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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31,
2003; or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
_________________ to _____________________.
Commission file Number: 0-25136
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SUITE101.COM INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0464753
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(State or other jurisdiction of (I.R.S. employer
incorporation of organization) identification no.)
347 BAY STREET - SUITE 301, TORONTO, ONTARIO, CANADA M5H 2R7
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(Address of principal executive offices, zip code)
416-628-5902
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
proceeding 12 months (or for such shorter period that the issuer was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date.
Class Outstanding at May 1, 2003
----------------------- --------------------------
COMMON STOCK, PAR VALUE 13,751,222
$.001 PER SHARE
Transitional Small Business Disclosure Format
YES [#] NO [X]
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SUITE101.COM, INC.
QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements 4
Consolidated Balance Sheets -- March 31, 2003
and December 31, 2002 4
Consolidated Statements of Operations -- Three-Month
Period Ended March 31, 2003 and March 31, 2002 5
Consolidated Statements of Cash Flows -- Three-Month
Period Ended March 31, 2003 and March 31, 2002 6
Notes to Consolidated Financial Statements -- March 31,
2003 and March 31, 2002 7-11
Item 2. Management's Discussion and Analysis or Plan of Operation 12-19
Item 3 Controls and Procedures 19
PART II OTHER INFORMATION 20
Item 5 Other Information 20
Item 6. Exhibits and Reports on Form 8-K 24
2
SUITE101.COM, INC.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
ASSETS
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
(UNAUDITED)
CURRENT ASSETS
Cash $ 2,913,991 $ 3,030,507
Accounts receivable 23,470 22,111
Prepaid expenses 49,155 66,039
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2,986,616 3,118,657
----------- -----------
INVESTMENTS, at cost (Note 3(c)) 1 1
----------- -----------
TOTAL ASSETS $ 2,986,617 $ 3,118,658
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 45,936 $ 23,401
----------- -----------
TOTAL LIABILITIES 45,936 23,401
----------- -----------
CAPITAL STOCK (Notes 4, 5 and 8)
Authorized:
100,000,000 common shares with a par value of $0.001 each
1,000,000 preferred shares with a par value of $0.01 each
Issued:
14,086,687 common shares 14,087 14,087
ADDITIONAL PAID-IN CAPITAL 10,618,715 10,618,715
DEFICIT (7,692,121) (7,457,504)
EQUITY ADJUSTMENT FROM FOREIGN
CURRENCY TRANSLATION -- (80,041)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,940,681 3,095,257
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,986,617 $ 3,118,658
=========== ===========
COMMITMENTS AND SUBSEQUENT EVENTS (NOTE 8)
The accompanying notes are an integral part of these
consolidated financial statements.
3
SUITE101.COM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
MARCH 31, MARCH 31,
2003 2002
----------- -----------
ADMINISTRATIVE EXPENSES $ 170,311 $ 107,833
----------- -----------
LOSS FROM OPERATIONS (170,311) (107,833)
----------- -----------
OTHER INCOME (EXPENSES)
Exchange loss (77,785) --
Other income, net 13,479 12,119
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(64,306) 12,119
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NET LOSS FROM CONTINUING OPERATIONS (234,617) (95,714)
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LOSS FROM DISCONTINUED OPERATIONS (NOTE 9) -- (767,688)
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NET LOSS $ (234,617) $ (863,402)
=========== ===========
INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS $ (0.02) $ (0.01)
=========== ===========
INCOME (LOSS) PER SHARE
Basic and Diluted $ (0.02) $ (0.07)
=========== ===========
Weighted average common shares are outstanding 14,086,687 13,201,405
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
4
SUITE101.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
MARCH 31, MARCH 31,
2003 2002
---------- ----------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net loss $ (234,617) $ (863,402)
Adjustment to reconcile net loss to net cash used in operating activities
Stock-based compensation -- 14,034
Amortization -- 8,573
Exchange loss 77,785 --
Changes in operating assets and liabilities
Accounts receivable 284 8,906
Prepaid expenses and deposits 18,632 17,522
Accounts payable and accrued expenses 20,761 (175,502)
Deposits -- 14,713
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Net cash used in operating activities (117,155) (975,156)
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CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
Purchase of capital assets -- (2,360)
Proceeds on disposal of capital assets -- 627
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Net cash used in investing activities -- (1,733)
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CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
Proceeds from issuance of common stock and warrants -- 19,788
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Net cash provided by financing activities -- 19,788
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EFFECT OF EXCHANGE RATES ON CASH 639 125
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NET DECREASE IN CASH (116,516) (956,976)
CASH AT BEGINNING OF PERIOD 3,030,507 4,048,630
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CASH AT END OF PERIOD $2,913,991 $3,091,654
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The accompanying notes are an integral part of these
consolidated financial statements.
5
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
1. THE COMPANY
Suite101.com Inc. (formerly known as Kinetic Ventures Ltd. (the
"Company")) was incorporated in the State of California, United States
on May 20, 1991, and reincorporated in the State of Delaware, United
States on December 31, 1993. By way of a reverse takeover on December
8, 1998, the Company acquired a wholly-owned subsidiary i5ive
communications inc. ("i5ive"). Until operations ceased on May 31, 2002
(Note 10) i5ive was engaged in the creation, operation and maintenance
of a World Wide Web based community.
Going Concern
The accompanying consolidated financial statements have been presented
assuming the Company will continue as a going concern. Based on the
current level of expenditures, the Company has sufficient funds to meet
expenses for at least one year. At March 31, 2003, the Company had
accumulated $7,692,121 in losses and had no material revenue producing
operations. At the date of this report, the Company's ability to
continue as a going concern is dependent upon its ability to raise
additional capital or merge with a revenue producing venture partner.
These matters raise doubt about the Company's ability to continue as a
going concern. No adjustments have been made in the accompanying
consolidated financial statements to provide for this uncertainty.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Endovascular, Inc., a
California corporation and i5ive communications inc., a Canadian
company. All intercompany accounts and transactions have been
eliminated in consolidation. As at March 31, 2003, there were no
operations in Endovascular, Inc. or i5ive communications inc.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles. Because a
precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period
necessarily involves the use of estimates which have been made using
careful judgment by management.
The consolidated financial statements have, in management's opinion,
been properly prepared within reasonable limits of materiality and
within the framework of the significant accounting policies summarized
below:
(a) Property, Plant and Equipment
Property, plant and equipment are capitalized at original cost and
amortized over their estimated useful lives at the following
annual bases and rates:
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements 20% straight-line
One-half the normal amortization is taken in the year of
acquisition.
6
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(b) Research and Development
Research and development costs had been expensed as incurred.
(c) Foreign Exchange
Unless otherwise stated, all amounts are in United States dollars.
Until operations ceased, the functional currency of i5ive was the
Canadian dollar. At present, i5ive no longer has any material
assets. As a result, all foreign currency translation adjustments
have been expensed in the current period. All asset and liability
accounts have been translated using the exchange rate as at March
31, 2003 and December 31, 2002 and all revenues and expenses have
been translated using the average exchange rate for each period.
The rates as at March 31, 2003 and December 31, 2002 were as
follows:
(equivalent CDN $ per U.S.$) March 31, December 31,
2003 2002
--------- ------------
Exchange rate .6813 .6339
(d) Net Loss Per Common Share
The Company computes its loss per share in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" ("EPS") issued in February 1997. SFAS No. 128
requires dual presentation of basic EPS and diluted EPS on the
face of the income statement for entities with complex capital
structures. Basic EPS is computed as net income divided by the
weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could
occur from common shares issuable through stock options, warrants
and other convertible securities.
3. RELATED PARTY TRANSACTIONS
(a) The Company has incurred salaries, termination payments and
consulting fees of $ 0 (2002 -- $205,372) to three directors of
the Company.
(b) Management fees of $ 0 (2002 -- $51,594) have been paid to a
corporation controlled by a director of the Company.
(c) During the prior year, the Company sold its website assets, as
defined in the sales agreement, to a corporation controlled by a
director of the Company. In consideration for this sale, the
Company received $100 cash and 15% of the issued shares of the
acquiring corporation. In addition, if any of these acquired
assets are sold within one year of the closing date (July 17,
2002), the entire proceeds of that sale are payable to the
Company. As security for this obligation, the acquiring
corporation has issued a promissory note in the amount of $120,000
to the Company payable on July 17, 2003. This note will be
forgiven by the Company provided the acquiring corporation has
complied with the condition concerning sale of any assets. The
Company has recorded its 15% interest in the acquiring corporation
at $1 because there are no material assets in the acquiring
corporation other then those acquired in this transaction.
7
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
4. CAPITAL STOCK
(a) During the year ended December 31, 2000, the Company issued
625,000 warrants as part of the private placement of Notes
payable. Each warrant entitled the holder to purchase one common
share at a price of $5.00 up to July 15, 2002. In the event that
at any time prior to July 15, 2002 (a) the shares of common stock
issuable on exercise of the warrants have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), and
(b) the average of the closing bid and asked prices for the
Company's common stock as quoted on the OTC Bulletin Board (or
such other automated trading system or national securities
exchange as is the principal market for the Company's common
stock) exceeds (U.S.) $9.00 per share for a period of ten (10)
business days, then the warrants will expire at 5:00 PM, New York
City time, on a date sixty (60) days thereafter. During the second
quarter of 2002, the exercise price of these warrants was changed
to $0.52 and the expiry date was changed to July 15, 2003. To
date, none of these warrants have been exercised.
(b) During the current period, the authorized share capital was
changed to increase the authorized number of common shares from
40,000,000 to 100,000,000.
5. STOCK OPTIONS
THE COMPANY'S 1998 STOCK INCENTIVE PLAN
In December 1998, the Company adopted the 1998 Stock Incentive Plan
(the "Plan"). Under the Plan, as amended, 3,900,000 shares of common
stock have been reserved for issuance on exercise of options granted
under the Plan.
On the date of the closing of the transaction with i5ive, outstanding
options granted under i5ive's 1998 Stock Incentive Plan were assumed by
the Company under the Plan and no further option grants will be made
under i5ive's Plan. The assumed options have substantially the same
terms, subject to anti-dilution adjustment, as are in effect for grants
made under the Company's Plan.
The Board of Directors of the Company may amend or modify the Plan at
any time, subject to any required stockholder approval. The Plan will
terminate on the earliest of (i) 10 years after the Plan Effective
Date, (ii) the date on which all shares available for issuance under
the Plan have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with certain
changes in control or ownership of the Company.
8
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
5. STOCK OPTIONS (CONTINUED)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (CONTINUED)
The following is a table of stock options under the Plan as at March
31, 2003:
Balance
Option Expiry Vesting Balance Granted Expired (Exp) Balance Exercisable
Exercise Date Date December 31, During Exercised (E) March 31, March 31,
Price (mm/dd/yy) (mm/dd/yy) 2002 the Period Cancelled (C) 2003 2003
-------- ---------- --------------- ------------ ---------- ------------- --------- -----------
$1.50 02/13/03 Vested 60,000 -- 60,000 (Exp) -- --
1.50 06/30/03 Vested 925,110 -- -- 925,110 925,110
1.50 02/23/09 Vested 50,000 -- -- 50,000 50,000
1.50 11/13/04 Vested 20,000 -- -- 20,000 20,000
1.50 06/11/09 Vested 5,000 -- -- 5,000 5,000
1.50 06/12/10 Vested 5,000 -- -- 5,000 5,000
0.25 01/04/06 Vested 20,000 -- -- 20,000 20,000
0.17 06/04/11 Vested 5,000 -- -- 5,000 5,000
0.27 02/25/12 50,001-02/25/03 150,000 -- -- 150,000 50,000
50,001-02/25/04
49,998-02/25/05
0.27 02/27/07 16,667-02/27/03 50,000 -- -- 50,000 16,667
16,667-02/27/04
16,666-02/27/05
0.50 06/11/12 06/11/03 5,000 -- -- 5,000 --
0.25 11/27/07 01/01/03 300,000 -- -- 300,000 300,000
The above option table reflects the changes made to the expiry dates
and vesting dates as a result of a directors' resolution made during
the prior year.
The above options are granted for services provided to the Company. Of
the above options, the following options are to non-employees and have
been reflected on the financial statements and valued, using the
Black-Scholes model with a risk-free rate of 5% or 3% and no expected
dividends:
Number of Exercise Volatility Expected
Options Price Grant Date Value Assumption Options Life
--------- -------- ----------------- -------- ---------- ------------
100,000 1.50 October 25, 1999 $ 99,750 272% 5 years
50,000 3.56 January 6, 2000 99,635 60% 5 years
4,000 3.53 January 31, 2000 5,120 60% 2 years
100,000 7.00 February 15, 2000 203,970 20% 5 years
20,000 7.88 March 21, 2000 45,922 20% 5 years
100,000 0.25 January 4, 2001 23,390 275% 5 years
13,000 0.25 October 3, 2001 3,041 275% 5 years
50,000 0.25 November 27, 2002 9,160 220% 1 year
9
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
5. STOCK OPTIONS (CONTINUED)
THE COMPANY'S 1998 STOCK INCENTIVE PLAN (CONTINUED)
The remaining options issued were to officers, directors and employees.
As the options were granted at exercise prices based on the market
price of the Company's shares at the dates of the grant, no
compensation cost is recognized. However, under SFAS 123, the impact on
net income and net income per share of the fair value of stock options
must be measured and disclosed on a fair value based method on a pro
forma basis. The fair value of the employees' purchase rights under
SFAS 123 was estimated 5% or 3% using the Black-Scholes model with the
following assumptions used for options: risk-free rate was 5.0%, with
an expected volatility of 279%, 272% 263% and 257% for the $1.50
options, 275% or 220% for the $0.25 and $0.17 options, and 96% for the
$0.27 options, an expected option of 1 to 5 years and no expected
dividends.
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for the period ended March
31, 2003 would have been as follows:
Net loss
As reported $(234,617)
Pro forma $(237,218)
Basic net loss per share
As reported $(0.02)
Pro forma $(0.02)
6. INCOME TAXES
At March 31, 2003, there were deferred income tax assets resulting
primarily from operating loss carryforwards for Canadian tax purposes
totaling approximately $2,194,000 less a valuation allowance of
$2,194,000. The valuation allowance on deferred tax assets increased by
$4,000 during the period ended March 31, 2003.
At March 31, 2003, the Company had net operating loss carryforwards for
Canadian tax purposes of approximately $5,863,000. These carryforwards
begin to expire in 2003.
At March 31, 2003, there were deferred income tax assets resulting from
operating loss carryforwards for U.S. income tax purposes totaling
approximately $745,000 less a valuation allowance of $745,000. The
valuation allowance on deferred tax assets increased by $73,000 during
the period ended March 31, 2003. The Company has approximately
$1,740,000 available in operating loss carryforwards, which may be
carried forward and applied against U.S. operating income.
7. FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments consist of cash, accounts
receivable and accounts payable. It is management's opinion that the
Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments. The fair value of these
financial instruments approximates their carrying values.
10
SUITE101.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND MARCH 31, 2002
(UNAUDITED)
(EXPRESSED IN U.S. DOLLARS)
8. COMMITMENTS AND SUBSEQUENT EVENTS
(a) The Company is obligated under the terms of an agreement to make
monthly payments of $1,426 until April 2003 for the hosting of its
former server.
(b) During the current period, the Company signed a letter of
agreement regarding a proposed business transaction. If the
transaction is completed, the Company will purchase 100% of the
issued and outstanding capital stock of GeoGlobal Resources
(India) Inc. ("GeoGlobal"). In consideration, the Company will
issue 34 million shares of common stock and a promissory note of
$2.0 million. Of the 34 million shares, 14.5 million will be
issued upon closing of the transaction and 14.5 million shares
will be held in escrow until the earlier of: i) the completion of
a Work Programme on a specific oil and gas property owned by
GeoGlobal provided the results in that Programme demonstrate a
commercial basis for drilling and the commencement of a Drilling
Programme or ii) the commencement of a Drilling Programme. An
additional 5 million shares will be held in escrow subject to a
Commercial Discovery on the oil and gas property. Of the $2.0
million promissory note, $1.0 million will be payable on closing,
$500,000 will be payable June 30, 2003 and $500,000 will be
payable June 30, 2004.
If the transaction is completed, it will be accounted for as a
reverse takeover, whereby the consolidated financial statements
are issued under the name of the Company but described in the
notes and elsewhere as a continuation of GeoGlobal and not the
Company.
Subsequent to March 31, 2003, the Company made an unsecured loan
of $75,000 to GeoGlobal. The loan is repayable on demand and bears
interest at the primate rate.
(c) Subsequent to March 31, 2003, the Company entered into an
agreement to dispose of its interest in i5ive to a director for
$1. This transaction has not yet completed.
9. DISCONTINUED OPERATIONS
On May 31, 2002, the Company discontinued its internet-based
activities. As at March 31, 2003, the assets and liabilities of this
discontinued business were comprised of the following:
Assets $ 0
=======
Liabilities
Accounts payable $18,242
=======
Revenues from discontinued operations are as follows:
MARCH 31, MARCH 31,
2003 2002
---------- ---------
$ -- $ 6,658
========== =========
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction
with, and is qualified in its entirety by, the more detailed information
including our Financial Statements and the Notes thereto included in our Annual
Report on Form 10-KSB for the year ended December 31, 2002. This Quarterly
Report contains forward-looking statements that involve risks and uncertainties.
Our actual results may differ materially from the results discussed in the
forward-looking statements. Factors that may cause or contribute to such
differences include the Risk Factors set forth below as well as the "Risk
Factors" contained in our Annual Report. See "Cautionary Statement for Purposes
of the `Safe Harbor' Provisions of the Private Securities Litigation Reform Act
of 1995" herein.
A COMPARISON OF OUR OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2003
AND THE THREE MONTHS ENDED MARCH 31, 2002
Administrative expenses were $170,311 during the three months ended
March 31, 2003 compared with $107,833 during the three months ended March 31,
2002. This increase was primarily the result of an increase in professional fees
and an increase in stockholder reporting costs.
Our Loss From Operations was $170,311 during the three-month period
ended March 31, 2003 compared with $107,833 during the three-month period ended
March 31, 2002. The increase in our Loss From Operations during the three-month
periods ended March 31, 2003 compared with the three-month period ended March
31, 2002 was the result of the increase in our administrative expenses.
Other net expenses was $64,306 during the three-month period ended
March 31, 2003 compared to other net income of $12,119 during the three-month
period ended March 31, 2002. Included in other net expenses is income
attributable to interest earned on bank balances and an exchange loss of
$77,785. During the three-month period ended March 31, 2003, net interest income
was $13,479 compared to net interest income of $12,119 during the comparative
three-month period ended March 31, 2002. The increase in the net interest earned
results from higher interest rates earned on cash balances carried through these
periods. The exchange loss results from foreign currency translation
adjustments. Currently i5ive communications, Suite101.com, Inc.'s wholly-owned
subsidiary, no longer has any material assets and as a result all foreign
currency translation adjustments have been expensed in the current period.
On May 31, 2002, the Company decided to discontinue its internet-based
activities and sought to dispose of its web site assets. During the three months
ended March 31, 2002 our revenue from discontinued operations was $6,658. The
revenue during the three-month periods ended March 31, 2002 was primarily
attributable to revenues generated from two service contracts that we entered
into with Barnes&Noble.com to provide introductions for a series of e-books and
to provide proofreading services for the related digitized books. The net loss
during the three months ended March 31, 2002 from discontinued operations was
$767,688.
Our Net Loss was $234,617 during the three-month period ended March 31,
2003 compared with $863,402 during the three-month period ended March 31, 2002.
The decrease in our Net Loss during this three-month period ended March 31, 2003
compared with the three-month period ended March 31, 2002 was primarily the
result of the decrease in the loss from discontinued operations partially offset
by the exchange loss in 2003.
12
LIQUIDITY AND CAPITAL RESOURCES
The report of our independent auditors on their audit of our financial
statements as of December 31, 2002 contains an explanatory paragraph that
describes an uncertainty as to our ability to continue as a going concern due to
our recurring losses. At March 31, 2003, our cash balance was $2,913,991. The
majority of these funds are currently held as U.S funds in our bank accounts
earning interest based on the US Base Rate. We believe these cash resources will
be sufficient to meet our ongoing financial commitments through December 31,
2003. Currently, we have no source of revenues.
During the three months ended March 31, 2003 our cash balances
decreased by $116,516 of which approximately $92,000 represents payments in
respect of professional fees.
In December 2001, we announced that our Board of Directors was engaged
in a review of our activities with a view to the possible redirection of our
operations in an effort to enhance and maximize shareholder values. Thereafter,
in a series of steps conducted through February 2002, we reduced our staff to
one employee and revised our monthly compensation arrangements with our
Contributing Editors by terminating the payment of the compensation to
Contributing Editors. The changes we made in our staffing and compensation
arrangements we believe were appropriate in the light of our limited revenues
and enhance our ability to enter into a business combination or other
restructuring transaction by reducing current levels of overhead. We believe
that these revised compensation arrangements are in line with current practices
of other Internet communities.
In place of our staff, on February 14, 2002, effective January 31,
2002, we entered into an agreement with Marketeam, a corporation wholly owned by
Douglas Loblaw, our former chief operating officer and, from February 25, 2002,
a Director of our company, to provide continuing management and operating
services, at Marketeam's expense, for the day-to-day operations of the Suite101
Web site, known as Suite101.com. In consideration of the services performed by
Marketeam, we paid Marketeam a fee of $26,000 per month, plus an amount equal to
our receipts from our contracts with BarnesandNoble.com.
Our agreement with Marketeam was terminated by us effective May 31,
2002 and on July 17, 2002, our subsidiary sold its Website assets to Marketeam.
We currently have no revenue-producing operations.
Our current business plan is to utilize our available cash and other
resources, including possibly, shares of our Common Stock, to redirect our
activities out of the operation and maintenance of a Web-based community into
other areas of business. We believe that these future activities will be
unrelated to the operation of an Internet Web site. It is expected that the
redirection of our business activities will involve us in a business combination
or other material transaction. Until we complete a transaction resulting in a
redirection of our business activities, we expect to continue to incur expenses
without any material revenues. In addition, we may incur reductions in the
carrying value of our fixed assets in connection with our efforts to redirect
our activities.
13
On April 4, 2003, we announced that we had signed a Stock Purchase
Agreement to acquire all the outstanding capital stock of GeoGlobal Resources
(India) Inc. (GeoGlobal) in exchange for shares of our common stock.
We may seek to raise additional funds in order to fund the acquisition
of revenue-producing operations. There can be no assurance that any additional
financing will be available on terms favorable to us, or at all. If adequate
funds are not available or not available on acceptable terms, we may not be able
to fund our efforts to redirect our activities. Any such inability could have a
material adverse effect on future success. Additional funds raised through the
issuance of equity or convertible debt securities, will result in reducing the
percentage ownership of our stockholders and, stockholders may experience
additional dilution and such securities may have rights, preferences or
privileges senior to those of the rights of our Common Stock.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed in this
quarterly report are "forward-looking statements" as defined under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, that involve risks and uncertainties. Forward-looking statements made
herein include, but are not limited to, the statements in this quarterly report
regarding our plans and objectives of management for our future operations,
including plans or objectives relating to the redirection of our business
activities, our efforts to enter into a transaction relating thereto, and our
ability to limit or curtail our current expenses. These statements appear, among
other places, under the following captions: "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition or Plan of Operation".
Forward-looking statements made in this annual report include the assumptions
made by management as to our future business direction and our ability to
redirect our activities. We cannot assure you that our assumptions in this
regard or our views as to the viability of our business plans discussed herein
will prove to be accurate. Likewise, we cannot assure you that we will be
successful in acquiring any commercial activities. We cannot assure you that our
transaction with GeoGlobal will be completed or that any commercially
recoverable quantities of hydrocarbon reserves will be discovered on the
exploration block in which GeoGlobal has an interest. Our ability to realize
revenues cannot be assured. If our assumptions are incorrect or if our plans
fail to materialize, we may be unsuccessful in developing as a viable business
enterprise. Under such circumstance your investment will be in jeopardy. Our
inability to meet our goals and objectives or the consequences to us from
adverse developments in general economic or capital market conditions could have
a material adverse effect on us. We caution you that various risk factors
accompany those forward looking statements and are described, among other
places, under the caption "Risk Factors" herein, beginning below. They are also
described in our Annual Report on Form 10-KSB, our Quarterly Reports on Form
10-QSB, and our Current Reports on Form 8-K. These risk factors could cause our
operating results, financial condition and ability to fulfill our plans to
differ materially from those expressed in any forward-looking statements made in
this annual report and could adversely affect our financial condition and our
ability to pursue our business strategy and plans.
14
RISK FACTORS
An investment in shares of our Common Stock involves a high degree of
risk. You should consider the following factors, in addition to the other
information contained in this quarterly report, in evaluating our business and
proposed activities before you purchase any shares of our common stock. You
should also see the "Cautionary Statement for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1996" regarding
risks and uncertainties relating to us and to forward looking statements in this
quarterly report.
No Material Operations or Revenues. We have no current material operations or
source of revenue. We will, in all likelihood, sustain continuing operating
expenses maintaining our current activities and seeking to enter into a
transaction without corresponding revenues at least until the consummation of a
business acquisition. This can be expected to result in us incurring ongoing net
operating losses and an outflow of our cash that could continue until we can
consummate a business acquisition. There can be no assurance that we can
identify a suitable business opportunity and consummate a business acquisition
or that any transaction we consummate will be on favorable terms or result in
profitable operations. We are unable to predict when any such transaction may be
completed.
Risks Relating to Proposed GeoGlobal Transaction. As described above, on April
4, 2003 we entered into a Stock Purchase Agreement with Jean Paul Roy and
GeoGlobal to purchase all of the outstanding shares of GeoGlobal.
There can be no assurance that all the conditions to the closing of the
agreement top acquire GeoGlobal can or will be met and that the transaction will
be consummated. At May 14, 2003, the parties had submitted an application to the
Government of India for its consent to the sale of the stock of GeoGlobal to us.
This consent is a condition to the completion of the transaction, among other
conditions.
Pursuing the transaction will involve material risks to our company and
its stockholders and will result in material dilution to our stockholders.
There can be no assurance that the exploratory drilling to be conducted
on the exploration block in which GeoGlobal holds an interest will result in any
discovery of hydrocarbons or that any hydrocarbons as are discovered will be in
commercially recoverable quantities. In addition, the realization of any
revenues from commercially recoverable hydrocarbons is dependent upon the
ability to deliver, store and market any hydrocarbons that are discovered. The
presence of hydrocarbon reserves on contiguous properties is no assurance or
necessary indication that hydrocarbons will be found on the exploration block in
which GeoGlobal holds an interest.
Possible Future Dilution As A Result Of Business Transaction. Our business plan
is based upon effectuating a business acquisition or other transaction. Any such
acquisition transaction may and the GeoGlobal transaction will result in us
issuing securities as part of the transaction. The issuance of previously
authorized and un-issued common shares will result in substantial dilution to
our existing stockholders which could possibly result in a change in control or
management of our company. There can be no assurance that an acquisition can be
completed. In the event the transaction with GeoGlobal
15
is completed, our stockholders, prior to the closing of the transaction, will
experience material dilution in their interests.
Issuance Of Additional Shares. Our corporation is currently authorized to issue,
on action of our Board of Directors, up to 100,000,000 shares of Common Stock
and 1,000,000 shares of Preferred Stock, of which, as of March 10, 2003,
14,086,687 shares of Common Stock are issued and outstanding and no shares of
Preferred Stock are outstanding. The 85,913,313 shares of Common Stock and
1,000,000 shares of Preferred Stock that are authorized but are not issued or
outstanding are able to be issued by action of our Board of Directors in a
transaction resulting in the redirection of our activities without any
requirement of further action being taken by our stockholders to authorize the
issuance of the shares or to approve the transaction or the redirected business
activities. Any additional issuances of any of our securities will not require
the approval of our stockholders and may have the effect of further diluting the
equity interest of stockholders.
Possible Need to Raise Additional Capital. Any transaction we enter into
involving the redirection of our activities may require that we raise additional
capital which may also involve the issuance of shares of our Common Stock and be
dilutive to our existing stockholders.
In the event the transaction with GeoGlobal is completed, we will make
an immediate payment of $1,000,000 to Jean Paul Roy and an additional payment of
$500,000 on June 30, 2003. These payments will reduce materially our cash
resources. These payments are in consideration of the purchase of the
outstanding stock of GeoGlobal and are not recoverable if GeoGlobal's
exploration activities are unsuccessful and no commercially recoverable reserves
of hydrocarbons are discovered on the exploration block.
Our agreement with JPR and GeoGlobal provides that, subject to Board of
Directors' approval, promptly subsequent to the closing a transaction with Mr.
Paul and GeoGlobal, we intend to make an offering of shares of our Common Stock
not registered under the U.S. Securities Act of 1933, as amended, with the
amount of shares offered intended to raise a minimum of $4.0 million. The
intended purpose of the offering is to raise additional working capital. The
securities intended to be offered will not be and have not been registered under
the Securities Act and may not be offered or sold in the United States absent
registration or an applicable exemption from the registration requirements of
the Securities Act. There can be no assurance that we will be successful in
selling these shares or that such transaction will not result in further
material dilution to our stockholders.
No Requirement of Stockholder Approval. Any transaction we enter into in
redirecting our business activities may be structured on terms whereby the
approval of our existing stockholders is not required which would result in our
existing stockholders being unable to vote in favor of or against the
transaction and the redirection of our business activities. The completion of
our transaction with GeoGlobal will not require the approval of our
stockholders.
Any Business We May Possibly Acquire May Never Become Profitable. There can be
no assurance that we will enter into an acquisition with or acquire an interest
in a business having a significant or successful operating history. Any such
business may have a history of losses, limited or no potential for earnings,
limited assets, negative net worth or other characteristics that are indicative
of development
16
stage companies. There can be no assurance that after any acquisition of a
business that the business will be operated so as to develop significant
revenues and cash flow and become profitable.
Management May Not Devote a Sufficient Amount of Time to Seeking a Target
Business. While seeking a business acquisition, our officers and Directors
devote only a portion of their time to pursuing these activities. As a result,
we may expend a considerable period of time identifying and negotiating with an
acquisition candidate. This extended period of time may result in continuing
losses to us and an outflow of our cash.
Dependence On Part-Time Management. Currently, we have no fulltime employees.
Our officers and Directors devote only a portion of their time to our
activities. It is our intention to continue to limit our employees until such
time as we find a suitable business opportunity or we complete the acquisition
of another business. Therefore, the day-to-day operations of any company or
business that is acquired by us will have to be performed by outside management
or management of the acquired company. We cannot assure investors that we will
be able to obtain experienced and able outside management to run any company or
business that we may acquire.
Continued Control by Existing Management. Our Directors retain significant
control over our present and future activities and our stockholders and
investors may be unable to meaningfully influence the course of our actions. Our
existing management is able to control substantially all matters requiring
stockholder approval, including nomination and election of directors and
approval or rejection of significant corporate transactions. Any transaction we
engage in resulting in a redirection of our business activities may be
structured so as to not require the approval of our stockholders and,
accordingly, our stockholders may have no opportunity to vote on or influence
the redirection of our activities. Although management has no intention of
engaging in such activities, there is also a risk that the existing management
will be viewed as pursuing an agenda which is beneficial to themselves at the
expense of other stockholders.
In the event the transaction with JPR and GeoGlobal is completed, our
company will experience a change in control.
There Is No Assurance Of An Active Public Market For Our Common Stock And The
Price Of Our Common Stock May Be Volatile. Given the relatively minimal public
float and trading activity in our securities, the price of our shares may be
volatile. There can be no assurance that there will be an active and liquid
market for our shares. Since the shares do not qualify to trade on any exchange
or on NASDAQ, if they do actually trade, the only available market will continue
to be through the OTC Bulletin Board or in the "pink sheets". It is possible
that no active public market with significant liquidity will ever develop. Thus,
investors run the risk that investors may never be able to sell their shares.
Accordingly, although quotations for shares of our Common Stock have
been, and continue to be, published on the OTC Bulletin Board and the "pink
sheets" published by the National Quotation Bureau, Inc., these quotations, in
the light of our operating history, continuing losses and financial condition,
are not necessarily indicative of our value. Such quotations are inter-dealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
17
In addition, the stock market in general has experienced extreme price
and volume fluctuations which have affected the market price for many companies
which have been unrelated to the operating performance of these companies. These
market fluctuations, as well as general economic, political and market
conditions, may have a material adverse effect on the market price of our Common
Stock.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such companies. Such litigation, if instituted, and
irrespective of the outcome of such litigation, could result in substantial
costs and a diversion of management's attention and resources and have a
material adverse effect on our business, results of operations and financial
condition.
Possible Government Regulation. Although we are subject to the periodic
reporting requirements under the Securities Exchange Act of 1934, as amended,
and file annual, quarterly and other reports, management believes it will not be
subject to regulation under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), since it will not be engaged in the business of
investing or trading in securities. If we engage in a business acquisition which
results in us holding passive investment interests in a number of entities, we
could become subject to regulation under the Investment Company Act. If so, we
would be required to register as an investment company and could be expected to
incur significant registration and compliance costs. We have obtained no formal
determination from the Securities and Exchange Commission (the "SEC" or
"Commission") or any opinion of counsel as to our status under the Investment
Company Act. A violation of the Act could subject us to material adverse
consequences.
Our Shares Are Subject To Penny Stock Reform Act Of 1990. Our securities are
subject to certain rules and regulations promulgated by the Commission pursuant
to the U.S. Securities Enforcement Remedies and Penny Stock Reform Act of 1990
(the "Penny Stock Rules"). Such rules and regulations impose strict sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and certain "accredited investors." For
transactions covered by the Penny Stock Rules, a broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent for the transaction prior to sale. Consequently,
such rule may affect the ability of broker-dealers to sell our securities and
may affect investors' abilities to sell any shares they acquire.
The Penny Stock Rules generally define a "penny stock" to be any
security not listed on an exchange or not authorized for quotation on the Nasdaq
Stock Market and has a market price (as defined by the rules) less than $5.00
per share or an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transactions by broker-dealers involving a penny stock
(unless exempt), the rules require delivery, prior to a transaction in a penny
stock, of a risk disclosure document relating to the market for penny stocks.
Disclosure is also required to be made about compensation payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stocks.
Control by Directors, Executive Officers, and Principal Stockholders. As of May
14, 2003, our Directors, executive officers, and stockholders who own
beneficially 5% or more of our Common
18
Stock, and their respective affiliates, in the aggregate, beneficially owned
(including shares that the he or she has the right to acquire the beneficial
ownership within 60 days following May 14, 2003) approximately 2,698,179 shares
or 18.35% of our outstanding Common Stock. As a result, these stockholders
possess significant influence over us, giving them the ability, among other
things, to elect a majority of our Board of Directors and approve significant
corporate transactions. Such share ownership and control may also have the
effect of delaying or preventing a change in control of us, impeding a merger,
consolidation, takeover or other business combination involving us, or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of us which could have a material adverse effect on
the market price of our Common Stock.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's
management, including Mitchell G. Blumberg, its President and Chief Executive
Officer, and Brent L. Peters, its Chief Financial Officer, the Company has
evaluated the effectiveness of the design and operation of its disclosure
controls and procedures within 90 days of the filing date of this annual report,
and, based on their evaluation, Mr. Blumberg and Mr. Peters have concluded that
these controls and procedures are effective. There were no significant changes
in the Company's internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation.
Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by it in the reports that it files or submits under the Exchange Act are
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the Company's management, including Mr. Blumberg and Mr. Peters, as
appropriate to allow timely decisions regarding required disclosure.
19
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
GeoGlobal Stock Purchase Agreement. Pursuant to a Stock Purchase
Agreement dated April 4, 2003 among us, Jean Paul Roy ("JPR") and GeoGlobal
Resources (India) Inc. ("GeoGlobal"), the Company agreed to acquire all the
shares of GeoGlobal. In exchange, we are to issue 34.0 million shares of our
Common Stock. Of the 34.0 million shares, 14.5 million shares are to be issued
and delivered to JPR at the closing of the transaction and an aggregate of 19.5
million shares are to be held in escrow by an agent. The terms of the escrow
provide for the release of the shares upon the occurrence of certain
developments, described below, subject to the outcome of oil and natural gas
exploration and development activities to be conducted on an exploration block
off the east coast of India. In addition to our shares of Common Stock, we are
to deliver to JPR a $2.0 million promissory note, of which $1.0 million is to be
paid on the closing of the transaction, $500,000 is to be paid on June 30, 2003
and $500,000 is to be paid on June 30, 2004. The note will not accrue interest.
The note will be secured by the carried interest of GeoGlobal. The closing of
the transaction is to occur on the third business day following the date on
which all conditions to the parties' obligations under the Stock Purchase
Agreement are met, but in no event later than 120 days after the date of
submission of the application for consent of the Government of India to the
transaction as required by the terms of the Production Sharing Contract
described below. The application was submitted to the Government of India on
April 21, 2003 and remains pending as of May 14, 2003.
On the closing of the transaction, Jean Paul Roy and Allan J. Kent are
to be elected Directors of the Company and Mitchell G. Blumberg and Douglas F.
Loblaw, currently Directors of our company prior to the closing, are to resign.
Mr. Roy is to be elected our President, Grahame M. Notman is to be elected
Interim Chief Executive Officer and Mr. Kent is to be elected Executive Vice
President and Chief Financial Officer. As a consequence of the transactions, Mr.
Roy will hold an aggregate of 34.0 million shares of our outstanding Common
Stock or approximately 70.7% of the shares to be outstanding, assuming all
shares held in escrow are released to him. The terms of the transaction provide
that JPR is to have the right to vote all 34.0 million shares following the
closing, including the shares during the period they are held in escrow. The
election of Messrs. Roy and Kent as Directors of our company and the election of
Messrs. Roy, Notman and Kent as officers of our company are conditions to the
closing of the transaction. Except for the foregoing, there are no
understandings or arrangements among Jean Paul Roy and Allan J. Kent and their
associates or our current Directors with respect to the election of Directors or
other matters in the future.
The Stock Purchase Agreement contains various representations and
warranties of JPR, GeoGlobal and us. Both GeoGlobal and we agreed that through
the closing of the transaction that neither party would engage in any
transactions outside the ordinary course of the parties activities. JPR agreed,
through the closing date, not to offer or sell his GeoGlobal shares, or options
or rights to acquire them or enter into other agreements with respect to those
shares or take any steps that are reasonably likely to impair his ability to
complete the transaction. Each of the parties agreed to use their best efforts
to obtain all necessary consents, approvals, authorizations and exemptions
needed to satisfy the conditions to the closing.
20
Concurrently with the closing, options are intended to be granted by
our Board of Directors to purchase an aggregate of 2.0 million shares of common
stock at an exercise price of not less than $1.00 per share. In addition, JPR
will enter into a three (3) year consulting agreement with us at a salary of
$250,000 per year and will provide that JPR will bring other opportunities to us
during the course of his employment. The Stock Purchase Agreement provides that
we have the exclusive right to complete the transaction through the close of
business 120 days after the date of submission of the application for consent of
the Government of India to the transaction as required by the terms of the
Production Sharing Contract described below and JPR will not solicit or accept
any offers to purchase his GeoGlobal shares or, engage in any discussions or
negotiations or provide information in furtherance of such a transaction.
Conditions to the closing of the transaction include the accuracy, as
of the closing date, of the parties' representations and warranties, the absence
of any court or governmental proceeding to enjoin the transaction or seeking
damages or other relief, the receipt of opinions of counsel, delivery of
officers' closing certificates and corporate documents, the delivery of the
GeoGlobal shares to us and the issuance of our shares to JPR and an escrow agent
and the delivery of the note to JPR, the delivery of the resignations of Messrs.
Blumberg and Loblaw as Directors and, in the case of Mr. Blumberg, as an officer
of our company, the sale of the capital stock of i5ive Communications Inc. to
Creative Marketeam Canada, Inc., a corporation wholly owned by Mr. Loblaw, a
Director of our company, the exercise by Directors of and consultants to our
company of options to purchase an aggregate of 391,668 shares of our Common
Stock and the cancellation by such persons of options to purchase an aggregate
of 138,332 shares, and the grant by Roy Group (Mauritius) Inc. ("Roy Group"), a
corporation wholly owned by JPR, of a right of first refusal to acquire the 5%
carried interest in the exploration block that the Stock Purchase Agreement
provides that, subject to obtaining Government of India consent, GeoGlobal will
assign, pursuant to a Participating Interest Agreement, to Roy Group out of
GeoGlobal's initial 10% interest and, absent such consent, to amend the
Participating Interest Agreement to provide Roy Group with an economic benefit
equivalent to the assignment contemplated.
The Stock Purchase Agreement provides that during the period commencing
with the closing until the earlier of the date commercial production, as
defined, commences under the Production Sharing Contract described below or the
termination of the Production Sharing Contract, none of JPR, GeoGlobal or we
will take any action, referred to as Prohibited Actions, that will have the
effect of in any way amending, altering, accelerating or delaying the provisions
of the Stock Purchase Agreement and the delivery to JPR or the return to us of
our shares from the escrow provided for in the Stock Purchase Agreement which
actions are materially adverse to the interests of those shares of stock of our
company that are outstanding immediately prior to the closing, including those
shares as held by transferees of those shares. Prohibited Actions include, among
other things, entering into any written or oral amendment of, or giving, seeking
or agreeing to any waiver, consent or other accommodation, formally or
informally, written or oral, including by any failure to take any action, under
the Stock Purchase Agreement, the escrow agreement, and, for a period of one (1)
year after the closing, the Production Sharing Contract described below. JPR
also has agreed to such restrictions in his capacity as a stockholder of our
company. Notwithstanding these prohibitions, a Prohibited Action may be taken
subject to receiving the prior approval of a majority of the shares of Common
Stock of our company outstanding prior to the closing at a meeting of
stockholders. The shares held by JPR are to be present at such a meeting, for
purposes of establishing a quorum, but will not be voted at the meeting. Any
shares JPR is permitted to transfer subsequent to the closing pursuant to the
provisions of Rule 144 may
21
be transferred free of the restrictions described above. Other transferees of
JPR, subsequent to the closing, must agree to the foregoing restrictions.
The Stock Purchase Agreement may be terminated by mutual consent of JPR
and us, by either JPR or us if the closing shall not have occurred on or before
120 days from the date of submission of the application for consent of the
Government of India to the transaction as described by the Production Sharing
Contract described below, or by either party if the other fails to perform in
any material respects, its agreements required to be performed before the
closing or is in material breach of any of its representations, warranties,
covenants or agreements which are not cured within five (5) days after notice.
The agreement is governed and interpreted under the laws of the State of
Delaware.
In April, 2003, we made an unsecured loan of $75,000 to GeoGlobal to
provide it with working capital.
GeoGlobal Production Sharing Contract. GeoGlobal is a party to a
Production Sharing Contract entered into on March 4, 2003 with the Government of
India, Gujaiat State Petroleum Corporation Limited ("GSPC") and Jubilant Enpro
Limited ("Enpro") with respect to an approximately 457,000 acre area off the
east coast of India, designated as Block KG - OSN - 2001/3 under National
Exploration Licensing Policy III. Under the Production Sharing Contract, the
Government of India has granted to the parties the right to engage in oil and
natural gas exploration activities on the exploration block for a term of years.
The Production Sharing Contract provides that the exploration activities are to
be conducted in three phases with each of the first two phases having a duration
of 2.5 years, and the last phase having a duration of 1.5 years, or a maximum
total duration of 6.5 years for all three phases. The exploration period under
the Production Sharing Contract commenced March 12, 2003. During the first
exploration phase, the parties are to conduct and process 1,250 square
kilometers of 3D seismic data, reprocess 2,298.4 line kilometers of seismic
data, conduct a bathymetric survey and drill a total of fourteen exploratory
wells. During the second and third phases, if the parties elect to complete
them, in addition to bathymetric surveys in connection with each phase, the
parties are to drill four and two exploratory wells, respectively. If the
parties elect to continue into the second exploratory phase, the agreement
provides that the parties retain up to 75% of the original contract area,
including any developed areas or areas of discoveries of hydrocarbons, and
relinquish the remainder. If the parties elect to continue into the third
exploration phase, the agreement provides that the parties retain up to 50% of
the original contract area, including any developed areas or areas of discovery
of hydrocarbons, and relinquish the remainder.
The Production Sharing Contract contains provisions relating to
procedures to be followed once a discovery of hydrocarbons is determined to have
been made within the exploration area and for the further development of that
discovery. Following the completion of a development plan for a discovery, the
parties are to apply for a lease with respect to the area to be developed with
an initial term of 20 years for the lease. The Government of India and the other
parties to the Production Sharing Contract are allocated, after deduction of the
costs of exploration, development, and production to be recovered, percentages
of any remaining production with the Government of India allocated between 20%
to 40% of the production and the balance to be allocated to the other three
parties in proportion to their percentage interests.
22
The agreement contains restrictions on the assignment of a
participating interest, including a change in control of a party, without the
consent of the Government of India, subject to certain exceptions which include,
among others, a party encumbering its interest subject to certain limitations.
The operator of the venture is GSPC and the venture is managed by a
management committee representing the parties to the agreement.
The agreement contains various other provisions, including, among
others, obligations of the parties to maintain insurance, the maintenance of
books and records, confidentiality, the protection of the environment,
arbitration of disputes, matters relating to income taxes on the parties,
royalty payments, and the valuation of hydrocarbons produced. The Indian
domestic market has the first call on natural gas produced. The agreement is
interpreted under the laws of India.
GeoGlobal has a 5% interest in the venture and GSPC and Enpro have 80%
and 10% interests in the venture, respectively. The remaining 5% interest in the
venture is the subject of a prospective assignment by GeoGlobal to Roy Group
effective February 4, 2003 pursuant to a Participating Interest Agreement,
subject to Government of India consent. Absent such consent, GeoGlobal is to
provide Roy Group with an economic benefit equivalent to the interest to be
assigned.
GeoGlobal Carried Interest Agreement. Pursuant to an agreement entered
into with GSPC, GeoGlobal has a carried interest in the exploration activities
conducted by the parties in the exploration block that is the subject of the
Production Sharing Contract. Under the terms of the Carried Interest Agreement,
GeoGlobal is carried by GSPC for 100% of all its share of any costs during the
exploration phase prior to the start date of initial commercial production.
However all of GeoGlobal's share of any capital costs for the development phase
will be paid back to GSPC without interest over the projected production life or
ten years whichever is less. GeoGlobal is not entitled to any share of
production until GSPC has recovered GeoGlobal's share of the costs and expenses
that were paid by GSPC.
About GeoGlobal and Material Risks Relating to the Transaction.
GeoGlobal was incorporated under the laws of the Province of Alberta, Canada and
is intended to be reincorporated by continuance under the laws of Barbados.
Other than entering into the Production Sharing Contract and the Carried
Interest Agreement and the agreement with us, it has conducted no business
activities. GeoGlobal was organized by JPR in order to enable him to acquire a
proprietary interest in exploration activities being engaged in by others
utilizing, in part, JPR's assistance and expertise.
We, through GeoGlobal or other entities to be organized, intend to
continue to seek opportunities to enter into joint venture and other similar
arrangements whereby we, through one or more subsidiaries, can acquire
proprietary interests in geographic areas where potential oil and natural gas
reserves are considered by JPR, and possibly other persons intended to be
employed by us, to have significant hydrocarbon development potential.
It is expected that initially, these activities will be focused on the
Indian subcontinent. However, these opportunities may be pursued wherever
management considers the hydrocarbon development potential to exist in
significant quantities. It is not intended to engage in development drilling in
areas where there has been a substantial history of production.
23
There can be no assurance that all the conditions to the closing of the
agreement to acquire GeoGlobal can or will be met and that the transaction will
be consummated. At May 14, 2003, GeoGlobal had submitted and was awaiting action
on an application to the Government of India for its consent to the sale of the
stock of GeoGlobal to us. This consent is a condition to the completion of the
transaction, among other conditions.
The exploration block should be considered a highly speculative
exploration opportunity. Pursuing the transaction will involve material risks to
us and our stockholders and will result in material dilution to our stockholders
and a material diminution of our cash we hold as of May 14, 2003. The
transaction is expected to be accounted for as a reverse acquisition.
There can be no assurance that the exploratory drilling to be conducted
on the exploration block in which GeoGlobal holds an interest will result in any
discovery of hydrocarbons or that any hydrocarbons that are discovered will be
in commercially recoverable quantities. In addition, the realization of any
revenues from commercially recoverable hydrocarbons is dependent upon the
ability to deliver, store and market any hydrocarbons that are discovered. The
presence of hydrocarbon reserves on contiguous properties is no assurance or
necessary indication that hydrocarbons will be found on the exploration block in
which GeoGlobal holds an interest.
References herein to JPR refer to Jean Paul Roy and references to
GeoGlobal refer to GeoGlobal Resources (India) Inc., an Alberta corporation and
which is intended to be reincorporated by continuance under the laws of
Barbados. Subsequent to the closing of the transaction, GeoGlobal will be a
wholly-owned subsidiary of ours.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Stock Purchase Agreement dated April 4, 2003 by and among
Suite101.com, Inc., Jean Paul Roy and GeoGlobal Resources
(India) Inc.
99.1 Certification of President and Chief Executive Officer
Pursuant to Rule 13a-14(a)
99.2 Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)
99.3 Certification of President and Chief Executive Officer
Pursuant to Section 1350 (furnished, not filed)
99.4 Certification of Chief Financial Officer Pursuant to
Section 1350 (furnished, not filed)
(b) Reports on Form 8-K
During the quarter ended September 30, 2002, we filed a Current
Reports on Form 8-K as follows:
January 22, 2003 Item 7
March 4, 2003 Item 7
April 4, 2003 Item 7
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Suite101.com, Inc.
------------------
(Registrant)
Date: May 14, 2003 /s/Mitchell G. Blumberg
-----------------------
Mitchell G. Blumberg
President and Chief Executive Officer
(Principal Executive Officer, and
Director)
/s/Brent Peters
---------------
Brent J. Peters
(Principal Financial and Accounting
Officer)
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