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 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)
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 August 20, 2001, the Company had 28,144,871 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 June 30, 2001 and
March 31, 2001
Condensed Consolidated Statements of Losses and Comprehensive
Losses for the Three Months Ended June 30, 2001 and 2000
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended June 30, 2001 and 2000
Notes to Consolidated Financial Statements June 30, 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
June 30,2001 March 31, 2001
(UNAUDITED)
-------------- ---------------
ASSETS
------
Current assets:
Cash and equivalents $ - $ 8,573
Accounts receivable, less allowance for
doubtful accounts 223,347 99,589
Prepaid expenses - 254
-------------- ---------------
Total current assets 223,347 108,416
Property and equipment - at cost, less
accumulated depreciation 179,807 186,441
Other assets:
Financing charges net of amortization 171,426 196,927
Deposits and other assets - -
-------------- ---------------
$ 574,580 $ 491,784
============== ===============
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS' EQUITY
--------------------------------------------------
Current liabilities:
Cash disbursed in excess of available balances $ 1,937 $ -
Accounts payable and accrued expenses 585,907 1,150,630
Convertible debentures 3,100,000 3,200,000
Notes payable - Related Parties 1,491,686 1,492,431
------------- -------------
Total current liabilities 5,179,530 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 (26,340,221) (26,269,003)
------------- -------------
Total deficiency in stockholders' equity (4,604,950) (5,351,277)
------------- -------------
$ 574,580 $ 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 Months For the Three Months
Ended June 30, 2001 Ended June 30, 2000
-------------------- --------------------
Revenues:
Management fees $ 588,100 $ 449,625
Mortgage placement fees 236,242 -
Insurance commissions 1,969 -
-------------------- --------------------
826,311 449,625
Costs and expenses:
Selling, general and administrative 833,991 4,084,707
Deprecation and amortization 37,616 26,569
Interest expense 25,922 36,885
-------------------- --------------------
897,529 4,148,161
-------------------- --------------------
Operating loss (71,218) (3,698,536)
Interest income - 1,203
Realized gain or (loss) on securities
available-for-sale - (11,192)
-------------------- --------------------
Net loss before provision for income tax (71,218) (3,708,525)
Income tax (benefit) or expense - -
-------------------- --------------------
Net Loss $ (71,218) $ (3,708,525)
==================== ====================
Other comprehensive income,
net of tax:
Unrealized holding gains (losses) on
securities available-for-sale arising
during the period - (90,658)
-------------------- --------------------
Comprehensive Loss $ (71,218) $ (3,799,183)
==================== ====================
Net loss per common share
(basic and assuming dilution) $ (0.00) $ (0.27)
==================== ====================
Weighted average common shares
Outstanding 26,149,004 14,058,388
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 Three Months For the Three Months
June 30,2001 Ended June 30,2000
--------------------- ---------------------
Cash flows from operating activities:
Net income (loss) from operating activities $ (71,218) $ (3,708,525)
Adjustments to reconcile net income to net cash:
Depreciation and amortization 37,616 26,569
Common stock issued in exchange for services 2,295 3,097,040
Common stock issued in exchange for debt 815,250 -
(Increase) decrease in:
Accounts receivable (123,758) (1,064,394)
Other assets and adjustments 254 150,508
Marketable securities - 73,764
Increase (decrease) in:
Accounts payable, accrued expenses and other (664,723) 1,386,960
--------------------- ---------------------
Net cash used by operating activities (4,284) (38,078)
Cash flows used in investing activities:
Capital expenditures (5,481) (497,200)
Note receivable - -
--------------------- -------------------
Net cash used in investing activities (5,481) (497,200)
Cash flows (used in)/provided by
financing activities:
Repayment of loans (745) -
Proceeds from convertible debentures - 750,000
Proceeds from sale of common stock - 6,250
--------------------- ---------------------
Net cash flows from financing activities (745) 756,250
Net increase (decrease) in cash and cash equivalents (10,510) 220,972
Cash and cash equivalents at beginning of period 8,573 24,671
--------------------- ---------------------
Cash and cash equivalents at end of period $ (1,937) $ 245,643
===================== =====================
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
COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 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"), 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
COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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
COLLABORATIVE FINANCIAL NETWORK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED JUNE 30, 2001 ENDED JUNE 30, 2000
------------------- -------------------
REVENUES:
Real estate financial services $ 238,211 $ -
Management services 588,100 449,625
Consulting fees - -
------------------- -------------------
Total Sales $ 826,311 $ 449,625
=================== ==================
OPERATING LOSS:
Real estate financial services 38,421 -
Management services (71,345) 720,557
All other - -
Corporate General and Administrative Expenses (38,294) (4,419,093)
------------------- -------------------
TOTAL SEGMENT OPERATING LOSS $ (71,218) $ (3,698,536)
=================== ==================
JUNE 30, 2001 MARCH 31, 2001
------------------- -------------------
SEGMENTS ASSETS:
Real estate financial services $ 261,585 $ 138,445
Management services 118,268 75,167
Consulting - -
Corporate 194,727 278,172
------------------- -------------------
TOTAL SEGMENT ASSETS $ 574,580 $ 491,784
=================== ==================
Capital Expenditures
Real estate financial services $ - $ -
Management services - -
Consulting - -
Corporate 5,481 497,200
------------------- -------------------
Total capital expenditures $ 5,481 $ 497,200
=================== ===================
Depreciation and amortization
Real estate financial services $ - $ -
Management services 6,634 -
Consulting - -
Corporate 30,982 26,569
------------------- -------------------
TOTAL DEPRECIATION AND AMORTIZATION $ 37,616 $ 26,569
=================== ===================
7
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 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.
Forward Looking Statements
- ----------------------------
This Quarterly Report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All statements
included in this Quarterly Report 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 and
increased competition in the Company's markets and products. Other factors may
include the availability and terms of capital for financing the research and
development of the Company's products, and/or increases in operating and supply
costs. Market acceptance of existing and new products, rapid technological
changes, availability of qualified personnel may also 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 in this Quarterly Report are reasonable, any of the assumptions could
be inaccurate. There can be no assurance that the forward-looking statements
included in this Quarterly Report 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
representation by the Company that the objectives and expectations of the
Company would be achieved.
THREE MONTHS ENDED JUNE 30, 2001 AND 2000
- ------------------------------------------------
Revenue
- -------
The Company's revenues increased $ 376,686, or 84 % to $ 826,311 during the
first quarter of 2001 as compared to $ 449,625 of revenues during the same
period in 2000. Trade-Fast, which was purchased on June 8, 2000, generated
approximately $ 588,100 of revenues during the three months ended June 30, 2001.
Costs and Expenses
- --------------------
The Company's costs and expenses decreased from $ 4,148,161 during the quarter
ended June 30, 2000 to $ 897,529 during the first quarter of 2001. Selling,
general and administrative expenses decreased $ 3,250,716. In addition to
incurring costs associated with implementing the Company's business plan (i. e.,
travel, transportation, professional fees, and consulting fees) during the three
months ended June 30, 2001; the Company issued common stock to consultants and
employees in lieu of compensation.
During the three months ended June 30, 2001, the Company incurred $25,922 of
interest expense in connection with its $3,100,000 of convertible debt
outstanding at June 30, 2001.
8
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
As of June 30, 2001, the Company had a deficit in working capital of $4,956,183
compared to a deficit of $ 5,734,645 at March 31, 2001, an increase in working
capital of $ 778,462. 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 June 30, 2001 as compared to March 31, 2001.
As a result of the Company's operating loss of $ 71,218 during the three months
ended June 30, 2001, the Company generated a cash flow deficit of $ 4,284 from
operating activities, adjusted principally for depreciation and amortization of
$ 37,616, and the value of common stock issued to consultants and employees for
services in the amount of $ 817,545.
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
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.
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
9
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.
PLATFORM FOR TRADERS (TRADE-FAST, INC. SYSTEM) Trade-Fast, Inc. ("Trade-Fast")
is a subsidiary of the Company and brings with it licensed software that enables
stock trading in a secure office environment giving traders the ability to make
trades direct to market makers and electronic communication networks (ECN's).
The Trade-Fast solution allows traders millisecond speed through proprietary
technology and can accept bids or offers at the same price as the market maker
as well as "show" a bid or offer price. These services are primarily geared
towards professional, highly active traders. Prior to trading live, traders are
properly trained by the Company. Once an account is opened and a client is
trained and cleared for trading, he or she can come into one of the Company's
investor services offices during market hours and trade live utilizing
Trade-Fast's licensed software system, TradeCast, which provides NASDAQ Level II
service. Unlike traditional online brokerage trades where a trade is placed and
then enters "cyberspace", with confirmation received at a later time, at
Trade-Fast, clients can actually see the trade go directly to the market maker
or specialist and get executed. Screens in the offices display trading ideas
through pre-set parameters, such as those stocks that have made new highs or
lows since the previous day's close, those having record volume, or those
hitting a certain number of consecutive buy orders (momentum plays). 6
Currently, the Company and Trade-Fast have trading offices in the U.S. executing
approximately 3,500 trades daily, with affiliate offices in Munich, Germany and
is planning expansion of additional offices and partnerships worldwide.
BANKING SERVICES The Company's online banking services will enable institutions
to offer online banking services, such as access and transfer accounts, credit
transfer, information access (i.e. cash balance, transactions, check information
and information on credit/debit cards). The interface is logical and intuitive
and user friendly. The Company has signed a Letter of Intent to license a
proprietary Internet banking software application from Metanology, whose team of
software developers represents pioneers in the online banking industry.
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.
ONLINE INSURANCE Through its subsidiary, EZnow Insurance.com the Company offers
a full line of insurance products online in 19 U.S. states. An aggressive focus
will be on mortgage insurance for cross-selling opportunities tied to the
Westcor mortgage offering. EZnow has existing institutional relationships giving
the Company a greater opportunity to move the business forward much quicker and
reach a larger customer potential. At the eZnow website, customers are offered a
wide range of insurance services, including life, home, rental, commercial,
auto, boat, casualty and health policies. Also, while at the eZnow website,
customers can request free quotes, access customer service, submit claims, pay
premiums or change contact or policy information. The eZnow website is the
online customer interface for Kovatch Insurance Services ("Kovatch Insurance"),
which has its headquarters in Los Angeles, CA, and is licensed as an insurance
broker in California, Arizona, Colorado and Florida. Kovatch Insurance expects
to achieve licensing in all 50 states within the next few months.
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.
10
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.
Product Research and Development
Over the 12 months ending June 30, 2001, the Company anticipates that it will
carry out certain product research and/or development, including research and
development with respect to internet banking applications, trading platforms,
online security and educational remote delivery devices.
Changes in Employees
The Company anticipates a significant change in its current number of employees
over the 12 months ending March 31, 2002, due to growth of the Company through
acquisitions previously announced, and acquisitions currently under
consideration by the Company. The Company anticipates that it will hire 6
management personnel for its Trading division, 24 marketing and sales personnel
for its Mortgage Banking division, 12 marketing and sales personnel for its
Insurance division, a total of 6 management personnel and educators for its
Education division, and 4 senior managers for its Corporate division.
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
11
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.
12
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.
13
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.
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.
14
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;
15
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.
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.
16
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
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.
17
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.
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.
18
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 June 28, 2001, the Company issued 111,111 shares of the Company's restricted
common stock pursuant to a debenture conversion at $0.90 per share.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
None.
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/ Paul Lemmon
----------------------------------
Paul Lemmon, President
Date: August 22, 2001
By: /s/ Christina Cepeliauskas
----------------------------------
Christina Cepeliauskas, Chief Financial Officer
Date: August 22, 2001
19