FORM 10-KSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
[X] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934 For the fiscal year ended December 31, 2002.
[ ] Transition report pursuant section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
Commission file number: 0-23687
STOCKGROUP INFORMATION SYSTEMS INC.
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1379282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 500 - 750 W PENDER STREET
VANCOUVER BRITISH COLUMBIA CANADA V6C 2T7 A2
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (604) 331-0995
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes: X No:
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: 1,964,699
The aggregate market value of common equity held by non-affiliates of the
registrant as of March 19, 2003 was approximately $5 million.
The number of shares outstanding of the registrant's common equity, as of March
17, 2003 was 21,095,771.
Documents incorporated by reference: none
Transitional Small Business Disclosure Format (check one):Yes []; No [x]
1
STOCKGROUP INFORMATION SYSTEMS INC.
FORM 10-KSB
For The Fiscal Year Ended December 31, 2002
INDEX
PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Management's Discussion and Analysis of Results of Operations and Financial Condition. . . . . . . . . . . . . . 11
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Part III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Item 9. Directors, executive officers, promoters and control persons; compliance with section 16(a) of the exchange act. 51
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . 52
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . 55
Item 14. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
CERTIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
2
PART I
Item 1. Business
GENERAL
Stockgroup Information Systems Inc. ("Stockgroup" or the "Company") is a
financial media and technology company. Its revenue streams for 2002 can be
categorized into two broad areas:
- Financial Software and Content Systems,
- Public Company Disclosure & Awareness Products
See PRODUCTS AND SERVICES below for a full description of these two revenue
streams. The clients for Financial Content and Software Applications are
primarily enterprise companies from many different markets, such as media, banks
and credit unions, stock brokerages, insurance, and others. Public Company
Disclosure & Awareness Products are awareness and disclosure products that are
purchased, as the name implies, by public companies in all industries.
CORPORATE BACKGROUND
We are a United States publicly traded company incorporated in 1995 and
registered in Colorado. Our head office in Vancouver, Canada.
We operated from 1995 to 1997 as a profitable financial Internet technology and
media company that offered proprietary financial news and tools to investors and
companies.
We used our experience and the funds from a public offering in spring 1999 to
provide the foundation for the development and initial marketing of our
products. In October 1999 we launched Smallcapcenter.com. At that time it was
widely believed that a subscription/advertising model centering around
Smallcapcenter was viable. While parts of this business model did not prove to
be profitable, the exercise of building Smallcapcenter and its related
investment tools gave us a strong foundation of skills and a suite of products
to sell commercially. Smallcapcenter is still a high-traffic and
well-maintained portal for the investment community, and its drawing power is a
key driver to many of our investor awareness products. It also serves as an
excellent development and testing ground for new financial software tools being
developed by the Company on a day-to-day basis.
From late 1999 to early 2001 we were hired to create several large enterprise
Web sites for different clients on a contract basis. These were large
contracts, and added a significant amount of revenue to the Company, but they
also added instability in our cost structure. In early 2001 it was decided that
this E-Business Solutions division would be de-emphasized in favor of other
areas with more profit potential, namely Financial Content and Software
Applications and Public Company Disclosure and Awareness Products (as described
in the PRODUCTS AND SERVICES section below).
From 2000 to 2001, we expanded our awareness and disclosure product line to
include Sector Supplements, and automated investor relations Web page tools such
as the IntegratIR. We already had a large public company customer base, so the
transition into this area was a natural extension of our core competencies.
We entered the Financial Content and Software Applications market late in 2000
by licensing our proprietary financial software tools, content and applications
to customers that need to offer financial information to their customers or
improve their content offering. We had access to a wide array of customers
through our internal sales team as well as our reseller channels. Our content
and software application model is attractive to customers because it is a
comprehensive and cost effective alternative to in-house development.
3
Early in 2001, as the market for our products and services evolved, it became
apparent to us where the most profitable and sustainable areas of the business
were. They were Financial Content and Software Applications and Public Company
Disclosure and Awareness Products (including IntegratIR and other awareness and
disclosure products). Once these were identified, a more streamlined and stable
cost structure was introduced and the profitability and cash flow began to
improve.
On June 24, 2002, under an Agreement with StockHouse Media Corporation, we
acquired the Web site assets, software and systems to run the Stockhouse
websites. We issued 2,080,000 common shares of Stockgroup upon signing the
agreement, in exchange for a 65% interest in the assets. Stockgroup controls and
manages the operation of the assets and receives the net revenue to its account.
Due to certain provisions in the agreement, we have the option of acquiring the
remaining 35% of the assets for between 920,000 and 1,120,000 common shares of
Stockgroup based on a revenue/profit formula. The transaction was completed
with an arms length party, although one of the principals of Stockhouse Media
Corporation has since become a director of Stockgroup.
Prior to the Agreement, StockHouse spent approximately C$35 million on its
technology, brand and business development, ultimately becoming established as
one of the leading online financial communities.
The transaction provides several key benefits to Stockgroup including:
- Augmenting the strength of the company by integrating the technology and
products into the existing Stockgroup infrastructure.
- The deepening and strengthening of the company's technology, through
incorporating StockHouse's applications and capabilities, expanding the
company's product offering and enhancing its ability to deliver products to
its customers.
- The immediate addition of the StockHouse revenue stream and customer base.
- The integration of resources of the two companies, lowering overall cost of
delivery, strengthening brand and adding value to the more than 450,000
registered subscribers and over 50 million monthly page views of
StockHouse.com and smallcapcenter.com.
On July 23, 2002 we became a reporting issuer in Canada and on December 17,
2002, we were listed and began trading on the TSX Venture Exchange in Canada.
PRODUCTS AND SERVICES
Our understanding of Internet based financial technology and media has enabled
us to leverage our products and services to enter new markets and secure new
clients. Using a common integrated technology platform, we have developed two
main revenue sources: Financial Content and Software Applications , Public
Company Disclosure & Awareness Products and Advertising.
FINANCIAL SOFTWARE AND CONTENT SYSTEMS
We have developed proprietary financial applications and tools we license to
clients. The clients for Financial Content and Software Applications are from
many different markets, such as news media, banks and credit unions, stock
brokerages, leasing, insurance, and others. We provide the tools on a
private-labeled basis, and they are typically sold in licencing contracts of
twelve months or more. These long term contracts generate stable, recurring
revenue streams.
Many of the tools are data-feed driven. We either feed data from our own
aggregated databases or from third parties. The advantage of using the
Stockgroup tools is that the customer is able to receive data and information
from a variety of different feeds all from point of contact, at a fraction of
the cost of purchasing all feeds individually. Also, in most cases we add value
by customizing, filtering, and sorting data in the configuration the customer
wants. We are able to use our economies of scale and automation to give a
product that is efficiently delivered and customized, and at a substantial costs
savings to having the customer build and manage it internally.
4
Examples of some of the providers of third-party data feeds include Marketguide,
Comtex, Multex, and North American Quotations.
We distribute financial tools through content and application syndicates, such
as Yellowbrix, through channel resellers such as The Associated Press, The
Canadian Press, Comtex News Network, Clarinet Communications, and through our
own sales team. These financial tools, applications and content systems cover
the entire North American market including mutual funds, commodities, and
equities.
We bring in market feeds through satellite, File Transfer Protocol (FTP),
Extensible Markup Language (XML), and other delivery formats. We have built and
maintain our proprietary middleware solution that aggregates the multiple feeds,
translates and builds a common database infrastructure. Our system then cleans,
filters, and maintains the data in a common database structure. A sophisticated
server cluster and security system backs this content/data management system.
The data is then streamed to our proprietary software applications.
The following are just a few of the over 25 Financial Content and Software
Applications products:
Real-time stock quotes on major U.S. exchanges
North American 20-minute delayed stock quotes and indices
Portfolio management, live portfolio updates and wireless portfolio updates
Most active stock updates
Stock watch lists
Company fundamentals, SEC/SEDAR filings
Daily stock market winners/losers, most actives
Company profiles, stock screening (investment data) and technical stock analysis
Employee stock option calculations
The Financial Content and Software Applications is delivered to customers in
four different formats:
- On an Application Service Provider (ASP) basis where the content and
software is hosted by Stockgroup and private labeled to the customers
Internet or Intranet site.
- Through our proprietary software objects residing on the customers' servers
which use a proprietary Application Protocol Interface (API) to retrieve
data from our servers.
- Through secured Extensible Markup Language (XML) channel.
- Through different wireless devices and modes including: handheld devices,
Short Message Service (SMS) paging, and Wireless Application Protocol (WAP)
portals which have been built and maintained by us.
PUBLIC COMPANY DISCLOSURE AND AWARENESS PRODUCTS
We have developed and own a large array of Public Company Disclosure and
Awareness products. These products are used by clients to either a) manage
their investor relations and shareholder communications through their Web site,
b) generate awareness for their company and their stock, c) improve their public
disclosure compliance, or d) advertise their products and services.
Products and services offered by this revenue stream include the IntegratIR
software system, Investor Marketplace, E-Mail News Blasts, Sector Supplements,
Stockhouse @ The Bell sponsorship, Smallcap Express sponsorship, Web site
advertising, monthly investor marketing bundles, custom Web site development,
and other online investor marketing products.
5
Public companies are increasingly outsourcing these activities because they lack
the internal skills and resources or because it is more effective and cost
efficient than in-house development and maintenance. We offer a 'one-stop
shopping' package for corporate clients and provide everything from news release
tracking and postings to quarterly streaming conference calls. Our understanding
of this market segment and focus has resulted in a highly specialized bundle of
products including: private label quotes, charts and database tools for building
relationships with shareholders and traffic reports to track investor usage of
Web sites and inquiries.
Our IntegratIR system represents a whole new way to manage shareholder
communications and reach new investors. The IntegratIR is an investor relations
Web page and email management system that functions as a software application -
giving the Investor Relations Officer (IRO) and Chief Financial Officer (CFO)
desktop control over the investor relations portion of their Web site. In
addition to standard features, such as dynamic quotes and charts, the IntegratIR
provides powerful new tools that automate the client's online disclosure
activities including publishing their press releases, publishing of regulatory
filings and distributing information requested by shareholders, all on a
real-time, automated basis.
Other awareness products for public companies include the following:
Investor Marketplace (IMP), a Web page which is actively marketed through
advertising to draw readers, where companies can be featured online to
prospective investors. Being featured on the IMP enables customers to get their
name, profile, and internet link in front of a large investor audience that they
may not otherwise be able to attain.
Stockhouse News Blasts, Special Situation Alerts, and NewsHotlines, which are
targeted e-mail marketing tools used to disseminate news releases to an
exclusive list of up to 450,000 opt-in investors.
Sector Supplements, which are a spotlight feature on a certain industry sector,
such as energy, mining, biotech, or technology, are an effective exposure tool
for companies. In a Sector Supplement, investors are drawn to a Web site that
features up to twelve companies and contains industry-specific news and
information. Investors who visit this Web site can view each of the featured
companies' profiles, request information, or link directly to the client's own
Web site.
Sponsorship of the Stockhouse @ The Bell/Smallcap Express daily market recap
mailings that goes to a large audience of e-mail readers who have signed up to
receive it through Stockhouse.com and Smallcapcenter.com. A client who sponsors
Stockgroup @ The Bell/Smallcap Express gets an advertising banner at the top of
each flight. This can be an effective way for the client to get their name in
front of a large number of investors.
Advertising, which is shown in various positions on Stockhouse.com and
Smallcapcenter.com on a prescribed rotation, is another way for clients to get
the attention of a targeted investor audience. Potential investors who see the
advertisement can 'click through' the ad to get to a jump page which can include
the client's own description of their company or product.
The StockHouse network (StockHouse.com/.ca/.com.au) offers content aggregation
from hundreds of sources, a comprehensive equities database and the Internet's
first syndicated message forums, the BullBoards(TM). The three Web sites attract
investors in a number of global markets, including the USA, Canada, and
Australia.
EMPLOYEES
As of December 31, 2002, we employed 25 people on a full-time basis and 6 people
on a part-time basis. After seeing wide fluctuations in the number of employees
between 1999 and 2001, the number of employees has remained relatively stable
for the past eighteen months. An exception was a three month period after we
acquired the StockHouse Web site when we needed extra staff for the transition.
This stability has been an important part of our improved cost structure.
6
None of our employees are subject to collective bargaining agreements. We have
never had a work stoppage. We believe relations with employees are good.
REGULATORY ISSUES
We are not subject to governmental regulation in our Internet publishing efforts
other than local state and municipal sales tax licenses.
A number of legislative and regulatory proposals under consideration by federal,
state, provincial, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain how
existing laws will be applied by the judiciary to the Internet. The adoption of
new laws or the application of existing laws may decrease the growth in the use
of the Internet, which could in turn decrease the demand for our services,
increase the cost of doing business or otherwise have a material adverse effect
on the Company's business, results of operations and financial condition.
SUBSIDIARIES
Stockgroup owns 100% of the issued and outstanding voting common shares of
579818 B.C. Ltd., which wholly owns Stockgroup Media Inc., a British Columbia
corporation, and owns 50% of Stockscores Analytics Corp., a British Columbia
corporation. In addition, Stockgroup wholly owns Stockgroup Systems Ltd., a
Nevada Corporation and Stockgroup Australia Pty Ltd, an Australia Corporation.
RESEARCH AND DEVELOPMENT
During 2001 and 2002 we invested approximately $241,392 and $78,792 respectively
on research and development related to new products and services.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein constitute "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These forward-looking statements can be identified
by the use of predictive, future-tense or forward-looking terminology, such as
"believes," "anticipates," "expects," "estimates," "plans," "may," "intends,"
"will," or similar terms. These statements appear in a number of places in this
report and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) trends affecting the Company's financial condition or
results of operations, (ii) the Company's business and growth strategies, (iii)
the Internet and Internet commerce and (iv) the Company's financing plans.
Investors are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements as a result of various factors set
forth under "Risk Factors" and elsewhere in this report. The preceding
discussion of the financial condition and results of operations of the Company
should be read in conjunction with the financial statements and notes related
thereto included elsewhere in this report.
Item 2. Description of Property
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND DOMAIN NAMES
We protect our intellectual property through a combination of trademark and
copyright law, trade secret protection and confidentiality agreements with its
employees, customers, independent contractors and strategic partners. We pursue
the registration of our domain names, trademarks and service marks in the United
States and internationally.
7
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our services and products are made
available on-line. We create a majority of our own content and obtains rights to
use the balance of our content from third parties. It is possible that we could
become subject to infringement actions based upon the content obtained from
these third parties. In addition, others may use this content and we may be
subject to claims from its licensors. We currently have no patents or patents
pending and do not anticipate that patents will become significant part of its
intellectual property in the future. We enter into confidentiality agreements
with our employees and independent consultants and have instituted procedures to
control access to and distribution of our technology, documentation and other
proprietary information and the proprietary information of others from whom we
license content. The steps we take to protect our proprietary rights may not be
adequate and third parties may infringe or misappropriate our copyrights,
trademarks, service marks and similar proprietary rights. In addition, other
parties may assert claims of infringement of intellectual property or alter
proprietary rights against us. The legal status of intellectual property on the
Internet is currently subject to various uncertainties as legal precedents have
not been set and are still to be determined in many areas of internet law.
LEASEHOLD
Our corporate offices are composed of one floor of leased space located in the
center of Vancouver's business community. We also hold a lease in New York, and
rent an office in Toronto on a month to month basis. Our facilities are fully
used for current operations, with the exception of the New York facility, which
is currently being subleased to a tenant.
City Monthly Payment Lease Expiry Date
--------------------------------------------------------------------------------
Vancouver CDN $23,647 7 years June -- 2006
New York $8,449 7 years August -- 2006
New York sublease -$8,449 3 years April -- 2004
Toronto CDN $2,400 N/A
EQUIPMENT
We have made a significant investment in servers and computer equipment required
for our Web site and have dedicated staff assigned to maintenance and support of
these operations.
Item 3. Legal Proceedings
We are currently involved in litigation with a customer to collect amounts owing
pursuant to a contract entered into in September, 2000. The defendant provided a
$100,000 deposit and contracted us to provide certain lead generation services.
We delivered the requested services throughout October and November, 2000,
however, the defendant defaulted on all additional payments. We are suing the
defendant for the $351,800 balance owing, plus interest and costs. The defendant
has filed a statement of defense and counterclaim to recover the $100,000
deposit. As of December 31, 2002, no further action had been taken by either
party and no court date has been set. Although we currently believe the outcome
of the litigation will be in the Company's favour, we have not elected to
aggressively pursue the litigation at this time. We have made no provision for
the counterclaim in the financial statements and any settlement or final award
will be reflected in the statement of operations as the litigation is resolved.
Item 4. Submission of Matters to a Vote of Security Holders
None
8
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
MARKET INFORMATION
Our common stock has been quoted for trading on the OTC BB since March 17, 1999.
On December 17, 2002, we began trading on the TSX-Venture Exchange in Canada.
The following table sets forth high and low bid prices on the OTC BB for the
common stock for the quarterly periods ending March 31, 2001 through to December
31, 2002 and the partial quarter from January 1, 2003 to March 6, 2003. These
prices represent quotations between dealers without adjustment for retail
markup, markdown or commission and may or may not represent actual transactions.
Quarter Ended: High Low Volume
----------------------------------------------------------------------------
March 31, 2001 0.969 0.375 1,005,700
June 30, 2001 0.650 0.280 2,840,800
September 30, 2001 0.390 0.090 1,105,300
December 31, 2001 0.200 0.115 1,977,800
March 31, 2002 0.400 0.140 5,509,300
June 30, 2002 0.230 0.147 2,734,400
September 30, 2002 0.200 0.125 1,785,900
December 31, 2002 0.270 0.140 6,072,100
Jan 1-Mar 6, 2003 (partial) 0.380 0.205 4,098,100
The closing price on March 6, 2003 was $0.230.
During 2002 we issued 9,421,336 shares of common stock, representing 93% of the
outstanding stock at the beginning of 2002. We also has authorized, reserved,
and registered 3,050,000 shares of common stock for issuance upon the exercise
of outstanding warrants, and 3,500,975 shares for issuance upon the exercise of
non-qualified stock options. The total amount of shares covered by outstanding
registrations would represent 43% of the number of our outstanding shares on the
date of this filing. In addition, we have authorized and reserved, but not
registered, 5,541,693 shares for issuance upon exercise of certain warrants and
convertible notes, which would represent 19% of the number of our outstanding
shares on the date of this filing.
9
Recent sales of unregistered securities
-------------------------------------------------------------------------------------------------------------
Common Shares
Number of Underlying Gross
Common Convertible Proceeds
Date Exemption Name Shares Securities ($)
-------------------------------------------------------------------------------------------------------------
June 30, 2002 Regulation S Stockhouse Media Corp. 2,080,000 0 424,320
December 31, 2002 Regulation S Private Placement (28 Places) 3,403,750 1,701,875(1) 544,600
December 31, 2002 Regulation S Bolder Capital 0 150,000(2) 0
-------------------------------------------------------------------------------------------------------------
HOLDERS
On December 31, 2002, we had 87 holders of record, which does not include
beneficial owners of our common stock whose shares are held in the names of
various dealers, clearing agencies, banks, brokers and other fiduciaries.
DIVIDENDS
We have not declared, and do not foresee declaring, any dividends now or into
the foreseeable future.
-------------------------------
1 All warrants issued December 31, 2002, with the exception of 150,000 warrants
to Bolder Capital, are exercisable at two warrants plus $0.22 per common share,
and have an expiry date of December 31, 2003.
2 Warrants exercisable at one warrant plus $0.16 per common share, with an
expiry date of December 31, 2003.
10
Item 6. Management's Discussion and Analysis of Results of Operations and
Financial Condition
RESULTS OF OPERATIONS - FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31,
2001
We are in a business in which sales are strongly influenced by public interest
in the North American stock markets. Nearly all aspects of our business,
including financial tools, investor marketing, and Stockhouse advertising are
affected by ups and downs of the markets.
The results for the year 2002 were mixed, as we made a number of significant
improvements during the year, but revenue was down from 2001, primarily due to
the discontinuation of our E-Business consulting. In Q1 we improved our balance
sheet by restructuring and converting a portion of our convertible debt, and in
the process decreased our net loss dramatically through a gain of $1.089
million. In Q2 we acquired a valuable Web site asset, software, and technology
by acquiring a majority interest in certain assets of Stockhouse Media Inc.,
without expending any cash. We expect the Stockhouse assets will yield positive
returns in 2003. In Q4 we raised $0.490 million net in a private placement which
improved our balance sheet, and we were accepted for listing on the TSX Venture
Exchange in Canada. We emerged from 2002 stronger and more experienced, with a
strong management team in place.
Revenue and Gross Profits
--------------------------------------------------------------------------------
Total revenues for 2002 were $1.965 million compared to $2.857 million in 2001,
a decrease of $0.893 million, or 31%. The drop in revenue was primarily the
result of the discontinuation of our E-Business consulting.
Our revenue from Public Company Disclosure and Awareness Products decreased
compared to last year, from $1.643 million in 2001 to $1.209 in 2002, a decrease
of $0.434 million or 26%. Much of this decrease is attributed to the decrease in
public company corporate communications spending caused by the continued
downturn in financial markets. Nevertheless, we continued to direct a
significant portion of our sales efforts in this area because we feel that
strategically this business will be profitable for us in the future.
Financial Software and Content Systems revenue increased from $0.580 million in
2001 to $0.756 million in 2002, an increase of 30%, which was a result of a
gradual buildup of recurring monthly fees. The revenue from Financial Software
and Content represented 38% of total sales in 2002, an increase over the 20% of
sales it represented in 2001. This is a growing source of revenue that is
expected to continue increasing. We continue to acquire high quality clients,
both through new relationship building and referrals from existing clients.
E-Business revenue was nil in 2002, compared to $0.634 million in 2001. The
decision was made in 2001 to focus on our scalable recurring product lines in
place of consulting revenue.
Gross profits in 2002 were $1.258 million compared to $1.812 million in 2001, a
decrease of $0.554 million, or 30%. Gross profit margin percentage increased
slightly from 63% to 64%. Direct costs include direct payroll, bandwidth, data
feeds, and job-specific advertising purchases.
Operating Expenses
--------------------------------------------------------------------------------
Total operating expenses for 2002 were $2.266 million compared to $2.485 million
in 2001, a decrease of $0.219 million or 9%. Most of the decrease in costs was
in product development, which dropped off significantly due to the fact that
most of our products were in place by the beginning of the year.
Sales and Marketing expenses were $0.475 million compared to $0.467 million in
2001, an increase of $0.008 million or 2%.
11
Product Development expenses in 2002 were $0.079 million compared to $0.241
million in 2001, a decrease of $0.163 million or 67%. Our products were fully
developed by the end of 2001, and our strategy for 2002 was to only develop new
products if there was a known demand or request for them. This led to a sharp
decrease in product development costs.
General and Administrative expenses in 2002 were $1.712 million compared to
$1.777 million in 2001, a decrease of $0.065 million, or 4%. Payroll is our
largest cost item in this category. Our payroll costs remained relatively
stable throughout the year, with only moderate increases and a three-month
period after we acquired the Stockhouse Web site when our employee base
temporarily increased by about 10 people. In 2001, for comparison, we had
higher payroll at the beginning of the year than at the end, so overall the
payrolls were similar in both years. Our emphasis in all other cost areas for
both 2002 and 2001 has been toward cost reduction, with measured expansion in
conjunction with expanded sales only.
Operating losses were $1.008 million and $0.673 million for 2002 and 2001
respectively. The increase of operating loss year over year was due mainly to
the decrease in total sales.
Other Income (Expense) and Income Taxes
--------------------------------------------------------------------------------
Interest expense in 2002 was $0.320 million compared to $0.596 million in 2001,
a decrease of $0.276 million, or 46%. Interest on our 8% convertible notes was
$0.120 million in 2002, compared to $0.193 million in 2001, a decrease of $0.073
million caused by lower principal balances in 2002 and put premiums being
avoided in 2002 due to the restructuring of the notes that took place on
February 6, 2002. Interest on our 3% convertible debentures was $0.160 million
in 2002, compared to $0.375 million in 2001, a decrease of $0.215 million caused
by the conversion of the full amount of principal in March 2002. Other interest
was $0.040 million in 2002, compared to $0.028 million in 2001, an increase of
$0.012 million caused by the addition of a 17% note in July 2002, a 25% note in
October 2002, and a new capital lease in June 2002. Of the $0.320 million in
interest expense in 2002, $0.040 million was paid in cash. The remaining $0.280
million was a combination of amortized debt discount on the 8% convertible notes
and deemed interest expense on the induced conversion of the 3% convertible
debentures.
The Gain on Warrants Liability of $0.055 million results from the restructuring
of the warrants from the 3% convertible debentures, as described in Note 10 of
the financial statements.
The Gain of $1.089 million is the result of the restructuring of our 8%
convertible notes in February 2002, and is further described in Note 7 of the
financial statements.
Other expense in 2002 was $0.013 million, which consists of net losses on market
value of short term marketable securities.
Due to our net loss position, we did not incur income tax in 2002 or 2001.
Net Income
--------------------------------------------------------------------------------
The net loss for 2002 was $0.307 million compared to $0.542 million in 2001, a
decrease in losses of $0.235 million or 43%. This reduction in net loss was due
to the gain of $1.089 million, which offset the increase in ordinary net loss of
$0.326 million.
CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting policies generally accepted in the United
States. The preparation of these consolidated financial statements requires us
to make estimates and assumptions that affect the assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. We believe the following critical
12
accounting policies affect significant judgments, estimates and assumptions used
in the preparation of the consolidated financial statements.
Revenue
Financial Software and Content Systems and Public Company Disclosure and
Awareness Products revenues are recognized as services are rendered based on
contractual terms such as usage, fixed fee, or other pricing models. Financial
Software and Content Systems are sold in monthly service agreements, typically
twelve or twenty-four months in length. Public Company Disclosure and Awareness
Products are sold in either one-off or twelve-month contract arrangements.
Revenue is recognized only if a contractual arrangement is in place, no
significant obligations remain, and collection of the resulting receivable is
probable. Start-up fee revenues, charges for implementation and initial
integration support of our products, are recognized over the initial term of the
contract pursuant to the SEC Staff Accounting Bulletin 101, Revenue Recognition
in Financial Statements. Amounts received in advance are deferred and recognized
over the service period.
Property and Equipment
We evaluate, on a periodic basis, our property and equipment, to determine
whether any events or changes in circumstances indicate that the carrying amount
of the asset may not be recoverable. We base our evaluation on certain
impairment indicators, such as the nature of the assets, the future economic
benefit of the assets, any historical or future profitability measurements, as
well as other external market conditions or factors that may be present. If
these impairment indicators are present or other factors exist that indicate
that the carrying amount of the asset may not be recoverable, we then use an
estimate of the undiscounted value of expected future operating cash flows to
determine whether the asset is recoverable and measure the amount of any
impairment as the difference between the carrying amount of the asset and its
estimated fair value. The fair value is estimated using valuation techniques
such as market prices for similar assets or discounted future operating cash
flows.
Amortization of property and equipment is on a straight-line basis over the
asset's estimated useful life.
Contingencies
From time to time, we are subject to proceedings, lawsuits and other claims
related to labor and other matters. We are required to assess the likelihood of
any adverse judgments or outcomes to these contingencies as well as potential
ranges of probable losses and establish reserves accordingly. We use
professional judgement, legal advice, and estimates in the assessment of
outcomes of contingencies. The amounts of reserve required, if any, may change
in future periods due to new developments in each matter or changes in approach
to a matter such as a change in settlement strategy.
LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------
We finished 2002 with $539,970 in cash and cash equivalents. We incurred a net
loss of $306,677 for the year ended December 31, 2002 [2001 - $541,552], and had
a working capital deficiency of $211,045 as at December 31, 2002. We made a
debt payment of $20,000 on January 2, 2003, and a note repayment of $50,000 on
January 21, 2003. Our cash usage from operations for Q4 2002 was $32,327 and
for the year 2002 was $430,867. These factors raise substantial doubt about our
ability to continue as a going concern.
We experienced a reduction in cash used in operations from $778,086 in 2001 to
$430,867 in 2002 as a result of cost restructuring activities initiated in 2001.
We have negotiated the conversion of $392,984 of our 8% convertible notes on
January 28, 2003, thereby eliminating eight mandatory quarterly payments
totaling $42,012 and a maturity payment of $350,972. Of the remaining principal
of the 8% convertible notes, $137,988 will be paid in mandatory quarterly
payments of $15,332 until December 31, 2004, and the $1,168,360 balance is due
December 31, 2005. Although we have taken steps to achieve profitable operations
in 2003, there are no assurances that we will be successful in achieving our
goals.
13
We raised $0.4M and $0.5M in equity financings during Q1 and Q4 respectively.
We intend to raise additional capital in 2003 in order to stabilize our balance
sheet, make our mandatory debt repayments, and have additional working capital
in place.
In view of these conditions, our ability to continue as a going concern is
uncertain and dependent upon achieving a profitable level of operations and, if
necessary, on our ability to obtain necessary financing to fund ongoing
operations.
CORPORATE DEVELOPMENTS DURING THE YEAR
--------------------------------------------------------------------------------
A synopsis of corporate highlights for 2002 is as follows:
On February 6, 2002, we restructured the 8% convertible notes with Deephaven
Private Placement Trading Ltd. and Amro International, S.A. Under the
restructuring, the interest rate and prepayment penalties are reduced to zero,
accrued interest has been waived, the conversion price is fixed at $0.50, and a
total of up to $300,000 cash is required to be paid to the noteholders over 10
quarterly installments starting June 30, 2002. The new notes have a two-year
term with renewal provisions for another two years. We filed a form 8-K on
February 20, 2002 which fully describes the restructured notes.
On February 11, 2002, we announced an agreement with Freedom Communications, a
large private media company with publications and websites throughout the U.S.,
to provide our Financial Software and Content Systems to its websites.
On February 21, 2002, we announced the signing of a market exclusive agreement
with The Canadian Press, Canada's national news agency, to resell our financial
content management and software system in Canada.
On March 15, 2002, we and the remaining noteholders from the
January 19, 2001 3% convertible debenture reached an agreement whereby they
would convert the $0.2M balance of the debt into common shares at $0.50 per
share. The exercise price of the Series 3A warrants has been reduced from $1.00
to $0.25. The exercise price of the Series 3B warrants has been reduced from
$2.00 to $0.50. The expiry date for both the Series 3A and 3B warrants has been
extended to July 31, 2005.
On March 19, 2002, we signed a licensing agreement with Credential Group for
financial software tools and content. Credential Group is partnered with more
than 450 credit unions across Canada. We will provide Credential Group with
mutual fund information, stock quotes, interactive charts, indexes, and other
financial information.
On March 25, 2002, we completed a $0.410M financing with 22 unaffiliated
investors pursuant to a Subscription Agreement. The funding included 2,000,000
units consisting of one common share and one warrant each, at a price of $0.20
per units, plus 51,000 common shares at a price of $0.20 per share. The
warrants have an exercise price of $0.25 and an expiry date of March 31, 2003.
The full details of this financing, including all relevant documents, were filed
in a Form 8-K on March 26, 2002 and can be viewed therein.
On May 30, 2002, we announced that Profit Magazine had recognized the Company's
Canadian subsidiary as one of Canada's fastest growing companies. The 2001
Profit 100 list awards companies based on their 5-year revenue growth.
On June 24, 2002 we acquired certain of the assets of StockHouse Media Corp. We
purchased the StockHouse assets, including its financial communities,
StockHouse.com, StockHouse.ca and StockHouse.au, its software applications, and
its infrastructure, with an initial 65% ownership interest for 2,080,000 shares
of unregistered common stock of Stockgroup and with an additional option to
acquire the remaining 35% interest based on a formula for between 920,000 and
1,120,000 shares. We filed a form 8-K on July 11, 2002 which fully describes the
agreement.
On September 25, 2002, we retained Canada's largest independent investment
dealer, Canaccord Capital to act as sponsor for the inter-listing of our shares
on the TSX Venture Exchange.
14
On October 1, 2002, we announced that Intrawest will license our IntegratIR
Software System. Our IntegratIR tool allows Intrawest complete control of the
individual elements of their IR site and enables Intrawest to quickly update and
change their site anytime, from anywhere they have internet access.
On October 8, 2002, we announced a licensing agreement with National Bank
Financial to build a customized solution to provide online market data to their
clients. National Bank Financial is one of the leading securities dealers in
Canada.
On December 17, 2002, we were accepted for listing in Canada on the TSX Venture
Exchange.
On December 31, 2002, we closed a private equity placement of 3,403,750 units,
each unit consisting of one share and one warrant, to a group of unaffiliated
investors, for gross proceeds of $544,600.
DEVELOPMENTS SINCE YEAR END
On January 22, 2003, we reached an agreement with AP Digital, a division of The
Associated Press that distributes news and information to interactive
applications, to market and resell our market information and financial content
management and software system to AP's worldwide network of members and
customers.
On January 26, 2003, we signed a licensing agreement with Global Securities
Information Inc. (GSI) to provide GSI's clients with financial information
powered by the software tools and content in we's proprietary Financial Content
Management System. Global Securities Information Inc. is an award-winning
specialty provider of public-record business transaction information to law and
accounting firms, investment banks, corporations, and the business press.
On January 31, 2003, we announced that Amro International had converted its
remaining balance of $0.4 million of its convertible debenture. The debt was
converted into stock at US$0.32/share as part of a negotiation between Amro and
Stockgroup to eliminate Amro's debt. Our outstanding long-term debt has been
reduced from $1.7 million to $1.3 million.
On February 5, 2003, we signed an agreement with UnionBanCal Corporation's
primary subsidiary, Union Bank of California, N.A. Union Bank will license our
cutting-edge XML suite of financial content and software applications. We will
customize a scrolling ticker and provide secure XML-based quotes, charts and
other banking-specific financial content for Union Bank's customers and internal
applications.
On February 18, 2003, we announced that our popular StockHouse financial Web
portals, StockHouse.com and StockHouse.ca, had recorded over 6 million postings
within their BullBoards(TM) message forums.
RISK FACTORS
The following factors should be considered carefully in evaluating the Company
and its business.
Our limited operating history makes it difficult for you to judge our prospects.
We have a limited operating history upon which an evaluation of our current
business and prospects can be based. You should consider any purchase of our
shares in light of the risks, expenses and problems frequently encountered by
all companies in the early stages of its corporate development.
Liquidity and capital resources are uncertain.
We incurred a net loss of $306,677 for the year ended December 31, 2002 [2001 -
$541,552], and had a working capital deficiency of $211,045 as at December 31,
15
2002. These factors raise substantial doubt about our ability to continue as a
going concern. We experienced a reduction in cash used in operations from
$778,086 in 2001 to $430,867 in 2002 as a result of cost restructuring
activities initiated in 2001. We have negotiated the conversion of $392,984 of
our 8% convertible notes on January 28, 2003, thereby eliminating eight
mandatory quarterly payments totaling $42,012 and a maturity payment of
$350,972. Of the remaining principal of its 8% convertible notes, $137,988 will
be paid in mandatory quarterly payments of $15,332 until December 31, 2004, and
the $1,168,360 balance is due December 31, 2005. Although we have taken steps to
achieve profitable operations in 2003, there are no assurances that we will be
successful in achieving our goals.
In view of these conditions, our ability to continue as a going concern is
uncertain and dependent upon achieving a profitable level of operations and, if
necessary, on our ability to obtain necessary financing to fund ongoing
operations.
Computer equipment problems and failures could adversely affect business.
Problems or failures in Internet-related equipment, including file servers,
computers and software, could result in interruptions or slower response times
of the our products, which could reduce the attractiveness of the Web site,
financial tools, or software products to advertisers and users. Should such
interruptions continue for an extended period we could lose significant business
and reputation. Equipment problems and failures could result from a number of
causes, including an increase in the number of users of the Web site, computer
viruses, outside programmers penetrating and disrupting software systems, human
error, fires, floods, power and telecommunications failures, and internal
breakdowns. In addition, any disruption in Internet access provided by third
parties could have a material and adverse effect.
We may not be able to compete successfully against current and future
competitors.
We currently compete with several other companies offering similar services.
Many of these have significantly greater financial resources, name recognition,
and technical and marketing resources, and virtually all of them are seeking to
improve their technology, products and services. We can not assure you that we
will have the financial resources or the technological expertise to successfully
meet this competition.
We are significantly influenced by our officers, directors and entities
affiliated with them.
In the aggregate, ownership of Stockgroup shares by management represents
approximately 28% of issued and outstanding shares of common stock. These
shareholders, if acting together, will be able to significantly influence all
matters requiring approval by shareholders, including the election of directors
and the approval of mergers or other business combinations transactions.
We may be unable to protect the intellectual property rights upon which our
business relies.
We regard substantial elements of our Web site and underlying technology as
proprietary and attempt to protect them by relying on intellectual property
laws, including trademark, service mark, copyright and trade secret laws and
restrictions on disclosure and transferring title and other methods. We also
generally enter into confidentiality agreements with employees and consultants
and in connection with license agreements with third parties, and seeks to
control access to proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain or use our proprietary
information without authorization or to develop similar technology
independently. There can also be no assurance that our business activities will
not infringe upon the proprietary rights of others, or that other parties will
not assert infringement claims against us, including claims that by directly or
indirectly providing hyperlink text links to Web sites operated by third
parties, we have infringed upon the proprietary rights of other third parties.
16
It is unclear how any existing and future laws enacted will be applied to the
internet industry and what effect such laws will have on us.
A number of legislative and regulatory proposals under consideration by federal,
state, provincial, local and foreign governmental organizations may lead to laws
or regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain how
existing laws will be applied by the judiciary to the Internet. The adoption of
new laws or the application of existing laws may decrease the growth in the use
of the Internet, which could in turn decrease the demand for our services,
increase the cost of doing business or otherwise have a material adverse effect
on our business, results of operations and financial condition.
We may be held liable for online information or products provided by us or third
parties.
Because materials may be downloaded by the public on Internet services offered
by us or the Internet access providers with which we have relationships, and
because third party information may be posted by third parties on our Web site
through discussion forums and otherwise there is the potential that claims will
be made against us for defamation, negligence, copyright or trademark
infringement, or other theories. Such claims have been brought against providers
of online services in the past. The imposition of liability based on such claims
could materially and adversely affect us.
Even to the extent such claims do not result in liability, we could incur
significant costs in investigating and defending against such claims. The
imposition on us of potential liability for information or products carried on
or disseminated through our Web site could require implementation of measures to
reduce exposure to such liability, which may require the expenditure of
substantial resources and limit the attractiveness of services to members and
users.
Our general liability insurance may not cover all potential claims to which we
are exposed or may not be adequate to indemnify us for all liability that may be
imposed. Any imposition of liability that is not covered by insurance or is in
excess of insurance coverage could have a material adverse effect on our
business, results of operations and financial condition.
Future sales of shares may adversely impact the value of our stock.
During 2002 we issued 9,421,336 shares of common stock, representing 93% of the
outstanding stock at the beginning of 2002. We also have authorized, reserved,
and registered 4,901,875 shares of common stock for issuance upon the exercise
of outstanding warrants, and 3,500,975 shares for issuance upon the exercise of
non-qualified stock options. The total amount of shares covered by outstanding
registrations would represent 43% of the number of our outstanding shares on the
date of this filing. In addition, we have authorized and reserved, but not
registered, 3,689,818 shares for issuance upon exercise of certain warrants and
convertible notes, which would represent 19% of the number of our outstanding
shares on the date of this filing.
If required, we will seek to raise additional capital through the sale of common
stock. Under the terms of outstanding convertible notes and debentures, the
number of shares that may be issued under such instruments may be increased in
the event of certain changes in our capital structure. Future sales of shares
by us or our stockholders could cause the market price of its common stock to
decline.
The departure of key personnel could have an adverse impact on our business.
We employ certain key personnel with skills, including management skills, which
may be difficult to replace quickly. Should one or more of our key personnel
depart our company we may incur time and cost losses replacing them. Even if
replaced, it is possible that their departure could have a long lasting adverse
impact on us.
17
Item 7. Financial Statements
Consolidated Financial Statements
STOCKGROUP INFORMATION SYSTEMS INC.
December 31, 2002 and 2001
18
AUDITORS' REPORT
To the Shareholders of
STOCKGROUP INFORMATION SYSTEMS INC.
We have audited the accompanying consolidated balance sheets of STOCKGROUP
INFORMATION SYSTEMS INC. as of December 31, 2002 and 2001 and the related
consolidated statements of operations, shareholders' equity (deficiency), and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Stockgroup
Information Systems Inc. at December 31, 2002 and 2001 and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that
Stockgroup Information Systems Inc. will continue as a going concern. As
discussed in Note 1 to the financial statements, the Company has incurred
recurring net losses and has a working capital deficiency. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As discussed in Note 10 to the financial statements, in 2001, the Company
changed its method of accounting for callable warrants.
Vancouver, Canada,
February 24, 2003. Chartered Accountants
19
STOCKGROUP INFORMATION SYSTEMS INC.
CONSOLIDATED BALANCE SHEETS
[See Note 1 - Nature of Business and Basis of Presentation]
As at December 31 (expressed in US dollars)
2002 2001
$ $
-----------------------------------------------------------------------------------
ASSETS [notes 5, 6 and 7]
CURRENT
Cash and cash equivalents. . . . . . . . . . . . . . . 539,970 126,618
Marketable securities. . . . . . . . . . . . . . . . . 1,198 21,814
Accounts receivable [net of allowances for doubtful
accounts of $40,866; 2001 - $92,331] [note 3]. . . . 169,675 173,105
Prepaid expenses . . . . . . . . . . . . . . . . . . . 102,118 60,465
-----------------------------------------------------------------------------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . 812,961 382,002
-----------------------------------------------------------------------------------
Property and equipment, net [note 4] . . . . . . . . . 638,665 341,688
-----------------------------------------------------------------------------------
1,451,626 723,690
-----------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Bank indebtedness. . . . . . . . . . . . . . . . . . . - 6,081
Accounts payable . . . . . . . . . . . . . . . . . . . 313,272 373,674
Accrued payroll liabilities. . . . . . . . . . . . . . 109,930 144,920
Deferred revenue . . . . . . . . . . . . . . . . . . . 320,900 124,944
Current portion of capital lease obligation [note 5] . 103,205 7,674
Current portion of notes payable [note 6]. . . . . . . 95,371 108,837
Current portion of convertible notes [note 7]. . . . . 81,328 2,509,236
Warrants liability [note 10] . . . . . . . . . . . . . - 110,000
-----------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . 1,024,006 3,385,366
-----------------------------------------------------------------------------------
Capital lease obligation [note 5]. . . . . . . . . . . 31,844 11,231
Notes payable [note 6] . . . . . . . . . . . . . . . . 159,787 -
Convertible notes [note 7] . . . . . . . . . . . . . . 1,486,806 -
Convertible debentures [note 8]. . . . . . . . . . . . - 70,695
-----------------------------------------------------------------------------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . 2,702,443 3,467,292
-----------------------------------------------------------------------------------
Commitments and contingencies [note 14]
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common stock, no par value [note 11]
Authorized shares - 75,000,000
Issued and outstanding shares - 19,552,596 in 2001
and 10,131,260 in 2001 . . . . . . . . . . . . . 9,203,235 7,969,090
Additional paid-in capital . . . . . . . . . . . . . . 2,987,331 2,422,014
Accumulated deficit. . . . . . . . . . . . . . . . . . (13,441,383) (13,134,706)
-----------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY). . . . . . . . (1,250,817) (2,743,602)
-----------------------------------------------------------------------------------
1,451,626 723,690
-----------------------------------------------------------------------------------
See accompanying notes
20
STOCKGROUP INFORMATION SYSTEMS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31 (expressed in US dollars)
2002 2001
$ $
-------------------------------------------------------------------------------------------
REVENUE
Revenues [note 12]. . . . . . . . . . . . . . . . . . . . . . . . 1,964,699 2,857,151
Cost of revenues. . . . . . . . . . . . . . . . . . . . . . . . . 706,911 1,045,326
-------------------------------------------------------------------------------------------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,257,788 1,811,825
-------------------------------------------------------------------------------------------
EXPENSES
Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . 475,038 466,954
Product development . . . . . . . . . . . . . . . . . . . . . . . 78,792 241,392
General and administrative. . . . . . . . . . . . . . . . . . . . 1,712,056 1,776,710
-------------------------------------------------------------------------------------------
2,265,886 2,485,056
-------------------------------------------------------------------------------------------
Loss from operations. . . . . . . . . . . . . . . . . . . . . . . (1,008,098) (673,231)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . 195 4,020
Interest expense [notes 5, 6, 7 and 8]. . . . . . . . . . . . . . (319,641) (596,097)
Gain (loss) on warrants liability [note 10] . . . . . . . . . . . (55,000) 242,000
Gain on restructuring of convertible notes [note 7] . . . . . . . 1,088,586 -
Gain on convertible note redemptions. . . . . . . . . . . . . . . - 58,701
Other income (expense). . . . . . . . . . . . . . . . . . . . . . (12,719) 9,509
-------------------------------------------------------------------------------------------
Loss before cumulative effect of change in accounting principle . (306,677) (955,098)
Cumulative effect of change in accounting principle [note 10] . . - 413,546
-------------------------------------------------------------------------------------------
NET LOSS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (306,677) (541,552)
-------------------------------------------------------------------------------------------
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Loss before cumulative change in accounting principle . . . . . . (0.02) (0.10)
Cumulative effect of change in accounting principle . . . . . . . - 0.04
-------------------------------------------------------------------------------------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.02) (0.06)
-------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding. . . . . . . 14,151,349 9,305,391
-------------------------------------------------------------------------------------------
See accompanying notes
21
STOCKGROUP INFORMATION SYSTEMS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
Year ended December 31 (expressed in US dollars)
TOTAL
ADDITIONAL ACCUMULATED SHAREHOLDERS
COMMON STOCK COMMON STOCK PAID-IN CAPITAL DEFICIT EQUITY
[note 11] # OF SHARES $ $ $ (DEFICIENCY) $
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 . . . . . . . . . . 8,467,676 7,344,483 2,602,743 (12,593,154) (2,645,928)
Fair value of detachable warrants
pursuant to convertible debenture
private placement, net of financing costs. . . . - - 298,778 - 298,778
Intrinsic value of beneficial conversion
feature pursuant to convertible
debenture private placement. . . . . . . . . . . - - 190,000 - 190,000
Issuance of common stock on partial
conversion of outstanding convertible
notes and debentures . . . . . . . . . . . . . . 960,640 413,664 - - 413,664
Repurchase of beneficial conversion feature
on partial redemption of outstanding
convertible notes. . . . . . . . . . . . . . . . - - (31,551) - (31,551)
Intrinsic value of beneficial conversion
feature pursuant to convertible
notes private placement. . . . . . . . . . . . . - - 32,182 - 32,182
Cumulative effect of change in accounting principle - - (765,546) - (765,546)
Issuance of common stock for shares granted
under the employee stock option plan. . . . . . . 92,944 27,260 - - 27,260
Issuance of common stock pursuant to
exercise of employee stock options. . . . . . . . 600,000 173,993 - - 173,993
Issuance of common stock for consulting services . 10,000 9,690 - - 9,690
Stock based compensation . . . . . . . . . . . . . - - 95,408 - 95,408
Net loss . . . . . . . . . . . . . . . . . . . . . - - - (541,552) (541,552)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 . . . . . . . . . . . 10,131,260 7,969,090 2,422,014 (13,134,706) (2,743,602)
Issuance of common stock on partial
conversion of outstanding
convertible notes [note 7] . . . . . . . . . . 666,700 100,000 - - 100,000
Repurchase of beneficial conversion
feature on partial redemption of
outstanding convertible notes [note 7] . . . - - (247,222) - (247,222)
Issuance of common stock on conversion
of outstanding debentures [note 8]. . . . . . 413,808 - 206,904 - 206,904
Reclassification of warrant liability
to equity [note 10]. . . . . . . . . . . . - - 165,000 - 165,000
Excess of fair value of convertible
debentures after conversion [note 8] . . . . - - 24,000 - 24,000
Issuance of common stock pursuant to
private placements, net . . . . . . . . . . 5,454,750 571,563 301,756 - 873,319
Issuance of common stock pursuant to
asset acquisition [note 9]. . . . . . . . . 2,080,000 424,320 - - 424,320
Issuance of common stock for shares
granted under the employee stock option plan 101,078 17,712 - - 17,712
Issuance of common stock pursuant to
exercise of employee stock options. . . . . 205,000 13,050 - - 13,050
Issuance of common stock for consulting
services . . . . . . . . . . . . . . . . . 500,000 107,500 - - 107,500
Issuance of warrants for consulting services - - 60,000 - 60,000
Stock based compensation . . . . . . . . . . - - 54,879 - 54,879
Net loss . . . . . . . . . . . . . . . . . . - - - (306,677) (306,677)
-----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 19,552,596 9,203,235 2,987,331 (13,441,383) (1,250,817)
-----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes
22
STOCKGROUP INFORMATION SYSTEMS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31 (expressed in US dollars)
2002 2001
$ $
OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . (306,677) (541,552)
Add (deduct) non-cash items
Amortization. . . . . . . . . . . . . . . . . . . . . . . 308,558 191,632
Amortization of deferred financing costs. . . . . . . . . - 8,818
Bad debt expense. . . . . . . . . . . . . . . . . . . . . (51,464) (27,299)
Loss on disposition of property and equipment . . . . . . - 8,759
Non-cash interest on convertible notes and debentures . . 280,471 401,093
Gain on redemption of convertible notes . . . . . . . . . - (58,701)
Gain on restructuring of convertible notes. . . . . . . . (1,088,586) -
Cumulative effect of change in accounting principle . . . - (413,546)
(Gain) loss on warrants liability . . . . . . . . . . . . 55,000 (242,000)
Common stock and warrants issued for consulting services. 167,500 9,690
Stock based compensation. . . . . . . . . . . . . . . . . 72,591 122,668
Unrealized foreign exchange gain. . . . . . . . . . . . . 3,322 -
----------------------------------------------------------------------------------
(559,285) (540,438)
Net change in operating assets and liabilities [note 15]. 128,418 (237,648)
----------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES . . . . . . . . . . . . (430,867) (778,086)
----------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net proceeds from issuance of common stock. . . . . . . . 886,369 173,993
Net proceeds from issuance of convertible debentures. . . - 479,960
Net proceeds from issuance of notes payable . . . . . . . 144,034 100,347
Repayments of convertible notes . . . . . . . . . . . . . (120,000) (181,000)
Repayment of capital lease obligation . . . . . . . . . . (7,231) (5,741)
Repayments of bank indebtedness, net. . . . . . . . . . . (6,081) (8,222)
----------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . 897,091 559,337
----------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment. . . . . . . . . . . . (54,115) (7,103
Proceeds on disposition of property and equipment . . . . 1,243 31,107
----------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES . . . . . (52,872) 24,004
----------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . 413,352 (194,745
Cash and cash equivalents, beginning of year. . . . . . . 126,618 321,363
----------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR. . . . . . . . . . 539,970 126,618
----------------------------------------------------------------------------------
See accompanying notes
23
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Stockgroup Information Systems Inc. (the "Company") is a financial media and
technology company that provides various financial software solutions, tools,
content and services to media, corporate, and financial services companies. The
Company employs proprietary technologies that enable its clients to provide
financial data streams and news combined with fundamental, technical,
productivity, and disclosure tools to their customers, shareholders, and
employees in a cost effective manner. The Company also provides Internet
communications products for publicly traded companies and an online research
center for the investment community through its www.smallcapcenter.com financial
web site.
The Company was incorporated under the laws of Colorado on December 6, 1994. The
Company previously operated under the name Stockgroup.com Holdings, Inc. until
its name was changed in accordance with the relevant provisions of the Colorado
Business Corporations Act and pursuant to shareholder approval received at the
Company's annual general meeting held September 20, 2001.
The financial statements have been prepared by management in accordance with
accounting principles generally accepted in the United States on a going concern
basis, which contemplates the realization of assets and the discharge of
liabilities in the normal course of business for the foreseeable future.
The Company incurred a net loss of $306,677 for the year ended December 31, 2002
[2001 - $541,552], and had a working capital deficiency of $211,045 as at
December 31, 2002. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The Company experienced a significant
reduction in cash used in operations from $778,086 in 2001 to $430,867 in 2002
as a result of cost restructuring activities initiated in 2002. The Company has
negotiated the conversion of $392,984 of its 8% convertible notes on January 28,
2003, thereby eliminating eight mandatory quarterly payments totaling $42,012
and a maturity payment of $350,972. Of the remaining principal of its 8%
convertible notes, a total of $137,988 will be paid in mandatory quarterly
payments of $15,332 until December 31, 2004, and the $1,168,360 balance is due
December 31, 2005. Although the Company has taken steps to achieve profitable
operations in 2002, there are no assurances that the Company will be successful
in achieving its goals.
24
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (CONT'D.)
In view of these conditions, the ability of the Company to continue as a going
concern is uncertain and dependent upon achieving a profitable level of
operations and, if necessary, on the ability of the Company to obtain necessary
financing to fund ongoing operations. Management believes that its current and
future plans provide an opportunity to continue as a going concern. These
financial statements do not give effect to any adjustments which would be
necessary should the Company be unable to continue as a going concern and
therefore be required to realize its assets and discharge its liabilities in
other than the normal course of business and at amounts different from those
reflected in the accompanying financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Stockgroup Media Inc. (British Columbia, Canada),
Stockgroup Systems Ltd. (Nevada, United States), Stockgroup Australia, Pty Ltd.
and 579818 B.C. Ltd. (British Columbia, Canada). All significant intercompany
accounts and transactions have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue recognition
The Company generates its revenues from two primary sources: Public Company
Disclosure and Awareness Products and Financial Software and Content Systems. In
2001, the Company had a third source of revenue, E-Business Solutions, which was
discontinued in 2002.
25
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Public Company Disclosure and Awareness Products consist of small-scale web site
development and maintenance, IntegratIR investor relations tools, monthly
investor marketing programs, and online advertising. Revenue from small-scale
web site development and periodic web site maintenance is recognized upon
completion of the services provided no significant obligations remain and
collection of the resulting receivable is probable. Revenues from IntegratIR,
monthly investor marketing programs, and online advertising are recognized
ratably over the contract life as the service is provided. Most of these
services require an advance payment which is recorded as deferred revenue until
the services have been provided.
Financial Software and Content Systems consists of real time, time delayed and
wireless quotes and charts, company profiles, investment data and technical
analysis. Revenue from set up fees, periodic maintenance fees and contractual
monthly licensing fees for ongoing use of financial tools and content is
recognized ratably over the contract term, which is typically twelve months.
Foreign exchange
The reporting currency and the functional currency of the Company is the U.S.
dollar. The accounts of the Company's Canadian subsidiary are translated into
U.S. dollars such that monetary assets and liabilities are translated at
exchange rates in effect at the balance sheet date and non-monetary items are
translated at exchange rates prevailing at the transaction date. Operating
revenues and expenses are translated at average exchange rates prevailing during
the year. Any corresponding foreign exchange gains and losses are included in
income.
Foreign currency transactions are translated into U.S. dollars at the rate of
exchange in effect at the date of the transaction. Foreign currency balances of
monetary assets and liabilities are translated using the rate of exchange in
effect at the balance sheet date. Foreign exchange gains and losses on
transactions during the year and on the year end translation of the accounts are
included in income.
Fair value of financial instruments
The Company's financial instruments consist of cash and cash equivalents,
marketable securities, accounts receivable, bank indebtedness, accounts payable,
notes payable, convertible notes, convertible debentures and capital lease
obligations. Unless otherwise stated the fair value of the financial instruments
approximates their carrying value.
26
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term deposits with original
maturities of ninety days or less and are recorded at amortized cost.
Marketable securities
Marketable securities consist of equity instruments held for trading and are
recorded at fair value based on quoted market prices. Both realized and
unrealized gains and losses are included in the statement of operations.
Deferred finance costs
Finance costs associated with the issuance of convertible notes and debentures
are deferred and amortized over the term to earliest conversion. All finance
costs have been amortized and included as interest expense in the statement of
operations.
Property and equipment
Property and equipment are carried at cost. Amortization is provided using the
straight line method over the assets estimated useful lives as follows:
Computer equipment 5 years
Computer equipment under capital lease 2 years
Computer software 1 year
Website software 3 years
Office furniture and equipment 5 years
Leasehold improvements Term of the lease
Product development costs
Product development costs other than those incurred during the application
development stage are expensed as incurred. Costs incurred during the
application development stage are required to be capitalized and amortized over
the estimated useful life of the software. Substantially all of the Company's
product development costs are for ongoing operating and maintenance and have
been expensed in the period incurred.
27
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Income taxes
The Company utilizes the liability method of accounting for income taxes. Under
this method, deferred taxes are determined based on the differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates. A valuation allowance is provided against deferred tax assets for which
it is more likely than not that the asset will not be realized.
Stock-based compensation
The Company accounts for fixed stock-based awards to employees in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations and has adopted the disclosure-only
alternative of FASB Statement No. 123, Accounting for Stock-Based Compensation.
Accordingly, compensation expense for stock options issued to employees is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
Earnings per share
Basic earnings (loss) per share is computed based on the weighted average number
of common shares outstanding during each year. Diluted earnings (loss) per share
reflects the dilutive potential of outstanding securities using the treasury
stock method.
For the years ended December 31, 2001 and 2000, all of the Company's common
shares issuable upon the exercise of stock options, warrants and other
convertible securities were excluded from the determination of diluted loss per
share as their effect would be anti-dilutive.
Comprehensive income
Comprehensive income includes all changes in equity except those resulting from
investments by owners and distributions by owners. Comprehensive income
comprises only net income for all years presented.
28
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
Recent pronouncements
In December 2002, the Financial Accounting Standards Board issued Statement No.
148, ("SFAS 148"), "Accounting for Stock-Based Compensation-Transition and
Disclosure-An amendment of FASB Statement No. 123". SFAS 148 amends FASB
Statement No. 123, "Accounting for Stock Based Compensation" ("SFAS 123") and
provides alternative methods for accounting for a change by registrants to the
fair value method of accounting for stock-based compensation. Additionally, SFAS
148 amends the disclosure requirements of SFAS 123 to require disclosure in the
significant accounting policy footnote of both annual and interim financial
statements of the method of accounting for stock-based compensation and the
related pro-forma disclosure when the intrinsic value method continues to be
used. The statement is effective for fiscal years beginning after December 15,
2002. The Company will adopt the disclosure provisions of SFAS 148 beginning in
the quarter ended March 31, 2003.
In April 2002, the Financial Accounting Standards Board issued Statement No.
145, (SFAS 145"), "Rescission of FASB Statements No. 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections". SFAS 145 requires, among
other things, gains or losses of extinguishments of debt to be classified as
income (loss) from continuing operations rather than as an extraordinary items,
unless such extinguishments is determined to be extraordinary pursuant to
Accounting Principles Board Opinion No. 30 ("Opinion 30"), "Reporting the
Results of Operations - Reporting the Effects of a Disposal of a Segment of a
Business and Extraordinary, Unusual, and Infrequently Occurring Transactions".
The provisions SFAS 145 are effective for fiscal years beginning after May 15,
2002. Any gain or loss on extinguishment of debt that was classified as an
extraordinary item in prior periods presented that does not meet the criteria in
Opinion 30 for classification as an extraordinary item must be reclassified. The
Company will early adopt the provisions of SFAS 145 for the year ended December
31, 2002 and accordingly, will reclassify the $58,701 gain on convertible note
redemptions for 2001 from extraordinary items to a separate component of income
before taxes.
29
3. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents and trade
receivables.
The Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. No customer owed greater than 10% of the
outstanding receivables in 2002. Amounts owing from two customers represented
12% and 12% respectively of the total accounts receivable balance in 2001.
4. PROPERTY AND EQUIPMENT
ACCUMULATED NET BOOK
COST AMORTIZATION VALUE
$ $ $
--------------------------------------------------------------------------------
2002
Computer equipment . . . . . . . . . . 514,541 389,184 125,357
Computer equipment under capital lease 154,254 46,195 108,059
Computer software. . . . . . . . . . . 147,747 111,070 36,677
Website software [note 9]. . . . . . . 347,122 46,680 300,442
Office furniture and equipment . . . . 141,047 102,780 38,267
Leasehold improvements . . . . . . . . 62,434 32,571 29,863
--------------------------------------------------------------------------------
1,367,145 728,480 638,665
--------------------------------------------------------------------------------
2001
Computer equipment . . . . . . . . . . 531,682 299,841 231,841
Computer equipment under capital lease 24,646 6,097 18,549
Computer software. . . . . . . . . . . 110,698 110,698 -
Office furniture and equipment . . . . 146,187 76,621 69,566
Leasehold improvements . . . . . . . . 42,197 20,465 21,732
--------------------------------------------------------------------------------
855,410 513,722 341,688
--------------------------------------------------------------------------------
30
5. CAPITAL LEASE OBLIGATION
The Company has capital lease agreements for computer equipment with lease
obligations as follows:
2002
$
--------------------------------------------------------------------------------------------
Total future lease payments. . . . . . . . . . . . . . . . . . . . . . . . . 156,823
Less interest (effective rate during 2002 - 17%) . . . . . . . . . . . . . . (21,774)
--------------------------------------------------------------------------------------------
135,049
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . (103,205)
--------------------------------------------------------------------------------------------
31,844
--------------------------------------------------------------------------------------------
The following capital lease payments are required over the next two years:
$
--------------------------------------------------------------------------------------------
2003 123,685
2004 33,138
--------------------------------------------------------------------------------------------
156,823
--------------------------------------------------------------------------------------------
31
6. NOTES PAYABLE
The following table summarizes the activity under various agreements:
PRINCIPAL ACCRUED INTEREST TOTAL
$ $ $
--------------------------------------------------------------------------------------
2002
16% Notes payable, no specified maturity date 35,000 9,301 44,301
17% Notes payable, maturing January 31, 2004. 159,787 1,794 161,581
25% Notes payable, maturing January 21, 2003. 47,000 2,276 49,276
--------------------------------------------------------------------------------------
Total Notes payable . . . . . . . . . . . . . 241,787 13,371 255,158
--------------------------------------------------------------------------------------
2001
16% Notes payable, maturing July 30, 2002 . . 100,347 8,490 108,837
--------------------------------------------------------------------------------------
Total Notes payable . . . . . . . . . . . . . 100,347 8,490 108,837
--------------------------------------------------------------------------------------
On May 8, 2001 the Company entered into a Securities Purchase Agreement with an
individual related to a Director and Officer of the Company to issue $32,375
(Cdn$50,000) of secured unregistered 16% notes. The notes had an original
maturity of July 30, 2002 that was informally extended until November 18, 2002,
at which time the investor agreed to an amendment to extend the maturity date to
January 31, 2004 and increase the interest rate to 17%. The note has been
collateralized by a second floating charge over all of the Company's Canadian
subsidiary's property, assets, and rights.
On May 10, 2001, the Company entered into a Securities Purchase Agreement with
an unrelated investor to issue $35,000 of secured unregistered 16% notes. The
notes had an original maturity of July 30, 2002. The notes were extended beyond
the original maturity by an informal agreement for an undetermined period. All
accrued interest to December 31, 2002 was paid in January 2003.
On July 16, 2001, the Company entered into a Securities Purchase Agreement with
a Director and Officer of the Company to issue $32,972 (Cdn$50,000) of secured
unregistered 16% notes. The notes had an original maturity of July 30, 2002 that
was informally extended until November 18, 2002, at which time the investor
agreed to an amendment to extend the maturity date to January 31, 2004 and
increase the interest rate to 17%. The note has been collateralized by a second
floating charge over all of the Company's Canadian subsidiary's property,
assets, and rights.
32
6. NOTES PAYABLE (CONT'D.)
On July 23, 2002, the Company issued a $97,034 (Cdn $152,400) promissory note to
an unrelated party that bears interest at 17% interest and matures on June 30,
2003. On November 18, 2002, the noteholder agreed to extend the maturity date to
January 31, 2004. The note is collateralized by a General Security Agreement,
which places a floating charge over all of the Company's Canadian subsidiary's
property, assets, and rights.
On October 22, 2002, the Company issued a $47,000 promissory note to an
unrelated party that bears interest at 25.5% and matures on January 21, 2003.
The note is collateralized by a General Security Agreement, which places a
floating charge over all of the Company's Canadian subsidiary's property,
assets, and rights, but which is subordinated to the 16% and 17% notes. The
principal plus accrued interest was paid on January 21, 2003.
7. CONVERTIBLE NOTES
2002 2001
$ $
-------------------------------------------------------------------------
8% Convertible notes, maturing December 31, 2005
Principal . . . . . . . . . . . . . . . . . . . . 1,704,000 1,924,000
Prepayment premium. . . . . . . . . . . . . . . . - 288,600
Accrued interest. . . . . . . . . . . . . . . . . - 296,636
Unamortized debt discount . . . . . . . . . . . . (135,866) -
-------------------------------------------------------------------------
1,568,134 2,509,236
-------------------------------------------------------------------------
Current portion . . . . . . . . . . . . . . . . . 81,328 2,509,236
Long term portion . . . . . . . . . . . . . . . . 1,486,806 -
-------------------------------------------------------------------------
1,568,134 2,509,236
-------------------------------------------------------------------------
On February 6, 2002 the Company and the two lenders reached an agreement to
restructure the terms and conditions of the existing convertible notes and
callable warrants.
33
7. CONVERTIBLE NOTES (CONT'D.)
The note holders agreed to waive the 15% prepayment premium of $288,600 and the
accrued interest to date of $315,000 and immediately converted $100,000 of the
principal balance due into 666,700 common shares of the Company at a conversion
price of $0.15. The remaining principal balance of $1,824,000 matures on
December 31, 2005. The notes are non-interest bearing and are convertible into
common shares at the option of the holder at any time at a fixed conversion
price of $0.50 through to December 31, 2003. From January 1, 2004 to December
31, 2005, or sooner in the event of a default on any mandatory payment described
below, the notes bear interest at 8% and are convertible into common shares at
the option of the holder at any time at a conversion price equal to the lesser
of (i) the initial conversion price of $0.50 and (ii) 88% of the average of the
5 lowest closing prices of the Company's common shares during the 30 trading
days prior to the date of conversion.
The restructured agreement provides for $300,000 of mandatory payments through
to December 31, 2004. $23,340 was paid on June 28, 2002, $76,660 was paid on
July 12, 2002, $20,000 was paid on October 1, 2002, and $20,000 was paid on
January 2, 2003. Separate payments of $20,000 are due at the end of each of the
next eight quarters through to December 31, 2004. If applicable, the Company
will also provide mandatory payments of 20% of the gross proceeds raised from
any common stock or common stock equivalent financing in excess $500,000 in
2003.
The restructuring resulted in a gain of $1,088,586 consisting of $603,600 for
the waived prepayment premium and accrued interest, $247,222 for the repurchase
of the beneficial conversion feature and $237,764 for the debt discount
representing the difference between the fair value of the notes at a market
interest rate of 8% and the face value of the notes which are non-interest
bearing through to December 31, 2003. The debt discount of $237,764 is subject
to accretion over the interest-free period ending December 31, 2003.
The callable warrants permit the holders to acquire up to 181,818 common shares
at an exercise price of $3.00 at any time up to March 31, 2005. The warrants may
be called by the Company, at a purchase price of $.01 per underlying share, if
the stock price of the Company's common shares exceeds $6.00 for any 20
consecutive trading days, provided that the holders have the right to exercise
the warrants within 30 days after their receipt of such a call.
On January 28, 2003, one of the lenders agreed to convert its entire principal
balance of $392,984 into 1,228,075 common shares of the Company at $0.32 per
common share. This conversion reduces the mandatory quarterly cash payments to
$15,332 from $20,000.
34
8. CONVERTIBLE DEBENTURES
2002 2001
$ $
-------------------------------------------------------------------------
3% Convertible debentures, maturing December 31, 2003
Principal. . . . . . . . . . . . . . . . . . . . . . . - 200,000
Unamortized warrants discount. . . . . . . . . . . . . - (84,013)
Unamortized beneficial conversion feature. . . . . . . - (51,490)
Accrued interest . . . . . . . . . . . . . . . . . . . - 6,198
-------------------------------------------------------------------------
- 70,695
-------------------------------------------------------------------------
On March 15, 2002, the Company and the 3% convertible debenture holders agreed
to an amendment to the original Securities Purchase Agreement. The debenture
holders agreed to immediately convert the $200,000 of outstanding principal and
$6,904 accrued interest into 413,808 common shares of the Company at the minimum
conversion price of $0.50. The conversion resulted in the immediate recognition
of $135,503 in interest expense related to the previously unamortized debt
discount and beneficial conversion feature.
The Company agreed to modify the existing terms of the Series 3A and 3B
warrants. The exercise price of the Series 3A warrants has been reduced from
$1.00 to $0.25. The exercise price of the Series 3B warrants has been reduced
from $2.00 to $0.50. The expiry date for both the Series 3A and 3B warrants has
been extended to July 31, 2005 from December 31, 2004. The reduction in the
exercise price and extension of the expiry date of the warrants is accounted for
as an inducement to convert the convertible debentures. The fair value of the
warrants after the conversion was $24,000 greater than the fair value of the
warrants prior to conversion and this excess fair value was recorded as interest
expense on the conversion date.
35
9. ASSET ACQUISITION
On June 24, 2002, the Company acquired certain website and related software
assets of Stockhouse Media Corporation ("Stockhouse"). Under the terms of the
agreement, the Company purchased a 65% interest in the assets by issuing
2,080,000 shares of unregistered common stock with a fair value of $424,320. The
assets acquired consisted of program source codes underlying the website for
$347,122, and prepaid operating costs of $77,198.
The prepaid operating costs of $77,198 were expensed fully in the current year.
The website software is being amortized over a three year period commencing on
the date of acquisition.
Presently, an unrelated third party investor is also considering an investment
in Stockhouse that would effect certain terms and conditions of the Company's
agreement with Stockhouse. If the third party invests in Stockhouse, then the
Company would maintain its 65% interest in the acquired assets but would have
the option to acquire the remaining 35% during the period of one year following
June 24, 2004. During the same period, Stockhouse would also have the option to
cause the Company to purchase the remaining 35% interest.
If the third party does not invest in Stockhouse, then the Company will
immediately have the option to acquire the remaining 35% of the website and
related software assets of Stockhouse with the issuance of additional common
shares. As per the terms of the agreement, the number of common shares to be
issued for the remaining 35% shall not be less than 920,000 shares and not more
than 1,120,000 shares.
The original 2,080,000 common shares were issued into an escrow account on June
28, 2002 and will be released to Stockhouse on the date the third party investor
makes its decision.
As of February 24, 2003, the Company has not exercised its option to acquire the
remaining 35%.
36
10. WARRANTS LIABILITY AND CUMULATIVE CHANGE IN ACCOUNTING PRINCIPLE
The Emerging Issues Task Force Abstract No. 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock ("EITF 00-19") became applicable to the Company's warrants on June 30,
2001. Since the number of shares issuable in the event of exercise of the
callable warrants is not currently subject to an explicit limit, the Company's
300,000 callable and 800,000 other warrants were presented as a liability at
their fair value as at June 30, 2001. The fair value of the warrants liability
was estimated using the Black-Scholes option pricing model. The $413,546
difference between the previous carrying value of the warrants in additional
paid in capital of $765,546 and their fair value at June 30, 2001 of $352,000
has been recorded as the cumulative effect of a change in accounting principle
on prior periods. This $413,546 change in accounting principle has decreased the
net loss per share for the year ended December 31, 2001 by $0.04.
As at December 31, 2001, the Company could not demonstrate they had a sufficient
number of authorized but unissued shares to share settle all of the outstanding
warrants if exercised and the $110,000 fair value of the warrants was classified
as a current liability. As a result of the February 6, 2002 restructuring of the
convertible notes and callable warrants, the Company could demonstrate they had
a sufficient number of authorized but unissued shares to settle all of the
outstanding warrants if exercised and the $165,000 fair value of the warrants
was reclassified as equity. The $55,000 difference between the fair value on
December 31, 2001 and February 6, 2002 was recorded as a loss on warrants
liability in the statement of operations.
11. SHARE CAPITAL
[a] Authorized
The Company is authorized to issue up to 75,000,000 shares of common stock and
5,000,000 shares of preferred stock. No preferred stock are issued and
outstanding in the years presented.
37
11. SHARE CAPITAL (CONT'D.)
[b] Common stock
2002
On February 6, 2002, the Company issued 666,700 common shares pursuant to a
conversion of $100,000 of principal under the restructured convertible notes
[Note 7].
On February 25, 2002, the Company issued 33,000 common shares with a fair value
of $7,500 to an employee for services rendered.
On March 5, 2002, the Company issued 500,000 common shares to a consultant
pursuant to a service contract. The transaction was recorded at a fair value of
$107,500 based on the closing stock price on the date of the agreement.
On March 16, 2002, the Company issued warrants to purchase 250,000 common shares
to a consultant pursuant to a services agreement. The warrants have an exercise
price of $0.30 and expire on September 15, 2003. The $60,000 fair value of the
warrants issued was estimated using the Black-Scholes option pricing model and
was recorded as an expense in the current year.
On March 25, 2002, the Company issued 413,808 common shares pursuant to a
conversion of the final $206,904 in principal and accrued interest of the
convertible debentures as amended [Note 8].
On March 28, 2002, the Company completed a private placement of 2,000,000 units
at $0.20, each unit consisting of one common share and one warrant, plus 51,000
common shares, for gross proceeds of $410,200. Financing fees were $19,280 and
legal fees were $7,195, resulting in net cash proceeds of $383,725. Each warrant
entitles the holder to acquire one common share at $0.25 per share until March
31, 2003. The net proceeds were allocated to common stock and warrants based on
the relative fair value of each security at the time of issuance.
On June 28, 2002, the Company issued 2,080,000 common shares with a fair value
of $424,320 to Stockhouse Media Corporation pursuant to an asset purchase
agreement. The shares are being held in escrow until certain terms of the
agreement are met.
On September 23, 2002, the Company issued 68,078 common shares with a fair value
of $10,212 to an employee for services rendered.
38
11. SHARE CAPITAL (CONT'D.)
On November 20, 2002, a consultant exercised options resulting in the issuance
of 100,000 common shares for exercise proceeds of $12,000.
On November 25, 2002, an employee exercised options resulting in the issuance of
105,000 common shares for exercise proceeds of $1,050.
On December 31, 2002, the Company completed a private placement of 3,403,750
units at $0.16, each unit consisting of one common share and one warrant, for
gross proceeds of $544,600. Financing fees were $50,960 and legal fees were
$4,046, resulting in net cash proceeds of $489,594. Each two warrants entitle
the holder to acquire one common share at $0.22 per share until December 31,
2003. The net proceeds were allocated to common stock and warrants based on the
relative fair value of each security at the time of issuance. In addition,
150,000 warrants were issued to a placement agent with each warrant entitling
the holder to acquire one common share at $0.16 per share until December 31,
2003. The fair value of the $0.16 warrants was allocated to common stock and
warrants based on the relative fair value of each security at the time of
issuance.
2001
The Company issued an aggregate of 960,640 common shares pursuant to conversions
of convertible notes and debentures.
On January 19, 2001, the Company issued warrants to purchase 800,000 common
shares. The fair value of the warrants issued, net of financing costs, amounted
to $298,778 and was recorded as an increase to additional paid-in capital.
The Company issued an aggregate of 92,944 common shares directly to employees in
consideration for past services resulting in a compensation expense and an
increase in share capital of $27,260.
The Company issued an aggregate of 600,000 common shares to employees pursuant
to the exercise of stock options for total proceeds of $173,993.
The Company issued 10,000 common shares in exchange for consulting services. The
transaction was recorded at a fair value of $9,690 for the common shares based
on the closing stock price on the January 18, 2001 date of the agreement.
39
11. SHARE CAPITAL (CONT'D.)
[c] Stock options
1999, 2000, 2001 AND 2002 INCENTIVE STOCK OPTION PLANS (COLLECTIVELY THE
"PLANS")
The following table sets out the authorized shares under each plan:
COMMON
SHARES
EFFECTIVE DATE AUTHORIZED
-------------------------------------------------------------------
1999 Incentive Stock Option Plan March 11, 1999 2,000,000
2000 Incentive Stock Option Plan November 10, 2000 500,000
2001 Incentive Stock Option Plan September 20, 2001 1,000,000
2002 Incentive Stock Option Plan March 25, 2002 1,500,000
-------------------------------------------------------------------
Total authorized . . . . . . . . 5,000,000
-------------------------------------------------------------------
The Plans entitle directors, employees and consultants to purchase common shares
of the Company.
Options immediately become exercisable once vested. Any options that do not vest
as the result of a grantee leaving the Company are forfeited and the common
shares underlying them are returned to the reserve. The Board has the authority
to vary the vesting provisions of grants at its discretion.
Activity under the Plans is set forth below:
OPTIONS OUTSTANDING
-----------------------------------------
SHARES WEIGHTED
AVAILABLE FOR NUMBER OF PRICE PER AVERAGE
GRANT SHARES SHARE EXERCISE PRICE
----------------------------------------------------------------------------------------
Balance at December 31, 2000 514,000 1,986,000 $0.01 - 4.44 $ 1.70
Additional shares authorized 1,000,000 - - -
Options granted. . . . . . . (2,184,644) 2,184,644 $0.12 - 3.58 $ 0.29
Options forfeited. . . . . . 1,061,800 (1,061,800) $0.20 - 4.44 $ 1.49
Options exercised. . . . . . - (692,944) $0.14 - 3.58 $ 0.34
----------------------------------------------------------------------------------------
Balance at December 31, 2001 391,156 2,415,900 $0.01 - 2.75 $ 0.91
Additional shares authorized 1,500,000 - - -
Options granted. . . . . . . (2,238,078) 2,238,078 $0.15 - 0.40 $ 0.18
Options forfeited. . . . . . 1,245,200 (1,245,200) $0.20 - 2.75 $ 1.57
Options exercised. . . . . . - (806,078) $0.01 - 0.25 $ 0.06
----------------------------------------------------------------------------------------
Balance at December 31, 2002 898,278 2,602,700 $0.12 - 0.59 $ 0.20
----------------------------------------------------------------------------------------
40
11. SHARE CAPITAL (CONT'D.)
The number of options granted and options exercised for 2002 include 601,078
direct awards of common shares.
The weighted average remaining contractual life and weighted average exercise
price of options outstanding and of options exercisable as of December 31, 2002
are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE AVERAGE
SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------------------------------------------------------------------------------------------
0.12 200,000 4.72 $ 0.12 200,000 $ 0.12
0.15 812,000 5.68 $ 0.15 735,100 $ 0.15
0.17 300,000 5.37 $ 0.17 300,000 $ 0.17
0.22 1,033,200 4.83 $ 0.22 926,560 $ 0.22
0.31 157,500 3.33 $ 0.31 157,500 $ 0.31
0.40 50,000 5.75 $ 0.40 20,000 $ 0.40
0.59 50,000 4.02 $ 0.59 10,000 $ 0.59
------------------------------------------------------------------------------------------------
2,602,700 5.06 $ 0.20 2,349,160 $ 0.19
------------------------------------------------------------------------------------------------
For the year ended December 31, 2002 the Company recorded $240,091 [2001 -
$122,668] in stock based compensation expense. Of this total, $54,879 [2001 -
$95,408] is a result of options granted to an employee in 1999 with an exercise
price less than the market price of the common stock on the date of grant. A
total of $17,712 relates to stock bonuses granted to an employee measured at the
market price on the date of the grant. A total of $167,500 relates to shares and
warrants granted to consultants in exchange for services which have been
measured at fair value on the commitment date [2001 - $27,260].
41
11. SHARE CAPITAL (CONT'D.)
PRO FORMA DISCLOSURE OF STOCK BASED COMPENSATION
Pro forma information regarding results of operations and earnings (loss) per
share is required by FASB Statement No. 123 ("SFAS 123") for stock-based awards
to employees as if the Company had accounted for such awards using a valuation
method permitted under SFAS 123.
The fair value of the Company's stock-based awards granted to employees in 2002
and 2001 was estimated using the Black-Scholes option pricing model. The option
pricing assumptions include a dividend yield of 0%, a weighted average expected
life of 4.5 years [2001 - 4.5 years], a risk free interest rate of 3.83% [2001 -
4.45%] and an expected volatility of 214% [2001 - 216%]. The weighted average
fair value of options granted during 2002 was $0.18 [2001 - $0.12]. For pro
forma purposes, the estimated value of the Company's stock-based awards to
employees is amortized over the vesting period of the underlying options. The
effect on the Company's net loss and loss per share of applying SFAS 123 to the
Company's stock-based awards to employees would approximate the following:
2002 2001
$ $
--------------------------------------------------------
Net loss. . . . . . . . . . . . . (306,677) (541,552)
Compensation expense. . . . . . . (306,406) (380,148)
--------------------------------------------------------
Pro forma net loss. . . . . . . . (613,083) (921,700)
--------------------------------------------------------
BASIC AND DILUTED LOSS PER SHARE
As reported . . . . . . . . . . . (0.02) (0.06)
Pro forma . . . . . . . . . . . . (0.04) (0.10)
--------------------------------------------------------
42
11. SHARE CAPITAL (CONT'D.)
[d] Warrants
As at December 31, 2002, common stock issuable pursuant to warrants outstanding
is as follows:
OUTSTANDING AT OUTSTANDING AT EXERCISE
JANUARY 1 ISSUED EXERCISED CANCELLED DECEMBER 31 PRICE EXPIRY
# # # # # $ DATE
----------------------------------------------------------------------------------------------------------------------------------
2002
Series 1. 300,000 - - 18,182 281,818 3.00 March 31, 2005
Series 3A 500,000 - - - 500,000 0.25 July 31, 2005
Series 3B 300,000 - - - 300,000 0.50 July 31, 2005
Series 4. - 2,000,000 - - 2,000,000 0.25 March 31, 2003
Series 5. - 250,000 - - 250,000 0.30 September 15, 2003
Series 6. - 1,701,875 - - 1,701,875 0.22 December 31, 2003
Series 7. - 150,000 - - 150,000 0.16 December 31, 2003
----------------------------------------------------------------------------------------------------------------------------------
1,100,000 4,101,875 - 18,182 5,183,693
OUTSTANDING AT OUTSTANDING AT EXERCISE
JANUARY 1 ISSUED EXERCISED CANCELLED DECEMBER 31 PRICE EXPIRY
# # # # # $ DATE
----------------------------------------------------------------------------------------------------------------------------------
2001
Series 1 warrants. 272,727 27,273 - - 300,000 3.00 March 31, 2005
Series 2 warrants. 100,000 - - 100,000 - - Cancelled
Series 3A warrants - 500,000 - - 500,000 1.00 December 31, 2004
Series 3B warrants - 300,000 - - 300,000 2.00 December 31, 2004
----------------------------------------------------------------------------------------------------------------------------------
372,727 827,273 - 100,000 1,100,000
----------------------------------------------------------------------------------------------------------------------------------
43
12. SEGMENTED INFORMATION
The Company operates in one industry segment and derives its revenue from the
following services:
2002 2001
$ $
-----------------------------------------------------------------------------------------------
Public company solutions . . . . . . . . . . . . . . . . . . . . . . . 1,209,164 1,643,023
Financial software and content systems . . . . . . . . . . . . . . . . 755,535 580,409
E-business solutions . . . . . . . . . . . . . . . . . . . . . . . . . - 633,719
-----------------------------------------------------------------------------------------------
1,964,699 2,857,151
-----------------------------------------------------------------------------------------------
Revenue from external customers, by country of origin, is as follows:
2002 2001
$ $
-----------------------------------------------------------------------------------------------
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,870,521 2,655,477
United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,178 201,674
-----------------------------------------------------------------------------------------------
1,964,699 2,857,151
-----------------------------------------------------------------------------------------------
During 2002, the Company had no customers whose revenue represented greater than
10% of total revenue. During 2001, the Company had one customer whose revenue
represented 20% of total revenue.
Substantially all of the Company's property and equipment is located in Canada.
44
13. INCOME TAXES
The Company is subject to United States federal and state income taxes at an
approximate rate of 35%. The reconciliation of the provision (recovery) for
income taxes at the United States federal statutory rate compared to the
Company's income tax expense as reported is as follows:
2002 2001
$ $
--------------------------------------------------------------------------------
Tax expense (recovery) at U.S. statutory rates. . . . (107,000) (190,000)
Lower (higher) effective income taxes of
Canadian subsidiary . . . . . . . . . . . . . . . . . (31,000) (26,000)
Change in valuation allowance . . . . . . . . . . . . 158,000 (852,000)
Change in opening valuation allowance for the
reduction in future enacted tax rates . . . . . . . . - 1,004,000
Non-deductible expenses . . . . . . . . . . . . . . . 279,000 64,000
Non-taxable income. . . . . . . . . . . . . . . . . . (381,000) -
Non-taxable portion of capital loss realized during
the year. . . . . . . . . . . . . . . . . . . . . . . 82,000 -
--------------------------------------------------------------------------------
Income tax provision (recovery) . . . . . . . . . . . - -
--------------------------------------------------------------------------------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets as of December 31,
2002 are as follows:
2002 2001
$ $
--------------------------------------------------------------------------------
Net operating loss carryforwards. . . . . . . . . . . 2,997,000 3,091,000
Net capital loss carryforwards. . . . . . . . . . . . 82,000 -
Property and equipment. . . . . . . . . . . . . . . . 205,000 149,000
Other . . . . . . . . . . . . . . . . . . . . . . . . 114,000 -
--------------------------------------------------------------------------------
Total deferred tax assets . . . . . . . . . . . . . . 3,398,000 3,240,000
Valuation allowance . . . . . . . . . . . . . . . . . (3,398,000) (3,240,000)
--------------------------------------------------------------------------------
Net deferred tax assets . . . . . . . . . . . . . . . - -
--------------------------------------------------------------------------------
The Company has recognized a valuation allowance for the deferred tax assets for
which it is more likely than not that realization will not occur.
45
13. INCOME TAXES (CONT'D.)
The net operating loss carryforwards expire as follows:
$
--------------------------------------------------------------------------------
CANADA
2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,576,000
2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,289,000
2008. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 459,000
--------------------------------------------------------------------------------
5,324,000
--------------------------------------------------------------------------------
U.S.
2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,173,000
2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,494,000
2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,000
2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342,000
--------------------------------------------------------------------------------
3,144,000
--------------------------------------------------------------------------------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,468,000
--------------------------------------------------------------------------------
The Company also has net capital losses of $230,000 available to offset future
taxable capital gains in Canada.
Pursuant to Section 382 of the Internal Revenue Code, use of the Company's net
operating loss carryforwards may be limited if the Company experiences a
cumulative change in ownership of greater than 50% in a moving three year
period. Ownership changes could impact the Company's ability to utilize net
operating losses and credit carryforwards remaining at the ownership change
date. The limitation will be determined by the fair market value of common stock
outstanding prior to the ownership change, multiplied by the applicable federal
rate. The Canadian non-capital loss carryforwards may also be limited by a
change in Company ownership.
46
14. COMMITMENTS AND CONTINGENCIES
[a] The Company has operating lease commitments with respect to office
premises with minimum annual payments as follows:
$
--------------------------------------------------------------------------------
2003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,000
2005. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,000
2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157,000
--------------------------------------------------------------------------------
865,000
--------------------------------------------------------------------------------
Rental expense included in general and administrative expenses for the year
ended December 31, 2002 was $191,000 [2001 - $289,000].
[b] The Company is currently involved in litigation with a customer to
collect amounts owing pursuant to a contract entered into in September 2000. The
defendant provided a $100,000 deposit and contracted the Company to provide
certain lead generation services. The Company delivered the requested services
throughout October and November 2000, however, the defendant defaulted on all
additional payments. The Company is suing the defendant for the $351,800 balance
owing, plus interest and costs. The defendant has filed a statement of defense
and counterclaim to recover the $100,000 deposit. As of December 31, 2002, no
further action had been taken by either party and no court date has been set.
Although management currently believes the outcome of the litigation will be in
the Company's favour, they have not elected to aggressively pursue the
litigation at this time. The Company has made no provision for the counterclaim
in the financial statements and any settlement or final award will be reflected
in the statement of operations as the litigation is resolved.
47
15. SUPPLEMENTAL CASH FLOW INFORMATION
Net changes in operating assets and liabilities are as follows:
2001 2001
$ $
---------------------------------------------------------------------------
Marketable securities . . . . . . . . . . . . . . . . 20,616 (4,729)
Accounts receivable . . . . . . . . . . . . . . . . . 54,895 73,004
Prepaid expenses. . . . . . . . . . . . . . . . . . . (41,653) 55,662
Accounts payable. . . . . . . . . . . . . . . . . . . (60,819) (437,160)
Accrued payroll liabilities . . . . . . . . . . . . . (45,458) (46,706)
Accrued interest on notes payable . . . . . . . . . . 4,881 8,490
Accrued interest on convertible notes and debentures. - 170,834
Deferred revenue. . . . . . . . . . . . . . . . . . . 195,956 (57,043)
---------------------------------------------------------------------------
128,418 (237,648)
---------------------------------------------------------------------------
Non-cash investing and financing activities are as follows:
2002 2001
$ $
---------------------------------------------------------------------------------
Computer equipment acquired under capital lease. . . . . . . . 129,608 24,646
Asset acquisition completed with the issuance of common stock. 424,320 -
---------------------------------------------------------------------------------
Cash amounts paid for interest are as follows:
2002 2001
$ $
---------------------------------------------------------------------------------
Cash paid for interest. 39,586 24,170
---------------------------------------------------------------------------------
48
Part III
Item 9. Directors, executive officers, promoters and control persons;
compliance with section 16(a) of the exchange act.
The following table sets forth, as of December 31, 2002, the name, age and
position of our directors, executive officers and other significant employees.
Director/
Director/
Officer
Name Age Since Position with the Company
-----------------------------------------------------------------------------------------------
Marcus A. New . . . . . . . . 33 May 1995(3) Chairman of the Board, CEO
Leslie Landes . . . . . . . . 58 August 1998(4) Director, President
David Gillard . . . . . . . . 33 November 2001 Chief Financial Officer
Craig Faulkner . . . . . . . . 32 May 1995(5) Director
David Caddey . . . . . . . . . 53 June 1999 Director
Louis de Boer II . . . . . . . 50 August 1998 Director
Jeffrey Berwick . . . . . . . 32 July 2002 Director
There are no other significant employees, family relationships, or legal
proceedings in regard to the disclosed individuals above which require inclusion
in this item.
The backgrounds of the our Directors, Officers and significant employees are as
follows:
Marcus New, B.A., Founder, Chairman of the Board and CEO
Marcus New is the founder, and has been Chairman and Chief Executive Officer
since May 1995, of Stockgroup. Mr. New formed the vision for Stockgroup in 1995
and developed the company from an idea to the goal of becoming a leader in
information solutions for financial services companies and a leading provider of
investor relations products for public companies on the Internet. Over the last
five years he has grown the company by re-investing internally generated capital
and has successfully built a substantial corporate client roster. Similar to
other successful Internet pioneers, Mr. New created Stockgroup based on
identification of the ways in which the Internet could be used to provide
services that were not otherwise available. Prior to that, Mr. New was VP of
AmCan Public Relations Group and is currently a director of Iwave.com Inc., an
online information company. Mr. New earned a Bachelor of Arts degree majoring
in business from Trinity Western University.
Leslie A. Landes, Director, President and Chief Operating Officer
Leslie Landes has served as Stockgroup's President and Chief Operating Officer
since August 1998 and has been an advisor to Stockgroup since shortly after its
inception. Since January 1992, Mr. Landes has served as the President and as a
director of Landes Enterprises Limited, which he founded, and which is an
interim turnaround management consulting company that advised and counseled
clients in several industries, including telecommunications and technology on
issues ranging from mergers and acquisitions to international marketing
campaigns. Prior to forming Landes Enterprises in 1992 Mr. Landes spent 13 years
with the Jim Pattison Group, Canada's third largest privately held company with
sales in excess of CDN$3 Billion, with over 13,000 employees. He served as
President of The Jim Pattison Sign Group, Outdoor Group, and Communications
Group, which included radio and television stations and paid subscription print
publications. Ultimately he was appointed President of Jim Pattison Industries
----------------------------
3 Mr. New was a founding member and CEO of Stock Research Group Ltd., which was
incorporated in May, 1995, and became a director of Stockgroup in March, 1999.
4 Mr. Landes became President in August, 1998, but was not a director until
June, 1999
5 Mr. Faulkner was a founding member and Chief Technology Officer of Stock
Research Group Ltd., which was incorporated in May, 1995, and became a director
of Stockgroup in March, 1999.
49
Ltd. and Senior Vice President of the parent Jim Pattison Group, responsible for
the Group's acquisitions and divestitures, and with involvement in the
management of the Group's 50 diversified companies. He successfully initiated
and completed the acquisitions of other companies in a number of diverse
industries in which the Group was active. Under his direction the Sign Group was
built into the largest electric sign company in the world. Mr. Landes is also a
director of TIR Systems Ltd., a lighting technology company, which is a public
company.
David Gillard, CGA, Chief Financial Officer
Mr. Gillard has been Chief Financial Officer of Stockgroup since November 2001,
and prior to that he had been with the Company in the capacity of Controller
since March 2000. From 1993 to 2000, prior to joining Stockgroup, he gained
extensive finance and accounting experience with Maynards Industries Ltd., one
of the largest asset conversion companies in North America. He is a graduate of
the British Columbia Institute of Technology, and has been a Certified General
Accountant since 1996.
Craig Faulkner, B.A., Director
Mr. Faulkner is one of the founding partners of Stockgroup. Mr. Faulkner's skill
and knowledge of database-to-Web solutions brings a history of innovative and
dynamic solutions. Early in his career, Mr. Faulkner led Stockgroup to
co-develop one of the first portfolio tracking tools, LivequoteSRG, fully based
on the use of Java. Mr. Faulkner managed the programming and information
management team at Stockgroup, initiated
solutions with data and hardware vendors, while maintaining a senior management
role and board membership. Under Mr. Faulkner's direction, Stockgroup
implemented a sophisticated blend of both Sun Solaris and Microsoft solutions.
Mr. Faulkner is also part of the advisory boards for Brand Fidelity an online
service addressing the commercial naming and branding business, and Serveyor, a
leading Managed Service Provider (MSP) for Internet Availability Monitoring,
Performance Measurement and Quality testing. On March 28, 2002, Craig resigned
as Chief Technology Officer of Stockgroup but he remains on the board of
directors.
David N. Caddey, B.Sc., M.Sc., Director
David Caddey has been a Director of Stockgroup since June 1999 and has over 26
years experience in the business and program management field. Since July 1998
he has served as an Executive Vice President of MacDonald Dettwiler and
Associates Ltd., a space technology and satellite services company that designs,
manufactures, operates and markets a broad range of space products and services.
During this period he has also served as the General Manager of that company's
Space Missions Group where he is responsible for managing the construction of
the Radarsat-2 spacecraft and associated ground infrastructure program, valued
at over $350 million, as well as the construction of the Space Station Mobile
Servicing System. From July 1994 to June 1998, Mr. Caddey worked as a Vice
President and General Manager of the Space and Defense Systems Business Area of
MacDonald Dettwiler and Associates LtdIn this capacity he was responsible for
marketing and sales, project management, technical management and post delivery
support. From 1990 to 1994 he served as Vice President and General Manager of
Geo-information Systems of MacDonald Dettwiler and Associates Ltd., where he
managed the development of Radarsat I Ground Segment Program.
Louis de Boer II, Director
Louis de Boer has served as a director of Stockgroup since October 1999. Since
May of 1998, he has served as President of MediaFutures, Inc., which provides
consulting services to clients in the Internet and cable broadcasting
industries, including such companies as Hearst New Media, Cox Enterprises,
Rainbow Programming as well as several emerging growth companies. From July
2000 through June 2001, he also served as CEO of Automatic Media Incorporated,
and Internet media and software firm based in New York City. From June 1996 to
April 1998, he was Chief Executive Officer at New Century Network, an online
company formed by a consortium of the nine leading US newspaper organizations,
including, Advance Communications, Cox Communications, The Chicago Tribune,
Hearst, Gannett, Knight-Ridder, Inc., The New York Times, The Washington Post
50
and Times-Mirror. From 1977 to December 1994, Mr. de Boer was employed at HBO
culminating in the positions of Executive Vice President of HBO Inc. and
President of its International division, where he played an instrumental role in
helping negotiate and broker deals that significantly increased that company's
presence in its international markets. Mr. de Boer is also a director of Click
TV, a television production company in the UK and Priva Technologies, both of
which are private companies.
Jeff Berwick has served as a director of Stockgroup since July 2002. He began
programming and designing software applications independently in the early
1980's and has since become one of the foremost innovators in Internet services,
technology and marketing. From 1991 to 1995, he was involved in the financial
industry as an investment specialist for CIBC. During this time, Mr. Berwick
identified a growing need within the financial industry. Combining his
knowledge of information technology and the investment industry, Mr. Berwick
established StockHouse Media Corporation in 1995. StockHouse grew to a size of
250 employees in 8 countries worldwide at its peak, providing financial
information through its portals to over a million unique customers. Mr. Berwick
held the position of CEO and Chairman of the Board for StockHouse Media
Corporation from its inception.
Item 10. Executive Compensation
The following summary compensation table reflects all compensation awarded to,
earned by, or paid to the Chief Executive Officer and the President for all
services rendered to us in all capacities during each of the years ended
December 31, 2001 and 2002. No executive officer received salary and bonus
exceeding $100,000 during those years.
SUMMARY COMPENSATION TABLE
-------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
--------------------------------------------
Annual Compensation | Awards Payouts |
---------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) | (f) (g) (h) | (i)
Other | Securities |
Name Annual | Restricted Under- | All Other
and Compen- | Stock lying LTIP | Compen-
Principal sation | Award(s) Options/ Payouts | sation
Position Year Salary ($) Bonus ($) ($) | ($) SARs (#) ($) | ($)
-------------------------------------------------------------------------------------------------------------------------
Marcus New, 2001 97,194 0 0 0 100,000 0 0
CEO 2002 93,441 0 0 0 375,000 0 0
-------------------------------------------------------------------------------------------------------------------------
Leslie 2001 97,194 0 0 0 533,200 0 0
Landes, 2002 93,441 0 0 0 (233,200) 0 0
President
=========================================================================================================================
Option Grants In the Last Fiscal Year To Named Executive Officers
--------------------------------------------------------------------------------
Name Securities % Of Net Exercise Expiration
Underlying Options Price Date
Options Granted to $
Granted Employees
(1)(2) In Year (3)
--------------------------------------------------------------------------------
Marcus New 400,000 40.3% 0.22 04-Mar-08
Marcus New 300,000 30.2% 0.17 12-May-08
Marcus New (325,000) (32.7%) 2.50 cancelled
Leslie Landes (533,200) (53.7%) 0.94 cancelled
Leslie Landes 300,000 30.2% 0.15 20-Oct-08
--------------------------------------------------------------------------------
--------------------------------
(1) All of the above options are subject to the terms of our Stock Option
Plan and are exercisable only as they vest. The options have a term of 6 years
from date of grant.
51
(2) All options were granted at an exercise price equal to or greater than
the fair market value of our common stock on the date of grant.
(3) Denominator is total options granted less total options forfeited during
the year.
No Bonuses were paid to named executive officers in any of the above years. No
Restricted Stock Awards (RSAs), Stock Appreciation Rights (SARs), or Long Term
Incentive Plans (LTIPs) were awarded to named executive officers in any of the
above years.
The following table summarizes the option holdings of the named executive
officers as at December 31, 2002:
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
-----------------------------------------------------------------------------------------
Number of Shares Value of Unexercised
underlying In-the-Money
Unexercised Options Options at
At December 31, 2002 December 31, 2002
-----------------------------------------------------------------------------------------
Name Shares
acquired Value Exer- Unexer- Exer- Unexer-
on Exercise Realized cisable cisable cisable cisable
-----------------------------------------------------------------------------------------
Marcus New 0 0 800,000 0 $49,000 $0
Leslie Landes 105,000 1,050 726,560 106,640 $42,797 $3,199
=========================================================================================
Directors' Compensation
Stockgroup compensates its outside Directors by issuing options to acquire
shares of common stock which fully vest after one year of service on the board
of directors. Mr. David Caddey and Mr. Lee de Boer were each granted 50,000 such
options on August 10, 2001 that have an exercise price of $0.22 per share and
will fully vest on August 10, 2002. On October 22, 2002, Mr. Caddey and Mr. De
Boer were each granted a further 50,000 options with an exercise price of $0.15
and full vesting immediately. Mr. Craig Faulkner was also granted 50,000
options on October 22, 2002 with an exercise price of $0.15 and full vesting
immediately, as director compensation.
Employment and Severance Agreement
We have an employment agreement with our President, Leslie Landes. This
agreement was signed on August 4, 1998 and has a term of 5 years. Under the
agreement Mr. Landes is scheduled to receive a minimum compensation of
CDN$150,000 per annum, however, he has consented to receive only CDN$135,000 per
annum until further notice, with no provision for a retro-active increase back
to CDN$150,000. The agreement may be terminated by us or Mr. Landes on 30 days
notice, and if early termination is initiated by Stockgroup, Mr. Landes is to
receive a severance payment equal to 12 months compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of December 31, 2002 the beneficial ownership
of common stock of each person known to us who owns more than 5% of issued and
outstanding common stock.
------------------------------------------------------------------------------------------------
Name and address* of Amount and Nature Percent of
Beneficial Owner of Beneficial Ownership Class
------------------------------------------------------------------------------------------------
Marcus New 3,016,500 15.43%
Yvonne New 2,214,500 11.33%
518464 B.C. Ltd. 1,945,000 9.95%
================================================================================================
52
*Unless otherwise referenced, the address for each of the above mentioned
parties is c/o Stockgroup Information Systems Inc., Suite 500 - 750 West Pender
Street, Vancouver, B.C. Canada V6C 2T7.
On March 11, 1999, Stockgroup entered into a Share Exchange and Share Purchase
Agreement with 579818 B.C. Limited, a British Columbia corporation; Stock
Research Group, Inc., a British Columbia corporation; and all of the
shareholders of Stock Research Group. Under that Agreement the Company acquired
all of the issued and outstanding shares of Stock Research Group, in
consideration of which 579818 B.C. Limited issued to the Stock Research Group
shareholders 3,900,000 Class A Exchangeable Shares. Stockgroup also issued to
Stock Trans, Inc., its transfer agent, 3,900,000 shares of common stock, to hold
as trustee for the benefit of the Stock Research Group shareholders. The
exchangeable shares may be converted, at the option of the holder, into an equal
number of shares of common stock held by the trustee. Pending any such
conversion, each holder of the exchangeable shares may direct the trustee to
vote an equivalent number of shares of common stock. The trustee has no
discretion as to voting or disposition of common stock.
As a result of these transactions, each of the former Stock Research Group
shareholders has the right to vote, or to direct the trustee to vote on their
behalf, a number of shares of common stock equal to the number of exchangeable
shares held of record by them. In the aggregate, as of December 31, 2002, the
2,808,000 shares of common stock held by the trustee represent approximately 14%
of issued and outstanding shares of common stock.
The trust created by these transactions will continue until the earliest to
occur of the following events:
- no outstanding exchangeable shares are held by any former Stock Research
Group shareholder;
- each of 579818 B.C. Limited and Stockgroup acts in writing to terminate the
trust and such termination is approved by the holders of the exchangeable
shares; and
- December 31, 2098.
Of the amount shown for Marcus New, 36% (or 1,072,500 shares) of the shares are
owned by Yvonne New, Mr. New's wife.
Mr. Marcus New owns directly 169,500 Exchangeable Shares and his wife, Yvonne
New, owns directly 19,500 exchangeable shares. They both indirectly, through
518464 B.C. Ltd., a British Columbia company owned by Mr. New as to 50% and his
wife Yvonne New as to 50%, 1,945,000 exchangeable shares. Accordingly, Marcus
and Yvonne New beneficially own 2,134,000 Exchangeable Shares of common stock,
which represent approximately 11% of issued and outstanding common stock.
Mr. New also owns 2,000 shares of common stock which were purchased in the open
market. Yvonne New owns directly 80,500 common shares. On September 18, 2001,
Mr. New was granted options to purchase 100,000 shares of common stock at an
exercise price of $0.12 per share. These options fully vested on March 18, 2002,
and expire on September 17, 2007. On March 5, 2002, Mr. New was granted options
to purchase 400,000 shares of common stock at an exercise price of $0.22 per
share, with full vesting on grant date and an expiry date of March 4, 2008. On
May 13, 2002, Mr. New was granted options to purchase 300,000 shares of common
stock at an exercise price of $0.17 per share, with full vesting on grant date
and an expiry date of May 12, 2008. In combination with Mr. New's 2,134,000
exchangeable shares, his wife's 80,500 common shares, his 800,000 vested
options, and 2,000 shares of common stock, Mr. New holds a beneficial ownership
position in the company of 3,016,500 shares representing approximately 15.43% of
issued and outstanding common stock as of December 31, 2002.
Security Ownership of Management
The tables below and the paragraphs that follow present certain information
concerning directors, executive officers and significant employees. Mr. David
Caddey is Mr. Marcus New's wife's uncle. Other than this relationship, none of
our directors, executive officers or significant employees has any family
relationship with any other director, executive officer or significant employee.
53
-----------------------------------------------------------------------------------------------------
Name Age Position with Company Executive Shares Percent
Officer / Beneficially of
Director Owned Class
Since Dec 31 2002
-----------------------------------------------------------------------------------------------------
Directors:
Marcus A. New 32 Chairman of the Board,
Chief Executive Officer,
Director 05/04/95 3,016,500 15.43%
Craig D. Faulkner 32 Director 05/04/95 784,000 4.01%
Leslie Landes 58 President,
Chief Operating Officer,
Director 08/04/98 726,560 3.72%
David Caddey 53 Director 05/04/95 160,000 0.82%
Louis de Boer II 50 Director 10/07/99 100,000 0.51%
David Gillard 33 Chief Financial Officer 11/16/01 100,000 0.51%
Jeffrey Berwick 32 Director 07/19/02 437,230 2.24%
-----------------------------------------------------------------------------------------------------
All Directors, Executive Officers and
Significant employees as a group 5,324,290 27.23%
-----------------------------------------------------------------------------------------------------
Of the amount shown for Craig Faulkner, Mr. Faulkner owns directly 169,000
exchangeable shares and indirectly, through 569358 B.C. Ltd., a British Columbia
company owned by Mr. Faulkner, 465,000 exchangeable shares. On September 18,
2001, Mr. Faulkner was granted options to acquire 100,000 shares of common stock
at an exercise price of $0.12 per share, full vesting on the March 18,2002, and
an expiry date of September 17, 2007. On October 22, 2002, Mr. Faulkner was
granted options to acquire 50,000 shares of common stock at an exercise price of
$0.15 per share, full vesting on the grant date and an expiry date of October
21, 2008. Mr. Faulkner, through his direct and indirect holdings, and 150,000
vested options, beneficially owns 784,000 shares representing 4.01% of the
issued and outstanding common stock as of December 31, 2002.
Of the amount shown for Mr. Caddey, 50% (or 30,000 shares) are owned by Ms.
Donna Caddey, Mr. Caddey's wife.
Mr. David Caddey and his wife, Donna Caddey, each own directly 20,000
exchangeable shares. In addition, 20,000 shares of common stock are owned
jointly by David and Donna Caddey. On August 10, 2001, Mr. Caddey was granted
options to purchase 50,000 shares of common stock at an exercise price of $0.22
per share, full vesting on August 10, 2002, and an expiry date of August 9,
2007. On October 22, 2002, Mr. Caddey was granted options to purchase 50,000
shares of common stock at an exercise price of $0.15 per share, full vesting on
grant date, and an expiry date of October 21, 2008. In combination with his
direct and indirect holdings of 40,000 exchangeable shares and direct and
indirect holdings of 20,000 shares of common stock, and 100,000 vested options,
Mr. Caddey beneficially owns 160,000 shares representing approximately 0.82% of
issued and outstanding common stock.
Leslie Landes acquired 105,000 common shares by exercising 105,000 options on
November 26, 2002. On August 10, 2001 Mr. Landes was granted 533,200 options at
an exercise price of $0.22 and an expiry date of August 9, 2007, of which
426,560 had vested by the end of 2002. On October 22, 2002, Mr. Landes was
granted options to purchase 300,000 shares of common stock at an exercise price
of $0.15 per share, full vesting on grant date, and an expiry date of October
21, 2008. As at December 31, 2002, Mr. Landes' common shares and vested options
provide him with beneficial ownership of 831,560 shares of issued and
outstanding common stock, representing 4.25% of issued and outstanding common
stock.
Mr. Louis de Boer II was granted, on August 10, 2001, options to purchase 50,000
shares of common stock at an exercise price of $0.22 per share, with a six year
term and full vesting on August 10, 2002. On October 22, 2002, Mr. de Boer was
granted options to purchase 50,000 shares of common stock at an exercise price
54
of $0.15 per share, full vesting on grant date, and an expiry date of October
21, 2008. As at December 31, 2002, Mr. de Boer's vested options provide him with
beneficial ownership of 100,000 shares, representing 0.51% of issued and
outstanding common stock.
Item 12. Certain Relationships and Related Transactions
During the last two years, there have been no transactions or proposed
transactions to which we were or are to be a party, in which any persons as set
out by Item 404 of Regulation S-B had or is to have a direct or indirect
material interest.
Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT AND FILING REFERENCE
-------------- ------------------------------------------------------------
2.1 Share Exchange and Share Purchase Agreement dated March 11,
1999 effecting a change in control of Registrant -
incorporated by reference to Form 8K filed March 19, 1999,
Form 8K/A filed March 24, 1999 and Form 8K/A filed May 10,
1999.
3.1 Articles of Incorporation & Bylaws - incorporated by
reference to Form 10SB12G filed January 29, 1998.
4.1 1999 Incentive Stock Option Plan - incorporated by reference
to Form S-8 filed November 16, 1999.
4.2 Convertible Notes and Warrants Agreement dated March 31,
2000 - incorporated by reference to Form 8-K filed April 18,
2000.
4.3 Securities Purchase Agreement dated January 19, 2001 -
incorporated by reference to Form 8-K filed January 30,
2001.
4.4 2000 Incentive Stock Option Plan - incorporated by reference
to Form S-8 filed May 15, 2001.
4.5 Securities Purchase Agreement dated February 6, 2002 -
incorporated by reference to Form 8-K filed February 20,
2002.
4.6 Securities Purchase Agreement dated March 26, 2002 -
incorporated by reference to Form 8-K filed March 26, 2002.
4.7 2001 and 2002 Incentive Stock Option Plan - incorporated by
reference to Form S-8 filed May 13, 2002.
4.8 Joint Venture Development and Operating Agreement -
incorporated by reference to Form 8-K filed July 11, 2002.
9.1 Exchange and Voting Agreement incorporated by reference to
Form 8K filed March 19, 1999
12.1 Subsidiaries of the Registrant - filed herewith below as
Exhibit 12.1
13.1 Forms 10QSB for the quarters ended March 31, 2002, June 30,
2002 and September 30, 2002 - incorporated by reference to
filings made on May 15, 2002, August 14, 2002, and November
8, 2002 respectively.
13.2 Form 10KSB for the year ended December 31, 2001 incorporated
by reference to the filing made on March 29, 2002. 23.1
Consent of Independent Auditors - filed herewith below as
Exhibit 23.1.
99.1 Section 906 Certification of CEO
99.2 Section 906 Certification of CFO
No reports on Form 8-K have been filed within the last quarter of the period
covered by this report.
55
Item 14. Controls and Procedures
In February, 2003, we carried out an evaluation, under the supervision and with
the participation of the company's management, including the company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the company's disclosure controls and procedures. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
have concluded that the company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the company in
the reports that the company files under the Exchange Act is accumulated and
communicated to management, including the company's Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
However, since our evaluation, we have taken steps to further strengthen and
formalize our controls. We have adopted a formal Corporate Governance Program,
consisting of a Code of Business Conduct and Ethics and Compliance Program, An
Insider Trading Policy, and the appointment of a Nominating and Corporate
Governance Committee. We have also reconfirmed the appointment of our Audit
Committee and Compensation Committee.
56
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 hereunto duly authorized.
Stockgroup Information Systems, Inc.
(Registrant)
Dated: March 18, 2003
By:
/s/ Marcus A. New
------------------------------------------------
Marcus A. New, Chairman, Chief Executive Officer
/s/ David Gillard
------------------------------------------------
David Gillard, Chief Financial Officer,
Secretary and Treasurer
/s/ Leslie Landes
------------------------------------------------
Leslie Landes, Director, President
& Chief Operating Officer
/s/ Craig Faulkner
------------------------------------------------
Craig Faulkner, Director
/s/ David Caddey
------------------------------------------------
David Caddey, Director
/s/ Louis de Boer II
------------------------------------------------
Louis de Boer II, Director
/s/ Jeffrey Berwick
------------------------------------------------
Jeffrey Berwick, Director
57
CERTIFICATIONS
CERTIFICATION
I, Marcus New, CEO, certify that:
1. I have reviewed this annual report on Form 10-KSB of Stockgroup Information
Systems Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any correction actions with regard to significant deficiencies and material
weaknesses.
Date: March 18, 2003
/s/ Marcus New
----------------
Marcus New
Chief Executive Officer
58
CERTIFICATION
I, David Gillard, CFO, certify that:
1. I have reviewed this annual report on Form 10-KSB of Stockgroup Information
Systems Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any correction actions with regard to
significant deficiencies and material weaknesses.
Date: March 18, 2003
/s/ David Gillard
-------------------
David Gillard, CGA
Chief Financial Officer
59