Form 10-QSB
U.S. Securities and Exchange Commission
Washington, D.C. 20549
(Mark One)
[X] Quarterly report pursuant Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2003.
[ ] 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
(Former name or address, if changed since last report)
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: ___
Applicable only to issuers involved in bankruptcy
proceedings during the preceding five years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes ___ No ___
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 29,418,371
Transitional Small Business Disclosure Format (check one): Yes: ___ No: _X_
1
Stockgroup Information Systems Inc.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 1. Financial Statements (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations. 11
Item 4. Disclosure Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Part II. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 2. Changes in Securities and Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . 22
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . 22
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 302 CERTIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Stockgroup Information Systems Inc.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED - Expressed in U.S. Dollars)
[See Note 1 - Nature of Business and Basis of Presentation]
June 30, December 31,
2003 2002
-------------- --------------
ASSETS
CURRENT
Cash and cash equivalents. . . . . . . . . . . . . . $ 553,358 $ 539,970
Marketable securities. . . . . . . . . . . . . . . . 4,312 1,198
Accounts receivable [net of allowances for doubtful
accounts of $93,519; December 31, 2002 $40,866] . 359,589 169,675
Prepaid expenses . . . . . . . . . . . . . . . . . . 84,178 102,118
-------------- --------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . $ 1,001,437 $ 812,961
Property and equipment, net. . . . . . . . . . . . . $ 466,452 $ 638,665
-------------- --------------
$ 1,467,889 $ 1,451,626
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT
Accounts payable . . . . . . . . . . . . . . . . . . $ 293,767 $ 313,272
Accrued payroll liabilities. . . . . . . . . . . . . 56,419 109,930
Deferred revenue . . . . . . . . . . . . . . . . . . 312,839 320,900
Current portion of capital lease obligation. . . . . 79,430 103,205
Current portion of notes payable . . . . . . . . . . 223,994 95,371
Current portion of convertible notes (note 2). . . . - 81,328
-------------- --------------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . . $ 966,449 $ 1,024,006
Capital lease obligation . . . . . . . . . . . . . . . - 31,844
Notes Payable. . . . . . . . . . . . . . . . . . . . . - 159,787
Convertible notes (note 2) . . . . . . . . . . . . . . - 1,486,806
-------------- --------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . $ 966,449 $ 2,702,443
============== ==============
COMMITMENTS AND CONTINGENCIES (note 6)
SHAREHOLDERS' EQUITY (DEFICIENCY) (note 3)
COMMON STOCK, No Par Value
Authorized shares - 75,000,000
Issued and outstanding shares - 28,422,371
at June 30, 2003 [19,552,596- December 31, 2002]. . $ 12,237,274 $ 9,203,235
ADDITIONAL PAID-IN CAPITAL . . . . . . . . . . . . . 3,067,471 2,987,331
ACCUMULATED DEFICIT. . . . . . . . . . . . . . . . . (14,803,305) (13,441,383)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY). . . . . . . . . $ 501,440 $ (1,250,817)
-------------- --------------
$ 1,467,889 $ 1,451,626
============== ==============
The Accompanying Notes Are An Integral Part
Of These Unaudited Financial Statements.
3
Stockgroup Information Systems Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - Expressed in U.S. Dollars)
Three Months Three Months Six Months Six Months
Ended June Ended June Ended June Ended June
30, 2003 30, 2002 30, 2003 30, 2002
-------------- -------------- ------------ --------------
REVENUE
Revenues. . . . . . . . . . . $ 688,529 $ 407,703 $ 1,290,241 $ 849,944
Cost of revenues. . . . . . . 176,332 169,258 333,686 333,506
-------------- -------------- ------------ --------------
Gross profit. . . . . . . . . $ 512,197 $ 238,445 $ 956,555 $ 516,438
EXPENSES
Sales and marketing . . . . . $ 166,041 $ 137,451 $ 324,815 $ 229,511
General and administrative. . 574,050 432,188 1,111,789 814,226
-------------- -------------- ------------ --------------
$ 740,091 $ 569,639 $ 1,436,604 $ 1,043,737
-------------- -------------- ------------ --------------
LOSS FROM OPERATIONS. . . . . . $ (227,894) $ (331,194) $ (480,049) $ (527,299)
Interest income . . . . . . . . - 22 - 168
Interest expense ordinary . . . (11,789) (4,095) (24,647) (9,881)
Interest on conversion of
8% convertible notes (note 2) (656,707) (33,966) (860,351) (52,330)
Interest on conversion of
3% convertible debentures . . - - - (160,209)
Loss on warrants liability. . . - - - (55,000)
Gain on restructuring
of convertible notes - - - 1,088,586
Other income. . . . . . . . . . 2,653 (1,671) 3,125 2,279
-------------- -------------- ------------ --------------
NET INCOME (LOSS) . . . . . . . $ (893,737) $ (370,904) $(1,361,922) $ 286,314
============== ============== ============ ==============
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE:
Loss from operations. . . . . . $ (0.01) $ (0.03) $ (0.02) $ (0.04)
Income (loss) interest and
other . . . . . . . . . . . . $ (0.03) $ (0.00) $ (0.04) $ 0.06
Net income (loss) . . . . . . . $ (0.04) $ (0.03) $ (0.06) $ 0.02
============== ============== ============ ==============
Weighted average shares
outstanding for the period. . 24,199,767 13,841,482 22,371,013 12,313,576
============== ============== ============ ==============
The Accompanying Notes Are An Integral Part
Of These Unaudited Financial Statements.
4
Stockgroup Information Systems Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - Expressed in U.S. Dollars)
Six Months Six Months
Ended June Ended June
30, 2003 30, 2002
------------ -------------
OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . $(1,361,922) $ 286,314
Add (deduct) non-cash items
Amortization. . . . . . . . . . . . . . . . . . . . . . 189,853 76,399
Gain on restructuring of convertible notes. . . . . . . - (1,088,586)
Loss on warrants liability. . . . . . . . . . . . . . . - 55,000
Effective interest on convertible notes and debentures. 860,351 212,539
Bad debt expense. . . . . . . . . . . . . . . . . . . . 52,653 (42,468)
Common stock and equivalents issued for services. . . . - 167,500
Stock based compensation - 38,878
Unrealized foreign exchange (gain) loss . . . . . . . . 23,762 -
------------ -------------
$ (235,303) $ (294,424)
Net changes in non-cash working capital
Marketable securities . . . . . . . . . . . . . . . . (3,114) 8,545
Accounts receivable . . . . . . . . . . . . . . . . . (242,567) 53,367
Prepaid expenses. . . . . . . . . . . . . . . . . . . 17,940 (75,747)
Accounts payable. . . . . . . . . . . . . . . . . . . (19,505) (82,776)
Accrued payroll liabilities . . . . . . . . . . . . . (53,511) (64,166)
Accrued interest on notes payable . . . . . . . . . . (7,927) 1,018
Deferred revenue. . . . . . . . . . . . . . . . . . . (8,061) 123,761
------------ -------------
CASH PROVIDED BY (USED IN) OPERATIONS . . . . . . . . . . $ (552,048) $ (330,422)
------------ -------------
FINANCING ACTIVITIES
Issuance of common stock and warrants (net) . . . . . . 625,281 390,920
Proceeds on exercise of warrants. . . . . . . . . . . . 83,775 -
Proceeds on exercise of stock options . . . . . . . . . 11,970 -
Repayment of convertible debt . . . . . . . . . . . . . (35,332) (23,340)
Repayment of notes payable. . . . . . . . . . . . . . . (47,000) -
Repayment of capital lease obligation . . . . . . . . . (55,619) (4,062)
Repayment of bank indebtedness. . . . . . . . . . . . . - (2,717)
------------ -------------
CASH PROVIDED BY (USED IN) FINANCING. . . . . . . . . . . $ 583,075 $ 360,801
------------ -------------
INVESTING ACTIVITIES
Property and equipment (net). . . . . . . . . . . . . . (17,639) (10,690)
------------ -------------
CASH PROVIDED BY (USED IN) INVESTING. . . . . . . . . . . $ (17,639) $ (10,690)
------------ -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS. . . . . 13,388 19,689
Cash and cash equivalents, beginning of period. . . . . . 539,970 126,618
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . $ 553,358 $ 146,307
============ =============
The Accompanying Notes Are An Integral Part
Of These Unaudited Financial Statements.
5
Stockgroup Information Systems Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Six Months Ended June 30, 2003
(UNAUDITED)
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 Stockhouse and Smallcapcenter
financial web sites.
The Company was incorporated under the laws of Colorado on December 6, 1994.
The accompanying interim unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 2003
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2003.
The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for annual
financial statements.
These interim financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 2002.
Certain of the comparative figures have been reclassified to conform to the
presentation adopted in the current period.
These 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 an operating loss of $480,049 for the six months ended June
30, 2003, and had working capital of $34,990 as at June 30, 2003. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management has been able, thus far, to finance the losses, as well as
the growth of the business, through a series of equity and debt private
placements. The Company is continuing to seek other sources of financing in
order to grow the business to the greatest possible extent. There are no
assurances that the Company will be successful in achieving its goals.
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 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.
6
2. CONVERTIBLE NOTES
June 30, 2003 December 31, 2002
------------------------------------------------------------------------------------------
8% Convertible notes, maturing December 31, 2005
Principal . . . . . . . . . . . . . . . . . . . . . $ - $ 1,704,000
Unamortized debt discount . . . . . . . . . . . . . - (135,866)
------------------------------------------------------------------------------------------
Subtotal. . . . . . . . . . . . . . . . . . . . . . $ - $ 1,568,134
Current portion . . . . . . . . . . . . . . . . . . - 81,328
Long Term Portion . . . . . . . . . . . . . . . . . - 1,486,806
==========================================================================================
On January 28, 2003, one of the noteholders converted its entire principal
balance of $392,984 into 1,228,075 common shares at a negotiated conversion
price of $0.32. The discount on the conversion price was deemed an inducement
to convert, resulting in an interest expense of $145,895 representing the excess
of the fair value of the notes after inducement over the fair value before
inducement. The unamortized debt discount on the portion of the total principal
was fully expensed on the conversion date, resulting in an interest expense of
$31,711.
On May 12 and May 28, 2003, the remaining noteholder converted its entire
principal balance of $1,225,684 into 4,380,000 common shares at a negotiated
conversion price of $0.28. The discount on the conversion price was deemed an
inducement to convert, resulting in an interest expense of $578,590 representing
the excess of the fair value of the notes after inducement over the fair value
before inducement. The unamortized debt discount on the portion of the total
principal was fully expensed on the conversion date, resulting in an interest
expense of $69,437.
3. SHARE CAPITAL
The Company is authorized to issue up to 75,000,000 shares of common stock and
5,000,000 shares of preferred stock.
At June 30, 2003, in addition to the 28,422,371 common shares outstanding, there
were also 2,504,200 stock options and 6,634,013 warrants outstanding.
Issues of common shares and common share equivalents for the six-month period
ended June 30, 2003 are summarized as follows:
On January 28, 2003, we issued 1,228,075 common shares pursuant to a conversion
of $392,984 of principal of convertible notes at $0.32.
On February 3, 2003 we issued 100,000 common shares pursuant to a conversion of
$50,000 of principal of convertible notes at $0.50.
During Q1 2003, 335,100 common shares were issued pursuant to exercises of
warrants at $0.25 for gross proceeds of $83,775.
On March 28, 2003, 4,800 common shares were issued to an employee pursuant to an
exercise of options at $0.15, for gross proceeds of $720.
On April 24, 2003, we issued 75,000 common shares to an employee pursuant to an
exercise of options at $0.15, for gross proceeds of $11,250.
7
On May 12 and May 28, 2003, we issued a total of 4,380,000 common shares
pursuant to a conversion of $1,225,684 of principal of convertible notes at
$0.28.
On June 4, 2003 we issued 2,746,800 units at C$0.37 (approximately $0.27), for
gross proceeds of C$1,016,316 (approximately $748,723) under a Short Form
Offering. Each unit consists of one common share and one non-transferable share
purchase warrant. Each two warrants are exercisable at C$0.75 (approximately
$0.55) until June 4, 2004. We also issued Agent Options to acquire 274,680
units, exercisable at C$0.37 until June 4, 2005.
Stock Options
The Company's 1999, 2000, 2001, and 2002 Stock Option Plans (collectively the
"Plans") authorize a total of 5,000,000 common shares for issuance. Activity
under the Plans is set forth below.
Options Outstanding
------------------------------------
Weighted
Shares Average
available Number of Price per Exercise
for grant shares share Price
------------------------------------------------------------------------------------------------
Balance at December 31, 2002 898,278 2,602,700 $0.12 - 0.59 $ 0.20
Options exercised. . . . . . - (79,800) 0.15 0.15
Options forfeited. . . . . . - (18,700) 0.15 - 0.31 0.21
------------------------------------------------------------------------------------------------
Balance at June 30, 2003 . . 898,278 2,504,200 $0.12 - 0.59 $ 0.20
================================================================================================
Warrants
As at June 30, 2003, common stock issuable pursuant to warrants outstanding is
as follows:
Warrants Warrants
Outstanding Warrants Warrants Warrants Outstanding Exercise Expiry
At January Issued Exercised Cancelled at June Price Date
1, 2003 30, 2003
# # # # # $
----------------------------------------------------------------------------------------------------
Series 1. 281,818 - - - 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 - 335,100 - 1,664,900(1) 0.30 Sept 30, 2003
Series 5. 250,000 - - - 250,000 0.30 Sept 15, 2003
Series 6. 1,701,875 - - - 1,701,875 0.22 Dec 31, 2003
Series 7. 150,000 - - - 150,000 0.16 Dec 31, 2003
Series 8. - 1,373,400 - - 1,373,400 0.55 June 4, 2004
Series 9. - 274,680 - - 274,680 0.27 June 4, 2005
Series 10 - 137,340 - - 137,340 0.55 June 4, 2004
----------------------------------------------------------------------------------------------------
5,183,693 1,785,420 335,100 - 6,634,013
====================================================================================================
(1) On March 30, 2003 the expiry date on the Series 4 warrants was extended from
March 30, 2003 to September 30, 2003, and the exercise price was changed from
$0.25 to $0.30.
8
4. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company measures compensation expense for all of its Stock Option Plans
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations and complies with the disclosure provisions of Statement
of Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS
123"), as amended by Statement of Accounting Standards No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123" ("SFAS 148").
The following table provides pro forma disclosures of the effect on net income
and earnings per share as if the fair value-based method had been applied in
measuring compensation expense:
For the three months ended For the six months ended
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002
--------------------------------------------------------------------------------------------
Net income (loss) -
as reported . . . . . $ (893,737) $ (370,904) $ (1,361,922) $ 286,314
Add: Stock-based
employee compensation
expense included
in reported net
income. . . . . . . . - 11,310 - 38,878
Deduct: Stock-based
employee compensation
expense determined
under the fair value-
based method
for all awards. . . . (5,025) (97,087) (13,399) (245,603)
--------------- ---------------- --------------- -------------
Net income - pro forma. $ (898,762) $ (456,681) $ (1,375,321) $ 79,589
=============== ================ =============== =============
Net income per share
As reported . . . . . $ (0.04) $ (0.03) $ (0.06) $ 0.02
Pro forma . . . . . . (0.04) (0.03) (0.06) 0.01
For purposes of the pro forma disclosures, the estimated fair value of the stock
options is amortized over the stock options' vesting period.
The pro forma effects of applying SFAS 123 for the periods presented are not
likely to be representative of the pro forma effects of future periods as the
number of stock options and the vesting schedules thereof vary widely from
quarter to quarter. No options were granted during the six months ended June
30, 2003.
9
The weighted average assumptions used and the resulting estimates of weighted
average fair value of stock options granted are as follows:
For the three and six months ended
June 30, 2003 June 30, 2002
Dividend yield 0% 0%
Weighted average expected life (years) 4.06 4.50
Risk-free interest rate 4.30% 3.83%
Expected volatility 121% 214%
5. SEGMENTED INFORMATION
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, requires a public business enterprise to report financial and
descriptive information about its reportable operating segments. The Company has
concluded that its business activities fall into one identifiable business
segment with the following sources of revenue:
For the three months ended For the six months ended
June 30, 2003 June 30, 2002 June 30,2003 June 30, 2002
Public Company
Disclosure and
Awareness Products . $ 380,380 $ 242,190 $ 765,960 $ 527,366
Financial Software and
Content Systems. . . 308,149 165,513 524,281 322,578
---------------------------------------------------------------------------------------
$ 688,529 $ 407,703 $ 1,290,241 $ 849,944
=======================================================================================
During the first six months of 2003 and 2002 the Company had no customers from
whom revenue received by the Company represented greater than 10% of total
revenue.
6. COMMITMENTS AND CONTINGENCIES
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 advertising 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. No court date has been set at
this time. 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.
In addition, the company is subject to various other legal matters in the
ordinary course of business. It is not possible at this time to predict with any
certainty the outcome of such litigation. Management believes that the ultimate
resolution of these matters would not have a material effect on the Company's
financial position or results of operations.
7. RECENT ACCOUNTING PRONOUNCEMENTS
In November 2002, the FASB issued FASB Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that a
liability be recorded in the guarantor's balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires disclosures about the guarantees,
including indemnifications, that an entity has issued. The disclosure
provisions of FIN 45 are effective for financial statements of interim
periods ending after December 15, 2002; however, the provisions for initial
recognition and measurement are effective on a prospective basis for guarantees
that are issued or modified after December 31, 2002. The initial adoption of FIN
45 did not have a material impact on the Company's financial position, results
of operations or cash flows.
10
8. SUBSEQUENT EVENTS
a) On July 4, 2003 Stockgroup notified Stockhouse Media Corporation that, in
accordance with the terms of the Joint Venture Development and Operating
Agreement dated June 19, 2002, we would be purchasing their remaining 35%
interest in the assets contemplated in the agreement for 920,000 common
shares of Stockgroup. As of August 13, 2003 the transaction had not yet
taken place.
b) On July 16, 2003 Stockgroup closed the second and final part of it's Short
Form Offering, issuing 996,000 units at C$0.37 (approximately $0.27) for
gross proceeds of C$368,520 (approximately $265,868). Net proceeds after
issue costs were approximately $222,058.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
Of Operations
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND JUNE 30,
2002
The results of the first six months of 2003 are a product of our continued focus
on improving the balance sheet and obtaining high quality sales customers and
partners for our Financial Software and Content Systems. We continued to
acquire additional twelve and twenty-four month customers for our Financial
Software and Content Systems, which will continue to grow our recurring revenue
stream.
Overall sales are up from Q2 2002 on both a three-month and six-month
basis. We continue to adapt to the changes in the markets.
Revenue and Gross Profits
--------------------------------------------------------------------------------
Revenue Summary ($000s)
2003 2002 Change ($) Change (%)
----------- ----------- ------------ -----------
For the 6 months ended June 30
Total revenues . . . . . . . . . $ 1,290 $ 850 $ 440 +52%
Breakdown of major categories:
Public Company Disclosure. . . 766 527 239 +45%
Financial Software and Content 524 323 201 +62%
For the 3 months ended June 30
Total revenues . . . . . . . . . $ 689 $ 408 $ 281 +69%
Breakdown of major categories:
Public Company Disclosure. . . 381 242 139 +57%
Financial Software and Content 308 166 142 +86%
Our Public Company Disclosure and Awareness Products revenue stream contains the
revenue generated by the Stockhouse websites, which account for a large portion
of the increase in 2003 over 2002. We acquired the Stockhouse web property late
June 2002.
Financial Software and Content Systems revenue has grown at a steady rate due to
its long term contractual nature. As new clients are added, the effect on
revenue is felt incrementally over time rather than immediately. This gives us
a good base of revenue which will recur for the life of the contract. In Q2
2003 we also earned a large development fee from National Bank Financial, for
developing the portion of their public Website which will contain the Stockgroup
financial tools.
11
Cost of Revenues and Gross Profit Summary ($000s)
2003 2002 Change ($) Change (%)
------------ ------------ ------------- ----------
For the 6 months ended June 30
Total cost of revenues. . . . . $ 334 $ 334 $ 0 0%
Gross profit. . . . . . . . . . 957 516 441 +85%
Gross margin %. . . . . . . . . 74% 61% +13%
For the 3 months ended June 30
Total cost of revenues. . . . . $ 176 $ 169 $ 7 +4%
Gross profit. . . . . . . . . . 512 238 274 +115%
Gross margin %. . . . . . . . . 74% 58% +16%
Our cost of revenues consists of bandwidth, data feeds, advertising purchased
for resale, and direct production labor. Cost of revenues has remained
relatively flat when comparing year over year numbers, partly a reflection of
the fixed nature of our direct costs. With the acquisition of Stockhouse, a
high traffic Website, our bandwidth and data costs have risen, but our decreased
emphasis on highly labor-intensive revenue has caused our direct labor costs to
decrease.
Because our cost of revenues have remained relatively flat while sale have
increased, our gross profit has increased, both in dollar value and percentage
of sales.
We are continuing to provide innovative products in our Public Company
Disclosure and Awareness Products line, and the IntegrateIR sales remain strong,
delivering high value to customers. Historically, many of our Public Company
Disclosure and Awareness Products customers have come from the technology
sector, and the slowdown in this sector has caused considerable attrition. As
well, part of the product line has been affected adversely as public companies
reduced or eliminated spending on their awareness products. However, we
continue to sign new agreements for our disclosure products with major
corporations. We have been diversifying our target market for some time in
order to be less dependent on any one sector.
Financial Software and Content Systems continues to be a strong contributor to
our overall revenue and gross profits. Our process has matured over the past
year, and we are able to efficiently deliver high quality services to customers
for a fraction of the cost to customers of having it done internally. We have
established relationships with major sales channels, media networks, and
financial companies, and have already seen significant results. Financial
Software and Content Systems revenue was up this three month period 86% over the
same period a year ago, and up 43% quarter over quarter from the first quarter
2003. All of this revenue is contractual, typically in 24-month terms, so we
have a solid base of revenue in this area to grow from.
Operating Expenses
--------------------------------------------------------------------------------
Operating Expenses Summary ($000s)
2003 2002 Change ($) Change (%)
------- ------- ---------- ----------
For the 6 months ended June 30
Total operating expenses $1,437 $1,044 $393 +38%
Breakdown:
Sales and marketing 325 230 95 +41%
General and administrative 1,112 814 298 +37%
For the 3 months ended June 30
Total operating expenses $740 $570 $170 +30%
Breakdown:
Sales and marketing 166 138 28 +20%
General and administrative 574 432 142 +33%
12
Sales and marketing expenses increased when comparing with 2002 due to an
increase in our number of sales staff. The compensation expense arising from
this increase in sales staff accounts for the increase in sales and marketing
expense year over year.
General and administrative expenses also increased in Q2 2003 compared to the
same period 2002. This increase is due to several factors. The most notable
increase has been a general increase in payroll expense, which is our largest
expense category. We have also had increases in amortization as the Stockhouse
website asset is being amortized over three years on a straight line basis and
the related server equipment leased concurrently with the Stockhouse acquisition
is being amortized over two years straight line. Other increases have been in
filing, regulatory, and investor relations expenses due to our inter-listing on
the TSX Venture Exchange in Canada, and bad debts expense caused by our more
conservative risk assessment policies on our accounts receivable. Foreign
exchange loss has increased as well, as the Canadian dollar has generated value
relative to the United States dollar, and the majority of our expenses,
including payroll, are in Canadian dollars.
Other Income (Expense) and Income Taxes
--------------------------------------------------------------------------------
Interest and Other Expenses Summary ($000s)
2003 2002
------------ ----------
For the 6 months ended June 30
Total interest and other expenses $ (882) $ 814
Breakdown:
Cash interest expense . . . . . (25) (10)
Non-cash interest expense on
conversion of 8% convertible
notes . . . . . . . . . . . . (860) (52)
Non-cash interest expense on
conversion of 3% convertible
debentures. . . . . . . . . . - (160)
Loss on warrants liability. . . - (55)
Gain on restructuring of
convertible notes . . . . . . - 1,089
Other income. . . . . . . . . . 3 2
For the 3 months ended June 30
Total interest and other expenses $ (666) $ (40)
Breakdown:
Cash interest expense . . . . . (12) (4)
Non-cash interest expense on
conversion of 8% convertible
notes . . . . . . . . . . . . (657) (34)
Other income. . . . . . . . . . 3 (2)
Cash interest, either already paid or payable after the quarter end, consists of
interest on notes payable and capital leases. The remaining $0.860 million of
interest for the first six months of 2003 is non-cash interest arising out of
the conversion of the 8% convertible notes and the amortization of the debt
discount on the 8% convertible notes.
Income taxes were nil in both the first six months 2003 and the same six months
2002. Due to our net loss position, we did not accrue tax in the first six
months of 2003. As at the most recent year end, we had tax loss carry forwards
of $5.324 million in Canada which expire in 2006, 2007, and 2008, and tax loss
carry forwards of $3.144 million in the U.S. which expire in 2019, 2020, 2021,
and 2022.
Net Income
--------------------------------------------------------------------------------
The net loss for the first six months of 2003 was $1.362 million compared to a
gain of $0.286 million in the first six months 2002, a decrease of $1.648
million. The decrease is due largely to the non-cash interest expense as
described above, in 2003 combined with the large non-cash gain on restructuring
of our convertible notes in 2002. The removal of the convertible notes from our
balance sheet, which was completed in January and May 2003, should reduce the
net income volatility in the future.
13
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
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 ended the second quarter of 2003 with cash and cash equivalents of $553,358,
an increase of $375,282 from March 31, 2003. This compares with a net cash
decrease of $74,935 in Q3 2002, a net cash increase of $468,598 in Q4 2002 and a
net cash decrease of $361,894 in Q1 2003. Although we expect to generate
positive cash flow from operations, we are pursuing financing to improve our
working capital position and to grow the business to the greatest possible
extent.
14
Our cash used in operations for the first six months of 2003 was $552,048. We
repaid $35,332 of our convertible notes, and $47,000 in notes payable. Another
use of cash was repayment of capital leases, totaling $55,619. Sources of cash
included $95,745 for proceeds from exercise of warrants and stock options, and
$625,281 from issuance of shares and warrants under a Short Form Offering.
You should be cautioned that there can be no assurance that revenue, margins,
and profitability will increase. We have $223,994 of notes payable and $79,430
of capital lease obligations due within the next 12 months. As certain of these
notes and capital leases, as well as certain other current liabilities are
denominated in Canadian dollars, fluctuations in exchange rates with the United
States can have an effect on the USD equivalent liabilities. There can be no
assurance that we will be successful in raising a sufficient amount of
additional capital or in internally generating a sufficient amount of capital to
meet long-term requirements.
CORPORATE DEVELOPMENTS DURING THE PERIOD
-----------------------------------
A synopsis of corporate highlights for 2003 is as follows:
1. 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.
2. On January 26, 2003, we announced 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 our 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.
3. 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 $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 $1.2 million.
4. On February 5, 2003, we announced 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.
5. 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.
6. On March 18, 2003, we launched a financial resource portal for one of
Canada's leading securities dealers, National Bank Financial. National Bank
Financial's newly launched customized financial solution will provide online
market data products for their clients. The complete suite of market data tools
will benefit their clients by providing them with market data research tools
such as, Stock Screeners, Mutual Fund Screeners, Technical stock analysis,
Market Indices, Stock Charts, Stock Watch Lists, Portfolio Managers, Market
Movers, Scrolling Tickers and much more.
15
7. On April 15, 2003, Stockgroup and one of its resellers, AP digital, a
division of the Associated Press, signed a licensing agreement with Netster.com.
As a result of the agreement Netster.com, one of the fastest growing search
engines on the Web, will use AP Financial Tools, a suite of news, market data
and financial applications powered by Stockgroup's Financial Content Software
System and provided by AP Digital. Netster.com is now able to offer its audience
these turnkey solutions that present and manage quotes, charts, user portfolios,
technical analysis, watch lists and more, through its portal site
www.netster.com.
8. On April 30, 2003, we announced that we will provide Richard Ivey School
of Business, financial market content, data, and applications for the use of
faculty, students and alumni as a gift to the school. Ivey's students, faculty
and alumni will be able to access a suite of news, market data, financial
applications and turnkey solutions that present and manage quotes, charts, user
portfolios, technical analysis, watch lists and much more, powered by
Stockgroup's Financial Content Software System for at least the next five years.
9. On May 9, 2003, we announced with the Associated Press that they had
signed Road Runner high speed internet, owned by Time Warner cable, to a
licensing agreement to use AP Financial Tools, which are powered by Stockgroup's
Financial Software and Content Systems.
10. On May 23, 2003, we announced that Deephaven converted the entire
remaining balance of its convertible notes into common shares. The principal
balance of $1.2MM was converted at a negotiated conversion price of $0.28 into
4.4MM common shares. This conversion removes all the convertible debt from our
balance sheet. The conversion was done through an investor group led by U.S.
Global Funds (NASDAQ:GROW), an institutional fund which acquired 2.4 million
shares of Stockgroup in the transaction.
11. On June 4, 2003 and July 16, 2003, we completed our Short Form Offering
equity placement in two parts. The lead underwriter was First Associates
Investments Inc. The offering yielded C$1.4M in gross proceeds and aggregate
net proceeds to us of approximately $0.9M USD, and was composed of 3.7M units at
C$0.37, each unit consisting of one common share and one warrant. Each two
warrants may be used to purchase one common share for C$0.75 until 12 months
after the respective completion date. We also issued as an underwriting fee
agent's options to purchase 0.4M of the same units at C$0.37 for 24 months from
the completion date, and we paid 8% underwriting commissions plus we reimbursed
certain expenses of the underwriter.
DESCRIPTION OF BUSINESS MODEL
GENERAL
We are a financial media and technology company. Our revenue streams can be
categorized into two areas:
- Financial Software and Content Systems,
- Public Company Disclosure and Awareness Products
The clients for Financial Software and Content Systems are primarily enterprise
companies from many different markets, such as media, banks and credit unions,
stock brokerages, insurance, and others. Public Company Disclosure and
Awareness Products are primarily investor awareness and disclosure products for
public companies, and advertising on Stockhouse. These products are purchased
by companies in all industries as a means of generating public interest in their
company or products.
A more detailed discussion of our products follows in the Products and Services
section.
CORPORATE BACKGROUND
Stockgroup was incorporated under the laws of Colorado on December 6, 1994 under
the name I-Tech Holdings Group, Inc. ("I-Tech"), a United States non-operating
16
company registered on the NASD OTC Bulletin Board. The financial statements and
supporting information in this report are issued under the name of Stockgroup
but are a continuation of the financial statements and report of operations of
Stock Research Group, Inc. ("SRG"), a British Columbia corporation which was
incorporated on May 4, 1995. On March 11, 1999, pursuant to a reverse
acquisition, SRG acquired the net assets of I-Tech. For accounting purposes,
SRG became a subsidiary of I-Tech.
Our name was changed from I-Tech to Stockgroup.com Holdings Inc. on May 6, 1999
and to Stockgroup Information Systems Inc. on September 20, 2001.
We are a United States publicly traded company registered on the NASD OTC
Bulletin Board under the symbol SWEB. From our head office in Vancouver, we
operate branch offices in San Francisco and Toronto.
As SRG, 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 building
of Smallcapcenter and its related investment software and content aggregation &
management systems 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 applications
being developed by us on a continuing 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 favour of other
areas with more profit potential, namely Financial Software and Content Systems
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 software
applications such as the IntegrateIR. 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 Software and Content Systems market late in 2000 by
licensing our proprietary financial software applications and third party
content 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 software
content model is attractive to customers because it is a comprehensive and cost
effective alternative to in-house development.
Early in 2001, as the market for our products and services evolved, it became
apparent to our management where the most profitable and sustainable areas of
the business were. They were Financial Software and Content Systems and Public
Company Disclosure and Awareness Products (including IntegrateIR and other
awareness and disclosure products). Once these were identified, a more
streamlined and stable cost structure was introduced to improve profitability
and cash flow.
On June 24, 2002, we acquired the Stockhouse website and related assets. These
assets added a new dimension to our business, that being a high-traffic, highly
recognized financial community. We immediately went to work marketing products
and services which leverage the Stockhouse assets. While Stockhouse began
contributing to our sales revenue in the third quarter of 2002, the benefits
have not yet been fully realized, and we expect solid growth in this area of the
business in coming quarters.
17
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 Software and Content Systems and Public Company
Disclosure and Awareness Products.
FINANCIAL SOFTWARE AND CONTENT SYSTEMS
We have developed proprietary financial applications and tools we license to
clients. The clients for Financial Software and Content Systems are from many
different markets, such as media, banks and credit unions, stock brokerages,
leasing, insurance, and other financial services companies.
We provide Financial Software and Content Systems on a private-labeled basis,
and they are typically sold on long term (twelve-month or more) contracts,
generating recurring revenue streams. Many of the software applications are
data-feed driven. We either feed data from our own aggregated databases or from
third parties. The advantage of using the Stockgroup system is that the
customer is able to receive data and information from a variety of different
feeds all from one point of contact, at a fraction of the cost of purchasing all
feeds individually. We add value by customizing, filtering, and sorting data in
the configuration the customer wants, and then adding the different software
applications and hosting the entire solution. 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.
Examples of some of the providers of third-party data feeds include Marketguide,
Comtex, Multex, and North American Quotations.
We distribute Financial Software and Content Systems through content and
application syndicates, such as Yellowbrix, through channel resellers such as
The Associated Press, The Canadian Press and through our own sales team. These
Financial Software 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.
Here are just a few of the over 25 Financial Software and Content Systems
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 Software and Content Systems is delivered to customers in four
different formats:
18
- On an Application Service Provider (ASP) basis where the content and
software is hosted by us and private-labeled to the customers Internet or
Intranet site
- Through our proprietary software objects residing on the customer's 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 investor interest in their company, c) improve their public
disclosure compliance, or d) advertise their products and services.
Products and services offered by this revenue stream include the IntegrateIR
software system, Investor Marketplace, E-Mail Distribution of Press Releases,
Sector Supplements, At The Bell/Smallcap Express sponsorship, Banner and Button
Advertising, Monthly Investor Marketing, Custom Web Site Development, and other
online investor marketing products.
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.
We recently launched version 2.01 of the IntegrateIR, an automated financial
application that is licensed to public companies. The IntegrateIR updates the
clients' regulated investor relations information automatically by private
labeling this software application into the clients' corporate web site. The SEC
has mandated fair disclosure policies that make our IntegrateIR especially
attractive as it updates news releases, webcasts and SEC filings direct from the
wire services as they happen and automatically sends the information to the
client's shareholders and interested parties. The IntegrateIR helps to prevent
mistakes and increase timeliness compared to having internal staff manually
update these activities.
Our IntegrateIR system represents a way to manage shareholder communications and
reach new investors. The IntegrateIR 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 IntegrateIR 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 Public Company Disclosure and Awareness Products 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.
19
Targeted e-mail marketing, which is used to disseminate news releases to an
exclusive list of opt-in investors and interested parties.
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 which
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 At 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 and Smallcapcenter. A client who sponsors At 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 Sponsorship, both on Stockhouse and on Smallcapcenter, is a growing
part of our business since the acquisition of Stockhouse. Stockhouse is a high
traffic financial community. Research has shown that our traffic is composed of
a high income demographic of active investors. This demographic is very
attractive to advertisers. The Smallcapcenter demographic, which shares those
characteristics, attracts a group whose interest is high-growth stocks. The
combination of these two websites gives us a tremendous number of sales options.
The products developed by us over the past five years enable us to offer Public
Company Disclosure and Awareness Products to a rapidly growing customer base
while maintaining a high sales margin. The revenues derived from this source are
typically contractual over a specified term. The Internet communities developed
and acquired by Stockgroup host the critical mass to ensure a high level of
exposure to our Public Company Disclosure and Awareness Products.
SHARE PRICE AND VOLUME DATA
Our common stock has been quoted for trading on the OTC Bulletin Board since
March 17, 1999, and on the TSX Venture Exchange since December 17, 2002.
Accordingly, there has been a limited public market for our common stock.
The following table sets forth high and low bid prices for our common stock on
the OTC Bulletin Board for the quarterly periods ending June 30, 2002 through to
June 30, 2003. These prices represent quotations between dealers without
adjustment for retail markup, markdown or commission and may not represent
actual transactions.
Quarter Ending: High Low Volume
---------------------------------------------------------
June 30, 2002 $ 0.260 $ 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
March 31, 2003 $ 0.380 $ 0.205 4,858,400
June 30, 2003 $ 0.380 $ 0.219 7,464,200
---------------------------------------------------------
The following table sets forth high and low bid prices for our common stock on
the TSX Venture Exchange for the period from inception on December 17, 2002 to
December 31, 2002, the two quarterly periods ended June 30, 2003. These prices
represent quotations between dealers without adjustment for retail markup,
markdown or commission and may not represent actual transactions.
20
Quarter Ending: High Low Volume
----------------------------------------------------------------
December 31, 2002 (partial) C$ 0.45 C$ 0.38 181,500
March 31, 2003 C$ 0.50 C$ 0.31 575,300
June 30, 2003 C$ 0.49 C$ 0.34 703,744
----------------------------------------------------------------
Holders
As of the date of this prospectus we had 125 registered shareholders owning
29,418,371 shares of our common stock.
DIVIDENDS
The Company has not declared any dividends since inception, and has no intention
of paying any cash dividends on its Common Stock in the foreseeable future. The
payment by the Company of dividends, if any, in the future, rests with the
discretion of its Board of Directors and will depend, among other things, upon
the Company's earnings, its capital requirements and its financial condition, as
well as other relevant factors.
Item 4. Disclosure 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 put forth to the board of directors for adoption
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.
There have been no significant changes in our internal controls or in other
factors, which could significantly affect internal controls subsequent to the
date we carried out our evaluation.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Pacific Capital Markets Inc.
We filed a statement of claim in the Supreme Court of British Columbia on
January 3, 2001, against Pacific Capital Markets Inc., James King, Rick Jeffs,
and Heidi Hirst. We are suing Pacific Capital Markets Inc. for $351,800 due to
it under a sales contract we signed with them on September 20, 2000. We are
suing the individuals named above, who are managers of Pacific Capital Markets
Inc., for general damages for misrepresentation. We are seeking payment of the
$351,800 owing, plus interest, damages, costs and such further and other relief
as deemed suitable by the court.
On January 12, 2001, Pacific Capital Markets Inc., James King, Rick Jeffs, and
Heidi Hirst filed a Statement of Defense and Counterclaim. At the time of this
filing, no settlement conferences have been held and no court date has been set.
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As of July 31, 2003, no further action had been taken by either side. While we
believe we have a strong case, we have not elected to aggressively pursue this
litigation at this time, pending further information on the collectibility of
the debt.
Stockhouse BullBoards Legal Issues
We have been named in two lawsuits that we are aware of involving alleged
defamation by users of our BullBoards on www.Stockhouse.com (.ca). In one case
we have received written assurance from the plaintiff that we have been removed
from the list of defendants due to our non-involvement in the alleged
defamation. In the other case we are co-operating with the plaintiff and expect
to be removed from further action without having to incur legal costs of
defense. In the future we may be named in other lawsuits, although we currently
are unaware of any pending. We believe that our risk of incurring losses and/or
legal expenses from such lawsuits is low.
Item 2. Changes in Securities and Use of Proceeds
No unregistered securities were issued during the period covered by this report.
There were no changes to any class of our securities.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote.
Item 6. Exhibits and Reports on Form 8-K
1. Reports on Form 8-K (incorporated by reference only)
On March 31, 2003, we filed an 8-K regarding our $0.544M private
placement which closed December 31, 2002.
No other reports on form 8-K have been filed in 2003.
31 (a) CEO Section 302 Certification
(b) CFO Section 302 Certification
32 (a) CEO Section 906 Certification
(b) CFO Section 906 Certification
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This report includes forward-looking statements relating to, among other things,
projections of future results of operations, our plans, objectives and
expectations regarding our future services and operations and general industry
and business conditions applicable to us. We have based these forward-looking
statements on our current expectations and projections about future events. You
can find many of these forward-looking statements by looking for words such as
"may, "should", "believes", "expects", "anticipates", "estimates", "intends",
"projects", "goals", "objectives", or similar expressions in this document or in
documents incorporated herein. These forward-looking statements are subject to a
number of risks, uncertainties and assumptions about us that could cause actual
results to differ materially from those in such forward-looking statements. Such
risks, uncertainties and assumptions include, but are not limited to, the
factors that we describe in the section entitled "Risk Factors" in the Form 10K
for the year ended December 31, 2002. Stockgroup Information Systems Inc. claims
the protection of the safe harbor for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
STOCKGROUP INFORMATION SYSTEMS INC.
(Registrant)
Date: August 14, 2003 By: /s/ David Gillard, CGA
---------------------------------------------
Chief Financial Officer, Secretary &
Treasurer
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