Exhibit 99.2 Management, Discussion and Analysis
Belzberg Technologies Inc. EXHIBIT 99.2
MD&A 2001
Management's Discussion and Analysis
The following is Management's Discussion and Analysis of the financial condition
of Belzberg Technologies Inc. ("Belzberg" or the "Corporation") and our
financial performance for the years ended December 31, 2001 ("2001"), December
31, 2000 ("2000") and December 31, 1999 ("1999"). This discussion should be read
in conjunction with the Corporation's 2001 Audited Consolidated Financial
Statements and accompanying notes. All amounts are in Canadian dollars unless
otherwise stated.
This report contains forward-looking statements that involve risk and
uncertainties. These statements can be identified by the use of forward-looking
terminology such as (but not limited to) "may," "will," "expect," "anticipate,"
"estimate," "plans," "continue," "believe," or the negative thereof or other
variations thereon or comparable terminology referring to future events or
results. The Corporation's results could differ materially from those
anticipated in these forward-looking statements as a result of numerous factors.
These factors include without limitation our dependence on a limited number of
customers for a substantial amount of our revenues, the intense competition in
the market for global internet trading solutions and intelligent order routing
systems, the ability to recruit and retain key personnel, extensive government
regulation of the securities brokerage industry, fluctuations in trading
activity as a result of global economic conditions, technological change which
will affect capital expenditures, and other factors discussed in periodic
filings with Canadian and United States securities regulatory authorities. Any
of these factors could cause actual results to vary materially from current
results or the Corporation's anticipated future results. The Corporation wishes
to caution readers not to place undue reliance on such forward-looking
statements that speak only as of the date made.
General
Belzberg Technologies Inc. is a leading provider of trade execution, order
management and routing software for the financial industry. The Corporation's
customers, who include both broker-dealers and their customers, use Belzberg
trading software to buy and sell equities and stock options on a variety of
stock exchanges, electronic markets known as ECNs, and NASDAQ market makers.
Belzberg products enable traders to execute and manage large volumes of
transactions at high speed, and with great reliability and security.
Major financial institutions, broker-dealers, buy-side institutions, banks, and
others use all or a subset of Belzberg trading products to automate their order
execution, basket trading, arbitrage, retail order management, and real-time
inventory management, as demanded by each situation.
In 2001, the Corporation expanded its business by acquiring a broker-dealer that
provides the execution of exchange-traded equity and index options on the
Chicago Board Options Exchange.
Selected Financial Data - 2001 (unaudited)
($000's) except per share data Qtr 1 Qtr 2 Qtr 3 Qtr 4
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Revenues $ 4,550 $ 6,444 $ 6,332 $ 7,134
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Gross margin 2,934 4,046 3,529 3,438
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Net loss from continuing operations (134) (675) (888) (1,194)
Net loss from discontinued operations (249) (282) (662) -
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Net loss (383) (957) (1,550) (1,194)
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Basic and diluted loss per common share
- from continuing operations $ (0.01) $ (0.06) $ (0.08) $ (0.11)
- from discontinued operations (0.02) (0.03) (0.06) -
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Basic and diluted loss per common share $ (0.04) $ (0.09) $ (0.14) $ (0.11)
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Balance Sheet Data:
Cash and cash equivalents $ 9,110 $ 9,070 $ 7,049 $ 6,361
Working capital 11,796 9,786 8,295 6,913
Total assets 19,524 20,881 18,438 17,451
Long-term lease obligations 1,733 1,573 1,561 1,502
Shareholders' equity 14,553 13,618 11,849 10,805
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Numbers may not total due to rounding.
Certain figures have been reclassified for comparative purposes to conform to
the year-end financial statement presentation.
Selected Financial Data - 2000 (unaudited)
($000's) except per share data Qtr 1 Qtr 2 Qtr 3 Qtr 4
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Revenues $ 2,444 $ 2,592 $ 2,935 $ 3,980
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Gross margin 1,745 1,611 1,969 2,096
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Net earnings (loss) from continuing operations 35 (251) (151) 219
Net loss from discontinued operations - - (66) (132)
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Net earnings (loss) 35 (251) (217) 87
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Basic and diluted earnings (loss) per common share
- from continuing operations $ 0.02 $ (0.04) $ (0.02) $ 0.02
- from discontinued operations - - (0.01) (0.01)
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Basic and diluted earnings (loss) per common share $ 0.02 $ (0.04) $ (0.03) $ 0.01
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Balance Sheet Data:
Cash and cash equivalents $ 5,530 $ 4,640 $ 4,050 $ 5,642
Working capital 5,563 4,922 5,076 7,562
Total assets 8,926 9,250 11,443 15,460
Long-term lease obligations 264 201 1,011 1,418
Shareholders' equity 7,046 6,942 7,448 10,665
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Numbers may not total due to rounding.
Certain figures have been reclassified for comparative purposes to conform to
the year-end financial statement presentation.
Overview of Year 2001
2001 was again a very successful year for the Corporation. Revenue increased
from $12.0 million in year 2000 to $24.5 million in year 2001, an increase of
105%. In year 2000, revenue increased to $12.0 million from $5.9 million in
1999, an increase of 102%. Belzberg has now had an increase in revenues for 10
consecutive fiscal quarters, except for the 3rd quarter of 2001 when revenues
declined slightly as a result of our New York operations being closed for one
full week due to the September 11, 2001 terrorist attack.
In 2001 the Corporation continued its expansion and connectivity. In April 2001,
the Corporation acquired all of the issued shares of Robert C. Sheehan &
Associates, Inc., a broker-dealer in Chicago, thereby acquiring access to the
floor of the Chicago Board Options Exchange, which is a key component of the
Corporation's strategy of being able to provide customers with connectivity to
both equity and options markets from one trading platform.
In May 2001, the Corporation opened its first European office by incorporating
Belzberg Technologies (UK) Limited, a wholly owned subsidiary, in London,
England. Belzberg is now able to route orders from European customers to North
American exchanges. In due course, the Corporation intends to be able to route
orders from European customers to European exchanges.
In September 2001, the Corporation discontinued the operations of eContracts,
Inc., its only subsidiary that was not part of the business model, in order to
fully concentrate on the core business.
In September 2001, the Corporation opened a subsidiary in Philadelphia, Belzberg
Technologies (Philadelphia) Inc. and located there a new President for the
Corporation together with a new Vice President of Sales and supporting staff.
Unfortunately, no additional revenues were generated, nor were any cost
efficiencies achieved, and this office was closed in March 2002, and the
relationship with the new President and other staff ended.
As a result of the continuing strategy of the Corporation, revenues continued to
increase from the United States, reaching Cdn$15.7 million in 2001 as compared
to Cdn$5.9 million in 2000. The Corporation anticipates that revenues from the
United States will continue to increase at a greater rate than revenues from
Canada.
In December 2001, the Corporation's renovation of both its new and existing
space at its head office in Toronto was completed, and staff moved into the new
premises. As part of this move, leasehold improvements in the old space were
demolished in order to completely rebuild the premises, and the remaining
unamortized original cost of the leasehold improvements in this renovated area
was written off.
The cost of the Corporation's rapid expansion is shown in the loss for the year
of $2.9 million from continuing operations, as significant new staff were added
and our internal data networks were upgraded significantly.
Total operating expenses increased from $6.3 million in 2000 to $14.7 million in
2001, an increase of 133%. Cash flow from operations however in 2001 was a
positive $12,000 as compared to a utilization of $4.1 million in 2000.
In January 2001 the Corporation completed a private placement, which netted $4.7
million (issue price of $15.00 per share). Proceeds from the exercising of
employee options at an average price of $3.08 netted $0.2 million. During the
year $0.8 million was utilized to purchase shares in the Market under the
Corporation's Normal Course Issuer Bid at an average price over the year of
$8.88. Cash was also utilized to purchase capital assets and to repay lease
obligations. The overall cash position increased by $0.7 million in 2001.
In November 2000, the Corporation's shares began trading on the Toronto Stock
Exchange under the symbol BLZ. The Corporation also filed Registration Statement
20-F with the Securities and Exchange Commission in the United States as a
foreign issuer.
Summary
The Corporation feels that 2001 represents a significant improvement in its
competitive position. The following chart gives a comparison of the changes in
revenue over the past 3 years, the growth in numbers of employees, and the
growth in revenue per employee.
Revenues by segment per employee for the years ended December 31,
($000's) 2001 2000 1999
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Core business revenue $ 20,787 $ 11,951 $ 5,904
Brokerage business revenue 3,673 - -
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Total revenue $ 24,460 $ 11,951 $ 5,904
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Employees - Core business 109 78 48
Employees - Brokerage business 22 - -
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Total Employees 131 78 48
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Revenue per employee - Core business $ 191 $ 153 $ 123
Revenue per employee - Brokerage business 167 - -
Total revenue per employee $ 187 $ 153 $ 123
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Acquisition
Robert C. Sheehan & Associates, Inc.
In April 2001, the Corporation acquired all of the outstanding shares of Robert
C. Sheehan & Associates, Inc. ("RCS") for cash consideration of $1.7 million. As
of December 31, 2001, $0.4 million of the cash consideration remained payable to
the vendor of RCS, which amount was subsequently paid in January 2002.
RCS is a broker-dealer that executes exchange-traded equity and index options on
the Chicago Board Options Exchange and is a key component of the Corporation's
strategy of being able to provide customers with connectivity to both equity and
options markets from one trading platform.
Consolidated Results of Continuing Operations
Revenues
Total revenues for the years ended December 31,
% of % of % of
($000's) 2001 Revenue 2000 Revenue 1999 Revenue
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Subscription fees $ 10,596 43% $ 6,080 51% $ 4,526 77%
Transaction fees 8,900 36% 3,276 27% 644 11%
Commissions 3,594 15% - - - -
Software development
and installation 772 3% 2,059 17% 667 11%
Other 598 3% 536 5% 67 1%
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Total revenues $ 24,460 $ 11,951 $ 5,904
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Total revenues increased from $5.9 million in 1999 to $12.0 million in 2000 (an
increase of 102%), and to $24.5 million in 2001 (an increase of 105%).
Subscription fee revenue, which is based on customers paying a fixed monthly fee
for each terminal connected to the Belzberg Gateway, increased by 74% in 2001 as
compared to 2000 and accounted for 43% of total revenues in 2001 as compared to
51% of total revenues in 2000 and 77% of total revenues in 1999. The Corporation
expects subscription fee revenue as a percentage of total revenues to decrease
in the future as more customers are expected to switch to a transaction fee
model. Transaction fee revenue, which is based on customers paying a fee per
transaction routed through the Belzberg Gateway, increased by 172% in 2001 as
compared to 2000 and accounted for 36% of total revenues in 2001 as compared to
27% of total revenues in 2000 and 11% of total revenues in 1999.
In 2001, the Corporation acquired Robert C. Sheehan and Associates, Inc.
("RCS"), a broker-dealer that executes exchange-traded equity and index options
on the Chicago Board Options Exchange. For the nine months ended December 31,
2001, RCS generated $3.6 million in commission income that accounted for 15% of
total revenues in 2001.
Software development and installation fees decreased by 63% in 2001 as compared
to 2000 and accounted for 3% of total revenues in 2001 as compared to 17% of
total revenues in 2000 and 11% of total revenues in 1999. The Corporation
expects that this revenue stream will be a significantly smaller percentage of
the overall business in future years. Other revenues which include revenue from
connectivity to the Belzberg Gateway as well as revenue from information
distribution, increased by 12% in 2001 to $0.6 million as compared to $0.54
million in 2000.
Revenues by country for the years ended December 31,
% of % of % of
($000's) 2001 Revenue 2000 Revenue 1999 Revenue
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Canada
Subscription fees $ 6,512 74% $ 3,213 53% $ 2,012 75%
Transaction fees 1,336 15% 558 9% 203 8%
Commissions - - - - - -
Software development
and installation 447 5% 1,783 29% 415 15%
Other 490 6% 523 9% 50 2%
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Revenues from Canada $ 8,785 $ 6,077 $ 2,680
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United States
Subscription fees $ 4,084 26% $ 2,867 49% $ 2,514 78%
Transaction fees 7,563 48% 2,718 46% 441 14%
Commissions 3,594 23% - - - -
Software development
and installation 325 2% 277 5% 252 8%
Other 109 1% 12 - 17 -
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Revenues from United States $ 15,675 $ 5,874 $ 3,224
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The Corporation generated approximately 64% of its revenues in the United States
and 36% of its revenues in Canada. Revenue increased in both Canada and the
United States from 2000 with significant growth occurring in the United States.
Revenue in Canada increased from $6.1 million in 2000 to $8.8 million in 2001,
an increase of 45%, compared to the 127% increase in 2000 from 1999 revenue of
$2.7 million. Revenue in the United States increased from $5.9 million in 2000
to $15.7 million in 2001, an increase of 167%, compared to the 82% increase in
2000 from 1999 revenue of $3.2 million. The Corporation anticipates that
revenues from the United States will continue to increase at a greater rate than
revenues from Canada.
Gross Margin
Gross margin for the years ended December 31,
($000's) 2001 2000 1999
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Revenue $ 24,460 $11,951 $ 5,904
Cost of revenue 10,513 4,530 2,173
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Gross margin $ 13,947 $ 7,421 $ 3,731
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Gross margin % 57% 62% 63%
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Gross margin as a percentage of sales declined to 57% in 2001, from 62% in 2000
and 63% in 1999. The decline in margin is attributable to a change in the sales
mix that now includes the lower margin brokerage business as well as an increase
in direct costs incurred in 2001 to expand capacity and connectivity to new
markets. The Corporation expects the margin on the brokerage business to improve
in future years as the Corporation moves towards becoming self-clearing.
Operating Expenses
Operating expenses for the years ended December 31,
% of % of % of
($000's) 2001 Revenue 2000 Revenue 1999 Revenue
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Sales and marketing $ 5,072 21% $ 2,721 23% $ 1,874 32%
Research and development 3,062 12% 2,011 17% 1,794 30%
Government assistance - - (1,150) (10)% - -
Administration 6,582 27% 2,676 22% 2,356 40%
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Total operating expenses $ 14,716 60% $ 6,258 52% $ 6,024 102%
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Sales and Marketing Expenses
Sales and marketing expenses totaled $5.1 million in 2001, $2.7 million in 2000
and $1.9 million in 1999. Sales and marketing expenses increased by $2.4 million
or 86% in 2001 over 2000 and by $0.8 million or 45% in 2000 over 1999. As a
percentage of revenue, sales and marketing expenses were 21% of sales in 2001,
compared to 23% of sales in 2000 and 32% of sales in 1999. The primary factors
that contributed to the increase in sales and marketing expenses in 2001 were
headcount additions and increased spending on advertising and promotions.
Research and Development Expenses and Government Assistance
Research and development expenses totaled $3.1 million in 2001, $2.0 million in
2000 and $1.8 million in 1999. Research and development expenses increased by
$1.1 million or 52% in 2001 over 2000, and by $0.2 million or 12% in 2000 over
1999. As a percentage of revenue, research and development expenses were 12% of
sales in 2001, compared to 17% of sales in 2000 and 30% of sales in 1999. The
primary factor that contributed to the increase in research and development
expenses in 2001 was headcount additions as the Corporation is committed to
expand its product capabilities and connectivity to additional markets in order
to increase its customer base.
In the 2000 year, the Corporation recognized a recovery of $1.2 million against
research and development expenses relating to scientific research and
developmental assistance for the taxation years 1996 to 1999 provided by the
Government of Canada. This amount was received in the 2001 year. Any future
reimbursements that the Corporation may be entitled to, will only be obtainable
as a credit against income taxes payable in Canada.
Administration Expenses
Administration expenses totaled $6.6 million in 2001, $2.7 million in 2000 and
$2.4 million in 1999. Administration expenses increased by $3.9 million or 146%
in 2001 over 2000, and by $0.3 million or 14% in 2000 over 1999. As a percentage
of revenue, administration expenses were 27% of sales in 2001, compared to 22%
of sales in 2000 and 40% of sales in 1999. The primary factors that contributed
to the increase in administration expenses in 2001 were headcount additions,
costs related to additional office space in Toronto, Philadelphia and the United
Kingdom and an increase in the administrative overhead to support the growth in
sales and size of the Corporation.
Other Income and Expenses
Other income and expenses for the years ended December 31,
% of % of % of
($000's) 2001 Revenue 2000 Revenue 1999 Revenue
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Amortization of capital assets $ 1,646 6% $ 793 7% $ 220 4%
Amortization of goodwill 153 1% 48 1% - -
Write-down of leasehold improvements 153 1% - - 113 2%
Interest expense 466 2% 166 1% 25 -
Interest income (312) (1)% (227) (2)% - -
Stock exchange listing costs - - 525 4% - -
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Other expenses, net $ 2,106 9% $ 1,305 11% $ 358 6%
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Amortization of Capital Assets
Amortization of capital assets totaled $1.6 million in 2001, $0.8 million in
2000 and $0.2 million in 1999. Amortization of capital assets increased by $0.8
million or 107% in 2001 over 2000 and by $0.6 million or 260% in 2000 over 1999.
The increase in amortization of capital assets in 2001 resulted from
acquisitions of both owned and leased computer equipment of approximately $1.4
million as well as capital expenditures on leasehold improvements and furniture
of approximately $1.3 million in 2001. The computer equipment additions improved
our high-speed connectivity between customers, the Corporation and a multitude
of exchanges and other markets for live trade execution.
Amortization of Goodwill
Amortization of goodwill totaled $153,000 in 2001, $48,000 in 2000 and nil in
1999. The increase in goodwill amortization in 2001 resulted from the
acquisition of Robert C. Sheehan & Associates, Inc.
Effective January 1, 2002 the Corporation will cease to amortize goodwill in
accordance with the new CICA Section 3062 and will review goodwill annually for
impairment.
Write-down of Leasehold Improvements
During 2001 the Corporation completed its leasehold improvements on its new
expanded facilities in Toronto and rebuilt a portion of its existing facilities.
The rebuild of the existing facilities resulted in a write-down of the old
leasehold improvements of $153,000.
Interest Expense
Interest expense totaled $466,000 in 2001, $166,000 in 2000 and $25,000 in 1999.
Interest expense increased by $300,000 or 180% in 2001 over 2000 and by $141,000
or 564% in 2000 over 1999. The increase in the interest expense is mainly
attributable to the significant increase in capital lease obligations in 2001 of
$1.2 million and $2.7 million in 2000. The Corporation utilizes capital leases
to finance the significant amount of capital expenditures required for its
network infrastructure.
Interest Income
Interest income totaled $312,000 in 2001, $227,000 in 2000 and nil in 1999. The
increase in interest income in 2001 of $85,000 compared with 2000 is due mainly
to the cash invested following the private placement of common shares in January
2001.
Stock Exchange Listing Costs
Stock exchange listing costs of $525,000 relate to the costs of the
Corporation's listing on the Toronto Stock Exchange in November 2000 and the
filing of the Corporation's Registration Statement on Form 20-F with the
Securities and Exchange Commission (SEC) in 2000. No additional significant
costs are expected.
Income Taxes
Income taxes totaled $15,685, $5,063 and $9,019 in 2001, 2000 and 1999
respectively. The Corporation has net operating loss carryforwards in Canada of
approximately $3.5 million and in the United States of approximately $8.5
million that may be used to offset future taxable earnings. The benefits of
these losses have not been reflected in the consolidated financial statements as
the Corporation has recorded a valuation allowance against the tax benefit of
these losses. The losses expire in Canada beginning in 2004 and expire in the
United States beginning in 2011.
Net Loss from Continuing Operations
As a result of the factors discussed above, the net loss from continuing
operations increased to $2.9 million in 2001 from $0.1 million in 2000 as
compared to a reduction in the loss from 1999 of $2.7 million to $0.1 million in
2000. The loss per share from continuing operations increased to $0.26 per share
as compared to a loss of $0.02 per share in 2000 and a loss of $0.38 per share
in 1999.
Loss from Discontinued Operations
In September 2001, the Corporation ceased operations of its wholly-owned
subsidiary, eContracts, Inc. ("eContracts"), a developer and supplier of on-line
procurement and supply chain integration solutions. Accordingly, the
consolidated financial statements for all periods presented have reflected this
business separately from continuing operations. The Corporation recorded a loss
from discontinued operations in 2001 of $1.2 million which included an
impairment charge for goodwill of $0.3 million, a stock compensation expense of
$0.1 million relating to contingent stock consideration paid and a loss from the
operations of eContracts of $0.8 million.
Liquidity and Capital Resources
As of year-end the Corporation had cash and cash equivalents of $6.4 million, an
increase of $0.8 million or 14% from the $5.6 million at the 2000 year-end. Cash
generated from continuing operations for the 2001 year was $12,000 as compared
to cash utilized by continuing operations in the 2000 year of $4.1 million. The
Corporation has a demand operating facility of Cdn$1 million that may be used to
finance general corporate requirements and a demand facility of US $0.6 million
that may be used to finance leasehold improvements in the Corporation's U.S.
operations. As of year-end the Corporation had utilized Cdn$0.7 million of the
Canadian facility and utilized the remaining Canadian facility subsequent to
year-end. The Corporation believes that its working capital of $6.9 million will
be sufficient to meet the anticipated daily cash requirements throughout fiscal
2002, although the Corporation may raise additional capital in 2002 to fund
expansion plans or potential acquisitions.
The Corporation used $2.1 million for investing activities in 2001 compared to
using $0.7 million in 2000. This increase was attributable to the acquisition of
Robert C. Sheehan & Associates, Inc. that was paid for in cash as well as
capital expenditures on leasehold improvements and furniture and equipment at
the Toronto corporate office of approximately $1.3 million. The Corporation also
incurred significant capital expenditures for computer equipment in 2001 of
approximately $1.4 million, of which approximately $1.2 million was financed
through a capital leasing program. In the 2000 year, the Corporation received
proceeds of $0.8 million on the sale and lease-back of certain computer
equipment.
The Corporation operates a large enterprise network providing connectivity
between its clients, its offices and high-speed access to a multitude of
destinations for live trade execution and as a result anticipates continuing
capital expenditures on computer equipment during 2002, such capital
expenditures to be funded through a capital leasing program.
The Corporation generated cash of $3.6 million from financing activities in 2001
compared to generating cash of $10.6 million in 2000. In 2001, the Corporation
issued 333,334 common shares from treasury for net proceeds of $4.7 million in
private placements and repurchased 91,900 common shares for cancellation under a
Normal Course Issuer Bid for a cost of $0.8 million. In 2000, the Corporation
issued 2,013,800 common shares from treasury for net proceeds of $7.6 million
and issued 1,800,000 share purchase warrants for proceeds of $1.8 million in
private placements. The Corporation issued 66,600 common shares in 2001 upon the
exercise of stock options by employees for proceeds of $205,000 and issued
899,000 common shares in 2000 upon the exercise of stock options by employees
and directors for proceeds of $3.2 million. The Corporation made repayments
under capital lease obligations of $1.1 million in 2001 and repayments under
capital lease obligations of $0.8 million in 2000. The Corporation received
proceeds of $0.7 million from a bank loan in 2001 and repaid $0.1 million of the
loan in 2001. The Corporation repaid a note payable of $1.2 million in 2000.
Subsequent to year-end the Toronto Stock Exchange approved a Normal Course
Issuer Bid for the Corporation to repurchase at its discretion up to 553,000 of
its common shares in 2002.
Risk Management
The Corporation is exposed to a variety of risks in the normal course of its
business that may cause actual results to vary materially from the anticipated
results discussed herein. These risks are discussed below.
Customer Dependence and Credit Risk
The Corporation is dependent on a limited number of customers for a substantial
amount of its revenues. The loss of a significant customer would have a material
and adverse effect on revenues and results of operations. For the year ended
December 31, 2001, five customers accounted for approximately 33% of total
revenues (December 31, 2000 - five customers for approximately 45%). The
Corporation is attempting to mitigate this risk by aggressively seeking new
customers.
The Corporation is subject to risk of non-payment of accounts receivable. At
December 31, 2001, amounts due from five customers accounted for approximately
47% of total accounts receivable (December 31, 2000 - two customers for
approximately 26.8%). The Corporation mitigates this risk by monitoring the
credit worthiness of its customers monthly.
Foreign Exchange
In year 2001, the Corporation generated approximately 64% (2000 - approximately
49%) of its revenues in the United States and corresponding trade receivables
due from customers in the United States at December 31, 2001 accounted for
approximately 70% (December 31, 2000 - approximately 61%) of total outstanding
trade receivables.
Expenses are predominantly incurred in Canadian dollars as a majority of the
research and development, customer support and administration activities are
conducted in Canada.
The Corporation does not, at present, hedge the risks associated with
fluctuations in exchange rates between the U.S. dollar and the Canadian dollar
and may be exposed in the future to adverse fluctuations between these exchange
rates.
Competitive Environment
The market for global internet trading solutions and intelligent order routing
systems is intensely competitive, fragmented and rapidly changing. Many of the
Corporation's current competitors have longer operating histories, significantly
greater financial, technical, product development and marketing resources,
greater name recognition and larger customer bases.
The key barriers to entry into the Corporation's markets include the extensive
technical requirements and regulatory requirements necessary for connectivity to
various exchanges and other markets to effectively serve a time-sensitive,
regulated clientele.
The Corporation believes that it has the technical know-how, network
infrastructure and products with user-friendly interfaces that facilitate easy
execution of real time cross-border trading to ensure that it remains a key
competitor.
Reliance on Key Employees
The Corporation's future success is dependent on the performance and continued
service of its executive officers and certain key employees. The loss of service
of key managers and executives, or the failure to attract, hire and retain
additional key employees could materially affect the Corporation's business.
Regulatory Risk
The securities brokerage industry is subject to extensive government regulation
including (but not limited to) marketing practices, capital structure, record
keeping and conduct of directors, officers and employees. Any failure to comply
with these regulations could subject the Corporation to censure, fines, the
issuance of cease-and-desist orders or the suspension, and/or disqualification
of its officers, directors or employees.
The Corporation constantly monitors the above noted securities regulations and
believes that it is in compliance with these regulations.
Global Economic Slowdown
The Corporation's revenues and operating results are sensitive to changes in the
amount of securities trading activity. Over the past year stock markets
worldwide have experienced a downturn in trading activity that may cause
revenues and operating results to fall below expectations.
Future Outlook
The Corporation intends to continue its revenue model by concentrating on
greater connectivity and promoting charges to customers based upon a transaction
based model. While the Corporation expects that subscription fee revenue will
continue to increase at a modest amount, transaction based revenue is expected
to continue to increase at a far more rapid pace, as evidenced in 2001. As well,
continued expansion in the United States is expected to generate an increasing
percentage of revenue.
The acquisition of Robert C. Sheehan & Associates, Inc. proved to be a
successful strategy in giving the Corporation not only an additional revenue
stream but also access to potential new customers. The Corporation will look
favourably upon possible future similar acquisitions.
Connectivity to an increasing number of destinations remains a priority and the
Corporation feels this will remain our competitive advantage.
The Corporation expects to realize improving gross margins as it moves towards
becoming self-clearing, thereby making each transaction more profitable.
The Corporation expects that its London office will provide a gateway to an
increase of European business.
The Philadelphia office proved to be an expensive venture in 2001 and the
closure of that office in 2002, together with a tighter control of expenses and
payroll throughout the Corporation, is expected to bring positive results.