expansion of its services. This service will be
offered to banking and trading institutions as a value-added service to their
clients.
EDUCATION. The Company plans to provide in-depth training and education geared
toward investors. This service supports the other offerings of the Company and
can be used to educate clients about these services with information such as;
important regulatory or industry requirements, professional licensing courses
and testing, continuing education requirements, and references to independent
sources to answer or research almost any aspect of the online financial services
experience. The Company intends on establishing strategic partnerships with the
New York Institute of Finance, College of Financial Planning and other financial
education organizations.
Need for Additional Financing
The Company's ability to continue in business depends significantly upon its
continued ability to obtain financing. There can be no assurance that any such
financing will be available upon terms and conditions acceptable to the Company,
if at all. The inability to obtain additional financing in a sufficient amount
when needed and upon acceptable terms and conditions could have a materially
adverse effect upon the Company. Although the Company believes that it can raise
financing sufficient to meet its immediate needs, it will require funds to
finance its development, marketing and operating activities in the future. There
can be no assurance that such funds will be available or available on terms
satisfactory to the Company. If additional funds are raised by issuing equity
securities, further dilution to existing or future stockholders is likely to
result. If adequate funds are not available on acceptable terms when needed, the
Company may be required to delay, scale-back or eliminate its promotional and
marketing campaign, its development programs or even its operations until such
funds become available. Inadequate funding also could impair the Company's
ability to compete in the marketplace and could result in its dissolution.
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.
10
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.
Uncertainty of and Inability to Generate Significant Revenues
The Company's ability to generate significant revenues is uncertain. The
Company's short and long-term prospects depend upon it ability to:
- develop a base of users of the Websites;
- continue its global growth in the online trading business;
- facilitate transactions of businesses listing products and
services for sale on the Websites;
- continue its growth in the specialty financial services
sectors;
- develop and operate the Websites;
- develop high value internet banking applications;
- develop a base of businesses who will pay to advertise their
products and services on the Websites;
- continue the development of high value content for the
Websites; and
- develop a base of users and businesses who will pay to use
banner ads and page sponsorships on the Websites.
The Company has projected that a significant portion of its revenues will be
generated from relationships with Website users and advertisers, and the
activities that result from those relationships. Accordingly, the Company's
success is highly dependent on such relationships and activities and the Company
may never generate significant revenues if it does not establish such
relationships and activities. As its business evolves, the Company expects to
introduce a number of new products and services. With respect to both current
and future product and service offerings, the Company expects to significantly
increase its marketing and operating expenses in an effort to increase its user
base, enhance the image of the Websites and support its infrastructure. In order
for the Company to make a profit, its revenues will need to increase
significantly to cover these and other future costs. Even if it becomes
profitable, the Company may not sustain or increase its profits on a quarterly
or annual basis in the future.
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
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'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.
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.
12
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
fulfillment 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.
Dependence on Continued Growth of Online Commerce
The Company's future revenues and its ability to generate profits in the future
are substantially dependent upon the widespread acceptance and use of the
Internet and other online services as an effective medium of commerce. The rapid
growth surrounding the Internet and online services is a relatively recent
phenomenon.
There can be no assurance that acceptance and use of the Internet will continue
to develop or that a sufficiently broad base of consumers will continue to use
the Internet and other online services as a medium of commerce. Demand and
market acceptance for recently introduced services and products over the
Internet are subject to a high level of uncertainty and relatively few proven
services and products exist.
The Company relies on consumers who have historically used traditional means of
commerce to purchase merchandise. For the Company to be successful, these
consumers must accept and utilize novel ways of conducting business and
exchanging information. In addition, the Internet and other online services may
not be accepted as viable commercial marketplaces for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies and performance
improvements.
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In addition, the Internet or other online services could lose their viability
due to delays in the development or adoption of new standards and protocols
required for handling of increased levels of Internet activity. Another factor
which must be considered is the possibility of increased governmental
regulation.
Changes in or insufficient availability of telecommunications services to
support the Internet or other online services also could result in slower
response times and adversely affect usage of the Internet and other online
services generally and the Company in particular. The Company's business,
prospects, financial condition and results of operations could be materially
adversely affected if:
- use of the Internet and other online services does not
continue to grow or grows more slowly than expected;
- the infrastructure for the Internet and other online services
does not effectively support growth that may occur; or
- the Internet and other online services do not become viable
commercial marketplaces for the products and services offered
or intended to be offered through 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.
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.
Reliance on Internally Developed Systems & System Development Risks
Wherever possible, the Company will use off-the-shelf products for the Websites,
search engines and substantially all aspects of transaction processing,
including order management, cash and credit card processing, purchasing,
inventory management and shipping. The Company does, however, expect that it
will have to develop some custom software to support its requirements. Further,
the Company's inability to:
- add additional software and hardware;
- develop and upgrade further its existing technology and
transaction processing systems;
- network infrastructure to accommodate increased traffic on the
Websites; and/or
- increase sales volume through its transaction processing
systems; may cause:
- unanticipated system disruptions;
- slower response times;
- degradation in levels of customer service;
- impaired quality and speed of order fulfilment; and
- delays in reporting accurate financial information.
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In addition, although the Company works to prevent unauthorized access to
Company data, it is impossible to completely eliminate this risk. There can be
no assurance that the Company will be able to effectively upgrade and expand its
transaction-processing system or to integrate smoothly any newly developed or
purchased modules with its existing systems in a timely manner. Any inability to
do so could have a materially adverse effect on the Company's business,
prospects, financial condition and results of operations.
System Failure
The Company's success, and in particular its ability to successfully receive
orders and provide high-quality customer service for its users, largely depends
on the efficient and uninterrupted operation of its computer and communications
hardware systems. The Company's systems and operations are vulnerable to damage
or interruption from fire, flood, power loss, telecommunications failure,
break-ins, earthquake and similar events.
The Company does not presently have redundant systems or a formal disaster
recovery plan and does not carry sufficient business interruption insurance to
compensate it for losses that may occur. Despite the implementation of network
security measures by the Company, its servers are vulnerable to computer
viruses, physical or electronic break-ins and similar disruptions, which could
lead to interruptions, delays, loss of data or the inability to accept and
fulfil customer orders. The occurrence of any of the foregoing risks could have
a materially adverse effect on the Company's business, prospects, financial
condition and results of operations.
Rapid Technological Change
To remain competitive, the Company must continue to enhance and improve the
responsiveness, functionality and features of the Company's online services. The
Internet and the online commerce industry are characterized by factors such as
rapid technological change, changes in user and customer requirements and
preferences, frequent new product and service introductions embodying new
technologies and the emergence of new industry standards and practices. These
changes could render the Websites as they currently exist, and proprietary
technology and systems, obsolete.
The Company's success will depend, in part, on its ability to license leading
technologies useful to its business, enhance its existing services, develop new
services and technology to address the increasingly sophisticated and varied
needs of its prospective customers, and respond to technological advances and
emerging industry standards and practices on a cost-effective and timely basis.
The development of the Websites and other proprietary technology entails
significant technical and business risks. There can be no assurance that the
Company will successfully use new technologies effectively or adapt the
Websites, proprietary technology and transaction processing systems to customer
requirements or new emerging industry standards.
If the Company is unable to adapt in a timely manner to technical, legal,
financial changing market conditions or customer requirements, its business,
prospects, financial condition and results of operations could be materially
adversely affected.
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.
15
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
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.
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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.
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.
None
ITEM 2. CHANGES IN SECURITIES.
(a) None
(b) None
(c) None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
On October 29, 2001 the Company filed a report on 8-K announcing that
the Company received the resignation of its certifying accountant, Peter
Stefanou, LLP. The Company is in the process of engaging a new auditor as its
certifying accountant as of October 29, 2001 for the Company's fiscal year
ending March 31, 2002.
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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/ Jeffrey Michel
----------------------------------
Jeffrey Michel, President
Date: February 14, 2002
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