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AS FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1999
REGISTRATION NO. 333-90893
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SIDEWARE SYSTEMS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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BRITISH COLUMBIA, CANADA 7372 (I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
930 WEST FIRST STREET, SUITE 102, NORTH VANCOUVER, BRITISH COLUMBIA, CANADA V7P 3N4 TELEPHONE
(604) 988-0440
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
NATIONAL REGISTERED AGENT
1090 VERMONT AVENUE, SUITE 910, WASHINGTON, D.C. 20005 TELEPHONE (202) 371-8090
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
COPIES TO:
BRADLEY FURBER PAUL HILDEBRAND GRANT SUTHERLAND, CHAIRMAN
JIE CAO DALE W. WILCOX, A LAW CORP. SIDEWARE SYSTEMS INC.
VAN VALKENBERG FURBER LAW GROUP 1910 - 777 Hornby Street 1600 - 777 Hornby Street
P.L.L.C. Vancouver, British Columbia Vancouver, British Columbia
1325 Fourth Avenue V6Z 1S4 V7Y 1K4
Seattle, Washington 98101-2509 Telephone (604) 687-1374 Telephone (604) 688-0047
Telephone (206) 464-0460 Facsimile (604) 687-2731 Facsimile (604) 688-0094
Facsimile (206) 464-2857
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE PER AGGREGATE OFFERING
AMOUNT TO BE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED
SHARE(1) PRICE(1)
<S> <C> <C> <C>
Common Shares...................... 5,493,666 $1.90 $10,437,965
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED
REGISTRATION FEE
<S> <C>
Common Shares...................... $2,901.49
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(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933.
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SIDEWARE SYSTEMS INC.
Cross Reference Sheet to Item 501(b) of Regulation S-K Showing Location in
Prospectus of Information Required by Items of Form F-1
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REGISTRATION STATEMENT ITEM NUMBER LOCATION OR CAPTION IN PROSPECTUS
- ---------------------------------- -------------------------------------------
<C> <S> <C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................ Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus................................. Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors............... Prospectus Summary; Risk Factors; Selected
Consolidated Financial Data;
Ratio of Earnings to Fixed Changes.............. Not applicable
4. Use of Proceeds................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................. Risk Factors; Exchange Rates; Nature of
Trading Market; Plan of Distribution
6. Dilution........................................ Not Applicable.
7. Selling Security Holders........................ Selling Shareholders
8. Plan of Distribution............................ Plan of Distribution
9. Description of Securities to be Registered...... Description of Capital Stock
10. Interests of Named Experts and Counsel.......... Not applicable
11. Information with respect to the Registrant
(a) (1) Description of Business................ Prospectus Summary; Business--The Company
(2) Description of Property................ Business--Description of Property
(3) Legal Proceedings...................... Business--Legal Proceedings
(4) Control of Registrant.................. Principal Shareholders
(5) Nature of Trading Market............... Nature of Trading Market
(6) Exchange Controls and Other Limitations
Affecting Security Holders............. Enforcement of Civil Liabilities;
Description of Capital Stock--Exchange
Controls and Other Limitations Affecting
Security Holders; Exchange Rates
(7) Taxation............................... Certain Tax Considerations
(8) Selected Financial Data................ Selected Consolidated Financial Data;
Exchange Rates
(9) Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(10) Quantitative and Qualitative
Disclosures about Market Risk............ Not Applicable
(11) Directors and Officers of
Registrant............................ Management--Directors, Executive Officers
and Key Employees
(12) Compensation of Directors and
Officers.............................. Management--Executive Compensation
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REGISTRATION STATEMENT ITEM NUMBER LOCATION OR CAPTION IN PROSPECTUS
- ---------------------------------- -------------------------------------------
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(13) Options to Purchase Securities from
the Registrant or Subsidiaries........... Management--Executive Compensation;
Description of Capital Stock--Options to
Purchase Securities from the Company
(14) Interest of Management in Certain
Transactions.......................... Certain Transactions
(b) Financial Statements Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liability Not Applicable
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SUBJECT TO COMPLETION DECEMBER - , 1999
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
---------------------
SIDEWARE SYSTEMS INC.
5,493,666 SHARES OF COMMON STOCK
------------------
This Prospectus relates to the offering of up to 5,493,666 shares of Sideware
Systems Inc. common stock, which may be offered from time to time by the persons
named in this Prospectus under the heading "Selling Shareholders."
The shares offered for sale pursuant to this Prospectus consist of
2,746,833 shares (the "Shares") and 2,746,833 additional shares (the "Warrant
Shares") issuable upon the exercise of 2,746,833 share purchase warrants (the
"Warrants"). Each Warrant entitles the holder to acquire one Warrant Share at
any time up to September 14, 2001, at a price of US$1.64 per Warrant Share up to
September 14, 2000 or US$1.89 per Warrant Share up to September 14, 2001. The
Selling Shareholders acquired the Shares and Warrants pursuant to a private
placement of 2,746,833 units completed in September 1999. Each unit consisted of
one Share and one Warrant. The price of the units was US$1.64 per unit. The
Warrants are non-transferable.
The Shares and Warrant Shares may be offered for sale from time to time by each
Selling Shareholder acting as principal for its own account or in brokerage
transactions at prevailing market prices or in transactions at negotiated
prices. No representation is made that any Shares or Warrant Shares will or will
not be offered for sale, or that any of the Warrants will or will not be
exercised by any of the Selling Shareholders. We will not receive any proceeds
from the sale of the Shares or Warrant Shares. It is not possible at the present
time to determine the price to the public in any sale of the Shares or Warrant
Shares by the Selling Shareholders and each Selling Shareholder reserves the
right to accept or reject, in whole or in part, any proposed purchaser of Shares
or Warrant Shares. Accordingly, the public offering price and the amount of any
applicable sales or underwriting discounts or commissions will be determined at
the time of sale by the Selling Shareholders. We will pay all costs, expenses
and fees incurred in connection with the registration of the Shares and Warrant
Shares, estimated to be approximately US$160,000. However, all selling and other
expenses incurred by the Selling Shareholders will be borne by the Selling
Shareholders. See "PLAN OF DISTRIBUTION".
Our common shares trade on both the Canadian Venture Exchange and the OTC
Bulletin Board. See "NATURE OF TRADING MARKET".
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OFFERED HEREBY,
SEE "RISK FACTORS".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENCE.
---------------------
The date of this Prospectus is December 14, 1999
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission in Washington D.C.
a Registration Statement on Form F-1 under the United States Securities Act of
1933 with respect to the securities offered hereby. This Prospectus, which is a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement, certain parts of which (including the
schedules and exhibits) are omitted in accordance with the rules and regulations
of the Commission. In addition, we are subject to the reporting requirements for
foreign private issuers under the Securities and Exchange Act of 1934 (the
"Exchange Act") and, in accordance therewith, file reports, including annual
reports on Form 20-F, and other information with the Commission. The
Registration Statements and the schedules and exhibits thereto and the reports
and other information we have filed with the Commission under the Exchange Act
may be inspected and copied by the public at the public reference facilities
maintained by the Commission at Room 1024, Judicial Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549.
ENFORCEMENT OF CIVIL LIABILITIES
The enforcement by investors of civil liabilities under the federal
securities laws of the United States may be adversely affected by the fact that
we are incorporated and organized under the laws of a province of Canada, that
some or all of our directors and officers may be residents of Canada, that some
or all of the experts named in the Registration Statement may be residents of
Canada, and that all or a substantial portion of our assets and the assets of
those persons may be located outside the United States. As a result, it may be
difficult for holders of the Shares or Warrant Shares to effect service of
process within the United States upon our directors and officers who are not
residents of the United States, or upon experts named in the Registration
Statement who are not residents of the United States, or to realize in the
United States upon judgments of courts of the United States predicated upon
civil liabilities under the federal securities laws of the United States.
We have been advised by Dale W. Wilcox, a Law Corporation, our Canadian
counsel, that there is doubt as to the enforceability in Canada against us or
our directors or officers who are not residents of the United States or experts
named in the Registration Statement who are not residents of the United States
in original actions, or in actions for enforcement of judgments of United States
courts of liabilities predicated solely upon the federal securities laws of the
United States.
CONVENTIONS AND CURRENCY OF PRESENTATION
Except where the context requires otherwise, disclosure in this Prospectus
relates to Sideware Systems Inc.and it subsidiaries, and the term "Company"
refers to Sideware Systems Inc.
Unless otherwise indicated: (i) financial information herein is expressed in
Canadian dollars ("$" or "Cdn$"), unless specifically expressed in United States
dollars ("US$"), (ii) financial data in this Prospectus are represented in
accordance with generally accepted accounting principles as applied in Canada
("Canadian GAAP") and, when required, such financial data contains a
reconciliation to generally accepted accounting principles as applied in the
United States ("US GAAP").
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
We provide software which facilitates Internet commerce. Our principal
product, Dr. Bean, allows companies operating e-commerce Web sites to open
direct, real time communication with their customers over the Web. Dr. Bean thus
gives e-commerce vendors the best of both worlds--the range and flexibility of
the Internet combined with the personalised service of traditional marketing
methods.
The Internet is growing rapidly in importance as a medium for conducting
business. In addition to retail trade, the Internet is becoming a centre of
business-to-business commerce. In May 1998, Forrester Research projected that by
2002, business trade conducted over the Internet will reach US$327 billion,
while retail trade over the Internet will reach US$17 billion.
We released the initial version of Dr. Bean in April 1999. In
November 1999, we released Dr. Bean version 3.0, our current version. Dr. Bean
3.0 includes a major upgrade in features available to Dr. Bean users. We believe
that with the additional features included in version 3.0, Dr. Bean can perform
a broad and valuable range of e-CRM (Electronic Customer Relations Management)
functions. Further enhancements to Dr. Bean are under development, and will be
released in the final quarter of 1999 and the first half of 2000. See
"BUSINESS--Products--Dr. Bean."
In July 1999, we initiated the Sideware Partner Program, to enlist value
added resellers for Dr. Bean. We presently have 13 value added resellers. We
believe that value added resellers will be the chief distribution channel for
Dr. Bean. See "BUSINESS--Dr. Bean--Marketing."
In November and December 1999 we entered into agreements with IBM for
cooperative marketing of Dr. Bean. We believe that our agreements with IBM will
assist us in gaining broad market exposure and in developing valuable
distribution channels.
We have a limited operating history, and have not yet generated material
operating revenues. An investment in our shares is speculative and involves a
high degree of risk. The principal risks affecting our business and securities
are set out below under the heading "RISK FACTORS".
THE OFFERING
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Common Shares being offered by the Selling
Shareholders in the Offering:............ 5,493,666
Common Shares to be outstanding after the
Offering:................................ 51,432,117
Use of Proceeds........................... We will not receive any proceeds from the sale of the shares
of Common Shares offered hereby.
Canadian Venture Exchange Symbol.......... SYD.U
OTC Bulletin Board Symbol................. SDWSF
Risk Factors.............................. Investment in the Common Shares offered hereby involves
certain risks. Each prospective investor should carefully
consider all of the matters described herein under "RISK
FACTORS."
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3
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table sets forth summary consolidated historical financial and
operating data for the periods indicated. The summary data is qualified by, and
should be read in conjunction with, the Consolidated Financial Statements and
the related notes thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS", contained elsewhere herein. The historical
financial data is not necessarily indicative of our future results.
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<CAPTION>
NINE MONTHS EIGHT MONTHS YEAR ENDED YEAR ENDED YEAR ENDED
ENDED SEPT. 30, ENDED DEC. 31, APRIL 30, APRIL 30, APRIL 30,
1999 1998 1998 1997 1996
---------------- --------------- ---------- ---------- ----------
(000'S) (000'S) (000'S) (000'S) (000'S)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales Revenue....................... $ 326 $ 158 $ 27 $ 70 $ 28
Profit (Loss) for the period
(Cdn. GAAP)....................... (4,084) (1,892) (2,409) (4,587) (850)
Profit (Loss) for the period
(US GAAP)......................... (5,303) (1,937) (2,409) (2,003) (898)
(Loss) per share for the period
(Cdn. GAAP)....................... (0.12) (0.07) (0.11) (0.29) (0.07)
(Loss) per share for the period
(US GAAP)......................... (0.16) (0.07) (0.11) (0.29) (0.07)
</TABLE>
4
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH BELOW
IN ADDITION TO OTHER INFORMATION CONTAINED AND INCORPORATED IN THIS PROSPECTUS,
IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
RISKS RELATING TO OUR BUSINESS
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WE HAVE A LIMITED OPERATING AND SALES We commenced operations under new management in May 1995.
HISTORY ON WHICH TO EVALUATE OUR The first version of our principal product, Dr. Bean, was
PROSPECTS released in April 1999. Dr. Bean is in an early stage of
development, and is being offered in a new and rapidly
changing market. The prospects for Dr. Bean are difficult to
predict and may change rapidly and without warning. We have
not at any time generated substantial sales revenue from any
of our products, including Dr. Bean.
As a result of our limited operating and sales history, we
do not have information from which we can make reliable
estimates of future revenues, expenses or profits.
WE HAVE INCURRED SUBSTANTIAL We have incurred operating losses consistently since
OPERATING LOSSES AND MAY NOT BE entering the field of software development. As at
PROFITABLE IN THE FUTURE September 30, 1999, we had an accumulated deficit during the
development phase of $16.4 million.
We have not at any time generated substantial revenues,
while increasing expenditures in all areas, including
research and development and sales and marketing. We have no
assurance that we will be able to generate sufficient
revenue to achieve profitable operation, to achieve positive
cash flow, or to continue our business as a going concern.
Failure to achieve profitability within the time frame
expected by our investors may adversely affect the market
price of our common shares.
OUR PRODUCTS MAY NOT GAIN MARKET We do not have an established history or record of sales. We
ACCEPTANCE cannot assure that our products will gain sufficient market
acceptance, or achieve sufficient sales revenue, to allow us
to achieve profitable operation, to achieve positive cash
flow, or to continue our business as a going concern.
DISAPPOINTING QUARTERLY REVENUE OR Our quarterly revenue and operating results are difficult to
OPERATING RESULTS COULD CAUSE THE predict and may fluctuate significantly from quarter to
PRICE OF OUR COMMON SHARES TO FALL quarter. If our quarterly revenue or operating results fall
below the expectations of investors or securities analysts,
the price of our common shares could fall substantially.
Our quarterly revenue may fluctuate as a result of a number
of factors, many of which are outside our control, including
the following:
-- the market for interactive Web-based electronic business
solutions is in an early stage of development and it is
therefore difficult to predict customer demand
accurately;
-- the response of the market to Dr. Bean, and our ability
to gain market share in a highly competitive market, are
also difficult to predict; and
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5
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-- the sales cycle of our products may be long and may vary
substantially from customer to customer, making it
difficult for us to determine whether and when we will
receive revenue from specific customers.
Most of our expenses, such as employee compensation and
rent, are relatively fixed in the short term. Moreover, our
expense levels are based, in part, on our expectations
regarding future revenue levels. If revenue for a particular
quarter is below our expectations, we will not be able to
reduce operating expenses proportionately. The revenue
shortfall could thus have a disproportionate effect on our
operating results for the quarter.
OUR FUTURE OPERATING COSTS ARE We do not have sufficient operating history to make accurate
UNCERTAIN projections of our future operating costs. In order to
achieve profitable operation, we will have to hire
substantial additional personnel in a number of fields,
including research and development, marketing, and product
service and support. As well, we will have to incur
substantial marketing and overhead costs. As a result of our
limited operating history, we are not able to make reliable
projections as of the number of additional personnel that
will be required, the cost of employing additional
personnel, or the level of marketing and overhead expenses
we will incur.
CONTINUED ADOPTION OF WEB-BASED Our products address a new and emerging market for
ELECTRONIC BUSINESS SOLUTIONS IS Web-based, interactive electronic business solutions.
NECESSARY FOR OUR FUTURE GROWTH Therefore, our future success depends substantially upon the
widespread adoption of the Web as a primary medium for
commerce and business applications. The failure of this
market to develop, or a delay in the development of this
market, will have a material adverse effect on our business,
financial condition and operating results.
The Web has experienced, and is expected to continue to
experience, significant user and traffic growth. This, at
times, has caused user frustration with slow access and
download times. The Web infrastructure may not be able to
support the demands placed on it by the continued growth
upon which our success depends. Moreover, important issues
concerning the commercial use of the Web, such as security,
reliability, cost, accessibility, and quality of service,
remain unsolved and may negatively affect the growth of Web
use or the attractiveness of commerce and business
communication over the Web. In addition, Web-based commerce
could become less attractive through delays in the
development or adoption of new standards and protocols to
handle increased activity, or through increased government
regulation and taxation of Internet commerce.
GOVERNMENT LAWS AND REGULATIONS COULD Federal, state or foreign agencies may adopt laws or
LIMIT THE MARKET FOR OUR PRODUCTS regulations affecting the use of the Web as a commercial
AND SERVICES medium. If enacted, these laws or regulations could limit
the market for our products, which could materially affect
our business, financial condition, and operating results.
Although many of these laws or regulations may not apply to
our business directly, laws and regulations relating to
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6
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use, privacy, pricing, or content and quality of products
and services could affect our business indirectly. It is
possible that these laws or regulations could expose
companies involved in Web commerce to liability, which could
limit the growth of Web commerce generally.
WE FACE SIGNIFICANT COMPETITION FROM The market for interactive Web-based electronic business
OTHER TECHNOLOGY COMPANIES solutions is highly competitive and rapidly changing. If we
are unable to compete effectively our business, financial
condition and operating results will be materially adversely
affected. Many of our current and potential competitors have
longer operating histories, greater name recognition and
substantially greater financial, technical, marketing,
management, service, support and other resources than we
have. Our competitors may be able to expand and develop
their technologies more quickly than we can, to devote
greater resources to the development and marketing of their
products, or to respond more quickly to changing
opportunities or technologies.
In addition, we expect that new competitors will enter the
market with competing products as the size and visibility of
the market opportunity increases. We also expect that
competition will increase as a result of software industry
consolidations and formations of alliances among industry
participants. Increased competition could result in pricing
pressures, reduced margins, or the failure of our products
to achieve or maintain market acceptance.
The market for computer software is also dominated by large
corporations which have assets much greater than ours, and
which might be able to develop software duplicating the
features of our products at modest cost. We face a continual
risk that market opportunities or product features which we
intend to exploit can, within a short period of time, become
dominated by much larger and wealthier corporations,
rendering our products obsolete or non-competitive.
WE MAY NOT BE ABLE TO DEVELOP NEW To be competitive, we must develop and introduce, on a
PRODUCTS OR ENHANCE EXISTING timely basis, new products and product enhancements which
PRODUCTS ON A TIMELY BASIS meet the demands of the marketplace. We cannot assure that
we will be able to do so, or to respond effectively to
technological changes or new product announcements by
others. Failure to introduce new products or enhancements
could have a material adverse impact on our business,
operating results, and financial condition.
FAILURE TO EXPAND OUR RELATIONSHIPS We do not have established distribution channels for our
WITH RESELLERS COULD IMPEDE products. Our present marketing plans depend heavily on the
ACCEPTANCE OF OUR PRODUCTS AND GROWTH recruitment of value added resellers for our products, and
on sales expected to be generated by such value added
resellers. Failure to recruit a sufficient number of value
added resellers, or failure of our value added resellers to
market our products effectively, could have a material
adverse impact on our business, operating results and
financial condition. Failure by our value added resellers to
install or implement our products successfully for their
clients could also have a material adverse impact on our
business, operating results, and financial condition.
</TABLE>
7
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FAILURE TO MANAGE GROWTH PROPERLY We could experience rapid growth in orders, revenues,
COULD STRAIN RESOURCES AND AFFECT personnel, marketing activities, and complexity of products.
OUR BUSINESS We cannot assure that we will be able to manage the
significant strains that future growth may place on our
administrative infrastructure, systems, and controls.
Qualified technical personnel are in great demand throughout
the software industry. Increased sales of our products will
require us to hire additional personnel to install and
support our products. We will also be required to hire
additional technical personnel to continue development of
our products. Our success will depend to a substantial
degree on our ability to attract, train, motivate, and
retain qualified personnel. Inability to do so may have a
material adverse impact on our business, operating results
and financial condition.
LOSS OF KEY PERSONNEL COULD ADVERSELY Our success is substantially dependent on the performance of
AFFECT OUR BUSINESS our employees, many of whom have worked together for a short
period of time. Our work force is relatively small, and we
thus employ only a small number of employees in specific
fields important to our business.
The success of our marketing efforts is substantially
dependent on our President, the President of Sideware Corp.,
the Vice President of Channel Sales and Marketing for
Sideware Corp., and the Vice President of Federal Sales and
Marketing for Sideware Corp.
Continued development of our products and our technical work
are substantially dependent on our President, our General
Manager of e-business solutions, and our programmers.
The departure of a single employee or a small number of
employees could materially adversely affect our business. We
cannot assure that we will be able to attract and retain
qualified personnel on acceptable terms. We do not have key
man insurance on any of our employees.
WE MAY BE UNABLE TO PROTECT OUR We rely heavily on our proprietary software technology. To
PROPRIETARY TECHNOLOGY protect our proprietary technology we rely on
confidentiality agreements with key employees and third
parties and on trade secret, trademark, and copyright laws.
Although we attempt to maintain confidentiality of, and
prevent improper disclosure of, our software technology, we
cannot assure that we have adequately protected our
technology from misappropriation. In addition, others may
attempt to "reverse engineer" our products in order to
determine their method of operation and introduce competing
products. Similarly, others may develop competing technology
independently. Such developments could have a material
adverse affect on our business, operating results, and
financial condition.
OTHER COMPANIES MAY CLAIM THAT OUR If any of our products violate third party proprietary
PRODUCTS INFRINGE THEIR COPYRIGHTS rights we may be required to re-engineer our products or
OR PATENTS seek to obtain licenses from third parties. We have no
reason to believe any of our products infringe the
proprietary rights of third parties. However,
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8
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we do not conduct comprehensive patent searches to determine
whether the technology used in our products infringes any
third party patents.
Some of the markets in which we compete are characterised by
the existence of a large number of patents and frequent
litigation for financial gain based on patents with broad,
and sometimes questionable, application. As the number of
our products increases, the markets in which our products
are sold expands, and the functionality of those products
grows and overlaps with products offered by competitors, our
products may become increasingly subject to infringement
claims. Although we have no reason to believe that any of
our products infringe the proprietary rights of third
parties, there can be no assurance that infringement claims
will not be asserted against us in the future, or that such
claims will not require us to enter into royalty
arrangements or result in costly litigation.
WE MAY LOSE ACCESS TO THIRD PARTY Our Dr. Bean product incorporates software licensed from
TECHNOLOGY USED IN OUR PRODUCTS third parties. We have no reason to believe that our license
rights in respect of such software will be terminated.
However, we cannot assure that such license rights will
continue to be available to us. Loss of such license rights
would require us to license software performing similar
functions from other parties, to develop software performing
such functions independently, or to re-engineer our products
to operate without such licensed software. This could result
in interruptions or delays in our ability to sell or
continue development of our products, or in loss of
important features of our products. See
"BUSINESS--Intellectual Property".
OUR BUSINESS COULD SUFFER IF OUR Software products are complex. Our products may contain
PRODUCTS FAIL TO PERFORM PROPERLY undetected errors, or bugs, which result in product
failures. Our products may also be incompatible with other
software or hardware used by a substantial number of our
potential customers. Product performance failures could
result in loss of or delay in revenues, loss of market
share, failure to achieve market acceptance, or injury to
our reputation.
During the week of April 26, 1999, we implemented the
initial version of Dr. Bean on IBM platforms, including
principally the S390, AS400 and RS6000 platforms, and also
the Windows NT, Linux and Sun Solaris operating systems, at
IBM facilities. During the implementation and testing, the
initial version of Dr. Bean operated successfully on the
platforms and operating systems tested. However, as
Dr. Bean has not yet been in significant commercial use,
there can be no assurance that the program will operate free
of material errors or defects. In addition, there can be no
assurance that enhancements or modifications of Dr. Bean do
not include errors or defects.
WE COULD INCUR SUBSTANTIAL COSTS AS A If any of our products fail, a customer may assert a claim
RESULT OF PRODUCT LIABILITY CLAIMS for substantial damages against us, regardless of whether we
are responsible for the failure. Product liability claims
could require us
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
to spend significant time and money in litigation or to pay
significant damages.
We currently carry limited insurance, which may not cover
claims against us for financial losses, and which will not
be sufficient in amount to cover large claims. In addition,
there can be no assurance that any insurance coverage will
be available in the future on reasonable terms, that
insurance we purchase will be sufficient to cover any claims
against us, or that insurers will not deny coverage with
respect to any future claim.
WE MAY BE AFFECTED BY UNEXPECTED YEAR Many existing computer systems and software products do not
2000 PROBLEMS properly recognise dates after December 31, 1999. This
Year 2000 problem could result in miscalculations, data
corruption, system failures, or disruptions of operations.
To the best of our knowledge, all of our products and
internal systems are Year 2000 compliant. However, we are
subject to the possibility of Year 2000 problems affecting
our products, our customers' systems, our internal systems,
and the systems of vendors, any one of which could have a
material adverse effect on our business, operating results
and financial condition.
WE MAY NOT BE ABLE TO RAISE THE We will require additional capital to continue the
ADDITIONAL CAPITAL WE NEED development of our services and products, to pay the costs
of marketing those products, and to cover operating losses
until we are able to become profitable. Owing to the
speculative and uncertain nature of our business, we are
unable to calculate the amounts of additional capital we may
have to raise, although the amounts may be substantial. The
extent and timing of our capital requirements will depend on
many factors, including continued progress in our product
development programs and the market response to our
products.
Our ability to raise capital will depend on our perceived
ability to develop and bring to the market products capable
of generating sales revenue at profitable levels. To raise
additional capital, we may have to issue additional shares,
which may dilute the interests of existing shareholders
substantially. Alternatively, we may have to borrow large
sums, and assume obligations to make substantial interest
and capital payments. We may also have to sell significant
interests in some or all of our products. We cannot assure
that we will be able to raise the amount of capital we
require, or that we will be able to raise capital on terms
that enhance the value of our common shares.
GOVERNMENTS MAY CHALLENGE OUR TAX We are party to agreements with non-arm's length parties,
RETURNS including Sideware Corp. and Sideware International SRL, in
jurisdictions outside Canada. We believe that these
agreements have been implemented in accordance with taxation
laws, regulations, treaties, and assessment practices
prevailing in Canada, the United States, and the other
jurisdictions involved. However, Canadian or U.S. taxation
authorities may challenge the terms or tax effect of these
agreements, and issue taxation assessments requiring us to
pay
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
additional income taxes beyond the amounts we consider to be
owing. Such assessments could lead to tax liabilities
substantially greater than we expect, or to duplicate tax
liabilities in different jurisdictions on the same income.
COMPANY DIRECTORS ARE INVOLVED IN We have agreements with BrainTech, Inc. and TechWest
OTHER COMPANIES DOING BUSINESS WITH Management Inc. which may be material to our future
US profitability. BrainTech, Inc. is a public company whose
shares trade on the OTC Bulletin Board. Grant Sutherland,
Owen Jones, and James Speros, members of our board of
directors, are also directors of BrainTech, Inc. TechWest
Management Inc. is a private company whose shareholders
include Owen Jones and Grant Sutherland.
One of our agreements with BrainTech Inc. is a cost sharing
agreement pursuant to which costs relating to our business
premises and certain personnel are shared. BrainTech, Inc.
is a development stage software company which has not
achieved profitable operation. There can be no assurance
that BrainTech, Inc. will be able to pay the costs for which
it is responsible under the cost sharing arrangement, with
the result that our cash requirements to continue operation
may increase. From time to time, either our payments or
those of BrainTech, Inc. pursuant to the cost sharing
agreement described above may exceed that company's
proportionate share. Accordingly, those payments are
reconciled and adjusted from time to time, as required. See
"CERTAIN TRANSACTIONS".
WE ARE INVOLVED IN COURT PROCEEDINGS We are presently involved in several court proceedings with
former management. The principal court proceedings are
described under "BUSINESS--Legal Proceedings." In those
proceedings, claims totaling approximately $1.8 million have
been advanced against us.
We are prosecuting our claims and defending our position in
all of the litigation proceedings. While we believe that our
positions will be sustained, there is a risk of losing some
of the court actions. The results could include substantial
pecuniary judgements against us and the appointment of a
receiver of our assets.
</TABLE>
RISKS ASSOCIATED WITH THIS OFFERING OF COMMON SHARES
<TABLE>
<S> <C>
OUR COMMON SHARES ARE PARTICULARLY The stock market in general has recently experienced extreme
VOLATILE price and volume fluctuations. In addition, the market
prices of securities of technology companies, particularly
Web-related companies, have been extremely volatile, and
have experienced price fluctuations that have often been
unrelated or disproportionate to the operating performance
of these companies. These broad fluctuations could adversely
affect the price of our common shares.
We believe that factors such as the announcement of new
products or technologies by us or by our competitors and
quarterly fluctuations in financial results are expected to
cause the market price of our common shares to vary
substantially. In addition, our net sales or results of
operations in future quarters may be below the expectations
of public market securities analysts and investors.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
In such event, the price of our common shares would likely
decline, perhaps substantially.
WE DO NOT EXPECT TO PAY DIVIDENDS IN We have never declared or paid cash dividends on our capital
THE FORESEEABLE FUTURE stock. We currently intend to retain any earnings to finance
the expansion and development of our business and,
therefore, do not anticipate paying any cash dividends in
the foreseeable future.
OUR SHARES ARE SUBJECT TO RULES The Securities and Exchange Commission has adopted
GOVERNING "LOW PRICED STOCK" regulations which generally define "penny stock" to be any
equity security that has a market price (as defined in their
regulations) less than US$5.00 per share, subject to certain
exceptions. Our securities may be covered by the penny stock
rules, which impose additional sales practice requirements
on broker-dealers who sell to persons other than established
customers and accredited investors (generally, institutions
with assets in excess of US$5,000,000 or individuals with
net worth in excess of US$1,000,000 or annual income
exceeding US$200,000 or US$300,000 jointly with their
spouse). For transactions covered by this rule, the
broker-dealers must make a special suitability determination
for the purchase and receive the purchaser's written
agreement to the transaction prior to the sale.
Consequently, the rule may affect the ability of
broker-dealers to sell our securities, and the ability of
shareholders to sell their shares in secondary markets.
</TABLE>
CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. These statements relate to future events or our future financial
performance, and are identified by terminology such as "may", "will", "should",
"scheduled", "plan", "intend", "estimate", "potential", "continue", "believe,"
"anticipate," "expect" and similar expressions. These statements are only
predictions. Actual results may differ significantly from the results discussed
in the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed under the heading "RISK
FACTORS". Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. We undertake
no obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
12
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of Shares or Warrant Shares
offered hereby, all of which will be received by the Selling Shareholders.
EXCHANGE RATES
The following table sets forth, for each period presented, the high and low
exchange rates, the average of the exchange rates on the last day of each month
during the period indicated, and the exchange rates at the end of the period
indicated for one Canadian dollar, expressed in United States dollars, based on
the noon buying rate in New York City for cable transfers payable in Canadian
dollars as certified for customs purposes by the Federal Reserve Bank of New
York.
<TABLE>
<CAPTION>
U.S. DOLLARS PER CANADIAN DOLLAR
---------------------------------------------------------------
PERIOD
PERIOD ENDED DECEMBER 31, JAN-SEPT
---------------------------------------------------- --------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average..................... $.7300 $.7305 $.7323 $.7220 $.6734 $.6714
High........................ $.7632 $.7527 $.7513 $.7486 $.7052 $.6860
Low......................... $.7103 $.7023 $.7235 $.6945 $.6351 $.6625
Period end.................. $.7128 $.7323 $.7301 $.6998 $.6650 $.6805
</TABLE>
On December 14, 1999 the exchange rate was US$0.675 per Cdn$1.00.
Our common shares are currently trading on the Canadian Venture Exchange
(the "CVE") under the symbol "SYD.U", and through the OTC Bulletin Board under
the symbol "SDWSF". Trading over the OTC Bulletin Board was authorized to
commence October 29, 1999.
Prior to November 4, 1999 our shares traded on the CVE in Canadian dollars.
On November 4, 1999, at our request, the CVE changed the trading currency for
our shares to United States dollars.
The following table sets forth the high and low sale prices for our common
shares (in Canadian dollars), as reported by the CVE for the quarters indicated.
<TABLE>
<CAPTION>
HIGH LOW
($) ($)
-------- --------
<S> <C> <C>
1999
Third Quarter............................................... $3.38 $2.20
Second Quarter.............................................. $3.47 $0.94
First Quarter............................................... $0.85 $0.45
1998
Fourth Quarter.............................................. $0.51 $0.33
Third Quarter............................................... $0.51 $0.30
Second Quarter.............................................. $0.54 $0.26
First Quarter............................................... $0.81 $0.36
1997
Fourth Quarter.............................................. $1.30 $0.60
Third Quarter............................................... $1.35 $0.76
Second Quarter.............................................. $1.94 $0.58
First Quarter............................................... $1.05 $0.19
</TABLE>
On December 14, 1999 the closing price for our shares on the CVE was
US$9.60.
Our common shares were first listed on the CVE on November 7, 1983. Trading
was suspended by the CVE on November 28, 1994 as a result of concerns of the CVE
over irregularities in transactions
13
<PAGE>
between the Company and its former President, Lawrence Kostiuk. Irregularities
identified by the CVE included:
(a) the granting of a purported general security agreement to Mr. Kostiuk
without public disclosure or CVE approval;
(b) misrepresentations made to the CVE by former management in respect of
private placements completed in August 1991, January 1993 and July 1993;
and
(c) potential breaches of our listing agreement with the CVE, including the
failure to file a management agreement between the Company and Riva
Yachts of Canada Ltd. (a company controlled by the family of
Mr. Kostiuk), the issuance of shares to Mr. Kostiuk without CVE approval,
and the improper issuance of shares pursuant to incentive stock options.
Certain of the above transactions are the subject matter of legal disputes
between us and our former management. See "BUSINESS--Legal Proceedings."
A cease trade order was issued by the British Columbia Securities Commission
on March 7, 1995 when former management failed to file required financial
statements. New management took control on May 3, 1995. On September 10, 1996,
the cease trade order and trading suspension were lifted and our shares resumed
trading. The principal steps that we were required to complete in order to
return our shares to trading status were the preparation and filing of
delinquent financial statements and the raising of approximately $1.6 million in
private placement financing, to permit us to resume operations.
As at December 14, 1999 we have 48,685,284 common shares issued and
outstanding. Approximately 146 record holders of common shares are within the
United States, holding approximately 14.8 million shares (approximately 30% of
the total shares issued and outstanding). Approximately 30 million shares are
registered in the name of CDS & Co., a Canadian depository company.
Approximately 8 million shares are registered in the name of CEDE & Co., a
United States depository. Owing to the large percentage of our shares registered
in the names of depositories, we do not have reliable information as to the
extent of beneficial ownership of our shares by US residents. We believe that in
excess of one third of our shares are owned beneficially by United States
residents.
Trading in our shares over the OTC Bulletin Board commenced pursuant to a
Form 15c-211 filed by National Securities Corp. of Chicago, Illinois. We have
entered into a Financial Advisory and Consulting Agreement with National
Securities Corp. of Chicago Illinois, pursuant to which we have issued 250,000
shares of restricted stock to National Securities Corp.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock. We currently intend
to retain all earnings, if any, to finance the growth and development of our
business. We do not anticipate paying any cash dividends in the foreseeable
future.
14
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated capitalization as of
December 31, 1998. This table should be read in conjunction with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
the Consolidated Financial Statements and related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------
(DOLLARS IN MILLIONS)
(AUDITED)
<S> <C>
Cash and cash equivalents................................... .3
Short-term debt and current portion of long-term debt:...... Nil
Short-term debt facility.................................. Nil
Current portion of long-term debt......................... Nil
------
Total................................................... Nil
------
Long-term debt:............................................. Nil
------
Total................................................... .3
------
Shareholder's equity:
Common Stock, 200 million shares authorized 27,269,959
shares issued and outstanding........................... 12.7
Special Warrants.......................................... 0.9
Commitment to issue shares................................ 0.1
Retained earnings......................................... (12.3)
------
Total capitalization.................................... 1.4
======
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for eight month
period ended December 31, 1998 and the fiscal years ended April 30, 1998, 1997,
1996, 1995 and 1994 were derived from our audited consolidated financial
statements, which appear elsewhere in this Prospectus. The selected consolidated
financial data for the nine month period ended September 30, 1999 were derived
from our unaudited consolidated financial statements, which also appear
elsewhere in this Prospectus, and which, in the opinion of the management, have
been prepared on the same basis as the audited consolidated financial statements
and contain all adjustments, consisting solely of normal recurring adjustments,
necessary for a fair presentation of the financial condition and results of
operations for such period. The financial data should be read in conjunction
with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and our Consolidated Financial Statements and the Notes thereto.
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30
NINE MONTHS ENDED EIGHT MONTHS ENDED ----------------------------------------------------
SEPTEMBER 30, 1999(1) DECEMBER 31, 1998 1998 1995(2) 1994(2)
RESTATED AUDITED RESTATED 1997 1996 RESTATED RESTATED
---------------------- ------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(000'S) (000'S) (000'S) (000'S) (000'S) (000'S) (000'S)
Sales Revenue................ $ 326 $ 158 $ 27 $ 70 $ 28 $ 371 $ 22
Profit (Loss)
For the period
(Cdn. GAAP)................ (4,214) (1,892) (2,409) (4,587) (850) (528) (1,250)
Profit (Loss) for the period
(US GAAP).................. (5,303) (1,937) (2,409) (2,002) (898) (678) (1,735)
Profit (Loss) per share
(Cdn. GAAP)................ (0.12) (0.07) (0.11) (0.29) (0.07) (0.04) (0.11)
Profit (Loss) per share
(US GAAP).................. (0.16) (0.07) (0.12) (0.14) (0.15) (0.12) (0.37)
Total assets (Cdn. GAAP)..... 10,543 1,725 2,584 1,402 3,350 3,266 3,368
Total assets (US GAAP)....... 10,543 1,725 2,584 1,402 746 709 961
Total S/H Equity
(Cdn. GAAP)................ 10,143 1,446 2,361 1,012 2,018 2,869 3,337
Total S/H Equity
(US GAAP).................. 10,143 1,446 2,361 1,012 (585) 312 930
Total R&D expend.
(Cdn. GAAP)................ 800 353 301 129 Nil Nil Nil
</TABLE>
- ------------------------------
(1) Results reported for the nine month period ended September 30, 1999 have
been restated as a result of an error made in financial statements which we
published previously. We erroneously classified certain commissions paid on
completing a private placement as "Transfer and filing fees". Generally
accepted accounting principles require such costs to be charged against the
proceeds of the offering. In addition, the figures stated for the nine month
period ended September 30, 1999 reflect the changes made, retroactive to
January 1, 1999, to our cost sharing arrangement with BrainTech, Inc. See
"CERTAIN TRANSACTIONS."
(2) The circumstances surrounding the restatement of the financial data for the
fiscal years ended April 30, 1994 and April 30, 1995 are as follows:
(a) In our audited financial statements for the fiscal year ended April 30,
1995, we reversed, as at April 30, 1995, the following previously accrued
amounts payable to Lawrence Kostiuk, the Company's former President:
<TABLE>
<S> <C>
Professional Services....................................... $ 391,000
Development Costs........................................... 392,000
Interest Expenses........................................... 26,983
Consulting.................................................. 128,007
Advertising................................................. 30,000
Travel and promotion........................................ 51,730
----------
Total..................................................... $1,019,720
==========
</TABLE>
16
<PAGE>
The reversals were made in respect of transactions under former
management, which present management considers to have been improper. See
"BUSINESS--Legal Proceedings".
Of the $1,019,720 reversed, $64,983 had been accrued during the fiscal
year ended April 30, 1995, $522,000 had been accrued during the fiscal
year ended April 30, 1994, and $432,737 had been accrued in earlier
periods.
(b) For purposes of this Prospectus, we have restated our selected financial
data for the fiscal years ended April 30, 1995 and 1994 by reversing, as
at April 30, 1995, only those amounts accrued during the fiscal year
ended April 30, 1995 (totaling $64,983) and by reversing, as at
April 30, 1994, those amounts accrued during the fiscal year ended
April 30, 1994 (totaling $522,000). Accordingly, the accruals reversed
for the fiscal years ended April 30, 1994 and April 30, 1995 were:
<TABLE>
<S> <C>
1994:
Professional Services....................................... $ 36,000
Development Costs........................................... 2,000
Interest Expenses........................................... 26,983
--------
Total..................................................... $ 64,983
========
1995
Professional Services....................................... $132,000
Development Costs........................................... 390,000
--------
Total..................................................... $522,000
========
</TABLE>
We have no long-term debt and have not paid any dividends. Claims totaling
approximately $1.8 million have been advanced against us in legal proceedings.
See "BUSINESS--Legal Proceedings".
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and our consolidated financial statements
and the notes thereto included elsewhere in this Prospectus.
OVERVIEW
Following a change in management in May 1995, new management commenced
rebuilding the Company's business. The initial efforts of new management were
focused on raising sufficient financing to recommence business operations and to
permit the Company's shares to resume trading. Our shares resumed trading on
September 10, 1996. Our current focus is on the development and marketing of
Dr. Bean. As yet, we have not been able to generate significant sales revenue
from our products.
RESULTS OF OPERATIONS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTH PERIOD
ENDED OCTOBER 31, 1998
During the nine month period ended September 30, 1999 we received $326,494
in sales revenue, compared with $72,323 during the nine month period ended
October 31, 1998. Substantially all of the revenue in each period came from
hardware sales to BrainTech, Inc. and Techwest Management Inc. Commencing in the
summer of 1998, equipment for these companies has been purchased through us,
owing to favourable prices available to us under the IBM Business Partner
Reseller Program. In our initial equipment sales to BrainTech, Inc. and Techwest
Management Inc., we charged a mark-up over our cost. The mark-up was eliminated
on subsequent transactions. Our current policy is to sell equipment to
BrainTech, Inc. and Techwest Management Inc. at cost.
Cost of sales increased from $64,716 for the nine month period ended
October 31, 1998 to $318,415 for the nine month period ended September 30, 1999.
The increase resulted from an increase in the amount of hardware sold to
BrainTech, Inc. and Techwest Management Inc.
Interest income increased from $32,639 for the nine month period ended
October 31, 1998 to $119,560 for the nine month period ended September 30, 1999.
The increase resulted from higher cash balances held by us.
Employee wages and benefits increased to $1,060,813 for the nine month
period ended September 30, 1999 from $425,019 for the nine month period ended
October 31, 1998. The increase was due principally to additional personnel being
hired subsequent to December 31, 1998. In addition, the increase reflects the
adjustments made to our cost sharing agreement with BrainTech, Inc. --see
"CERTAIN TRANSACTIONS". The figures for both periods also reflect bonuses in the
amount of $100,000 paid to our President in April 1998 and April 1999.
Filing and transfer fees increased to $44,636 from $7,413. The principal
reason for the increase was increased fees paid to our transfer agent in
connection with financing activities and the exercise of stock options and share
purchase warrants during the nine month period ended September 30, 1999.
Investment advisory services increased from $75,000 to $160,000. The $75,000
recorded as investment advisory services for the nine month period ended
October 31, 1998 represented the value of 125,000 Special Warrants issued to
Golden Capital Securities Ltd. for services provided in connection with a
proposed prospectus filing. The $160,000 recorded as investment advisory
services for the nine month period ended September 30, 1999 represented the
value of 250,000 shares issued to National Securities Corp. of Chicago, Illinois
for fiscal advisory and consulting services.
Office, printing and sundry expenses were $213,750 for the nine month period
ended September 30, 1999, compared with $124,228 for the nine month period ended
October 31, 1998. The
18
<PAGE>
principal reasons for the increase were our generally higher level of business
activity during the nine month period ended September 30, 1999, as well as the
increased costs associated with operating a second office in Virginia.
Professional fees increased to approximately $573,775 for the nine month
period ended September 30, 1999 from approximately $254,292 for the nine month
period ended October 31, 1998. Accounting costs increased from approximately
$22,373 to approximately $116,458, principally as a result of costs associated
with the establishment of our offshore subsidiaries, registration of our shares
pursuant to the Securities Exchange Act of 1934, and increased audit costs,
owing to a higher level of activity in the Company. Legal costs increased from
approximately $175,515 to approximately $386,600, principally as a result of
costs associated with the establishment of our offshore subsidiaries,
registration of our shares under the Securities Exchange Act of 1934, and costs
associated with the financing activities which we carried out during the nine
month period ended September 30, 1999.
Marketing expenses increased to approximately $774,208 for the nine month
period ended September 30, 1999 from approximately $768,046 for the nine month
period ended October 31, 1998. While the total change in marketing expenses was
not large, there were larger changes in several components of the marketing
expenses. Trade show expenses decreased from approximately $298,595 to
approximately $235,491. Direct marketing costs decreased from approximately
$128,959 to approximately $111,072. Direct marketing costs for the nine month
period October ended 31, 1998 consisted principally of payments to Sunset Direct
in connection with marketing of Net Notions. Direct marketing costs for the nine
month period ended September 30, 1999 consisted principally of payments to
public relations firms. The reductions in trade show costs and direct marketing
expenses were offset in part by an increase in travel costs from approximately
$98,878 to approximately $138,489, due principally to costs associated with the
opening of our Virginia office.
Facilities costs increased to approximately $311,193 from approximately
$74,124. The principal reasons for the increase were the cost of additional
lease space which we occupied in North Vancouver beginning in September 1998 and
the cost of the lease space which we occupied in Herndon, Virginia beginning in
February 1999. In addition, the increase reflects adjustments made to our cost
sharing agreement with BrainTech, Inc. See "CERTAIN TRANSACTIONS".
Research and Development expenses increased to approximately $799,904 for
the nine month period ended September 30, 1999 from approximately $359,452 for
the nine month period ended October 31, 1998. The increase was due principally
to an increase in the number of our research and development personnel and to
higher salaries paid to research and development personnel. Our foreign exchange
gain decreased from approximately $93,030 to approximately $10,339. Our foreign
exchange gain results from changes in the value (as measured in Canadian
currency) of the funds which we hold in United States currency.
For US GAAP purposes, we incurred a compensation expense in the amount of
$1,223,100 during the nine month period ended September 30, 1999 in respect of
the issuance of incentive stock options. The corresponding expense during the
nine month period ended October 31, 1998 was $44,400.
EIGHT MONTH PERIOD ENDED DECEMBER 31, 1998 COMPARED WITH THE TWELVE MONTH
PERIOD
ENDED APRIL 30, 1998
During the eight month period ended December 31, 1998 we received $200,267
in revenue compared with $54,679 during the twelve-month period ended April 30,
1998. The principal reasons for the increase were as follows:
(a) Software sales increased from $26,782 to $29,383.
(b) Hardware sales increased from nil to $129,150. The hardware sales in
question were made to BrainTech, Inc. and Techwest Management Inc.
19
<PAGE>
(c) Interest revenue earned on cash balances increased from $27,897 to
$41,734, as a result of higher cash balances during the period ended
December 31, 1998.
Cost of sales increased from $18,178 for the fiscal year ended April 30,
1998 to $140,418 for the eight month period ended December 31, 1998. Cost of
hardware sold (including equipment sold to BrainTech, Inc. and Techwest
Management Inc.) increased from nil to $120,068. Cost of software sold increased
from $18,178 to $20,350.
During the eight month period ended December 31, 1998 we also incurred a bad
debt expense of $30,801, writing off the balance of an account receivable from
Intermark Corporation. Intermark Corporation acted previously as our marketing
agent for Tagalongs in the United States. As at April 30, 1998, our financial
records showed $67,142 owing by Intermark Corporation. In our April 30, 1998
financial statements, we made a provision of $36,349 in respect of the
receivable from Intermark Corporation. The circumstances of that provision are
explained more fully below, under the heading "YEAR ENDED APRIL 30, 1998
COMPARED WITH YEAR ENDED APRIL 30, 1997". During the eight month period ended
December 31, 1998, we determined to write off the remaining balance owing by
Intermark Corporation, as it appeared that Intermark Corporation might be in
financial difficulty, such that legal proceedings against Intermark Corporation
to collect the amount owing might not be worthwhile.
Employee wages and benefits increased to $401,843 for the eight month period
ended December 31, 1998 from $360,143 for the fiscal year ended April 30, 1998.
The increase was due principally to additional personnel being hired. Facilities
costs increased to $94,705 from $76,707. The principal reason for the increase
was the cost of additional lease space which we occupied effective September 1,
1998. Filing and transfer fees decreased to $12,241 from $21,907. The principal
reason for the decrease was the shorter period of time covered by the fiscal
reporting period ended December 31, 1998, owing to the change in our year end.
Marketing expenses decreased to $581,764 from $635,498, but were higher on a
monthly average basis (averaging approximately $72,500 per month during the
eight month period ended December 31, 1998, compared with approximately $53,000
per month during the fiscal year ended April 30, 1998). Average monthly
marketing expenses increased principally as a result of higher travel and trade
show expenses, which were approximately $218,835 for the fiscal year ended
April 30, 1998, compared with approximately $382,909 for the eight month period
ended December 31, 1998. Increased travel and trade show expenses were offset in
part by a reduction in fees paid to marketing agents. During the fiscal year
ended April 30, 1998, we paid approximately $156,000 to marketing agents. There
were no such payments during the eight month period ended December 31, 1998.
Office, printing and sundry expenses were $124,375 for the eight month
period ended December 31, 1998 compared with $167,228 for the fiscal year ended
April 30, 1998. The principal reason for the decrease was the shorter period of
time covered by the fiscal reporting period ended December 31, 1998, owing to
the change in our year end. We also incurred a $141,047 foreign exchange gain
during the eight month period ended December 31, 1998, compared with $33,479 for
the fiscal year ended April 30, 1998. The principal reason for the increase was
the substantial appreciation in the US dollar during the eight month period
ended December 31, 1998.
Professional fees decreased to $356,820 from $620,845. A principal reason
for the decrease was a reduction our legal and accounting costs. The reduction
in legal and accounting costs was offset in part by the cost of a business plan
(approximately $20,000) prepared during the eight month period ended
December 31, 1998. Research and development expenses (net of government grants)
increased to $353,238 from $301,258. The increase was due principally to
additional research and development personnel.
For US GAAP purposes, we also incurred a compensation expense in the amount
of $44,400 during the eight month period ended December 31, 1998 in respect of
the issuance of incentive stock options. There was no such expense incurred
during the fiscal year ended April 30, 1998.
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YEAR ENDED APRIL 30, 1998 COMPARED WITH YEAR ENDED APRIL 30, 1997
During the fiscal year ended April 30, 1998, we received revenue of $54,679,
compared with $70,613 for the fiscal year ended April 30, 1997. The principal
reason for the increase was an increase in interest earned on cash balances,
which increased from $865 for the fiscal year ended April 30, 1997 to $27,898
for the fiscal year ended April 30, 1998. The increase in interest revenue was
offset by a reduction in software sales, which decreased from $69,748 to
$26,782. The principal reason for the decrease in software sales was an
interruption of our marketing efforts while our single user product was being
re-named from "JOT-IT!" to "Tagalongs" to comply with our settlement agreement
with 3M Corporation. In addition, sales were reduced by a charge in the amount
of $21,431 in respect of the disposal of obsolete inventory in the possession of
Intermark Corporation. Cost of software sold increased from $9,094 to $18,178.
Reduced sales were not accompanied by a reduction in cost of software sold owing
to the charge in respect of unsold inventory, described above.
During the fiscal year ended April 30, 1998, we also incurred a bad debt
expense of $36,349. The bad debt expense arose from the failure of Intermark
Corporation, who were marketing our Tagalongs product, to remit funds which they
had received in respect of sales of Tagalongs, and which they were obliged to
remit to us. We recorded sales revenue of $69,874 and $16,827 for software sold
through Intermark Corporation for the fiscal years ended April 30, 1997 and
April 30, 1998, respectively. We considered recognition of this revenue
appropriate as the transactions in question represented software shipped by us
through Intermark Corporation, for which Intermark Corporation received payment,
and for which Intermark Corporation was liable to pay us. We did not make any
allowance for a bad debt expense in our April 30, 1997 financial statements, as
we believed we would ultimately recover all amounts payable by Intermark
Corporation.
As at April 30, 1998, our records showed $67,142 owing by Intermark
Corporation. Intermark Corporation signed an audit confirmation acknowledging
indebtedness to us in the amount of US$41,173.20. However, Intermark Corporation
did not remit the amounts owing. Intermark Corporation also made an offer, which
we accepted, to settle the account for approximately $30,000. Accordingly, as at
our April 30, 1998 fiscal year end, we made a bad debt allowance of $36,349,
reducing the amount receivable from Intermark Corporation to approximately
$30,000. As stated above, the remaining balance owing from Intermark Corporation
has been written off as at December 31, 1998.
Employee wages and benefits increased to $360,144 during the fiscal year
ended April 30, 1998 from $176,361 during the fiscal year ended April 30, 1997.
The increase was due to additional personnel being hired during the fiscal year
ended April 30, 1998, and to a payment of $100,000 made to our President in
April 1998 as a performance bonus. Filing and transfer fees decreased to $21,907
from $49,360. Filing and transfer fees were higher during 1997 due to costs
incurred in issuing securities, costs incurred in connection with the resumption
in trading of our securities, and costs incurred in resolving disputes
concerning share ownership arising from the conduct of prior management. Office,
printing and sundry increased to $167,228 from $107,575. The reason for the
increase was a generally increased level of business activity.
During the fiscal year ended April 30, 1998, we recorded an expense in the
amount of $75,000 for Investment Advisory Services. The $75,000 represented the
deemed value of Special Warrants issued to Golden Capital Securities Ltd. in
consideration for services rendered during the fiscal year ended April 30, 1998
in connection with an intended prospectus filing.
Professional fees decreased to $620,845 for the fiscal year ended April 30,
1998 from $961,245 for the fiscal year ended April 30, 1997. Several factors
contributed to this reduction. During the fiscal year ended April 30, 1997 we
incurred extraordinary accounting costs resulting from the resumption in trading
of our shares and the preparation of required historical financial data.
Accounting and auditing costs decreased from $286,806 for the fiscal year ended
April 30, 1997 to approximately $152,407 for
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the fiscal year ended April 30, 1998. In addition, certain expenditures
including payments to our public relations firm and marketing agent, as well as
the salary costs of our Manager of Investor Relations and Vice President
Business Development, were allocated to "Professional fees" for the year ended
April 30, 1997, but were reallocated to other categories for the fiscal year
ended April 30, 1998.
Marketing expenses increased to $635,498 for the fiscal year ended
April 30, 1998 from $418,764 for the fiscal year ended April 30, 1997. The
principal reasons for the increase were increased trade show costs, which
increased from approximately $109,652 to approximately $183,026, and the
reallocation of certain expenses from the category "Professional fees". Research
and development expenses increased to $301,258 from $129,877. This increase was
due principally to increased salaries and performance bonuses paid to
programming personnel.
For US GAAP purposes, we also incurred a compensation expense in the amount
of $19,350 during the fiscal year ended April 30, 1997 in respect of the
issuance of incentive stock options. There was no such expense incurred during
the fiscal year ended April 30, 1998.
YEAR ENDED APRIL 30, 1997 COMPARED WITH YEAR ENDED APRIL 30, 1996
During the fiscal year ended April 30, 1997, we received revenue of $70,613,
compared with $30,226 for the fiscal year ended April 30, 1996. Revenue from the
sale of software products was $69,748 during the fiscal year ended April 30,
1997. During the fiscal year ended April 30, 1996 we did not earn any revenue
from the sales of our software products. Revenue of $25,000 recorded as software
revenue consisted of amounts paid by NetMedia Systems Inc. pursuant to a license
agreement dated November 2, 1995 (which agreement has subsequently been
terminated). Other revenue, consisting of interest earned on cash balances,
decreased from $2,254 for the fiscal year ended April 30, 1996 to $865 for the
fiscal year ended April 30, 1997.
Employee wages and benefits increased to $176,361 for the fiscal year ended
April 30, 1997 from $154,969 for the fiscal year ended April 30, 1996. The
magnitude of this increase is such that no specific reason can be given for it.
Filing and transfer fees increased to $49,360 from $5,222. Filing and transfer
fees were low during the fiscal year ended April 30, 1996 because our shares did
not trade during that fiscal year. Filing and transfer fees were higher during
the fiscal year ended April 30, 1997 due to costs incurred in issuing
securities, costs incurred in returning our shares to trading status and costs
incurred in resolving disputes concerning share ownership arising from the
conduct of prior management. Office, printing and sundry increased to $107,575
from $44,703. The reason for this increase was a generally increased level of
business activity.
Professional fees increased to $961,245 for the fiscal year ended April 30,
1997 from $255,527 for the fiscal year ended April 30, 1996. Several factors
contributed to the increase. During the fiscal year ended April 30, 1997 we
incurred extraordinary accounting costs resulting from the resumption in trading
of our shares, and the preparation of required historical financial data. In
addition, we incurred substantial legal expenses in connection with the
resumption in trading of our shares and our legal disputes with former
management. Accounting and auditing costs for the fiscal year ended April 30,
1997 were approximately $286,806, and legal expenses for the corresponding
period were approximately $381,389. Total legal, accounting and auditing
expenses for the fiscal year ended April 30, 1996 were approximately $116,000.
In addition, professional fees recorded during the fiscal year ended April 30,
1997 included payments to our public relations firm and marketing agent and the
salary costs of our Manager of Investor Relations and Vice President Business
Development (neither of whom are still employed by us).
Marketing expenses increased to $418,764 for the fiscal year ended
April 30, 1997 from $62,121 for the fiscal year ended April 30, 1996. The
principal reason for this increase was attendance at industry trade shows and
the initiation of significant marketing efforts during the fiscal year ended
April 30, 1997. Research and development increased to $129,877 from nil
principally because we adopted an
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accounting policy of expensing research and development costs currently, and
because of an increase in the number of our research and development personnel.
LIQUIDITY AND CAPITAL RESOURCES
We commenced operation under new management in May 1995. From that time, up
to September 30, 1999, we have raised approximately $21 million in equity
financing through private placements (including the exercise of warrants issued
pursuant thereto) and the exercise of stock options. From September 30, 1999 to
December 14, 1999 we have also received approximately $1.9 million from the
exercise of share purchase warrants and stock options.
On December 1, 1999 we announced a further private placement of of 2,500,000
units at a price of US$1.64 per unit, with each unit consisting of one share and
one share purchase warrant. Each share purchase warrant will entitle the holder
to purchase one additional share for a period of two years, at a price of
US$1.64 in the first year or US$1.89 in the second year. The gross proceeds from
the private placement will be approximately $6.4 million. The proposed
purchasers in the private placement include Grant Sutherland, Owen Jones, and a
partnership in which James Speros is a 50% participant. Each of those purchasers
has agreed to purchase 60,000 units. We are currently awaiting approval from the
CVE, which we must receive before we can complete the private placement. Owing
to the recent increase in our stock price, the CVE may require a re-pricing of
the private placement.
We also intend to carry out a major public financing during the first six
months of 2000, although we do not yet have specific plans as to the amount or
terms of the financing.
We have not generated significant revenue from the sales of our products.
Accordingly, we have been dependent on the proceeds of equity financings to pay
our ongoing operating expenses. Inclusive of the private placement, warrant, and
stock option proceeds described above, our cash balance as at December 14, 1999
is approximately $6.3 million.
As at December 10, 1999, we employ 29 full time and 9 part time officers and
employees in our Vancouver office, and 12 full time and 2 part time officers and
employees in our Virginia office. As at December 10, 1999, our monthly salary
costs are approximately $300,000 per month, exclusive of bonus payments and
benefits.
During the remainder of our current fiscal year and the first six months of
our next fiscal year we plan to hire substantial additional personnel. We plan
to hire a Chief Financial Officer, a Chief Technical Officer, a General Manager
of US Operations and a Vice President of Strategic Marketing. In addition, we
plan to hire at least twenty additional employees to work in development,
marketing, product support and integration. Accordingly, we expect that our
monthly payroll costs will increase substantially during the first six months of
2000. The number of additional employees we hire, and the resulting salary
costs, will depend largely on our financial resources, our success in raising
additional capital, and market response to our products.
During the period January -- September 1999 our overhead expenses, exclusive
of payroll costs, were approximately $190,000 per month on average. We expect
that our overhead expenses will increase materially during the period up to
June 30, 2000.
(a) Additional personnel will result in additional overhead.
(b) Effective July 1, 1999, we occupied additional office space in
Vancouver.
(c) We are in the process of opening a branch sales office in the San
Francisco area, and may open a number of additional sales offices during
the first six months of 2000.
We expect that during the first six months of 2000, our monthly overhead
expenses, exclusive of payroll costs, will be at least $250,000 on average. The
number of offices we open, and the resulting
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increase in overhead expenses, will depend largely on our financial resources,
our success in raising additional capital, and market response to our products.
In November 1999 we entered into a contract with Science Applications
International Corp. ("SAIC") to develop a telephony integration system, which
will allow Dr. Bean to operate in conjunction with many currently installed
telephone response systems. We expect that the telephony integration system will
cost approximately $300,000.
Attendance at trade shows has been a major expense item in our two most
recent fiscal years. For the period up to June 30, 2000, we expect that we will
attend between 3 and 6 trade shows. Two of the shows (Partner World in
January 2000 and Spring Internet World in April 2000) will involve substantial
displays, and are estimated to cost approximately $200,000--$250,000 in total.
Participation at the other shows will be on a smaller scale, averaging
approximately $10,000 per show. Accordingly, we plan to spend approximately
$250,000--$300,000 on trade shows during the balance of our current fiscal year
and the first half of our next fiscal year.
We do not plan to incur large capital expenditures prior to June 30, 2000.
Our principal capital expenditures will be in acquiring new computer equipment,
and in fixturing additional leasehold space. We do not expect capital
expenditures prior to June 30, 2000 to exceed $500,000.
Our current cash balances will be sufficient to cover payroll costs at their
current level through the first six months of 2000, along with the monthly
overhead expenses of $250,000 and the costs outlined above for trade shows,
capital expenditures, and the development of a telephony integration system. To
hire a substantial number of additional employees, we will have to raise
additional capital or generate sales revenue. If our financial resources permit,
we may also commence an extensive advertising and marketing campaign for
Dr. Bean.
Investors are cautioned that we do not have reliable estimates of our future
costs. Owing to our brief operating history, we do not have sufficient
information to prepare accurate estimates of the number of additional personnel
we will require or the operating costs we will incur. Our future expenditures
will also depend in part on the financial resources available to us. In
addition, there can be no assurance that we will succeed in raising substantial
additional capital.
As disclosed in Note 2 to our financial statements for the eight month
period ended December 31, 1998 and the nine month period ended September 30,
1999, our continuance as a going concern is dependent upon our ability to obtain
adequate equity financing, to reach profitable levels of operation, and our
success in defending existing legal claims.
We commenced marketing of Dr. Bean in May 1999. We expect that the release
of Dr. Bean will mark our transition from a development stage company to an
operating company. Historically, we have not had significant revenue. It is
essential for us to generate substantial revenue from Dr. Bean in order to
survive.
YEAR 2000
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Our Year 2000 compliance program was conducted under the direction of our
systems administrator. Beginning in the middle of 1998, our systems
administrator commenced analyzing individual components of our computer systems
to identify any components which were not Year 2000 compliant.
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Our systems administrator confirmed that all of the individual computers in
our system are Year 2000 compliant. The only software component that was
identified as potentially non-compliant was our accounting system. In May 1999,
we replaced our accounting system with a Year 2000 compliant system. The cost of
the system was approximately $60,000, which was shared with BrainTech, Inc.
As we believe that all of our internal systems are Year 2000 compliant, we
have not developed any contingency plan.
If we are able to generate substantial sales orders for Dr. Bean, we may
require sources of Year 2000 compliant network and web servers. However, we
expect no difficulty in obtaining Year 2000 compliant products, as the products
in question will likely be obtained from major suppliers in the computer
industry, all of whom have instituted extensive programs to ensure that their
products are Year 2000 compliant.
With the exception of the local electrical utilities, we are unaware of any
present suppliers, on whom we are dependent, whose supply of goods or services
might be interrupted by Year 2000 problems. We have not made any material
investigations of any individual suppliers, and have not developed a contingency
plan.
All of our current products are Year 2000 compliant. We have not undertaken
any investigation to determine whether any of the products we have sold in the
past are non-compliant. However, given the small volume of our historical sales,
we do not foresee a material risk of liability arising in respect of our past
sales.
EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES AND INFLATION
Our revenues and/or expenses have been and may continue to be earned or
incurred in currencies other than the Canadian dollar, principally the United
States dollar. During the eight month period ended December 31, 1998, we
realized a foreign exchange gain of $141,047 as a result of the appreciation in
value of cash balances held in US funds. Otherwise, for the fiscal years ended
April 30, 1996, 1997, and 1998, the effects of fluctuations in currency exchange
rates have not been material. Fluctuations in exchange rates between the United
States dollar and other foreign currencies and the Canadian dollar could
materially affect our results of operations in the future. As at November 30,
1999, we have not engaged in exchange rate hedging activities. To the extent we
implement such hedging activities in the future, there can be no assurance that
we will be successful.
While we believe that inflation has not had a material adverse affect on our
results of operations, there can be no assurance that inflation will not have a
material adverse effect on our results of operations in the future.
BUSINESS
THE COMPANY
SIDEWARE SYSTEMS INC. was incorporated under the laws of the Province of
British Columbia on April 11, 1983 under the name "Heart Minerals Ltd."
Initially, the Company was engaged in the business of mineral exploration.
On June 27, 1984, the Company changed its name to "SRO Entertainment
International Ltd.". This change of name accompanied a change in the Company's
business to the development and exploitation of theatrical productions.
On January 30, 1990, the Company changed its name to "Pacrim Entertainment
Group Inc.". This change of name accompanied a capital reorganisation, in which
the shares of the Company were consolidated on a 2.5:1 basis.
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On January 9, 1991, the Company changed its name to "Evergreen International
Technology Inc.". This change of name accompanied a change in the Company's
business to software development, and the acquisition of the assets of a private
company named "Evergreen Technology Corp."
On January 31, 1997, the Company changed its name to "JOT-IT! SOFTWARE
CORP.". This change of name was made to enhance the Company's image, following a
change in management.
On February 18, 1998, the Company changed its name to "Sideware
Systems Inc.", its present name. This change of name was made to comply with a
settlement agreement which the Company entered into with 3M Corporation,
following trademark infringement litigation in which 3M Corporation alleged that
the Company's name infringed its "Post-It" trademark.
Our head office is located at West First Street, Suite 102, North Vancouver,
British Columbia, V7P 3N4. Our registered and records offices and address for
service of process in Canada are Suite 1910, 777 Hornby Street, Vancouver,
British Columbia, V6Z 1S4. Our registered agent for service of process in the
United States is National Registered Agent, 1090 Vermont Avenue, Suite 910,
Washington, D.C. 20005. Our outstanding common shares are listed and posted for
trading on the Canadian Venture Exchange and through the OTC Bulletin Board
quotation service.
OUR SUBSIDIARIES
Sideware Systems Inc. has six wholly owned subsidiaries: Sideware Corp.,
3032650 Nova Scotia Corp., Sideware International SRL, 9050 Investments Ltd.,
Evergreen International Technology Inc., and 9123 Investments Ltd.
Sideware Corp. was incorporated as a wholly owned subsidiary on January 21,
1997 under the laws of the State of Washington, under the name "Collaborative
Groupware Inc." On August 13, 1998, Collaborative Groupware Inc. changed its
name to Sideware Corp. Sideware Corp. markets our products in the United States.
Sideware International SRL was organised as a society with restricted
liability under the laws of Barbados on August 27, 1999. Sideware Systems Inc.
owns 99% of the quotas of Sideware International SRL, with the remaining 1%
being owned by 3032650 Nova Scotia Company. 3032650 Nova Scotia Company is
another wholly owned subsidiary of Sideware Systems Inc., having been
incorporated under the laws of the Province of Nova Scotia on August 25, 1999.
Sideware Systems Inc. has entered into a Software License Agreement with
Sideware International SRL effective August 27, 1999, under which Sideware
International SRL received a license to use the Dr. Bean software to develop,
market, and sell new or enhanced products. The new or enhanced products may
include all or part of the Dr. Bean software. Under the Software License
Agreement, Sideware International SRL will pay Sideware Systems Inc. a royalty
based on the revenues realized by Sideware International SRL from the commercial
exploitation of the new or enhanced products. The royalty rate has been
initially set at 10% of gross revenues. Either party may from time to time
invoke a review and adjustment of the royalty rate in accordance with the terms
of the agreement.
Sideware Systems Inc. and Sideware International SRL have also entered into
a Software Development Cost Sharing Agreement effective August 27, 1999, under
which the two companies agreed to pool their resources to conduct research and
development of new software technology. The parties meet annually to agree upon
a research program for the year. The parties jointly own the software and
intellectual property developed pursuant to the research program, with Sideware
International SRL having the right to exploit the software and intellectual
property worldwide except in Canada, and Sideware Systems Inc. having the right
to exploit the software and intellectual property in Canada. The costs to be
borne by each party will be based upon the reasonably anticipated benefits to be
derived by each party as a result of the commercial exploitation of the
technology developed. Based on the parties' expectations of anticipated
benefits, Sideware Systems Inc. will bear 10% of the research and development
costs and Sideware International SRL will bear the remaining 90% of the research
and development costs. Dr. Bean 3.0 has been developed under the Software
Development Cost Sharing Agreement.
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Sideware Corp. has entered into:
(a) a Distribution and Sales Agreement with Sideware Systems Inc. effective
January 1, 1999, under which Sideware Corp. was granted the non-exclusive
right to market and sell copies of Dr. Bean 2.0 in the United States; and
(b) a Distribution and Sales Agreement with Sideware International SRL
effective November 1, 1999, under which Sideware Corp. was granted the
non-exclusive right to market and sell copies of Dr. Bean 3.0 in the
United States.
Under each agreement, Sideware Corp. purchases copies of the software in
question at its current list price, less a discount. The suggested list prices
and discounts are subject to change at the discretion of the vendor. Sideware
Corp. may appoint sub-distributors for the marketing and sale of the software
within its authorized area. Sideware Corp. has also agreed to provide
maintenance and support to end users and resellers of the software.
Additionally, Sideware Corp. (or its resellers) will be responsible for
installation and integration of the software and training of end users. Sideware
Corp. may in its discretion establish fees for the maintenance, support,
installation, integration and training services that it provides.
9050 Investments Ltd. was incorporated under the laws of the Province of
British Columbia on March 28, 1990 and became a subsidiary of Sideware
Systems Inc. through a series of transactions taking place between June 30, 1990
and May 31, 1991. 9050 Investments Ltd. does not carry on business.
Evergreen International Technology Inc. was incorporated on January 6, 1997
under the laws of the Province of British Columbia under the name of 9107
Investments Ltd. 9107 Investments Ltd. changed its name to Evergreen
International Technology Inc. on April 18, 1997. Evergreen International
Technology Inc. does not carry on business.
9123 Investments Ltd. was incorporated on December 5, 1997 under the laws of
the Province of British Columbia. 9123 Investments Ltd. has acquired the rights
of Canadian Western Bank in a British Columbia Supreme Court judgement
pronounced against The Plant Software Inc. and other parties, as well as
security granted by The Plant Software Inc. to secure its indebtedness. See
"BUSINESS--Legal Proceedings." Otherwise, 9123 Investments Ltd. does not carry
on business.
The description of our business contained in this Prospectus includes the
undertakings of Sideware Systems Inc., Sideware Corp., and Sideware
International SRL.
We operated historically with an April 30 fiscal year end. In
December 1998, we changed the end of our fiscal year from April 30 to
December 31. Financial results for periods subsequent to April 30, 1998 are
reported with a December 31 year end.
GENERAL DEVELOPMENT
Our business is developing and marketing computer software solutions. Our
principal focus is the emerging market for e-commerce software.
We entered the field of software development in 1991 by acquiring the assets
of a private company named Evergreen Technology Corp. Evergreen Technology Corp.
was the owner of a patent covering an Interactive Software Training System (US
Patent #4,622,013), a Concurrent Authoring System ("CAS"), and a Concurrent
Referencer System ("Ref") which permitted the creation of context and content
sensitive help or reference interfaces for MS-DOS-TM- based applications.
In the first quarter of 1994 we released a program named "Evergreen Notes",
which permitted the user to create electronic "notes" in a Windows-TM-
environment. Essentially an electronic "sticky" note,
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Evergreen Notes allowed a user to "stick" notes directly onto documents,
applications, drop down menus, text entry fields, and other locations, allowing
notes to appear when the user required them.
In November 1994, our former President resigned after a dissident director
identified irregularities in his transactions with the Company. On November 29,
1994, our shares were suspended from trading and a Cease Trade Order was issued
by the British Columbia Securities Commission on March 7, 1995.
On May 3, 1995, a new board of directors was elected at a court-ordered
annual general meeting.
Subsequent to the May 3, 1995 annual general meeting, we modified the
"Evergreen Notes" program and renamed the program "JOT-IT!". JOT-IT! 2.01, a
single-user product, was released in November 1995. In September 1996, we
obtained a revocation of the Cease Trade Order and our shares returned to
trading.
In July 1997, 3M Corporation commenced legal proceedings against us alleging
that the name "JOT-IT!" infringed trademarks owned by 3M Corporation. In
October 1997, we entered into a settlement agreement with 3M Corporation,
pursuant to which we agreed to change our corporate and product names. The
single user product was renamed "Tagalongs".
In November 1997, we released our first groupware product, "Net Notions",
and the final version of our single user product, "Tagalongs 3.0". Neither
Tagalongs nor Net Notions generated material revenue, and both products have
been discontinued as at the date of this Prospectus.
In the fall of 1997, we also commenced development of "Dr. Bean", now our
principal product. Dr. Bean creates direct real time communication between
customers and producers marketing their products through Internet e-commerce
sites. An alpha version of the Dr. Bean "client" software was demonstrated at
the fall Comdex exhibit in November 1997, and a beta version was demonstrated at
the Internet World trade show in November 1998.
In April 1999, at the Spring Internet World trade show in Los Angeles, we
released the initial version of Dr. Bean for commercial distribution. In
June 1999, at the JavaOne trade show in San Francisco, we released Dr. Bean 2.0.
In November 1999 we released Dr. Bean 3.0, which included a major upgrade in the
features available to Dr. Bean users. Version 3.0 is the current version of
Dr. Bean, and is in commercial distribution.
In July 1999, we implemented the Sideware Partner Program, through which we
are enlisting value added resellers for Dr. Bean. As at the date of this
Prospectus, we have 13 value added resellers for Dr. Bean. We expect that value
added resellers will be the principal distribution channel for Dr. Bean.
With the development of Dr. Bean, the principal focus of our business has
become the emerging market for e-commerce software solutions. With the
enhancements included in version 3.0, we believe that Dr. Bean offers a broad
and valuable range of e-CRM (Electronic Customer Relations Management)
functions. We believe that through Dr. Bean 3.0, and through enhancements now
under development, our products can become prominent leaders in the e-commerce
software field.
PRODUCTS--DR. BEAN
(i) DESCRIPTION OF DR. BEAN
Dr. Bean is intended for use on Internet e-commerce sites, and facilitates
direct communication over the Internet between customers and customer service
representatives ("CSR").
Dr. Bean is written in the Java programming language, and is based on a
"client/server" model. A customer graphical user interface ("GUI") is
incorporated into the producer company's Internet "storefront", and is
downloaded to the machine of a customer browsing the storefront. Two versions of
the GUI are available, one written as a Java applet and one written in HTML
("Hypertext Markup
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Language"). Server software is incorporated into the website server, and
monitors the actions of the customer.
Upon the occurrence of a specified triggering event (such as clicking a
designated icon), Dr. Bean opens an interactive peer-to-peer link between the
customer and a CSR. The CSR can view a screen display that is identical to that
shown to the customer, or can "push" different web pages to the customer. The
customer and the CSR communicate through "real time" chat -- messages typed by
either party show up immediately on the other's display screen. Dr. Bean thus
supports direct interaction between CSR's and customers.
Dr. Bean has been designed for integration into e-commerce internet sites
offering a comprehensive range of e-commerce services and middleware, such as
database creation and management, transaction servers (processing purchase
orders, credit card sales and other transactions), system security programs, and
financial management and accounting systems.
Dr. Bean 1.0, the initial version, was released at the Spring Internet World
trade show in April 1999. Dr. Bean 1.0 included the following additional
features:
(a) Data collection. Dr. Bean supports collection of statistical data on
the number of times specific web pages are accessed, the number of
calls directed to specific CSR's, and similar information.
(b) Queue administration. When CSR's are all busy, Dr. Bean can establish
a queue of customers waiting for service. When they come available,
CSR's can choose a new customer from the queue.
(c) Customer history database. Customers can be asked to identify
themselves when Dr. Bean is enabled, permitting CSR's to identify
repeat or regular customers. Regular customers can be directed to a
specific CSR, or be given higher priority in a queue.
(d) Web page catalogue. A catalogue of web pages can be made available to
CSR's, to permit them to direct customers quickly to appropriate web
pages.
During the week of April 26, 1999, we implemented Dr. Bean 1.0 on IBM
platforms, including principally the S390, AS400 and RS6000 platforms, and also
the Windows NT, Linux and Sun Solaris operating systems, at IBM facilities.
During the implementation and testing Dr. Bean 1.0 operated successfully on the
platforms and operating systems tested.
During the week of June 14, 1999, at the JavaOne conference in San
Francisco, we released Dr. Bean 2.0. Version 2.0 incorporated the following
principal enhancements:
(a) Version 2.0 permits CSR's using Dr. Bean to monitor the activities of
other CSR's.
(b) Version 2.0 operates compatibly with system firewalls, by
establishing a secure communications channel between the secure and
non-secure portions of a system firewall.
(c) Version 2.0 includes features to make Dr. Bean more easily adaptable
to particular customer installations.
Dr. Bean 2.0 also has scalable architecture, which permits it to support
(subject to system capacity) a virtually unlimited number of customer sessions
simultaneously.
In November 1993 we released Dr. Bean 3.0, the current version. Dr. Bean 3.0
includes a major upgrade in features, with the following principal enhancements.
(a) A Collaborative Services feature permits CSR's and supervisors to
transfer a customer from one CSR to another ("hands on-hands off
operation"). The Collaborative Services feature also permits CSR's to
send and receive real time messages to other company
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employees while a customer session is ongoing. This will allow a CSR,
for example, to ask another company employee about pricing for a
particular product before responding to a customer he is servicing.
(b) Intelligent Routing features can direct a customer to the most
appropriate CSR through a variety of methods.
(i) Dr. Bean icons located at different locations on a web site
(such as web pages showing different products) can direct the
customer to different CSR's.
(ii) Historical data profiles developed for specific customers can
be used to identify the most appropriate CSR for those
customers.
(iii) In the absence of historical data about a specific customer,
Version 3.0 can route the customer's inquiry based on the
customer's IP address.
Version 3.0 permits users to designate groups of CSR's who are best
suited to respond to inquiries from specific customers or specific
groups of customers. The Intelligent Routing features can be
configured to conform to the user's designated CSR groups.
(c) An AutoService feature displays automated questions for customer
response. Based on the response, the AutoService feature can:
(i) provide an automated response to the customer's inquiry;
(ii) display additional automated questions to elicit further
information from the customer; or
(iii) turn the customer over to the Intelligent Routing feature, to
route the customer to the most appropriate CSR.
(d) A Spell Checking function permits CSR's to send messages without
spelling errors.
(e) An improved Supervisor Module permits supervisors to view, in
graphical form, data analysing CSR performance. The type of data
available can include such items as the average response time for a
particular CSR or group of CSR's, or average session length.
(f) A Remote Administration feature permits users to manage different
call centres from a centralized location.
(g) An Application Programmer's Interface ("API") feature permits users
to adapt Dr. Bean to use historical customer data, developed by other
systems.
(ii) DR. BEAN--FUTURE DEVELOPMENTS
Our principal development activities are the enhancement of Dr. Bean and the
development of related products.
We plan to release Dr. Bean 3.1 prior to December 31, 1999. Dr. Bean 3.1
will include two principal new features. A Data Service Manager will enable
Dr. Bean to assemble and use data from different sources and in different
formats concurrently. In addition, Dr. Bean 3.1 will incorporate a feature named
"Wizmaster", to be used in conjunction with the AutoService feature. Wizmaster
will permit Dr. Bean users to create customized knowledge trees which specify
the questions and possible responses to be used by the AutoService feature. The
questions and answers will direct a customer either to a response to his
inquiry, or to the Intelligent Routing feature.
We expect to release two additional versions of Dr. Bean 3.x during the
first six months of 2000. We expect that those versions will include principally
enhancements to the features included in Dr. Bean 3.0 and 3.1, rather than
adding major new features.
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We are also developing Dr. Bean NG. Initially, Dr. Bean NG will be used to
offer a "hosted" version of Dr. Bean to small to medium sized businesses. The
hosted version of Dr. Bean will permit our customers to use Dr. Bean as a
service, through a web site that we operate, rather than installing Dr. Bean on
their own computer systems. We expect to begin beta testing of a basic version
of Dr. Bean NG, with limited features, in February 2000. By June 2000, we expect
to release a version of Dr. Bean NG which includes all of the major features of
Dr. Bean 3.0 and 3.1.
Pursuant to a contract with Science Applications International Corporation
("SAIC"), we are also developing a telephony integration system, to enable
Dr. Bean to be integrated with telephone call centre systems. We expect that a
prototype of the system will be available in the first quarter of 2000.
Investors are cautioned that owing to the rapidly changing nature of the
market for e-business software, our development plans may change substantially
and within a short period of time.
(iii) DR. BEAN--MARKETING
Dr. Bean is intended to service the rapidly growing market for software
which facilitates business over the Internet. In May 1998, Forrester Research
released a report analysing the present status and projected growth of Internet
commerce and the market for e-commerce software. Forrester Research projected
that by 2002, business trade conducted over the Internet will reach
US$327 billion, while retail trade over the Internet will reach US$17 billion.
A corresponding demand is predicted for software that facilitates Internet
commerce. Forrester Research predicted that the total market for e-commerce
software will increase from US$121 million in 1997 to approximately
US$3.76 billion in 2002. The market segments analysed by Forrester Research
included:
(a) the "Tools" segment, predicted to account for 1-3% of the total
market;
(b) the "Integration" segment, predicted to account for 5-6% of the total
market;
(c) the "Security" segment, predicted to account for 5-7% of the market;
(d) the "Customer Service" segment, whose portion of the market was
predicted to rise from 9% in 1997 (US$1.1 million) to 18% in 2002
(US$658 million);
(e) the "Sell-side" segment, predicted to account for 47% of the market
(US$57 million) in 1997 and 37% of the market (US$1.4 billion) in
2002; and
(f) the "Buy-side" segment, predicted to account for 7% of the market
(US$8 million) in 1997 and 13% of the market (US$490 million) in
2002.
Our objective is to capture, through our Dr. Bean product, significant
market share in both the "Customer Service" and "Sell-side" segments.
The suggested list price for Dr. Bean 2.0 was US$10,000, for a system
consisting of one server and 5 CSR workstations. Additional CSR workstations
cost US$1,000 per seat for the first ten, with decreasing prices for larger
installations.
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With the release of Dr. Bean 3.0, we have revised our price structure
substantially. We presently offer Dr. Bean 3.0 at different prices, depending on
the platform and scale of the system in which it is installed. Our current
pricing grid is as follows (with all prices stated in US$).
<TABLE>
<CAPTION>
UNIX-BASED
WINDOWS NT
WINDOWS WITH MULTI- IBM S390 IBM S390 IBM S390
PLATFORM SYSTEM/COMPONENT NT PROCESSOR SMALL AVERAGE LARGE
------------------------- -------- ----------- -------- -------- --------
(US$) (US$) (US$) (US$) (US$)
<S> <C> <C> <C> <C> <C>
Basic System....................... $10,000 $25,000 $40,000 $70,000 $100,000
Multiple Server Pack............... $ 5,000 $12,000 $20,000 $35,000 $ 50,000
Intelligent Router................. $ 2,000 $ 4,000 $ 6,000 $ 8,000 $ 15,000
Enterprise Reporting System........ $ 4,000 $ 6,000 $ 8,000 $10,000 $ 20,000
</TABLE>
In addition, we charge an optional annual maintenance fee equal to 15% of
the list price for Dr. Bean 3.0. Payment of the maintenance fee entitles users
of Dr. Bean 3.0 to receive maintenance releases and upgrade versions of
Dr. Bean, to version 3.x, free of charge.
We market Dr. Bean directly to end users through both our Vancouver and
Virginia offices. However, we expect that the principal distribution channel for
Dr. Bean will be through value added resellers. In July 1999, we commenced the
Sideware Partner Program through which we offer Dr. Bean to value added
resellers. As at the date of this Prospectus, we have signed reseller agreements
with 13 companies. We are continuing in our efforts to enlist additional value
added resellers for Dr. Bean, and expect to sign additional reseller agreements
during the remainder of 1999 and during 2000.
Value added resellers are entitled to purchase Dr. Bean at a 30% discount
from our list price. In addition, value added resellers receive 10% of any
annual maintenance fees paid by end users.
We have also entered to IBM marketing programs which we believe will provide
market exposure for Dr. Bean and help us establish distribution channels. Those
programs include the following:
(a) In December 1999 we were accepted into the IBM Software Investment
Initiative program. The Software Investment Initiative program offers
opportunities to participate in joint marketing programs, and access
and introductions to both IBM customers and IBM resellers. We have
signed an Independent Software Vendor Agreement pursuant to which IBM
has agreed to contribute approximately US$45,000 towards a joint
marketing program. The agreement also specifies revenue targets
totaling approximately US$250,000 for sales of IBM software
influenced by the sale of Dr. Bean. Failure to achieve the revenue
targets entitles IBM to terminate the agreement.
(b) In September 1999, Dr. Bean was accepted into the EGO (Enterprise
Growth Opportunity) program of IBM. The EGO program is a marketing
initiative by which IBM will attempt to sell IBM System 390 servers
to IBM customers presently using smaller scale servers. We have
agreed to a 40% discount from list price for purchasers under the EGO
program. In addition, we will pay a commission equal to 15% of the
net price paid by end users to IBM re-sellers selling Dr. Bean under
the EGO program.
(c) Dr. Bean has been accepted into the IBM BesTeam Software Program.
Participation in the BesTeam Software Program gives rise to the
following marketing opportunities:
-- authorized resale of IBM hardware and software, and authorized
use of IBM logos and marketing material;
-- introductions (through BesTeam personnel) to IBM VAR's and
customers;
-- attendance at meetings and conferences of IBM small business and
e-business account managers.
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(iv) DR. BEAN--COMPETITIVE POSITION
Software to facilitate Internet commerce is an emerging field. Several
companies have already developed products which are competitive with at least
some of the features offered by Dr. Bean. Additional entrants into the field can
be expected and the market for e-business software matures.
We consider the following products to be most directly competitive with
Dr. Bean.
NetAgent (eShare Technologies of Commack NY) offers customer-CSR chat and
many of the other features offered by Dr. Bean. To the best of our knowledge,
NetAgent is compatible only with the Windows NT operating system, and is not
scalable. NetAgent is offered at a base price of US$7,500 for a server unit plus
3 seats. Additional seats start at US$2,500 per seat, with decreasing prices for
larger installations.
WebCenter (Quantus of Austin TX) offers customer-CSR chat, and some of the
features of Dr. Bean 3.0, including use of customer profile data. WebCenter
excludes some other features of Dr. Bean, such as session management features
and the ability to configure a customised CSR interface. To the best of our
knowledge, WebCenter runs only on the Windows NT and UNIX platforms, and is not
scalable. WebCenter costs approximately US$150,000--$200,000 for a complete
system including a 10 seat license.
Enterprise Interaction Center (Interactive Intelligence of Indianapolis, IN)
offers features which manage customer communications through a variety of media,
including Internet chat, e-mail, and fax. Interactive Intelligence also offers a
more restrictive product, Interaction Web, which offers customer-CSR chat.
Interaction Web omits certain features of Dr. Bean, including the ability to
configure a customised CSR interface. To the best of our knowledge, neither
product of Interactive Intelligence is scalable, or allows for flexible data
base connectivity. A complete system Enterprise Interaction Center system costs
approximately US$150,000--$200,000. Interaction Web, purchased separately, costs
approximately US$3,000--US$5,000 per seat.
eService (Silknet of Manchester NH) offers features similar to those of
Enterprise Interaction Center, managing a wide range of customer communications.
An eService system costs approximately US$150,000--US$200,000. To the best of
our knowledge, eService is compatible only with the Windows NT operating system.
We believe that our competitive position in the marketplace will be enhanced
by the following features of Dr. Bean:
(a) Dr. Bean is a 100% java product, and can thus be made compatible with
a wide variety of operating systems and platforms. We believe that
this will enhance our ability to negotiate beneficial strategic
alliances with leaders in the market for e-commerce software.
(b) Dr. Bean incorporates highly flexible features, permitting a high
degree of customisation in its interfaces and functions. For example,
Dr. Bean can be connected to all major database software, to utilise
customer information generated by other programs.
Investors are cautioned that:
(a) The market for e-commerce software is, and is expected to remain,
intensely competitive.
(b) The list of competitors set out above is not exhaustive. We are aware
of approximately 30 other companies providing products or services
which are competitive to some degree with Dr. Bean.
(c) The information provided on the competitive products listed above is
accurate to the best of our knowledge. However, we do not have access
to complete or up to date information on those products. Our
descriptions of those products, and their features and pricing, may
be inaccurate, or may become inaccurate as our competitors modify
their products or marketing strategies.
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ADDITIONAL PRODUCTS AND SERVICES
Through Advanced Contact Solutions Inc. ("ACS") of Torrance CA, we will
offer out-sourced call response services to users of Dr. Bean. ACS operates a
telephone call centre in the Philippines, which currently provides out-sourced
telephone customer service and support for a variety of clients.
Out-sourced call response services are intended for those users of Dr. Bean
who do not wish to incur the cost of employing CSR's internally. Inquiries to
the Websites of such Dr. Bean users can be routed to the facilities of ACS,
where ACS personnel will respond to the inquiries, performing the same functions
as a CSR employed by the Dr. Bean user.
We plan to offer out-sourced response services to suitable Dr. Bean users on
a fee for service basis. In September 1999 we entered into an agreement with ACS
pursuant to which ACS will act as our sub-contractor, providing call response
services to our customers at specified hourly rates. The agreement includes
provisions and procedures for specifying the services to be provided to specific
Dr. Bean users, and for payment to value added resellers who identify and enlist
suitable Dr. Bean users. Our plans to offer out-sourced call response service
are contingent on generating significant sales of Dr. Bean.
PLAN OF OPERATION
Our principal objectives for the balance of the fiscal year ending
December 31, 1999, and for the first half of our next fiscal year, are to:
(a) develop and implement sales and distribution channels for Dr. Bean; and
(b) continue development of enhanced versions of Dr. Bean.
We have not generated significant revenue from the sales of our products.
Accordingly, we have been dependent on the proceeds of equity financings to pay
our ongoing operating expenses. Our cash balance as at December 14, 1999 is
approximately $6.3 million.
As at December 14, 1999, we employ 29 full time and 9 part time officers and
employees in our Vancouver office and full time and 2 part time officers and
employees in our Virginia office. As at December 14, 1999, our monthly salary
costs are approximately $300,000 per month, exclusive of bonus payments and
benefits.
During the remainder of our current fiscal year and the first six months of
our next fiscal year we plan to hire substantial additional personnel. We plan
to hire a Chief Financial Officer, a Chief Technical Officer, a General Manager
of US Operations and a Vice President of Strategic Marketing. In addition, we
plan to hire at least twenty additional employees to work in development,
marketing, product support and integration. Accordingly, we expect that our
monthly payroll costs will increase substantially during the first six months of
2000. The number of additional employees we hire, and the resulting salary
costs, will depend largely on our financial resources, our success in raising
additional capital, and market response to our products.
During the period January -- September 1999 our overhead expenses, exclusive
of payroll costs, were approximately $190,000 per month on average. We expect
that our overhead expenses will increase materially during the period up to
June 30, 2000.
(a) Additional personnel will result in additional overhead.
(b) Effective July 1, 1999, we occupied additional office space in
Vancouver.
(c) We are in the process of opening a branch sales office in the San
Francisco area, and may open a number of additional sales offices during
the first six months of 2000.
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We expect that during the first six months of 2000, our monthly overhead
expenses, exclusive of payroll costs, will be at least $250,000 on average. The
number of offices we open, and the resulting increase in overhead expenses, will
depend largely on our financial resources, our success in raising additional
capital, and market response to our products.
In November 1999 we entered into a contract with Science Applications
International Corp. ("SAIC") to develop a telephony integration system, which
will allow Dr. Bean to operate in conjunction with many currently installed
telephone response systems. We expect that the telephony integration system will
cost approximately $300,000.
Attendance at trade shows has been a major expense item in our two most
recent fiscal years. For the period up to June 30, 2000, we expect that we will
attend between 3 and 6 trade shows. Two of the shows (Partner World in
January 2000 and Spring Internet World in April 2000) will involve substantial
displays, and are estimated to cost approximately $200,000--$250,000 in total.
Participation at the other shows will be on a smaller scale, averaging
approximately $10,000 per show. Accordingly, we plan to spend approximately
$250,000--$300,000 on trade shows during the balance of our current fiscal year
and the first half of our next fiscal year.
We do not plan to incur large capital expenditures prior to June 30, 2000.
Our principal capital expenditures will be in acquiring new computer equipment,
and in fixturing additional leasehold space. We do not expect capital
expenditures prior to June 30, 2000 to exceed $500,000.
Our current cash balances will be sufficient to cover payroll costs at their
current level through the first six months of 2000, along with the monthly
overhead expenses of $250,000 and the costs outlined above for trade shows,
capital expenditures, and the development of a telephony integration system. To
hire a substantial number of additional employees, we will have to raise
additional capital or generate sales revenue. If our financial resources permit,
we may also commence an extensive advertising and marketing campaign for
Dr. Bean.
Investors are cautioned that we do not have reliable estimates of our future
costs. Owing to our brief operating history, we do not have sufficient
information to prepare accurate estimates of the number of additional personnel
we will require or the operating costs we will incur. Our future expenditures
will also depend in part on the financial resources available to us. In
addition, there can be no assurance that we will succeed in raising substantial
additional capital.
INTELLECTUAL PROPERTY
Dr. Bean is protected by copyright. Under the COPYRIGHT ACT (Canada),
copyright protection lasts for a minimum of 50 years. We have not yet taken
steps to register Dr. Bean under any copyright legislation.
We have submitted pending applications to register the trademarks "Sideware"
and "Dr. Bean" under the TRADEMARK ACT of Canada, and also to the United States
Patent and Trademark office. We do not know of any specific facts or
circumstances which would prevent registration of our trademarks in Canada or
the United States, but there can be no assurance that registration of any of our
trademarks will successfully be registered.
Dr. Bean includes the following software which we have licensed from third
parties for use as part of Dr. Bean.
(a) Pursuant to a reseller agreement with Enterprise Soft of Cupertino,
California, we have licensed the "Enterprise Reports" software. Dr. Bean
3.0 uses the Enterprise Reports software to generate data and reports
available through the Supervisor Module.
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(b) Pursuant to a software license with ICEsoft AS of Bergen, Norway, we
have licensed the ICE Browser Lite software. The Browser Lite software
provides the browser used by the CSR component of Dr. Bean.
In addition, Dr. Bean 3.1 will incorporate "Wizmaster", which we are
entitled to use under license from BrainTech, Inc. See "CERTAIN TRANSACTIONS".
DESCRIPTION OF PROPERTY
Our head office premises are located in North Vancouver, British Columbia,
Canada. Prior to September 1, 1998, the North Vancouver premises occupied
approximately 7,900 square feet. Effective September 1, 1998, we added
additional space, increasing the area to 14,867 square feet. We share the North
Vancouver premises with BrainTech, Inc., a software development company. The
term of the lease expires August 31, 2003.
The North Vancouver lease provides for annual minimum rent of approximately
$197,271.00 (equal to $13.00 per square foot) for the first year of the lease
from September 1, 1998 to August 31, 1999. Annual minimum rent increases to
$13.25 per square foot in the second year, $13.50 per square foot in the third
year, $13.75 per square foot in the fourth year, and $14.00 per square foot in
the fifth year. In addition, the lease requires payment of additional costs
relating to property taxes and common area maintenance costs. Those costs are
presently approximately $4.10 per square foot.
We operate our head office premises under a Cost Sharing and Allocation
Agreement with BrainTech, Inc. Prior to October 1999 we shared the cost of the
premises with BrainTech, Inc. equally. In October 1999, we agreed with BrainTech
to re-allocate the premises costs 80% to us and 20% to BrainTech, Inc. effective
from January 1, 1999, as we employ substantially more personnel, and thus makes
greater use of the premises, than BrainTech, Inc.
The landlord under the lease is HOOPP Realty Inc., an arm's length company.
The tenant under the lease is Techwest Management Inc., a company of which Owen
Jones and Grant Sutherland are each directors, and in which Owen Jones and Grant
Sutherland are each one third shareholders. We are a co-covenantor under the
lease, along with BrainTech, Inc. The costs of Techwest Management Inc. under
the lease are passed through to us and BrainTech, Inc. without any additional
charges or mark-up.
Effective February 1, 1999 (through Sideware Corp.), we have also leased
premises at 208 Elden Street, Suite 200, Herndon VA 20170, to serve as office
premises for our US operations. The lease of the Virginia office runs for a term
of 5 years, to January 31, 2004. We received a two-month rent abatement, so that
rent payments for the Virginia office commenced April 1, 1999. The rent
commenced at US$11,652 per month, and will escalate by 3% each year.
Effective July 1, 1999, we have also occupied additional leasehold premises
in Vancouver, B.C. We have entered into:
(a) a lease covering the premises at Suite 1620, 777 Dunsmuir Street (the
"Original Premises") for the period July 1, 1999 to June 30, 2002, and
covering the premises at Suite 1600, 777 Dunsmuir Street (the "Extended
Premises") for the period December 1, 2000 to June 30, 2002; and
(b) an Assignment of Lease covering the Extended Premises for the period
July 1, 1999 to November 30, 2000.
The total space included in the Original and Extended Premises is 8,325
square feet. The landlord of the Original and Extended Premises is Pacific
Center Leaseholds Limited, an arm's length company.
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The tenant under the lease described in (a) is Techwest Management Inc. We
are an indemnifier under the lease, along with BrainTech, Inc. As an
indemnifier, we are liable to perform all of the obligations of the tenant under
the lease, including the payment of rent.
The assignor under the assignment described in (b) is SJM Management Ltd., a
private management company which holds a lease of the Extended Premises running
from July 1, 1999 to November 30, 2000. Grant Sutherland holds a one third
beneficial interest in SJM Management Ltd. Prior to July 1, 1999 the Extended
Premises were occupied by the law firm Sutherland Johnston MacLean, in which
Mr. Sutherland was a partner. Under the assignment, SJM Management Ltd. assigned
its interest in respect of the Extended Premises to Techwest Management Inc.,
which agreed to perform all of the obligations of the tenant under the lease. We
are an indemnifier under the assignment, along with BrainTech, Inc. As an
indemnifier, we are liable to perform all of the obligations of the assignee,
including the payment of rent.
Under the lease described in (a), the rent payable for the Original Premises
for the period July 1, 1999 to June 30, 2002 is $64,498.50 per annum ($16.50 per
square foot) payable in equal monthly installments of $5,374.88. The rent
payable for the Extended Premises for the period December 1, 2000 to June 30,
2002 is $72,864.00 per annum ($16.50 per square foot) payable in equal monthly
installments of $6,072.00. In addition to rent, monthly charges are payable for
maintenance fees, utilities and taxes. We anticipate that the additional monthly
charges will be approximately $5,000, based on initial invoices submitted by
Pacific Centre Leaseholds Limited.
Under the assignment described in (b), the rent payable for the Extended
Premises for the period July 1, 1999 to November 30, 2000 is $64,032 per annum
($14.50 per square feet) payable in equal monthly installments of $5,336.00. In
addition, monthly charges of approximately $5,000 per month are payable for
maintenance fees, utilities, and taxes.
Sutherland Johnston, a law firm in which Grant Sutherland is a partner, will
continue to occupy a portion of the Extended Premises. BrainTech, Inc. and
Sutherland Johnston will be responsible for a portion of the costs relating to
the Original and Extended Premises depending on the relative use of those
premises by those parties. We expect that for the foreseeable future, we will
use the Original Premises exclusively, and will bear all of the costs relating
to the Original Premises. We also expect that for the foreseeable future, we
will bear approximately 45% of the costs relating to the Extended Premises.
We expect to open a branch sales office in the San Francisco area prior to
December 31, 1999. As at the date of this Prospectus, we are negotiating to
acquire leasehold premises. We expect that the starting monthly rental costs
will be approximately $10,000 per month.
LEGAL PROCEEDINGS
We are party to several court proceedings.
1. PROCEEDINGS INVOLVING FORMER MANAGEMENT
(i) EVERGREEN V. KOSTIUK ET AL; ACTION NO. C952721 IN THE BRITISH COLUMBIA
SUPREME COURT
On May 11, 1995 we commenced action against Lawrence Kostiuk, certain other
former directors of the company, and the former auditors and solicitors of
the company. The principal relief which we are claiming includes:
(a) damages for negligence and breach of fiduciary duty, and an
accounting of profits in respect of various stock transactions;
(b) an injunction restraining sale of a computer program known as
"E-Glue" by The Plant Software Inc., a company controlled by the
family of Mr. Kostiuk; and
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(c) an order setting aside a general security agreement executed by us in
favor of Mr. Kostiuk in July 1994.
A counterclaim has been filed by 484117 B.C. Ltd. (as assignee of
Mr. Kostiuk) seeking judgment against us in the approximate amount of
$1.5 million, and seeking to enforce the general security agreement. Another
counterclaim has been filed by Wolrige Mahon, our former auditors, claiming
approximately $58,000 for accounting and audit services.
On May 7, 1997 a receiving order was made against Lawrence Kostiuk pursuant
to the BANKRUPTCY AND INSOLVENCY ACT. In November 1997 we were granted leave to
continue with Action C952721 against Lawrence Kostiuk. By agreement dated
September 8, 1998, we purchased all of the right, title and interest of Lawrence
Kostiuk and the Trustee in Bankruptcy of Lawrence Kostiuk in shares of 484117
B.C. Ltd. On August 31, 1999 we filed an application to recover title to 100% of
the issued and outstanding shares of 484117 B.C. Ltd. pursuant to the
September 8, 1998 assignment. On November 15, 1999 we received a favorable
decision on the application. We believe that unless that decision is
successfully appealed, it will likely result in the effective elimination of the
counterclaim of 484117 B.C. Ltd. against us.
We have set a trial date of April 2, 2001 for this action. We are of the
view that we have a strong case against Mr. Kostiuk, and against the other
defendants we have sued. We are also of the view that we will be successful in
resisting the counterclaims filed against us.
(ii) KOWALEWICH ET AL V. EVERGREEN ET AL; ACTION NO. C963748 IN THE BRITISH
COLUMBIA SUPREME COURT
On June 27, 1996 Len Kowalewich, Donald Mavinic, Klaus Nicolaus and Dale
Harvey commenced action against us and certain of our present directors and
employees claiming damages for libel. We have filed a counterclaim against the
plaintiffs and Lawrence Kostiuk, Scott Kostiuk and John Kostiuk as defendants by
counterclaim. We believe that there is no material risk of a judgment against
us. The outcome of our counterclaim is uncertain.
(iii) KOWALEWICH V. EVERGREEN; ACTION NO. C963717 IN THE BRITISH COLUMBIA
SUPREME COURT
On June 26, 1996 Len Kowalewich commenced action against us to recover
$276,000 alleged to be owing by us for unpaid consulting fees (approximately
$96,000) and funds loaned to or advanced on our behalf (approximately $180,000).
We have filed a defense and counterclaim against the plaintiff and Lawrence
Kostiuk, Scott Kostiuk, John Kostiuk, Carolyn Kostiuk, Donald Mavinic, Dale
Harvey, Len Kowalewich, Klaus Nicolaus, The Plant Software Inc. and certain
shareholders and affiliates of The Plant Software Inc. as defendants by
counterclaim. We believe that we will be successful in defending the claim of
Mr. Kowalewich. The outcome of our counterclaim is uncertain.
(iv) KOWALEWICH ET AL V. EVERGREEN; ACTION NO. A963030 IN THE BRITISH
COLUMBIA SUPREME COURT
On September 13, 1996 Len Kowalewich and 6 other petitioners filed an
application for leave to commence derivative proceedings against our present
directors. We believe the petition is without merit. By the nature of the
petition it cannot result in any form of pecuniary judgment against us.
(v) 9123 INVESTMENTS LTD. V. THE PLANT SOFTWARE INC. ET AL; B.C.S.C. ACTION
NO. C983489 IN THE BRITISH COLUMBIA SUPREME COURT
By Agreement dated November 18, 1998, 9123 Investments Ltd. has purchased
the rights of Canadian Western Bank in a judgment pronounced October 15, 1997
against The Plant Software Inc. and three of its shareholders, all members of
the family of Lawrence Kostiuk. We have calculated the amount owing under the
judgment by The Plant Software Inc. as $311,848.69 as at December 30, 1998. We
do not have precise calculations of the amounts owing by the other judgment
debtors, who are liable for portions only of the amount owing by The Plant
Software Inc. In addition, we have purchased the rights under a general security
agreement held by Canadian Western Bank securing the
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<PAGE>
indebtedness of The Plant Software Inc. The general security agreement covers
all of the assets and undertaking of The Plant Software Inc.
By decision dated March 9, 1999, the British Columbia Supreme Court upheld
the validity of the assignment, and ordered that 9123 Investments Ltd. be
substituted as Petitioner in Action No. C983489 in place of Canadian Western
Bank.
In consideration for the assignment, 9123 Investments Ltd. paid $20,000 to
Canadian Western Bank. In addition, we agreed to dismiss court proceedings in
which we had sought approximately $200,000 in damages from Canadian Western
Bank.
The amount of any recovery under the judgment, and the value of any assets
of The Plant Software Inc. which may secure its indebtedness, are uncertain.
(vi) BANKRUPTCY OF LAWRENCE KOSTIUK; ACTION NO. 173352 VA 97 IN THE BRITISH
COLUMBIA SUPREME COURT
Pursuant to Agreements dated September 8, 1998, we have purchased from the
trustee in bankruptcy of Lawrence Kostiuk all of the right, title, and interest
of Lawrence Kostiuk and the trustee in The Plant Software Inc. and 484117
B.C. Ltd. No shares in either company are registered in the name of Lawrence
Kostiuk, with the result that any recovery of those assets requires legal
proceedings.
On October 15, 1998 we filed an application with the British Columbia
Supreme Court to recover title to 6,000,000 shares in The Plant Software Inc.
presently registered in the name of a company called "La Tache-DRC Inc." That
application has not yet come on for hearing.
On January 11, 1999 Lawrence Kostiuk filed an application with the British
Columbia Supreme Court seeking to set aside our transactions with the trustee in
bankruptcy. That application was dismissed on March 9, 1999.
On August 31, 1999 we filed an application to recover 100% of the issued and
outstanding shares in 484117 B.C. Ltd. On November 15, 1999 we received a
favorable ruling on the application. See item (i), above.
In consideration for the assignments, we paid $20,000 to the Trustee in
Bankruptcy of the estate of Lawrence S. Kostiuk.
(vii) THE PLANT SOFTWARE INC. V. 9123 INVESTMENTS LTD.; ACTION A990400 IN
THE SUPREME COURT OF BRITISH COLUMBIA
On January 11, 1999 The Plant Software Inc. filed an application for an
injunction to restrain 9123 Investments Ltd. from enforcing the general security
agreement referred to in (v), above. On March 9, 1999, the Petition of The Plant
Software Inc. was dismissed.
(viii)THE PLANT SOFTWARE INC. ET AL V. SIDEWARE SYSTEMS INC. ET AL; ACTION
NO. C990136 IN THE SUPREME COURT OF BRITISH COLUMBIA
On January 11, 1999 The Plant Software Inc., Carolyn Kostiuk, John Kostiuk,
Scott Kostiuk, and Lawrence Kostiuk commenced legal proceedings claiming damages
for abuse of process in the purchase of the rights and interests described in
(v) and (vi), above. We believe that the action is without merit and that there
is no material risk of an adverse judgment.
2. CLAIMS INVOLVING THIRD PARTIES We are also party to the following court
actions not involving former management.
(i) BARRIGAR & MOSS V. EVERGREEN; ACTION NO. C961984 IN THE BRITISH COLUMBIA
SUPREME COURT
On April 1, 1996 a Vancouver law firm sued us for $12,000 in legal fees. We
are defending on the grounds, INTER ALIA, that the account is excessive.
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<PAGE>
(ii) NIKIFORUK V. EVERGREEN; ACTION NO. C943435 IN THE BRITISH COLUMBIA
SUPREME COURT
In July 1994 Michael Nikiforuk commenced action against both us and Lawrence
Kostiuk. As against us, the Plaintiff seeks damages for breach of a stock option
agreement. No steps have been taken in the proceedings in over a year.
(iii) RBS MANAGEMENT V. EVERGREEN; ACTION NO. J950168 IN THE BRITISH
COLUMBIA SUPREME COURT
In March 1995 our former solicitors commenced proceedings to recover
approximately $37,000 alleged to be owing in legal fees. A taxation hearing set
in May of 1995 was adjourned generally by consent. No steps have been taken in
the proceeding in over a year.
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<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to our
directors, executive officers and key employees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Owen L.J. Jones.... 48 President, Chief Executive Officer and Director
W. Grant 53 Chairman of the Board of Directors
Sutherland.......
James L. Speros.... 40 Director and President of Sideware Corp
Jay H. Nussbaum.... 55 Director
Peter Kozicki...... 66 Director
Edward A. White.... 54 Director
John Wedel......... 38 General Manager of e-business Solutions
Marie Russell...... 37 Vice President Channel Sales and Marketing
Michael Peacock.... 38 Vice President Federal Sales and Marketing
</TABLE>
OWEN L.J. JONES. Director, President, and Chief Executive Officer.
Mr. Jones been a director since May 3, 1995 and has been our President and Chief
Executive Officer since July 1995. Since December 1993, Mr. Jones has also been
a director and the President and Chief Executive Officer of BrainTech, Inc., a
software development company whose shares trade on the OTC-Bulletin Board. Prior
to becoming a director of the BrainTech, Inc., Mr. Jones was employed as the
V.P. Sales, Marketing and Technology of the Company.
W. GRANT SUTHERLAND. Director and Chairman of the Board. Mr. Sutherland has
been a director since May 1993. Since May 3, 1995 Mr. Sutherland has held the
position of Chairman of the Board. Since December 1995 Mr. Sutherland has also
been a director and the Chairman of the Board of BrainTech, Inc. Mr. Sutherland
is a licensed lawyer in the Province of British Columbia, and has been engaged
in the private practice of law for 26 years, currently as a partner in a
Vancouver law firm.
JAMES L. SPEROS. Director and President of Sideware Corp. Mr. Speros was
appointed a director and the President and Chief Operating Officer of Sideware
Corp., on August 5, 1998. Since February 28, 1997, Mr. Speros has served as
President and Chief Executive Officer of Exploration Mirandor Inc., a publicly
held mining exploration company. Between June 1993 and April 1997, Mr. Speros
was the President and owner of two professional sports franchises, the Baltimore
Stallions and Montreal Alouettes of the Canadian Football League. From 1994 to
1997, Mr. Speros was a member of the Board of Governors of the Canadian Football
League, and acted as Vice Chairman of the Board in 1995 and 1996.
JAY H. NUSSBAUM. Director. Mr. Nussbaum was appointed a director on
June 14, 1999. Mr. Nussbaum is the Executive Vice President of Oracle Service
Industries and a member of the Executive Committee of Oracle. Mr. Nussbaum
joined Oracle after a 24-year career with Xerox Corp. that culminated with his
position as President, Integrated Systems Operations. While at Xerox,
Mr. Nussbaum was responsible for integration and consulting services in
commercial and federal government markets. Mr. Nussbaum joined Oracle in 1992 as
the Senior Vice President and General Manager of what was then Oracle Federal.
Mr. Nussbaum received a bachelor's degree in business from the University of
Maryland. He is a member of the university's Chancellor's Advisory Board and
also serves on the advisory board of James Madison University. Mr. Nussbaum is
on the board of directors of the Armed Forces Communications and Electronics
Association and is active in several other business and charitable organizations
in the Washington area.
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<PAGE>
PETER KOZICKI. Director. Mr. Kozicki was elected a director on May 3, 1995.
Mr. Kozicki is a consulting engineer, who has been engaged in private practice
in that field for over 12 years. He obtained his B.Sc. degree in Civil
Engineering from the University of Saskatchewan and a M.Sc. degree in Soil
Mechanics from the University of Alberta. Mr. Kozicki is President of PKM
Consultants Ltd., a private company providing consulting engineering services in
North America and overseas. PKM Consultants Ltd. specializes in the installation
of deep foundations and vertical barriers for containment of hazardous wastes.
EDWARD A. WHITE. Director. Mr. White was appointed a director on
October 14, 1995. Mr. White is a member of the British Columbia Institute of
Chartered Accountants, and has practiced as a self-employed chartered accountant
for over 20 years. Mr. White has been a director and officer of Oro Bravo
Resources Ltd. since February 1987, and a director of Liquid Gold
Resources Inc. since March 1993. Mr. White also served as a director of American
Woolastonite Mining Corp. from January 1989 to May 1995.
JOHN WEDEL. General Manager of e-business Solutions. Mr. Wedel joined us in
December 1997. From December 1992 to December 1995, Mr. Wedel worked for Exan
Research and Development as a senior developer. From December 1995 to
December 1997, Mr. Wedel worked for TransAct Systems Inc. as a Senior
Technologist. Mr. Wedel holds a Bachelor's Degree in Computer Science from Simon
Fraser University.
MARIE RUSSELL. Vice President Channel Sales and Marketing. Ms. Rusell
joined us in May 1999. From August 1993 to April 1999, Ms. Russell worked for
Newbridge Networks as Assistant Vice President Channel Marketing. Ms. Russell
holds a Bachelor's Degree in Science--Marketing from Pennsylvania State
University and a Master's Degree in Business Administration from George
Washington University.
MICHAEL PEACOCK. Vice President Federal Sales and Marketing. Mr. Peacock
joined us in April 1999. From February 1991 to April 1998, Mr. Peacock worked as
an account manager for Litton / PRC Inc. From April 1998 to March 1999,
Mr. Peacock worked as a Strategic Account Manager for Ascent Communications.
Mr. Peacock holds a Bachelor's Degree in Arts from the University of California
at Bakersfield.
All of our officers work for us on a full-time basis. All directors receive
reimbursement of reasonable out-of-pocket expenses incurred in connection with
meetings of our Board of Directors. Under our articles, our directors are
elected at each annual general meeting.
EXECUTIVE COMPENSATION
Apart from incentive stock options, disclosed below, we do not presently
compensate our directors for services provided as directors. We provide
compensation to our directors, who are also officers, for services rendered as
officers.
We provide the following compensation to our officers:
OWEN JONES. Effective June 1, 1998, Mr. Jones receives payments totaling
$10,000 per month. We currently pay 80% of those monthly payments, with
BrainTech, Inc. paying the remaining 20%. Prior to June 1, 1998, Mr. Jones'
monthly payments (then shared equally between us and BrainTech, Inc.) were
$5,000 per month. In April 1998 and April 1999, we paid Mr. Jones bonus payments
of $100,000, to bring Mr. Jones' annual compensation in line with amounts which
our directors considered to be appropriate for a chief executive officer of the
Company. Mr. Jones also holds incentive stock options to acquire 678,000 shares.
Mr. Jones receives no other compensation from us or any of our subsidiaries.
42
<PAGE>
GRANT SUTHERLAND. Effective June 1, 1998, Mr. Sutherland receives payments
totaling $10,000 per month.We currently pay 80% of those monthly payments, with
BrainTech, Inc. paying the remaining 20%. Prior to June 1, 1998, we paid
Mr. Sutherland $5,000 per month. Mr. Sutherland also holds incentive stock
options to acquire 648,000 shares. In September 1999 Mr. Sutherland exercised
incentive stock options to acquire 250,000 shares. Mr. Sutherland receives no
other compensation from us or any of our subsidiaries.
JAMES L. SPEROS. Beginning in August 1998, we paid Mr. Speros a salary of
US$8,000 per month. Effective April 1, 1999, we increased Mr. Speros' salary to
US$11,500 per month. Effective November 1, 1999 we increased Mr. Speros' salary
further to US$15,000 per month. In October and November 1999 Mr. Speros received
bonus payments totaling US$50,000. In addition, Mr. Speros holds incentive stock
options to acquire 375,000 shares. Mr. Speros receives no other compensation
from us or any of our subsidiaries.
JOHN WEDEL. Mr. Wedel currently receives a salary of $12,500 per month. In
addition Mr. Wedel holds incentive stock options to acquire 56,000 shares.
Mr. Wedel receives no other compensation from us or any of our subsidiaries.
MICHAEL PEACOCK. Mr. Peacock currently receives a salary of US$8,333 per
month and received a bonus of US$5,000 in August 1999. In addition, Mr. Peacock
holds incentive stock options to acquire 150,000 shares. Mr. Peacock receives no
other compensation from us or any of our subsidiaries.
MARIE RUSSELL. Ms. Russell currently receives a salary of US$10,000 per
month and received a bonus of US$5,000 in September 1999. In addition,
Ms. Russell holds incentive stock options to acquire 150,000 shares.
Ms. Russell receives no other compensation from us or any of our subsidiaries.
The aggregate amount of cash remuneration which we paid to our directors and
officers as a group was approximately $247,500 for the eight month period ending
December 31, 1998.
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<PAGE>
INCENTIVE STOCK OPTIONS
From time to time, we grant incentive stock options to directors, officers
and employees. The following table sets forth the incentive stock options held
by our directors and officers as at December 14, 1999.
<TABLE>
<CAPTION>
NAME OF OPTIONEE NUMBER OF SHARES EXERCISE PRICE EXPIRY DATE
- ---------------- ---------------- -------------- -----------
<S> <C> <C> <C>
Owen L.J. Jones...................................... 300,000 $0.50 05/01/01
123,000 $0.36 02/12/02
75,000 $0.70 12/16/02
55,000 $0.36 07/06/03
125,000 $2.33 06/17/04
Grant Sutherland..................................... 198,000 $0.50 05/01/01
75,000 $0.70 12/16/02
250,000 $2.66 10/04/04
125,000 $2.33 06/17/04
Peter Kozicki........................................ 50,000 $0.50 05/01/01
25,000 $0.70 12/16/02
25,000 $2.33 06/17/94
Edward White......................................... 100,000 $0.50 05/01/01
25,000 $0.70 12/16/02
25,000 $2.33 06/17/04
James Speros......................................... 250,000 $0.36 07/06/03
125,000 $2.33 06/17/04
John Wedel........................................... 50,000 $1.14 04/14/04
6,000 $2.33 06/17/04
Michael Peacock...................................... 100,000 $1.14 04/14/04
50,000 $2.33 06/17/04
Marie Russell........................................ 100,000 $1.14 04/14/04
50,000 $2.33 06/17/04
</TABLE>
The total number of incentive stock options held by our directors and
officers as at December 14, 1999 is 2,307,000. Of the 56,000 stock options held
by Mr. Wedel, 6,000 are exercisable within 60 days. Of the 150,000 options held
by Marie Russell, none are exercisable within 60 days. Of the 150,000 options
held by Michael Peacock, 25,000 are exercisable within 60 days. All other
options held by officers and directors are exercisable within 60 days.
Between December 31, 1998 and December 14, 1999, the following current
directors and officers exercised incentive stock options:
<TABLE>
<S> <C>
John Wedel 154,000 options
Grant Sutherland 250,000 options
</TABLE>
The figures stated above do not include incentive stock options held by our
Secretary, who does not exercise policy making functions for the Company.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our outstanding common shares as of November 30, 1999 by (i) our
directors and Named Executive Officers; (ii) each other person whom we know to
own beneficially more than 5% of the common shares; and (iii) all of our
directors and executive officers as a group.
<TABLE>
<CAPTION>
TITLE OF CLASS IDENTITY OF PERSON OR GROUP AMOUNT OWNED PERCENT OWNED(1)
- -------------- --------------------------- ------------ ----------------
<S> <C> <C> <C>
Common....................... Owen Jones 5,212,100(2) 9.8%
Common....................... Grant Sutherland 3,368,450(3) 6.6%
Common....................... Peter Kozicki 941,400(4) 1.9%
Common....................... Edward White 331,780(5) 0.7%
Common....................... James Speros 3,573,600(6) 6.7%
Common....................... John Wedel 56,000(7) 0.1%
Common....................... Michael Peacock 689,500(8) 1.4%
Common....................... Marie Russell 130,000(9) 0.3%
Common....................... All Directors and Officers 14,302,830(10) 23.4%
</TABLE>
- ------------------------------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options or warrants currently exercisable or convertible, or exercisable
or convertible within 60 days are deemed outstanding for computing the
percentage of the person or group of persons holding such option or warrant
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned.
(2) Includes shares issuable under the following securities:
--678,000 shares issuable under incentive stock options exercisable within
60 days; and
--1,275,000 shares issuable under outstanding share purchase warrants
exercisable within 60 days.
(3) Includes shares issuable under the following securities:
--648,000 shares issuable under incentive stock options exercisable within
60 days; and
--1,327,250 shares issuable under outstanding share purchase warrants
exercisable within 60 days.
(4) Includes shares issuable under the following securities:
--100,000 shares issuable under incentive stock options exercisable within
60 days; and
--55,000 shares issuable under outstanding share purchase warrants
exercisable within 60 days.
(5) Includes shares issuable under the following securities:
--150,000 shares issuable under incentive stock options exercisable within
60 days.
(6) Includes shares issuable under the following securities:
--375,000 shares issuable under incentive stock options exercisable within
60 days; and
--1,600,000 shares issuable under outstanding share purchase warrants
exercisable within 60 days.
(7) Includes shares issuable under the following securities:
--56,000 shares issuable under incentive stock options exercisable within
60 days.
(8) Includes shares issuable under the following securities:
--25,000 shares issuable under incentive stock options exercisable within
60 days; and
--312,500 shares issuable under outstanding share purchase warrants
exercisable within 60 days.
(9) Includes shares issuable under the following securities:
--62,500 shares issuable under outstanding share purchase warrants
exercisable within 60 days.
(10) Includes shares issuable under the following securities:
--2,032,000 shares issuable under incentive stock options exercisable
within 60 days; and
--4,632,250 shares issuable under outstanding share purchase warrants
exercisable within 60 days.
The figures stated in notes (2), (3), and (10) above do not include share
purchase warrants which expired November 27, 1998, and in respect of which we
have sought regulatory approval of an extension. The figures stated include
securities owned by directors or officers through wholly owned
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<PAGE>
holding corporations. The figures stated above do not include securities owned
by our corporate Secretary, who does not exercise policy making functions for
the company.
We are unaware of any person who owns 10% or more of our voting securities.
We are unaware of any arrangements, the operation of which may at a subsequent
date result in a change of corporate control.
CERTAIN TRANSACTIONS
Within the last three fiscal years, we have entered into the transactions
set out below in which current directors or officers of the Company were
interested.
In October 1996 we entered into an agreement with BrainTech, Inc. effective
November 1, 1995 pursuant to which certain costs associated with our premises
and operations were shared with BrainTech, Inc. The costs subject to the
cost-sharing agreement included:
-- costs of the North Vancouver premises which we share with BrainTech, Inc.;
-- personnel costs (billed through Techwest Management Ltd.--see below)
including, inter alia, the salary costs of our President and accounting
personnel; and
-- miscellaneous office charges, such as office supplies and telephone and fax
charges.
Prior to October 1999 we shared the common costs equally with
BrainTech, Inc. By a Cost Sharing and Allocation Agreement executed in
October 1999, we agreed with BrainTech, Inc. to re-allocate the common costs 80%
to us and 20% to BrainTech, Inc. effective from January 1, 1999. The reason for
the reallocation of costs was the substantially greater level of our business,
and our corresponding greater use of, the common premises and personnel.
BrainTech, Inc. is a software development company whose shares trade on the
OTC Bulletin Board. The directors of BrainTech, Inc. are Owen Jones, Grant
Sutherland and James Speros.
Shared costs under the Cost Sharing and Allocation Agreement are
administered by Techwest Management Ltd., a private management company. In
addition, services of certain of our personnel are provided to us through
Techwest Management Inc. Techwest Management Inc. is a private management
company in which Owen Jones and Grant Sutherland each hold a one third interest.
The personnel whose services are provided through Techwest Management Inc.
include, INTER ALIA, Owen Jones and our accounting personnel. Effective June 1,
1998, Mr. Jones receives an annual salary of $120,000 from Techwest
Management Inc. The cost of Mr. Jones' salary is currently borne 80% by us and
20% by BrainTech, Inc.
From time to time, either our payments or those BrainTech, Inc. exceed the
proportionate share required under the cost sharing agreement, giving rise to
indebtedness as between us, BrainTech, Inc. and Techwest Management Inc.
Accordingly, the payments are reconciled and adjusted from time to time as
required. As at September 30, 1999, BrainTech, Inc. was indebted to us (either
directly or indirectly through Techwest Management Inc.) in the amount of
approximately $236,747. The indebtedness arose as a result of BrainTech, Inc.
not paying its proportionate share of the common operating costs during time
periods when BrainTech Inc. did not have cash available to do so.
Techwest Management Inc. passes shared costs (including personnel costs)
through to us and BrainTech, Inc. at cost, without any markup. Computer
equipment for all three companies is generally purchased by us, owing to
favorable equipment pricing available to us, and is currently being passed on at
cost to BrainTech, Inc. or Techwest Management Inc.
We have entered into a Software Development and License Agreement dated
September 20, 1999 with BrainTech, Inc. Under the Software Development and
License Agreement BrainTech, Inc. developed a program named the "Wizmaster",
which will enable the user, through a user friendly
46
<PAGE>
drop-and-drag procedure, to construct customized knowledge trees. We plan to
incorporate Wizmaster into Dr. Bean as one of the "AutoService" features of
Dr. Bean 3.1. Under the Software Development and License Agreement, Sideware
paid for the cost of developing Wizmaster on a cost plus 10% basis. Sideware
acquired, at no further charge, a perpetual worldwide license to use Wizmaster
as part of Dr. Bean. BrainTech, Inc. is prohibited from licensing Wizmaster to
any other software developer (but not to systems integrators) for a period of
one year starting from the date Wizmaster becomes generally available to
purchasers of Dr. Bean.
We have acquired accounting services from Edward White, a member of our
board of directors who practices as a chartered accountant. Prior to
November 1996, Mr. White rendered invoices to us totaling $41,195. In
September 1996 we issued 164,780 shares to Mr. White in satisfaction of those
invoices. For the period commencing November 1, 1996 and ending November 30,
1997, we paid Mr. White $1,000 per month for accounting and financial services.
In September 1996 we issued 463,600 shares to Grant Sutherland, a member of
our board of directors, to reimburse Mr. Sutherland for $115,900.00 in out of
pocket expenses incurred on our behalf.
In September 1996 we issued 300,000 shares to Owen Jones, a member of our
board of directors and our President, to settle claims of Mr. Jones for
outstanding severance pay and for breach of a stock option agreement. The claims
related to Mr. Jones' previous employment with the Company (under previous
management) which terminated in January 1994.
We have acquired legal services from Dale W. Wilcox, a Law Corporation, a
law firm with which Paul Hildebrand, our corporate Secretary and general
counsel, is associated. Since May 3, 1995 Dale W. Wilcox, a Law Corporation has
received payments totaling $572,122 in fees (exclusive of taxes and
disbursements) for legal services.
We have granted the following incentive stock options to Mr. Hildebrand:
(a) options to purchase 100,000 shares at $0.50 per share expiring May 1,
2001;
(b) options to purchase 75,000 shares at $0.70 per share expiring
December 16, 2002; and
(c) options to purchase 55,000 shares at $1.35 per share expiring April 29,
2004; and
(d) options to purchase 100,000 shares at $2.33 per share expiring June 17,
2004.
In addition, Mr. Hildebrand and Alder Enterprises Ltd., a private company in
which Mr. Hildebrand owns a 45% interest, have acquired shares, special
warrants, and share purchase warrants pursuant to private placements we have
completed. For further information see Part II of our Registration Statement
filed with the Securities and Exchange Commission.
We have acquired legal services from the law firm Sutherland Johnston, of
which Grant Sutherland is a partner. The amount of such legal services prior to
December 31, 1998 was not material. Subsequent to December 31, 1998, we have
paid Sutherland Johnston $134,892 in legal fees (exclusive of taxes and
disbursements).
Forth & Company of Vancouver, British Columbia, acts as our Canadian
securities counsel. As at November 30, 1999, Clive Forth, the principal of
Forth & Company, owns 25,000 common shares.
Effective October 31, 1998 we purchased an interest in the proceeds of a
judgment in favor of BrainTech, Inc. in the amount of $406,390 pronounced
April 2, 1998 in British Columbia Supreme Court Action No. C972736. We paid
$200,000 on account of the purchase price, which was subject to adjustment
depending on the benefit ultimately received by us pursuant to the judgment. On
March 18, 1999 the British Columbia Court of Appeal allowed an appeal from the
judgment. As a result, BrainTech, Inc. repaid to us the $200,000 in issue.
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<PAGE>
In November 1995, we entered into a License Agreement with NetMedia
Systems Inc., a private company in which Owen Jones and Grant Sutherland hold
interests, and a Joint Venture Agreement with NetMedia Systems Inc. and
BrainTech, Inc. None of the business contemplated by the agreements proceeded,
with the result that the agreements were terminated in October 1999.
Corporate insiders also hold incentive stock options and have acquired
shares, special warrants, and share purchase warrants pursuant to private
placements we have completed. For further information see "MANAGEMENT--Executive
Compensation", "DESCRIPTION OF CAPITAL STOCK--Options to Purchase Securities
from the Company", and Part II of our Registration Statement filed with the
Securities and Exchange Commission.
DESCRIPTION OF CAPITAL STOCK
SHARE CAPITAL
COMMON SHARES
The Shares and Warrant Shares are common shares without par value in our
capital stock. The holders of our common shares are entitled to receive notice
of, attend and vote at all meetings of our members. The common shares carry one
vote per share and have no par value. The holders of the common shares are
entitled to receive dividends if, as, and when declared by our board of
directors. The common shares carry no pre-emptive rights, conversion rights,
redemption provisions, sinking fund provisions or liability to further calls or
to assessment. There are no restrictions on the repurchase or redemption of the
common shares by the Company except under applicable securities laws and to the
extent that any such repurchase or redemption would render the Company
insolvent.
Common shares without par value are the only class of shares authorised
under our memorandum of incorporation. As at December 14, 1999, we have
48,685,284 shares issued and outstanding.
OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY
INCENTIVE STOCK OPTIONS
From time to time we grant incentive stock options to directors, officers
and employees. As at November 30, 1999, we have 4,550,000 incentive stock
options outstanding as follows:
(a) options to acquire 753,000 shares at $0.50 per share expiring May 1,
2001;
(b) options to acquire 123,000 shares at $0.36 per share expiring
February 12, 2002;
(c) options to acquire 30,000 shares at $0.82 per share expiring March 26,
2002;
(d) options to acquire 420,000 shares at $0.70 per share expiring
December 16, 2002;
(e) options to acquire 365,000 shares at $0.36 per share expiring July 6,
2003;
(f) options to acquire 491,000 shares at $1.14 per share expiring April 14,
2004;
(g) options to acquire 167,500 shares at $1.35 per share expiring April 29,
2004;
(h) options to acquire 1,070,000 shares at $2.33 per share expiring
June 17, 2004; and
(i) options to acquire 890,000 shares at $2.66 per share expiring
October 4, 2004.
We have also determined to issue an additional 250,000 incentive stock
options to directors, officers, consultants, and employees. As at December 14,
1999, we have not received CVE approval for the intended options.
48
<PAGE>
SHARE PURCHASE WARRANTS
As at November 30, 1999 we have 10,613,064 outstanding share purchase
warrants as follows:
(a) 600,000 share purchase warrants permit the holder thereof to purchase
one additional share at a price of $0.28 per share up to July 22, 1999 or
a price of $0.32 per share up to July 22, 2000.
(b) 90,000 share purchase warrants permit the holder thereof to purchase one
additional share at a price of $0.32 per share up to October 31, 1999 or
a price of $0.37 per share up to October 31, 2000.
(c) 746,685 share purchase warrants permit the holder thereof to purchase
one additional share at a price of US$0.265 per share up to December 22,
1999 or a price of US$0.305 per share up to December 22, 2000.
(d) 1,941,500 share purchase warrants permit the holder thereof to purchase
one additional share at a price of $0.35 per share up to December 23,
1999 or a price of $0.40 per share up to December 23, 2000.
(e) 125,000 share purchase warrants permit the holder thereof to purchase
one additional share at a price of $0.60 per share up to January 5, 2000
or a price of $0.75 per share up to January 5, 2001.
(f) 1,049,546 share purchase warrants permit the holder thereof to purchase
one additional share at a price of US$0.333 per share up to March 26,
2000 or a price of US$0.383 per share up to March 26, 2001.
(g) 3,000,000 share purchase warrants permit the holder thereof to purchase
one additional share at a price of $0.55 per share up to April 7, 2000 or
a price of $0.63 per share up to April 7, 2001.
(h) 2,746,833 share purchase warrants permit the holder thereof to purchase
one additional share at a price of US$1.64 per share up to September 14,
2000 or a price of US$1.89 per share up to September 14, 2001.
Of the share purchase warrants listed above, the following are held by
management.
(a) Owen Jones holds 275,000 of the warrants described in (d) and 1,000,000
of the warrants described in (g);
(b) James Speros holds all of the warrants described in (a) and 1,000,000 of
the warrants described in (g);
(c) Grant Sutherland holds 327,250 of the warrants described in (d) and
1,000,000 of the warrants described in (g);
(d) Peter Kozicki holds 55,000 of the warrants described in (d);
(e) Michael Peacock holds 312,500 of the warrants described in (h); and
(f) Marie Russell holds 62,500 of the warrants described in (h).
The total number of common shares called for by all outstanding share
purchase warrants held by management as at November 30, 1999 is 4,632,250. In
addition, Paul Hildebrand owns all of the warrants described in (b) and Paul
Hildebrand and Alder Enterprises Ltd., respectively, own 33,000 and 327,250 of
the warrants described in (d).
49
<PAGE>
Between December 31, 1998 and November 30, 1999 the following share purchase
warrants have been exercised beneficially by directors or officers:
(a) Grant Sutherland exercised 300,000 warrants at $0.43 per share, 340,000
warrants at $0.465 per share and 500,000 warrants at $0.92 per share;
(b) Owen Jones exercised 1,000,000 warrants at $0.43 per share and 250,000
warrants at $0.92 per share; and
(c) Peter Kozicki exercised 300,000 warrants at $0.43 per share.
In addition, Paul Hildebrand exercised 35,000 warrants at $0.43 per share
and 50,000 warrants at $0.92 per share and Alder Enterprises Ltd. exercised
35,000 warrants at $0.43 per share and 50,000 warrants at $0.92 per share.
3,075,400 share purchase warrants which we issued on November 8, 1996,
entitling the holders to purchase shares at a price of $0.575 per share, were
due to expire November 8, 1998. We have entered into agreements dated
November 23, 1998, April 14, 1999, and October 28, 1999 with the warrant holders
to:
(a) extend the term of the warrants to November 27, 1998 (pursuant to the
November 23, 1998 agreement);
(b) further extend the term of the warrants to April 16, 1999 (pursuant to
the November 23, 1998 agreement), with an increased exercise price of
$0.67 per share;
(c) further extend the term of the warrants to October 31, 1999 (pursuant to
the April 14, 1999 agreement) with an exercise price of $0.67 per share;
and
(d) further extend the term of the warrants to April 30, 2000 (pursuant to
the Agreement dated October 28, 1999) with an exercise price of $.77 per
share.
The agreements are subject to obtaining required regulatory approvals. The
CVE has approved an extension to November 27, 1998 but no further extension.
Accordingly, the further extension will only come into effect upon obtaining the
required approval, or upon our regulatory status changing such that we do not
require CVE approval.
The beneficial holders of these share purchase warrants include the
following directors and officers:
<TABLE>
<S> <C> <C>
Owen Jones -- 440,000 warrants
Grant Sutherland -- 372,000 warrants
Peter Kozicki -- 44,000 warrants
</TABLE>
In addition, Paul Hildebrand and Alder Enterprises Ltd. own, respectively,
110,000 and 220,000 of the warrants.
EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDER
There are no laws or governmental decrees or regulations in Canada that
restrict the export or import of capital, or affect the remittance of dividends,
interest or other payments to holders of the Company's securities who are not
residents of Canada, other than withholding tax requirements. Reference is made
to "Taxation."
There are no limitations imposed by the laws of Company, the laws of British
Columbia or by the charter or other governing documents of the Company on the
right of a non-resident to hold or vote Common Shares of the Company, other than
as provided in the Investment Canada Act (the "Investment Act"). The following
summarizes the principal features of the Investment Act for a
50
<PAGE>
non-resident who proposes to acquire Common Shares. The summary is of a general
nature only and is not intended to be more; nor is it a substitute of
independent advice from an investor's own advisor. The summary does not
anticipate statutory or regulatory amendments.
The Investment Act generally prohibits implementation of a reviewable
investment by an individual, government or agency thereof, corporation,
partnership, trust or joint venture that is not a "Canadian" as defined in the
Investment Act (a "non-Canadian"), unless after review, the minister responsible
for the Investment Act (the "Minister") is satisfied that the investment is
likely to be of a net benefit to Canada. Under the Investment Act, a United
States citizen qualifies as a "World Trade Organization Investor." Subject to
the restrictions noted below, an investment in a Canadian business by a World
Trade Organization Investor would be reviewable under the Investment Act only if
it is an investment to acquire control of such Canadian business and the value
of the assets of the Canadian business as shown on its financial statements is
not less than a specified amount, which for 1999 is $184 million. An investment
in the shares of a Canadian business by a non-Canadian other than a "World Trade
Organization Investor" when the Company is not controlled by a World Trade
Organization Investor, would be reviewable under the Investment Act if it is an
investment to acquire control of the Canadian business and the value of the
assets of the Canadian business as shown on its financial statements is
$5 million or more, or if an order for review is made by the federal cabinet on
the grounds that the investment relates to Canada's cultural heritage or
national identity.
A non-Canadian would acquire control of the Company for purposes of the
Investment Act if the non-Canadian acquired a majority of the common shares. The
acquisition of less than a majority but one-third or more of the common shares
would be presumed to be an acquisition of control of the Company unless it could
be established that, on acquisition, the Company was not controlled in fact by
the acquirer through the ownership of common shares. Notwithstanding the review
provisions, any transaction involving the acquisition of control of a Canadian
business or the establishment of a new business in Canada by a non-Canadian is a
notifiable transaction and must be reported to Industry Canada by the
non-Canadian making the investment either before or within thirty (30) days
after the investment.
Certain transactions relating to common shares are exempt from the
Investment Act, including:
(i) an acquisition of common shares by a person in the ordinary course of
that person's business as a trader or dealer in securities;
(ii) an acquisition of control of the Company in connection with the
realization of security granted for a loan or other financial
assistance and not for a purpose related to the provisions of the
Investment Act; and
(iii) an acquisition of control of the Company by reason of an amalgamation,
merger, consolidation or corporate reorganization, following which the
ultimate direct or indirect control in fact of the Company, through the
ownership of common shares, remained unchanged.
COMPETITION ACT REVIEW
Investments giving rise to the acquisition or establishment, directly or
indirectly, by one or more persons of control over, or a significant interest in
the whole or part of a business of a competitor, supplier, customer or other
person are subject to substantive review by Canada's Competition Law Authority,
the Director of Investigation and Research (the "Director"). If or when the
Director concludes that a merger, whether by purchase or lease of shares or
assets, by amalgamation or by combination, or otherwise, prevents or lessens, or
is likely to prevent or lessen competition substantially, he may apply as may be
necessary to eliminate the substantial lessening or prevention of
51
<PAGE>
competition. Such substantive merger review power applies to all mergers,
whether or not they meet limits for pre-notification under the Competition Act.
In addition to substantive merger review, the Competition Act provides for a
pre-notification regime respecting mergers of certain size. The regime applies
in respect of share acquisitions, asset acquisitions, amalgamations and
combinations, for ease of reference. This filing refers specifically to share
acquisition, although the pre-notification regime applies, with the appropriate
modification, to other types of acquisition of control as well.
In order for a share acquisition transaction to be pre-notifiable, the
parties to the transaction (being the person or persons who proposed to acquire
shares, and the Corporation the shares of which are to be acquired), together
with their affiliates (being all firms with a 50% or more voting shares linkage
up and down the chain), must have:
(i) aggregate gross assets in Canada that exceed $400,000,000 in value, as
shown on their audited financial statements for the most recently
completed fiscal year (which must be within the last fifteen
(15) months); or
(ii) aggregate gross revenue from sales in, from or into Canada that exceed
$400,000,000 for the most recently completed fiscal year shown on the
said financial statements; and
(iii) the party being acquired or corporations controlled by that party must
have gross assets in Canada, or gross revenues from sales in or from
Canada, exceeding $35,000,000 as shown on the said financial
statements. Acquisition of shares carrying up to 20% of the votes of a
publicly traded corporation, or 35% of the votes in a private
corporation will not be subject to pre-notification, regardless of the
above thresholds. However, exceeding the 20% or the 35% threshold, and
again exceeding the 50% threshold, gives rise to an obligation of
notification if the size threshold is met.
If a transaction is pre-notifiable, a filing must be made with the Director
containing the prescribed information with respect to the parties, and a waiting
period, (either seven or twenty-one days, depending on whether a long or short
form filing is chosen) must expire prior to closing.
As an alternative to pre-notification, the Director may grant an Advance
Ruling Certificate which exempts the transaction from pre-notification. Advance
Ruling Certificates are granted where the Director concludes, based on the
information provided to him, that he would not have sufficient grounds on which
to apply to the Competition Tribunal to challenge the Merger.
TRANSFER AGENT
The transfer agent for our Common Shares is Montreal Trust Company 510
Burrard St., Vancouver, B.C. V6C 3B9.
52
<PAGE>
CERTAIN TAX CONSIDERATIONS
The following summarizes the principal Canadian federal income tax
considerations applicable to the holding and disposition of common shares in the
capital of the Company by a holder of the Company's common shares who is
resident in the United States of America, who has never been a resident of
Canada, and who holds common shares solely as capital property (a
"U.S. Holder"). This summary is based on the current provisions of the Income
Tax Act (Canada) (the "ITA"), the regulations thereunder, all amendments thereto
publicly proposed by the government of Canada to the date hereof, the published
administrative practices of Revenue Canada, Taxation, and on current provision
of the Canada-United States Income Tax Convention, 1980, as amended (the
"Treaty"). Except as otherwise expressly provided, this summary does not take
account of any provincial, territorial or foreign tax law or treaty. It has been
assumed that all currently proposed amendments will be enacted substantially as
proposed and that there is no other relevant change in any governing law or
practice, although no assurance can be given in these respects.
THIS SUMMARY IS NOT INTENDED TO INCLUDE ALL CIRCUMSTANCES IN WHICH A
DISPOSITION OF COMMON SHARES MIGHT OCCUR. THIS SUMMARY DOES NOT CONSTITUTE, AND
SHOULD NOT BE CONSTRUED TO CONSTITUTE, TAX ADVICE TO ANY PARTICULAR INVESTOR.
INVESTORS ARE, THEREFORE, ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THEIR INDIVIDUAL CIRCUMSTANCES.
THIS SUMMARY CONTAINS INFORMATION RELATING ONLY TO PROVISIONS OF CANADIAN
FEDERAL INCOME TAX LAW, AS SET OUT ABOVE. THIS SUMMARY DOES NOT INCLUDE
INFORMATION RELATING TO THE PROVISIONS OF ANY TAXATION LEGISLATION OF THE UNITED
STATES OF AMERICA OR ANY STATE THEREOF. INVESTORS WHO ARE OR MAY BE SUBJECT TO
LIABILITY TO TAX UNDER ANY LEGISLATION OF THE UNITED STATES OF AMERICA, OR ANY
STATE THEREOF, ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS WITH RESPECT
TO SUCH LIABILITY.
DIVIDENDS ON COMMON SHARES
Under the ITA, amounts paid or credited or deemed paid or credited on
account of dividends to holders of common shares that are resident in a country
other than Canada will be subject to withholding tax of 25% of the amount of the
dividend. The rate of withholding tax may be reduced pursuant to the terms of a
bilateral income tax treaty between Canada and the country in which a holder of
common shares is resident. In certain circumstances, the purchase by the Company
of its common shares may result in a deemed dividend.
Under the Treaty, if the recipient of a dividend on the common shares is the
beneficial owner of such dividends and is considered to be a resident of the
United States for purposes of the Treaty, the rate of Canadian withholding tax
on such dividends will generally be reduced to 15% of the amount of such
dividends or, if the recipient is a corporation which owns at least 10% of the
voting stock of the Company, to 5% of the amount of such dividends.
DISPOSITION OF COMMON SHARES
A holder of common shares who is not resident in Canada will not be subject
to tax under the ITA in respect of any capital gain, or be entitled to deduct
any capital loss, realized on a disposition of the common shares unless at the
time of such disposition such common shares constitute "Taxable Canadian
Property" of the holder for purposes of the ITA and the holder is not entitled
to relief under a bilateral income tax treaty between Canada and the country in
which the holder of the common shares is resident. If the holder is not entitled
to relief under a tax treaty, three-quarters of the gain arising on a
disposition of Taxable Canadian Property will be taxable at the rates that
approximate the rates applicable to residents of Canada.
The common shares of the Company will not generally constitute "Taxable
Canadian Property" at a particular time if they are listed on a prescribed stock
exchange (which includes the Vancouver Stock
53
<PAGE>
Exchange) at that time. However, a holder's common shares and rights to acquire
common shares or interests in common shares will be considered "Taxable Canadian
Property" if the holder uses or holds, or is deemed to use or hold, such shares
in, or in the course of carrying on, a business in Canada, or if at any time
during the five year period immediately preceding the disposition of such common
shares, the non-resident holder and persons with whom the non-resident holder
did not deal at arm's length owned, had rights to acquire, or had interests in
25% or more of the issued shares of any class of the Company.
Under the Treaty, any gain from a disposition of common shares by a person
who is considered a resident of the United States for purposes of the Treaty may
be exempt from Canadian tax even if the shares constitute Taxable Canadian
Property. This exemption will apply if, at the time of disposition, the value of
the common shares did not derive principally from Canadian real property and
such shares do not form part of the business property of a permanent
establishment of the holder in Canada or pertain to a fixed base available to
the holder in Canada for the purpose of performing independent personal
services.
54
<PAGE>
SELLING SHAREHOLDERS
The shares offered for sale pursuant to this Prospectus consist of 2,746,833
shares (the "Shares") and 2,746,833 shares (the "Warrant Shares") issuable upon
the exercise of 2,746,833 share purchase warrants (the "Warrants"). Each Warrant
entitles the holder to acquire one Warrant Share for a period of two years at a
price of US$1.64 per share up to September 14, 2000 and a price of US$1.89 per
share up to September 14, 2001. The Selling Shareholders acquired the Shares and
Warrants pursuant to a private placement of 2,746,833 units completed in
September 1999. Each unit consisted of one Share and one Warrant. The price of
the units was US$1.64 per unit. The Warrants are non-transferable.
The following table sets forth, as of December 10, 1999, and upon completion
of the offering described in this Prospectus, information with regard to the
beneficial ownership of the Company's common shares by the Selling Shareholders.
Information in the column "Total Shareholdings After Completion of Offering" is
based on information provided to us by the Selling Shareholders and is accurate
to the best of the Company's knowledge. The Selling Shareholders may not have a
present intention of selling the Shares or Warrant Shares and may offer less
than the number of Shares and Warrant Shares indicated.
<TABLE>
<CAPTION>
TOTAL SHAREHOLDINGS
NO. OF AFTER COMPLETION
SELLING SECURITY HOLDER NO. OF SHARES WARRANT SHARES OF OFFERING(1)
- ----------------------- ------------- --------------- -------------------
<S> <C> <C> <C>
Richard & Marie Russell JOWROS(2)................. 62,500 62,500 5,000
Louis Capanelli(3)................................ 487,805 487,805 1,317,000
Sisson & Ryan Inc................................. 62,500 62,500 Nil
Michael Hawes..................................... 62,500 62,500 19,000
Sharon Kleinman................................... 62,500 62,500 Nil
Michael Colen(4).................................. 182,927 182,927 786,660
Jack Spitzer...................................... 62,500 62,500 Nil
Michael Peacock(5)................................ 312,500 312,500 64,500
Moldieco Plastics Products, Inc................... 102,440 102,440 Nil
Edwin Yuan........................................ 62,500 62,500 8,000
Scott Lubore...................................... 243,903 243,903 406,902
Michael D. Reinke................................. 62,500 62,500 14,000
John T. Fishetti.................................. 62,500 62,500 5,000
David Robison..................................... 62,500 62,500 1,219,790
MeadowBrooke Development Assoc. L.L.C............. 76,220 76,220 Nil
Welcome Opportunities Ltd......................... 100,000 100,000 400,000
Sideware Partners, L.L.C.......................... 520,000 520,000 Nil
George Cranwell................................... 9,147 9,147 83,016
Maribeth A. Mullany............................... 31,250 31,250 Nil
Johnathan S. Thomas............................... 31,250 31,250 83,016
Robert E. Thomas.................................. 18,293 18,293 8,000
George Varoutsos.................................. 6,098 6,098 83,016
Frederick W. Weidinger............................ 62,500 62,500 Nil
</TABLE>
- ------------------------------
(1) Calculated on the assumption that all Shares and all Warrant Shares offered
by each selling security holder are sold. Figures stated include shares
issuable pursuant to incentive stock options and share purchase warrants
exercisable within 60 days.
(2) Marie Russell is the Vice President Channel Sales and Marketing of our
subsidiary, Sideware Corp.
(3) Louis Capanelli is a consultant to us. Total Shareholdings reported for
Mr. Capanelli include 50,000 shares issuable under stock options exercisable
within 60 days and 160,000 shares issuable under share purchase warrants
exercisable within 60 days.
55
<PAGE>
(4) Michael Colen is a consultant to us. Total Shareholdings reported for
Mr. Colen include 200,000 shares issuable under stock options exercisable
within 60 days and 16,060 shares issuable under share purchase warrants
exercisable within 60 days.
(5) Michael Peacock is a Vice President Federal Sales and Marketing of our
subsidiary, Sideware Corp. Total Shareholdings reported for Mr. Peacock
include 25,000 shares issuable under stock options exercisable within
60 days.
Jeffrey Lubore is the managing partner of MeadowBrooke Development Assoc.
L.L.C. Mr. Lubore owns 1,658,000 shares.
To the best of our knowledge, assuming that all of the Shares and Warrants
Shares offered by each Selling Shareholder are sold, no Selling Shareholder
other than MeadowBrooke Development Assoc. L.L.C., David Robison, Louis
Capanelli, or Michael Colen will own or control in excess of 1% of our voting
securities.
PLAN OF DISTRIBUTION
The Shares and Warrant Shares offered hereby may be sold from time to time
by the Selling Shareholders. These sales may be made privately, through the
Canadian Venture Exchange or through OTC Bulletin Board quotation service or
otherwise, at prices and at terms then prevailing or at prices related to the
then current market price, or in negotiated transactions. The Shares and Warrant
Shares may be sold by each of the Selling Shareholders acting as principal for
its own account or in ordinary brokerage transactions and transactions in which
the broker solicits purchasers. In effecting sales, broker-dealers engaged by
the Selling Shareholders may arrange for other broker-dealers to participate in
the re-sales.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from Selling Shareholders in amounts to be
negotiated in connection with the sale. These broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with these sales, and any such
commission, discount or concession may be deemed to be underwriting discounts or
commission under the Securities Act of 1933. In addition, any securities covered
by this Prospectus which qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this Prospectus.
It is not possible at the present time to determine the price to the public
in any sale of the Shares or Warrant Shares by the Selling Shareholders and each
Selling Shareholder reserves the right to accept or reject, in whole or in part,
any proposed purchaser of Shares or Warrant Shares. Accordingly, the public
offering price and the amount of any applicable sales or underwriting discounts
or commissions will be determined at the time of such sale by the Selling
Shareholders. The aggregate proceeds to the Selling Shareholders from the sale
of the Shares and Warrant Shares will be the purchase price of the Shares and
Warrant Shares less all applicable commissions and underwriters' discounts, if
any. We will pay substantially all the expenses incident to the registration,
offering and sale of the Shares and Warrant Shares to the public by the Selling
Shareholders (currently estimated to be US$160,000), other than fees, discounts
and commissions of underwriters, dealers or agents, if any, and transfer taxes.
LEGAL MATTERS
Certain legal matters relating to the legality of the issuance of the Common
Shares offered by this Prospectus under Canadian law will be passed upon by
Wilcox Law Corporation, Vancouver, British Columbia.
EXPERTS
The consolidated balance sheets of the Company as at December 31, 1998, and
April 30, 1998 and the consolidated statements of operations and deficit and
changes in financial position for the eight month period ended December 31, 1998
and the years ended April 30, 1998, 1997 and 1996 included
56
<PAGE>
herein and elsewhere in this Registration Statement have been included in
reliance upon the report of KPMG LLP, independent chartered accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG LLP covering the December 31, 1998
consolidated financial statements contains additional comments for U.S. readers
on Canada--U.S. reporting differences with respect to conditions that cause
substantial doubt as to our ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of that uncertainty.
57
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Index to Financial Statements............................... F-1
Consolidated Financial Statements of Sideware Systems Inc.
for Nine months ended September 30, 1999.................. F-2
Consolidated Balance Sheet.................................. F-3
Consolidated Statement of Operations and Deficit............ F-4
Consolidated Statement of Changes in Financial Position..... F-5
Notes to Consolidated Financial Statements.................. F-6
Consolidated Financial Statements of Sideware Systems Inc.
for the Eight months ended December 31, 1998, Years ended
April 30, 1998, 1997 and 1996............................. F-23
Auditors' Report to the Shareholders........................ F-24
Comments by Auditors for U.S. Readers on Canada-U.S.
Reporting Conflict........................................ F-25
Consolidated Balance Sheets................................. F-26
Consolidated Statements of Operations and Deficit........... F-27
Consolidated Statements of Changes in Financial Position.... F-28
Consolidated Notes to Financial Statements.................. F-29
</TABLE>
F-1
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
F-2
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 31,
1999 1998
-------------- ------------
<S> <C> <C>
(RESTATED--
NOTE 6(E))
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 8,422,659 $ 338,130
Accounts receivable:
Trade................................................... 104,620 70,479
Other................................................... -- 200,000
Due from related parties (note 4(b))...................... 236,747 247,122
Inventory................................................. 22,627 96,025
Prepaid expenses.......................................... 284,917 125,947
----------- -----------
9,071,570 1,077,703
Deposit on leases........................................... 25,807 8,213
Loans receivable............................................ 350,563 --
Capital assets (note 5)..................................... 1,095,195 603,789
----------- -----------
$10,543,135 $ 1,689,705
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................. $ 392,437 $ 208,247
Capital tax payable....................................... 7,100 7,100
----------- -----------
399,537 215,347
Subscriptions received...................................... -- 462,604
Shareholders' equity:
Share capital (note 6).................................... 26,546,878 11,516,774
Special warrants (note 6(d)).............................. -- 1,200,000
Commitment related to investment advisory services........ -- 75,000
Deficit accumulated during the development stage.......... (16,403,280) (11,780,020)
----------- -----------
10,143,598 1,011,754
Future operations (note 2)
Litigation (note 8)
Commitments (note 9)
Uncertainty due to the Year 2000 Issue (note 10)
----------- -----------
$10,543,135 $ 1,689,705
=========== ===========
</TABLE>
Approved by the Board:
<TABLE>
<S> <C>
(Signed) (Signed)
Director Director
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, OCTOBER 31,
1999 1998
-------------- ------------
<S> <C> <C>
(RESTATED--
NOTE 6(E))
Revenue:
Sales..................................................... $ 326,494 $ 72,323
Cost of sales (exclusive of amortization and other costs
disclosed separately below)............................... 318,415 64,716
----------- -----------
Gross margin................................................ 8,079 7,607
Interest income............................................. 119,560 32,639
----------- -----------
127,639 40,246
Operating expenses:
Amortization.............................................. 212,056 150,691
Bad debts................................................. 15,974 --
Employee wages and benefits............................... 1,060,813 425,019
Filing and transfer fees.................................. 44,636 7,413
Investment advisory services (note 6(f)).................. 160,000 75,000
Office, printing and sundry............................... 213,750 124,228
Professional fees......................................... 573,775 254,292
Marketing................................................. 774,208 768,046
Facilities................................................ 311,193 74,124
Research and development.................................. 799,904 359,452
Foreign exchange gain..................................... (10,339) (93,030)
Capital taxes............................................. -- 7,100
----------- -----------
4,155,970 2,152,335
----------- -----------
Loss before undernoted...................................... 4,028,331 2,112,089
Write-off of capital assets................................. 52,450 --
----------- -----------
Loss for the period......................................... 4,080,781 2,112,089
Deficit, accumulated during the development stage, beginning
of period................................................. 12,322,499 9,667,931
----------- -----------
Deficit, accumulated during the development stage, end of
period.................................................... $16,403,280 $11,780,020
=========== ===========
Loss per share.............................................. $ 0.12 $ 0.08
=========== ===========
Weighted average number of shares outstanding............... 35,107,996 26,496,795
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, OCTOBER 31,
1999 1998
-------------- ------------
<S> <C> <C>
(RESTATED--
NOTE 6(E))
Cash provided by (used in):
Operations:
Loss for the period....................................... $(4,080,781) $(2,112,089)
Items not involving the use of cash:
Amortization............................................ 212,056 150,691
Write-off of capital assets............................. 52,450 --
Investment advisory services settled by equity
instruments (notes 6(e) and (f))...................... 160,000 75,000
Changes in non-cash operating working capital:
Accounts receivable..................................... 130,561 (219,880)
Due from related parties................................ 138,568 (122,098)
Inventory............................................... 21,478 (96,025)
Prepaid expenses........................................ (186,509) (14,834)
Accounts payable and accrued liabilities................ 120,799 4,392
----------- -----------
(3,431,378) (2,334,843)
Financing:
Share subscriptions received.............................. -- 462,604
Shares issued for cash on exercise of warrants and
options................................................. 3,112,645 22,000
Special warrants issued for cash.......................... 3,181,016 --
Shares issued for cash.................................... 6,712,155 --
Share issue costs......................................... (387,794) --
----------- -----------
12,618,022 484,604
Investments:
Loans receivable.......................................... (350,563) --
Purchase of capital assets................................ (713,172) (308,575)
Deposit on lease, net..................................... (17,594) --
----------- -----------
(1,081,329) (308,575)
----------- -----------
Increase (decease) in cash and cash equivalents............. 8,105,315 (2,158,814)
Cash and cash equivalents, beginning of period.............. 317,344 2,496,944
----------- -----------
Cash and cash equivalents, end of period.................... $ 8,422,659 $ 338,130
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
1. GENERAL:
The Company was incorporated in 1983 under the Company Act (British
Columbia). Its principal business activity is developing and marketing of
software. During the year ended April, 1998, the Company changed its name from
Jot-It! Software Corp. to Sideware Systems Inc. Effective December 31, 1998, the
fiscal year end of the company was changed from April 30(th) to
December 31(st).
2. FUTURE OPERATIONS:
At September 30, 1999, the Company is in the business of developing and
marketing computer software technology solutions with a principal focus on the
e-commerce market. To date, the Company has not generated significant revenues
from these operations. For financial reporting purposes, the Company is
considered to be in the development stage and the accompanying financial
statements are those of a development stage enterprise.
As at September 30, 1999, the Company has an accumulated deficit of
$16,403,280 and incurred a loss of $4,080,781 during the nine months ended
September 30, 1999. In addition, the Company is the defendant in a number of
legal proceedings and claims, the maximum potential losses under which are
material (note 9). The Company has filed counterclaims on certain of these
claims. These financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern.
Accordingly, they do not give effect to adjustments that would be necessary
should the Company be unable to continue as a going concern. The Company's
continuance as a going concern is dependent upon its ability to obtain adequate
equity financing, to reach profitable levels of operation and its success in
defending existing legal claims all of which are consistent with management's
intentions. There is no certainty that such conditions can be achieved. In the
next twelve months, management of the Company also intends on applying financing
received to the continued development of products in process and to identify
sales or strategic alliance opportunities with respect to such products. At the
date of these consolidated financial statements significant additional financing
sources have not been identified.
3. SIGNIFICANT ACCOUNTING POLICIES:
(a) BASIS OF PRESENTATION:
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada. The consolidated
financial statements include the accounts of the company, and its subsidiaries,
9050 Investments Ltd., Sideware Corp. (formerly Collaborative Groupware Inc.),
Evergreen International Technology Inc. (which is inactive) and 9123
Investments Ltd., all of which are wholly-owned. In addition, the Company
accounts by the equity method for its one-third interest in Concurrent Adoptive
Recognition Corp. (which is inactive). All material intercompany balances and
transactions have been eliminated. Reference should be made to Note 11 to the
consolidated financial statements of the Company for information on differences
between Canadian and United States generally accepted accounting principles as
they apply to the Company.
F-6
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(b) CASH AND CASH EQUIVALENTS:
Cash and cash equivalents have terms to maturity at the date of acquisition
of not more than three months.
(c) CAPITAL ASSETS:
Capital assets are carried at cost less accumulated amortization.
Amortization is calculated annually as follows:
<TABLE>
<CAPTION>
ASSET BASIS RATE
- ----- ------------------ -----------
<S> <C> <C>
Furniture and fixtures....................... declining-balance 20%
Computer equipment........................... declining-balance 30%
Trade show assets............................ declining balance 20%
Computer software............................ straight-line 50%
Leasehold improvements....................... straight-line lease term
</TABLE>
(d) INCOME TAXES:
The Company follows the tax allocation method of accounting. Under this
method, deferred income taxes are provided on timing differences between income
reported for tax purposes and accounting income. In addition, the Company
records those investment tax credits, for which it has reasonable assurance of
realization, as a reduction of the expenses or the cost of capital assets to
which they relate.
(e) RESEARCH AND DEVELOPMENT COSTS:
Research costs are expensed as incurred. Development costs are deferred if
they meet certain specified criteria which relate to the identification of
costs, future benefits and funding requirements. Where development costs do not
meet such criteria, they are expensed as incurred. Government grants, which are
not refundable are disclosed as a reduction of the related cost. Management
periodically assesses the underlying value of deferred development costs by
reference to business plans and estimated future cash flows and records
write-downs where appropriate.
(f) REVENUE RECOGNITION:
The Company recognizes revenue when title has passed to the customer, the
collectability of the consideration is measurable and the Company has no
significant remaining performance obligations. This includes revenues from sales
to resellers which are recorded in accordance with their terms when the
resellers have no right of return and the Company has no other remaining
performance obligations. The Company recognizes sales of equipment, to related
parties, in revenues and related costs in cost of sales as the Company takes
title to and holds the equipment, bearing all of the risks and rewards of
F-7
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ownership, prior to sale, and bears the same risks as for sales to unrelated
parties after sale, including the risks related to collection of receivables.
(g) FINANCIAL INSTRUMENTS:
The Company accounts for financial instruments at cost. The carrying amounts
reported in the balance sheet for cash, accounts receivable, due from related
parties, accounts payable and accrued liabilities, capital tax payable and due
to directors and officers are estimated by management to approximate their fair
values, due to the short-term maturity of these instruments. The Company has no
outstanding derivative instruments, or other instruments with credit or interest
rate risk.
(h) 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant areas requiring the use of management estimates
relate to the collectability of the amounts due from related parties. Actual
amounts may differ from these estimates.
(i) UNAUDITED INTERIM FINANCIAL STATEMENTS:
The financial statements as at September 30, 1999 and October 31, 1998 are
unaudited; however, such financial statements reflect all adjustments which are,
in the opinion of management, necessary to a fair presentation of the results
for the interim periods presented.
4. RELATED PARTY TRANSACTIONS:
(a) TRANSACTIONS WITH RELATED PARTIES:
During the period, the Company was charged $348,615 (October 31,
1998--$136,583), for services rendered and $349,348 (October 31, 1998--$214,500)
in salaries.
Included in revenues and cost of sales are revenues and related costs
associated with equipment sales to BrainTech, Inc. and Techwest
Management Inc., companies with certain common shareholders and directors to the
Company.
(b) DUE FROM RELATED PARTIES:
At September 30, 1999, the Company was owed $236,747 (October 31,
1998--$247,122) with respect to costs incurred by the Company on behalf of
BrainTech Inc. and TechWest Management Inc., companies with directors in common.
These amounts are unsecured, payable on demand and bear no interest.
F-8
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
5. CAPITAL ASSETS:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------------------
ACCUMULATED NET
COST AMORTIZATION BOOK VALUE
---------- ------------ ----------
<S> <C> <C> <C>
Furniture and fixtures................................... $ 447,553 $ 114,966 $ 332,587
Computer equipment....................................... 820,239 360,219 460,020
Trade show assets........................................ 124,020 24,011 100,009
Computer software........................................ 97,210 35,372 61,838
Leasehold improvements................................... 715,991 575,250 140,741
---------- ---------- ----------
$2,205,013 $1,109,818 $1,095,195
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 31, 1998
--------------------------------------
ACCUMULATED NET
COST AMORTIZATION BOOK VALUE
---------- ------------ ----------
<S> <C> <C> <C>
Furniture and fixtures................................... $ 125,737 $ 80,381 $ 45,356
Computer equipment....................................... 461,189 250,561 210,628
Trade show assets........................................ 111,721 5,586 106,135
Computer software........................................ 98,440 59,550 38,890
Leasehold improvements................................... 707,277 504,497 202,780
---------- ---------- ----------
$1,504,364 $ 900,575 $ 603,789
========== ========== ==========
</TABLE>
F-9
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
6. SHARE CAPITAL:
Authorized:
94,148,696 common shares without nominal or par value.
Issued:
<TABLE>
<CAPTION>
NUMBER
OF SHARES AMOUNT
---------- -----------
<S> <C> <C>
Balance, April 30, 1995..................................... 12,719,217 $ 5,451,969
Cancellation of escrow shares (a)........................... (1,926,908) --
---------- -----------
Balance, April 30, 1996..................................... 10,792,309 5,451,969
Shares issued on exercise of special warrants............... 7,683,000 1,754,500
Shares issued on exercise of non-transferable warrants...... 404,500 202,250
Cancellation of shares (a).................................. (3,924,396) --
Shares issued for settlement of debt........................ 1,489,446 372,362
Performance shares issued for cash.......................... 750,000 7,500
Shares issued on exercise of options........................ 123,000 44,280
Less share issue costs...................................... -- (93,437)
---------- -----------
Balance, April 30, 1997..................................... 7,317,859 7,739,424
Shares issued on exercise of non-transferable warrants...... 4,203,100 2,106,500
Shares issued on exercise of options........................ 699,000 352,100
Shares issued to a director in satisfaction of a royalty
claim..................................................... 100,000 25,000
Special warrants converted to shares........................ 4,450,000 1,293,750
---------- -----------
Balance, April 30, 1998..................................... 26,769,959 11,516,774
Special warrants converted to shares........................ 500,000 1,200,000
---------- -----------
Balance, December 31, 1998.................................. 27,269,959 12,716,774
Shares issued on exercise of non-transferable warrants...... 5,467,900 2,669,950
Shares issued on exercise of options........................ 604,000 442,695
Special warrants converted to shares........................ 9,724,611 4,233,098
Shares issued for cash...................................... 2,746,833 6,712,155
Shares issued for financial advisory services (e)........... 250,000 160,000
Less share issue costs...................................... -- (387,794)
---------- -----------
Balance, September 30, 1999................................. 46,063,303 $26,546,878
========== ===========
</TABLE>
Unless otherwise indicated, common shares issued for non-cash consideration
are valued at their market value at date of issuance.
F-10
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
6. SHARE CAPITAL: (CONTINUED)
(a) ESCROW SHARES:
Included in issued shares at September 30, 1999 are 1,030,378 shares
(October 31, 1998--1,030,378) held in escrow to be released based on a cash flow
formula.
On November 22, 1995, 1,926,908 escrowed shares held by a former director
were cancelled by the Company. During the year ended April 30, 1997 the Company
offered one free trading share in exchange for 6.4 escrow shares held under
safekeeping agreement dated January 11, 1991. As a result, 3,924,396 shares were
cancelled and 726,758 shares were released from escrow.
(b) STOCK OPTIONS:
(i) The following stock options were outstanding at September 30, 1999:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- -----------------
<S> <C> <C>
855,000 $0.50 May 1, 2001
246,000 $0.36 February 12, 2002
30,000 $0.82 March 26, 2002
535,000 $0.70 December 16, 2002
390,000 $0.36 October 6, 2003
637,500 $1.14 April 24, 2004
172,500 $1.35 April 29, 2004
1,090,000 $2.33 June 17, 2004
</TABLE>
(ii) The following stock options were outstanding at October 31, 1998:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- -----------------
<S> <C> <C>
885,000 $0.50 May 1, 2001
267,000 $0.36 February 12, 2002
40,000 $0.50 February 12, 2002
93,000 $0.82 March 26, 2002
740,000 $0.70 December 16, 2002
555,000 $0.36 October 6, 2003
</TABLE>
Stock options are granted five years prior to the expiry date at exercise
prices that are based on market prices at the date of grant.
F-11
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
6. SHARE CAPITAL: (CONTINUED)
(c) SHARE PURCHASE WARRANTS:
(i) The following non-transferable share purchase warrants were outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- -----------------------
<S> <C> <C>
750,000 $ 0.92 October 24, 1999
90,000 $ 0.32 To November 19, 1999
$ 0.37 From November 20, 1999
to November 19, 2000
125,000 $ 0.60 To January 5, 2000
$ 0.75 From January 6, 2001
To January 5, 2001
600,000 $ 0.28 To January 14, 2000
$ 0.32 From January 15, 2000
to January 14, 2001
737,684 $0.265U.S. To January 7, 2000
$0.305U.S. From January 8, 2000
to January 7, 2001
2,491,500 $ 0.35 To January 7, 2000
$ 0.37 From January 8, 2000
to January 7, 2001
1,528,527 $0.383U.S. To April 7, 2000
$0.385U.S. From April 8, 2000
to April 7, 2001
3,000,000 $ 0.55 To April 14, 2000
$ 0.63 From April 15, 2000
to April 14, 2001
2,746,833 $ 1.64U.S. To September 13,2000
$ 1.89U.S. From September 14, 2000
To September 13, 2001
</TABLE>
At October 31, 1998, 3,075,400 share purchase warrants were outstanding and
due to expire on November 7, 1998. At September 30, 1999, the Company was
awaiting regulatory approval to have these warrants extended to October 31,
1999, therefore, these warrants are not disclosed as outstanding at
September 30, 1999.
F-12
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
6. SHARE CAPITAL: (CONTINUED)
(ii) The following non-transferable share purchase warrants were outstanding
at October 31, 1998:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- -----------------------
<S> <C> <C>
3,075,400 $0.575 November 7, 1998
450,000 $0.465 April 16, 1999
3,000,000 $ 0.43 April 16, 1999
1,000,000 $ 0.92 To October 23, 1999
</TABLE>
Share purchase warrants are generally issued two years prior to their expiry
date.
(d) SPECIAL WARRANTS:
(i) As at September 30, 1999 all special warrants had been exercised.
(ii) At October 31, 1998, 500,000 special warrants were deemed to have been
exercised for one common share and one non-transferable share purchase
warrant. As at October 31, 1998 the corresponding common shares had not
been issued. The non-transferable share purchase warrants will have the
following terms:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- -----------------------
<S> <C> <C>
500,000 $ 0.92 To October 23, 1999
</TABLE>
(e) COMMITMENT RELATED TO INVESTMENT ADVISORY SERVICES:
During the nine month period ended October 31, 1998, the Company entered
into an agreement, which subject to regulatory approval, provides for the
issuance of 100,000 common shares and 125,000 share purchase warrants
exercisable at $0.60--$0.75 per share for a two year period. The value assigned
to these equity instruments of $75,000 has been expensed during the nine month
period ending October 31, 1998 and deficit, accumulated during the development
stage, as at October 31, 1998 has been increased by $75,000 from the amount
previously reported.
(f) SHARES ISSUED FOR FINANCIAL ADVISORY AND CONSULTING SERVICES:
During the quarter ended September 30, 1999, 250,000 shares were issued for
services pursuant to a financial advisory and consulting agreement. The market
value at the date of the agreement was $0.64 per share.
F-13
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
7. INCOME TAXES:
The Company has non-capital losses for income tax purposes of approximately
$14,005,000 which are available to reduce taxable income of future years, the
benefit of which has not been recorded in the accounts and which expire as
follows:
<TABLE>
<S> <C>
1999........................................................ $ 770,000
2000........................................................ 1,285,000
2001........................................................ --
2002........................................................ 650,000
2003........................................................ 3,600,000
2004........................................................ 2,200,000
2005........................................................ 1,650,000
2006........................................................ 3,850,000
-----------
$14,005,000
===========
</TABLE>
8. LITIGATION:
The Company is engaged in the following litigation:
(a) During the year ended April 30, 1997, a former director of the Company
commenced legal proceedings against the Company for $276,000 alleged to be
owing to him for unpaid consulting fees and funds loaned or advanced on
behalf of the Company. The Company has filed a defense and counterclaim.
(b) During the year ended April 30, 1997, four former directors commenced legal
proceedings against the Company and certain of its present directors
claiming unspecified damages for libel. The Company has filed a defense.
(c) During the year ended April 30, 1996 the Company commenced legal proceedings
against former directors and officers of the Company, companies related to a
former director, and the Company's former solicitors and auditors. The
relief claimed included damages for breach of fiduciary duty and negligence,
an injunction preventing the sale of a computer program named "E-Glue", and
an order setting aside a disputed general security agreement against the
Company's assets. 484117 B.C. Ltd., a company controlled by a former
director, filed a counterclaim alleging that the Company was indebted to it
in the amount of $1,495,594 as at November 4, 1994, and seeking to enforce
the disputed general security agreement. The Company's former auditors filed
a counterclaim for approximately $50,000 alleged to be owing for
professional services.
(d) On January 11, 1999 parties related to a former director commenced
proceedings against the Company claiming damages for abuse of process. The
Company has filed a defense and counterclaim.
F-14
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
8. LITIGATION: (CONTINUED)
While the ultimate outcomes of these claims are uncertain, management of the
Company believes it will be successful in defending these actions and
accordingly no amounts have been provided in these financial statements.
9. COMMITMENTS:
The Company has the following minimum lease payments under operating leases
for its premises:
<TABLE>
<S> <C>
1999........................................................ $ 118,000
2000........................................................ 418,000
2001........................................................ 428,000
2002........................................................ 445,000
2003........................................................ 379,000
----------
$1,788,000
==========
</TABLE>
Pursuant to an agreement with a company with certain common shareholders and
directors of the Company, approximately $100,000 of these amounts are
recoverable for the fiscal years from 1999 to 2002, and approximately $70,000
for the fiscal year ending 2003.
10. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems, which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure, which
could affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
11. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles ("GAAP") in Canada, of
which conform, in all material respects, with those in the United States except
as described below:
(a) INCOME TAXES:
Under the asset and liability method of United States Statement of Financial
Accounting Standards No. 109 ("FAS 109"), deferred income tax assets and
liabilities are measured using enacted tax rates for the future income tax
consequences attributable to differences between the financial
F-15
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
11. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
statement carrying amount of existing assets and liabilities and their
respective tax bases. The application of the provisions of FAS 109 on the
Company's balance sheet would result in no net difference in deferred taxes from
that reported under Canadian GAAP. At September 30, 1999, the gross deferred tax
asset amount relating to a non-capital loss carry forward was $5,602,000 which
is reduced by a valuation allowance of $5,602,000 as management does not
consider that it is more likely than not that such assets will be realized in
the carry forward period. There was no deferred tax liability.
(b) STOCK-BASED COMPENSATION:
For United States GAAP purposes, the Company has elected to follow the
disclosure-only provisions under Statement of Financial Accounting Standards
No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation", and applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations in accounting for its
stock-based compensation to employees. Accordingly, the Company's stock-based
compensation expense is measured based on the intrinsic value of the option on
the date of grant. FAS 123 requires companies that continue to follow APB 25 to
disclose the impact of applying the fair value method of FAS 123.
Under the intrinsic value method of APB 25, the stock option compensation is
the excess, if any, of the quoted market value of the stock at the measurement
date of the grant over the amount an optionee must pay to acquire the stock.
Accordingly, stock-based compensation for the nine month periods ended
September 30, 1999, and October 31, 1998, for United States GAAP purposes, would
be $1,223,100 and $44,400 respectively.
Had stock compensation expense for the Company's stock option plan been
determined based on the fair value methodology under FAS 123, the Company's net
loss would have increased for the nine month periods ended September 30, 1999,
and October 31, 1998 by $3,377,289 and $162,016, respectively. In addition, the
Company's loss per share under United States GAAP for the nine month periods
ended September 30, 1999 and October 31, 1998 would have been $0.22 and $0.09,
respectively.
The fair value for the options was estimated using the Black-Scholes option
pricing model with the following assumptions: Expected volatility of 70%,
risk-free interest rate ranging from 5.3% to 6.3%, expected life of five years,
and a 0% dividend yield.
The weighted-average fair value of stock options granted for the nine month
periods ended September 30, 1999 and October 31, 1998 are $1.63 and $0.29,
respectively.
F-16
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
11. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Balances at April 30, 1996......................... -- -$-
Options granted.................................. 2,308,000 0.49
Options exercised................................ (123,000) 0.36
Options canceled................................. (120,000) 0.50
--------- -----
Balances at April 30, 1997......................... 2,065,000 0.50
Options granted.................................. 800,000 0.70
Options exercised................................ (699,000) 0.50
Options canceled................................. (45,000) 0.68
--------- -----
Balances at April 30, 1998......................... 2,121,000 0.57
Options granted.................................. 555,000 0.36
Options exercised................................ -- --
Options canceled................................. (96,000) 0.55
--------- -----
Balances at December 31, 1998...................... 2,580,000 0.52
Options granted.................................. 2,070,000 1.79
Options exercised................................ (604,000) 0.73
Options canceled................................. (90,000) 0.63
--------- -----
Balances at September 30, 1999..................... 3,956,000 $1.15
========= =====
</TABLE>
F-17
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
11. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(c) DEVELOPMENT STAGE ENTERPRISES:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 7, "Development Stage Enterprises", the Company would be defined to be a
development stage enterprise which would require the following additional
disclosures:
(i) The amounts in the consolidated statement of operations and deficit
accumulated during the development stage would be presented on a
cumulative basis from the Company's inception which is summarized as
follows:
<TABLE>
<S> <C>
Revenues.................................................... $ 1,539,921
Cost of sales (exclusive of amortization and other costs
disclosed separately below)............................... 554,462
-----------
985,459
Operating expenses:
Amortization.............................................. 1,154,255
Bad debts................................................. 277,841
Employee wages and benefits............................... 3,775,968
Filing and transfer fees.................................. 210,108
Investment advisory services.............................. 235,000
Marketing................................................. 3,353,170
Office, printing and sundry............................... 1,956,677
Professional fees......................................... 4,348,646
Research and development.................................. 4,188,392
-----------
19,500,057
-----------
Loss before undernoted...................................... 18,514,598
Other income................................................ (442,465)
-----------
Loss accumulated during the development stage
under U.S. GAAP........................................... $18,072,133
===========
</TABLE>
F-18
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
11. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(ii) The amounts in the consolidated statement of cash flows would also be
presented on a cumulative basis from the Company's inception which is
summarized as follows:
<TABLE>
<S> <C>
Operating activities:
Loss accumulated during the development stage............. $(18,072,133)
Items not involving the use of cash:
Amortization............................................ 1,154,255
Other................................................... 1,625,886
Changes in non-cash operating working capital items....... (233,122)
------------
(15,525,114)
Investing activities........................................ (1,830,768)
Financing activities........................................ 25,778,598
------------
Increase in cash and cash equivalents during the
development stage......................................... 8,422,716
Cash, inception of development stage........................ (57)
------------
Cash and cash equivalents, September 30, 1999............... $ 8,422,659
============
</TABLE>
(iii) A cumulative statement of stockholders' equity would be presented
as follows:
<TABLE>
<CAPTION>
SHARE CAPITAL RETAINED
----------------------- SPECIAL EARNINGS
NUMBER ASSIGNED WARRANTS (DEFICIT)
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, inception of development stage.......... 1,044,719 $ 526,961 $ -- $ 382,003
Shares issued for cash........................... 400,000 100,000 -- --
Loss for the year................................ -- -- -- (90,976)
---------- ---------- ----------- ------------
Balance, April 30, 1990.......................... 1,444,719 626,961 291,027
Shares issued for acquisition of subsidiary...... 6,660,452 1,105,231 -- --
Shares issued as settlement for debt............. 900,000 225,000 -- --
Loss for the year................................ -- -- -- (2,237,102)
---------- ---------- ----------- ------------
Balance, April 30, 1991.......................... 9,005,171 1,957,192 -- (1,946,075)
Shares issued for cash........................... 500,000 200,000 -- --
Shares issued for cash........................... 220,000 198,000 -- --
Loss for the year................................ -- -- -- (431,506)
---------- ---------- ----------- ------------
Balance, April 30, 1992.......................... 9,725,171 2,355,192 -- (2,377,581)
Shares issued for cash........................... 783,000 567,250 -- (781,817)
Loss for the year................................ -- -- -- --
---------- ---------- ----------- ------------
Balance, April 30, 1993.......................... 10,508,171 2,922,442 -- (3,159,398)
</TABLE>
F-19
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
11. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
<TABLE>
<CAPTION>
SHARE CAPITAL RETAINED
----------------------- SPECIAL EARNINGS
NUMBER ASSIGNED WARRANTS (DEFICIT)
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Shares issued as a finders fee................... 53,881 92,675 -- --
Shares issued for cash........................... 1,588,550 1,671,710 -- --
Shares issued as settlement for debt............. 406,450 705,141 -- --
Loss for the year................................ -- -- -- (2,256,961)
---------- ---------- ----------- ------------
Balance, April 30, 1994.......................... 12,557,052 5,391,968 -- (5,416,359)
Shares issued as settlement for debt............. 162,165 60,001 -- --
Earnings for the year............................ -- -- -- 277,200
---------- ---------- ----------- ------------
Balance, April 30, 1995.......................... 12,719,217 5,451,969 -- (5,139,159)
Cancellation of escrow shares.................... (1,926,908) -- -- --
Loss for the year................................ -- -- -- (898,154)
---------- ---------- ----------- ------------
Balance, April 30, 1996.......................... 10,792,309 5,451,969 -- (6,037,313)
Special warrants issued.......................... -- -- 3,250,500 --
Shares issued on exercise of special warrants.... 7,683,000 1,754,500 (1,754,500) --
Shares issued on exercise of non-transferable
warrants....................................... 404,500 202,250 (202,250) --
Cancellation of shares........................... (3,924,396) -- -- --
Shares issued as settlement for debt............. 1,489,446 372,362 -- --
Performance shares issued for cash............... 750,000 7,500 -- --
Shares issued on exercise of options............. 123,000 44,280 -- --
Share issue costs................................ -- (93,437) -- --
Loss for the year................................ -- -- -- (2,002,863)
---------- ---------- ----------- ------------
Balance, April 30, 1997.......................... 17,317,859 7,739,424 1,293,750 (8,040,176)
Shares issued on exercise of non-transferable
warrants....................................... 4,203,100 2,106,500 -- --
Shares issued on exercise of options............. 699,000 352,100 -- --
Shares issued in satisfaction of a
royalty claim.................................. 100,000 25,000 -- --
Special warrants converted to shares............. 4,450,000 1,293,750 (1,293,750) --
Special warrants issued.......................... -- -- 1,200,000 --
Loss for the year................................ -- -- -- (2,409,390)
---------- ---------- ----------- ------------
Balance, April 30, 1998.......................... 26,769,959 11,516,774 1,200,000 (10,449,566)
Shares issued on exercise of special warrants.... 500,000 1,200,000 (1,200,000) --
Special warrant subscriptions.................... -- -- 997,082 --
Loss for the period.............................. -- -- -- (1,936,683)
---------- ---------- ----------- ------------
Balance, December 31, 1998....................... 27,269,959 12,716,774 997,082 (12,386,249)
</TABLE>
F-20
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
11. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
<TABLE>
<CAPTION>
SHARE CAPITAL RETAINED
----------------------- SPECIAL EARNINGS
NUMBER ASSIGNED WARRANTS (DEFICIT)
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Shares issued on exercise of
non-transferable warrants...................... 5,467,900 2,669,950 -- --
Shares issued on exercise of options............. 604,000 442,695 -- --
Shares issued on exercise of special warrants.... 9,724,611 3,962,990 (997,082) --
Shares issued for cash........................... 2,746,833 6,652,692 -- --
Shares issued for financial advisory services.... 250,000 160,000 -- --
Loss for the period.............................. -- -- -- (5,303,881)
---------- ---------- ----------- ------------
Balance, September 30, 1999...................... 46,063,303 26,605,101 -- (17,690,130)
========== ========== =========== ============
</TABLE>
Identification as a development stage enterprise would not impact the
measurement principles applied.
(d) RESEARCH AND DEVELOPMENT:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 2, "Research and Development Expenditures", requires development costs to be
expensed as incurred. Under Canadian GAAP, such expenses are deferred if they
meet specified criteria. To date, no costs have been deferred under Canadian
GAAP and, accordingly, no difference has arisen to the amounts that could be
reported under United States GAAP.
(e) LOSS PER SHARE:
For United States GAAP purposes, 1,030,378 shares held in escrow as at
September 30, 1999 (October 31, 1998--1,030,378) are considered contingently
issuable. Accordingly, these shares have been excluded from the weighted average
number of shares outstanding for the purposes of calculating loss per shares
amounts. To the extent that common shares held in escrow are releasable based on
the achievement of performance measures and such shares are held by employees of
the Company, compensation expense will be recognized under United States GAAP at
the date the shares became releasable for the difference between the market
value of the shares at that date and the nominal consideration originally paid.
F-21
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
(UNAUDITED--PREPARED BY MANAGEMENT)
NINE MONTHS ENDED SEPTEMBER 30, 1999
11. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(f) SUMMARY OF UNITED STATES GAAP ADJUSTMENTS:
The following table sets forth the effect on the loss for the period and
loss per share:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 OCTOBER 31, 1998
-------------------- -------------------
<S> <C> <C>
Loss determined under Canadian GAAP................. $4,080,781 $2,112,089
Expenses relating to stock-based compensation....... 1,223,100 44,400
---------- ----------
Loss determined under United States GAAP............ $5,303,881 $2,156,489
========== ==========
Weighted average number of shares outstanding,
United States GAAP................................ 34,077,618 25,466,417
========== ==========
Loss per share under United States GAAP............. $ 0.16 $ 0.08
========== ==========
</TABLE>
There would be no impact from the above adjustments on total assets or
shareholders' equity reported under Canadian GAAP at September 30, 1999 and
October 31, 1998.
(g) STATEMENT OF CASH FLOWS:
Cash flows from operating, financing and investing activities under United
States GAAP would be presented as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 OCTOBER 31, 1998
-------------------- -------------------
<S> <C> <C>
Cash flows from:
Operating activities.............................. $(3,431,378) $(2,334,843)
Financing activities.............................. 12,618,022 484,604
Investing activities.............................. (1,081,329) (308,575)
----------- -----------
Increase (decrease) in cash and cash equivalents.... $ 8,105,315 $(2,158,814)
=========== ===========
</TABLE>
F-22
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS OF
SIDEWARE SYSTEMS INC.
(a Company in the Development Stage)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
F-23
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Sideware Systems Inc. as
at December 31, 1998 and April 30, 1998 and the consolidated statements of
operations and deficit and changes in financial position for the eight months
ended December 31, 1998 and the years ended April 30, 1998, 1997 and 1996. 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 Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1998 and April 30, 1998 and the results of its operations and the changes in its
financial position for the eight months ended December 31, 1998 and years ended
April 30, 1998, 1997 and 1996 in accordance with generally accepted accounting
principles in Canada. As required by the Company Act (British Columbia) we
report that, in our opinion, these principles have been applied on a basis
consistent with that of the preceding period.
Significant measurement differences between Canadian and United States
accounting principles as they affect these consolidated financial statements are
explained and quantified in note 13.
Chartered Accountants
Vancouver, Canada
April 15, 1999, except as
to note 12 which is as of
April 30, 1999
F-24
<PAGE>
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING CONFLICT
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cause substantial doubt on
the Company's ability to continue as a going concern, such as those described in
note 2 to the financial statements. Our report to the shareholders dated
April 15, 1999, except as to note 12 which is as of April 30, 1999, is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditors' report when these are adequately
disclosed in the financial statements.
Chartered Accountants
Vancouver, Canada
April 15, 1999, except as
to note 12 which is as of
April 30, 1999
F-25
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 APRIL 30, 1998
------------- ---------------
<S> <C> <C>
(RESTATED--
NOTE 6(E))
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 317,344 $ 1,837,779
Accounts receivable:
Trade................................................... 35,181 51,340
Other (note 4(a))....................................... 200,000 --
Due from related parties (note 4(b))...................... 375,315 2,237
Inventory................................................. 44,105 --
Prepaid expenses.......................................... 98,408 133,104
------------ ------------
1,070,353 2,024,460
Deposit on lease............................................ 8,213 8,213
Capital assets (note 5)..................................... 646,529 551,396
------------ ------------
$ 1,725,095 $ 2,584,069
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................. $ 197,768 $ 215,411
Capital tax payable....................................... 7,100 7,100
Due to officer (note 4(c))................................ 73,870 --
------------ ------------
278,738 222,511
Shareholders' equity:
Share capital (note 6).................................... 12,716,774 11,516,774
Special warrants (note 6(d)).............................. 977,082 1,200,000
Commitment related to investment advisory services
(note 6(e))............................................. 75,000 75,000
Deficit accumulated during the development stage.......... (12,322,499) (10,430,216)
------------ ------------
1,446,357 2,361,558
Future operations (note 2)
Litigation (note 9)
Commitments (note 10)
Uncertainty due to the Year 2000 Issue (note 11)
Subsequent events (note 12)
------------ ------------
$ 1,725,095 $ 2,584,069
============ ============
</TABLE>
Approved by the Board:
<TABLE>
<S> <C>
(Signed) (Signed)
Director Director
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
EIGHT MONTHS ENDED ---------------------------------------
DECEMBER 31, 1998 1998 1997 1996
------------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
(RESTATED--
NOTE 6(E))
Revenue:
Sales to unrelated parties................... $ 29,383 $ 26,782 $ 69,748 $ 25,000
Equipment sales to related parties
(note 4(a))................................ 129,150 -- -- --
License fee.................................. -- -- -- 2,972
----------- ----------- ----------- -----------
158,533 26,782 69,748 27,972
Cost of sales (exclusive of amortization and
other costs disclosed separately below):
Sales to unrelated parties................... 20,350 18,178 9,094 382
Equipment sales to related parties
(note 4(a))................................ 120,068 -- -- --
----------- ----------- ----------- -----------
140,418 18,178 9,094 382
----------- ----------- ----------- -----------
Gross margin................................... 18,115 8,604 60,654 27,590
Interest income................................ 41,734 27,897 865 2,254
----------- ----------- ----------- -----------
59,849 36,501 61,519 29,844
Operating expenses:
Bad debts.................................... 30,801 36,349 -- --
Amortization................................. 137,392 152,335 122,674 196,714
Employee wages and benefits.................. 401,843 360,143 176,731 154,969
Filing and transfer fees..................... 12,241 21,907 49,360 5,222
Investment advisory services (note 6(e))..... -- 75,000 -- --
Office, printing and sundry.................. 124,375 167,228 107,575 44,703
Professional fees............................ 356,820 620,845 961,245 255,527
Marketing.................................... 581,764 635,498 418,764 62,131
Facilities................................... 94,705 76,707 72,667 66,606
Research and development, net of government
grants of $25,730 (April 30, 1998, 1997 and
1996--$nil)................................ 353,238 301,258 129,877 --
Foreign exchange loss (gain)................. (141,047) (33,479) 6,139 --
Capital taxes................................ -- 7,100 -- --
----------- ----------- ----------- -----------
1,952,132 2,420,891 2,045,032 785,872
----------- ----------- ----------- -----------
Loss before non-operating items................ 1,892,283 2,384,390 1,983,513 756,028
Value assigned to shares issued to a director
in satisfaction of a royalty claim........... -- 25,000 -- --
Write-down of deferred development costs and
software..................................... -- -- 2,604,115 --
Other items (note 8)........................... -- -- -- 94,269
----------- ----------- ----------- -----------
-- 25,000 2,604,115 94,269
----------- ----------- ----------- -----------
Loss for the period, carried forward........... 1,892,283 2,409,390 4,587,628 850,297
Loss for the period, brought forward........... $ 1,892,283 $ 2,409,390 $ 4,587,628 $ 850,297
Deficit, accumulated during the development
stage, beginning of period................... 10,430,216 8,020,826 3,433,198 2,582,901
----------- ----------- ----------- -----------
Deficit, accumulated during the development
stage, end of period......................... $12,322,499 $10,430,216 $ 8,020,826 $ 3,433,198
=========== =========== =========== ===========
Loss per share................................. $ 0.07 $ 0.11 $ 0.29 $ 0.07
=========== =========== =========== ===========
Weighted average number of shares
outstanding.................................. 26,908,735 21,430,724 15,705,723 11,594,747
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
EIGHT MONTHS ENDED -------------------------------------
DECEMBER 31, 1998 1998 1997 1996
------------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
(RESTATED--
NOTE 6(E))
Cash provided by (used for):
Operations:
Loss for the period........................ $(1,892,283) $(2,409,390) $(4,587,628) $(850,297)
Items not involving the use of cash:
Amortization............................. 137,392 152,335 122,674 196,714
Write-down of deferred development costs
and software........................... -- -- 2,604,115 --
Investment advisory services to be
settled by equity instruments
(note 6(e))............................ -- 75,000 -- --
Changes in non-cash operating working
capital:
Accounts receivable...................... (183,841) 81,475 (86,445) (21,543)
Due from related parties................. (373,078) 173,633 (81,370) (94,500)
Inventory................................ (44,105) 7,651 (7,651) --
Prepaid expenses......................... 34,696 (91,841) 37,684 (78,947)
Accounts payable and accrued
liabilities............................ (17,643) 75,931 (81,941) (8,076)
----------- ----------- ----------- ---------
(2,338,862) (1,935,206) (2,080,562) (856,649)
Financing:
Payable to directors and officers.......... 73,870 (243,233) (60,143) 156,446
Shares issued for cash on exercise of
warrants and options..................... -- 2,458,600 1,907,593 --
Special warrants issued for cash........... 977,082 1,200,000 1,293,750 --
Shares issued for settlement of debt....... -- -- 372,362 --
Performance shares issued for cash......... -- -- 7,500 --
Value assigned to shares issued in
satisfaction of a royalty claim.......... -- 25,000 -- --
Share subscriptions receivable............. -- -- (776,104) 776,104
----------- ----------- ----------- ---------
1,050,952 3,440,367 2,744,958 932,550
Investments:
Purchase of capital assets................. (232,525) (336,803) (3,498) (3,501)
Deferred development costs................. -- -- -- (47,857)
Deposit on lease, net...................... -- -- 8,212 (11,292)
----------- ----------- ----------- ---------
(232,525) (336,803) 4,714 (62,650)
----------- ----------- ----------- ---------
Increase (decease) in cash and cash
equivalents................................ (1,520,435) 1,168,358 669,110 13,251
Cash and cash equivalents, beginning of
period..................................... 1,837,779 669,421 311 (12,940)
----------- ----------- ----------- ---------
Cash and cash equivalents, end of period..... $ 317,344 $ 1,837,779 $ 669,421 $ 311
=========== =========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
1. GENERAL:
The Company was incorporated in 1983 under the Company Act (British
Columbia). Its principal business activity is developing and marketing of
software. During the year ended April 30, 1998, the Company changed its name
from Jot-It! Software Corp. to Sideware Systems Inc.
2. FUTURE OPERATIONS:
At December 31, 1998, the Company is in the business of developing and
marketing computer software technology solutions with a principal focus on the
e-commerce market. To date, the Company has not generated significant revenues
from these operations. For financial reporting purposes, the Company is
considered to be in the development stage and the accompanying financial
statements are those of a development stage enterprise.
As at December 31, 1998, the Company has an accumulated deficit of
$12,322,499 and incurred a loss of $1,892,283 during the eight months ended
December 31, 1998. In addition, the Company is the defendant in a number of
legal proceedings and claims, the maximum potential losses under which are
material (note 9). The Company has filed counterclaims on certain of these
claims. These financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern.
Accordingly, they do not give effect to adjustments that would be necessary
should the Company be unable to continue as a going concern. The Company's
continuance as a going concern is dependent upon its ability to obtain adequate
equity financing, to reach profitable levels of operation and its success in
defending existing legal claims all of which are consistent with management's
intentions. There is no certainty that such conditions can be achieved. In the
next twelve months, management of the Company also intends on applying financing
received to the continued development of products in process and to identify
sales or strategic alliance opportunities with respect to such products. At the
date of these consolidated financial statements significant additional financing
sources have not been identified.
3. SIGNIFICANT ACCOUNTING POLICIES:
(a) BASIS OF PRESENTATION:
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in Canada which, except as set out
in note 13, also comply in all material respects with generally accepted
accounting principles in the United States. The consolidated financial
statements include the accounts of the company, and its subsidiaries, 9050
Investments Ltd., Sideware Corp. (formerly Collaborative Groupware Inc.),
Evergreen International Technology Inc. (which is inactive) and 9123
Investments Ltd., all of which are wholly-owned. In addition, the Company
accounts by the equity method for its one-third interest in Concurrent Adoptive
Recognition Corp. (which is inactive). All material intercompany balances and
transactions have been eliminated.
F-29
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(b) CASH AND CASH EQUIVALENTS:
Cash and cash equivalents have terms to maturity at the date of acquisition
of not more than three months.
(c) CAPITAL ASSETS:
Capital assets are carried at cost less accumulated amortization.
Amortization is calculated annually as follows:
<TABLE>
<CAPTION>
ASSET BASIS RATE
- ----- ------------------ -----------
<S> <C> <C>
Furniture and fixtures....................... declining-balance 20%
Computer equipment........................... declining-balance 30%
Trade show assets............................ declining balance 20%
Computer software............................ straight-line 50%
Leasehold improvements....................... straight-line lease term
</TABLE>
(d) INCOME TAXES:
The Company follows the tax allocation method of accounting. Under this
method, deferred income taxes are provided on timing differences between income
reported for tax purposes and accounting income. In addition, the Company
records those investment tax credits, for which it has reasonable assurance of
realization, as a reduction of the expenses or the cost of capital assets to
which they relate.
(e) RESEARCH AND DEVELOPMENT COSTS:
Research costs are expensed as incurred. Development costs are deferred if
they meet certain specified criteria which relate to the identification of
costs, future benefits and funding requirements. Where development costs do not
meet such criteria, they are expensed as incurred. Government grants, which are
not refundable are disclosed as a reduction of the related cost. Management
periodically assesses the underlying value of deferred development costs by
reference to business plans and estimated future cash flows and records
write-downs where appropriate.
(f) REVENUE RECOGNITION:
The Company recognizes revenue when title has passed to the customer, the
collectability of the consideration is measurable and the Company has no
significant remaining performance obligations. This includes revenues from sales
to resellers which are recorded in accordance with their terms when the
resellers have no right of return and the Company has no other remaining
performance obligations. The Company recognizes sales of equipment, to related
parties, in revenues and related costs in cost of sales as the Company takes
title to and holds the equipment, bearing all of the risks and rewards of
F-30
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
3. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ownership, prior to sale, and bears the same risks as for sales to unrelated
parties after sale, including the risks related to collection of receivables.
(g) FINANCIAL INSTRUMENTS:
The Company accounts for financial instruments at cost. The carrying amounts
reported in the balance sheet for cash, accounts receivable, due from related
parties, accounts payable and accrued liabilities, capital tax payable and due
to directors and officers are estimated by management to approximate their fair
values, due to the short-term maturity of these instruments. The Company has no
outstanding derivative instruments, or other instruments with credit or interest
rate risk.
(h) 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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant areas requiring the use of management estimates
relate to the collectability of the amounts due from related parties. Actual
amounts may differ from these estimates.
(i) LOSS PER SHARE:
Loss per share is calculated based on the weighted average number of shares
outstanding.
Fully diluted loss per share has not been presented as outstanding options,
warrants and special warrants are anti-dilutive.
4. RELATED PARTY TRANSACTIONS:
(a) TRANSACTIONS WITH RELATED PARTIES:
During the period, the Company was charged $120,222 (April 30,
1998--$214,596, April 30, 1997--$440,514, April 30, 1996--$20,840) for services
rendered, $106,880 (April 30, 1998--$178,000; April 30, 1997--$42,000;
April 30, 1996--$20,840) in salaries and $nil (April 30, 1998--$25,000;
April 30, 1997 and 1996--$nil) in settlement of claims by certain directors of
the Company.
The accounts receivable--other includes $200,000 representing the cost of an
interest in a court judgment purchased from a company related through certain
common shareholders and directors. Subsequent to December 31, 1998 the judgment
was reversed on appeal and the $200,000 purchase price was returned to the
Company.
Included in revenues and cost of sales are revenues and related costs
associated with equipment sales to BrainTech, Inc. and Techwest
Management Inc., companies with certain common shareholders and directors to the
Company.
F-31
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
4. RELATED PARTY TRANSACTIONS: (CONTINUED)
(b) DUE FROM RELATED PARTIES:
At December 31, 1998, the Company was owed $375,315 (April 30, 1998--$2,237)
with respect to costs incurred by the Company on behalf of BrainTech Inc. and
TechWest Management Inc., companies with directors in common. These amounts are
unsecured, payable on demand and bear no interest.
(c) DUE TO OFFICER:
The amount due to officer represents advances from and amounts owing for
services provided by a current officer of the Company. These amounts are
unsecured, payable on demand and bear no interest.
5. CAPITAL ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------
ACCUMULATED NET
COST AMORTIZATION BOOK VALUE
---------- ------------ ----------
<S> <C> <C> <C>
Furniture and fixtures..................................... $ 146,602 $ 83,378 $ 63,224
Computer equipment......................................... 517,674 277,913 239,761
Trade show assets.......................................... 111,721 7,448 104,273
Computer software.......................................... 99,352 51,194 48,158
Leasehold improvements..................................... 707,509 516,396 191,113
---------- -------- --------
$1,582,858 $936,329 $646,529
========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, 1998
--------------------------------------
ACCUMULATED NET
COST AMORTIZATION BOOK VALUE
---------- ------------ ----------
<S> <C> <C> <C>
Furniture and fixtures..................................... $ 121,731 $ 75,564 $ 46,167
Computer equipment......................................... 470,167 223,911 246,256
Computer software.......................................... 71,699 34,029 37,670
Leasehold improvements..................................... 686,736 465,433 221,303
---------- -------- --------
$1,350,333 $798,937 $551,396
========== ======== ========
</TABLE>
F-32
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
6. SHARE CAPITAL:
Authorized:
94,148,696 common shares without nominal or par value.
Issued:
<TABLE>
<CAPTION>
NUMBER
OF SHARES AMOUNT
---------- -----------
<S> <C> <C>
Balance, April 30, 1995..................................... 12,719,217 $ 5,451,969
Cancellation of escrow shares (a)........................... (1,926,908) --
---------- -----------
Balance, April 30, 1996..................................... 10,792,309 5,451,969
Shares issued on exercise of special warrants............... 7,683,000 1,754,500
Shares issued on exercise of non-transferable warrants...... 404,500 202,250
Cancellation of shares (a).................................. (3,924,396) --
Shares issued for settlement of debt........................ 1,489,446 372,362
Performance shares issued for cash.......................... 750,000 7,500
Shares issued on exercise of options........................ 123,000 44,280
Less share issue costs...................................... -- (93,437)
---------- -----------
Balance, April 30, 1997, carried forward.................... 17,317,859 7,739,424
Balance, April 30, 1997, brought forward.................... 17,317,859 $ 7,739,424
Shares issued on exercise of non-transferable warrants...... 4,203,100 2,106,500
Shares issued on exercise of options........................ 699,000 352,100
Shares issued to a director in satisfaction of a royalty
claim..................................................... 100,000 25,000
Special warrants converted to shares........................ 4,450,000 1,293,750
---------- -----------
Balance, April 30, 1998..................................... 26,769,959 11,516,774
Special warrants converted to shares........................ 500,000 1,200,000
---------- -----------
Balance, December 31, 1998.................................. 27,269,959 $12,716,774
========== ===========
</TABLE>
Unless otherwise indicated, common shares issued for non-cash consideration
are valued at their market value at date of issuance.
(a) ESCROW SHARES:
Included in issued shares at December 31, 1998 are 1,030,378 shares
(April 30, 1998 and 1997--1,030,378; April 30, 1996--4,931,532) held in escrow
to be released based on a cash flow formula.
F-33
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
6. SHARE CAPITAL: (CONTINUED)
On November 22, 1995, 1,926,908 escrowed shares held by a former director
were cancelled by the Company. During the year ended April 30, 1997, the Company
offered one free trading share in exchange for 6.4 escrow shares held under
safekeeping agreement dated January 11, 1991. As a result, 3,924,396 shares were
cancelled and 726,758 shares were released from escrow.
(b) STOCK OPTIONS:
(i) The following stock options were outstanding at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- -----------------
<S> <C> <C>
885,000.. $0.50 May 1, 2001
267,000.. $0.36 February 12, 2002
40,000.. $0.50 February 12, 2002
93,000.. $0.82 March 26, 2002
740,000.. $0.70 December 16, 2002
555,000.. $0.36 October 6, 2003
</TABLE>
(ii) The following stock options were outstanding at April 30, 1998:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- -----------------
<S> <C> <C>
941,000.. $0.50 May 1, 2001
267,000.. $0.36 February 12, 2002
60,000.. $0.50 February 12, 2002
93,000.. $0.82 March 26, 2002
760,000.. $0.70 December 16, 2002
</TABLE>
Stock options are granted five years prior to the expiry date at exercise
prices that are based on market prices at the date of grant.
(c) SHARE PURCHASE WARRANTS:
(i) The following non-transferable share purchase warrants were outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- ----------------
<S> <C> <C>
450,000.. $0.465 April 16, 1999
3,000,000.. $ 0.43 April 16, 1999
1,500,000.. $ 0.92 October 23, 1999
</TABLE>
F-34
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
6. SHARE CAPITAL: (CONTINUED)
At April 30, 1998, 3,075,400 share purchase warrants were outstanding and
due to expire on November 7, 1998. At December 31, 1998, the Company was
awaiting regulatory approval to have these warrants extended to October 31,
1999, therefore, these warrants are not disclosed as outstanding at
December 31, 1998.
(ii) The following non-transferable share purchase warrants were outstanding
at April 30, 1998:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- ---------------------
<S> <C> <C>
3,075,400.. $0.575 November 7, 1998
450,000.. $0.465 April 16, 1999
3,000,000.. $ 0.43 April 16, 1999
1,000,000.. $ 0.80 To October 23, 1998
$ 0.92 From October 24, 1998
to October 23, 1999
</TABLE>
Share purchase warrants are generally issued two years prior to their expiry
date.
(d) SPECIAL WARRANTS:
(i) At December 31, 1998, 90,000 special warrants were outstanding which can
be exercised in exchange for one common share and one non-transferable
share purchase warrant by November 19, 2000. The non-transferable share
purchase warrants have the following terms:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- ----------------------
<S> <C> <C>
90,000.. $0.32 To November 19, 1999
$0.37 From November 20, 1999
to November 19, 2000
</TABLE>
At December 31, 1998, the Company had announced three special warrant
private placements which were not approved until subsequent to year end. These
private placements represented the issuance of an aggregate of 4,582,805 special
warrants at prices ranging from $0.28 to $0.41 each. Each special warrant under
these placements is exchangeable for one common share and one share purchase
warrant exercisable for a two year period. Agreements relating to 4,072,805 of
the special warrants provide that the number of shares and share purchase
warrants will be increased by 10% if the Company does not file documents to
qualify the shares for resale within a specified period. Management of the
Company believes that the 10% increase will become effective. At December 31,
1998, the Company had received subscriptions aggregating $948,282 towards the
issuance of special warrants under these private placements which is included in
the special warrants balance of $977,082 as at December 31, 1998.
F-35
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
6. SHARE CAPITAL: (CONTINUED)
(ii) At April 30, 1998, 500,000 special warrants were outstanding which can
be exercised in exchange for one common share and one non-transferable
share purchase warrant by October 24, 1998. The non-transferable share
purchase warrants will have the following terms:
<TABLE>
<CAPTION>
NUMBER EXERCISE PRICE
OF SHARES PER SHARE EXPIRY DATE
- --------- -------------- ---------------------
<S> <C> <C>
500,000.. $0.80 To October 23, 1998
$0.92 From October 24, 1998
to October 23, 1999
</TABLE>
(e) COMMITMENT RELATED TO INVESTMENT ADVISORY SERVICES:
At April 30, 1998, the Company had entered into an agreement which, subject
to receipt of regulatory approval, provides for the issuance of 100,000 common
shares and 125,000 share purchase warrants exercisable at $0.60-$0.75 per share
for a two year period. The value assigned to these equity instruments of $75,000
has been expensed during the fiscal year ending April 30, 1998 and deficit,
accumulated during the development stage, as at April 30, 1998 has been
increased by $75,000 from the amount previously reported.
7. INCOME TAXES:
The Company has non-capital losses for income tax purposes of approximately
$10,155,000 which are available to reduce taxable income of future years, the
benefit of which has not been recorded in the accounts and which expire as
follows:
<TABLE>
<S> <C>
1999........................................................ $ 770,000
2000........................................................ 1,285,000
2001........................................................ --
2002........................................................ 650,000
2003........................................................ 3,600,000
2005........................................................ 2,200,000
2006........................................................ 1,650,000
-----------
$10,155,000
===========
</TABLE>
F-36
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
8. OTHER ITEMS:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
EIGHT MONTHS ENDED ------------------------------
DECEMBER 31, 1998 1998 1997 1996
------------------ -------- -------- --------
<S> <C> <C> <C> <C>
Settlement of previously accrued
accounts payable (a).......... $-- $ -- $ -- $(38,731)
Settlement of claim of director
(b)........................... -- -- -- 75,000
Settlement of claim (c)......... -- -- -- 58,000
------- ------- ------- --------
$-- $ -- $ -- $ 94,269
======= ======= ======= ========
</TABLE>
(a) The Company negotiated reductions in amounts previously accrued in accounts
payable by making settlements with creditors for payment of an agreed upon
portion of the amount owing. The amount of discount accepted by the
creditors in settlement was recognized in income by the Company.
(b) A claim by a director for outstanding severance pay and for breach of a
stock option agreement of the Company was accrued during 1996 for $75,000.
In 1997, the claim was settled for 300,000 common shares of the Company at
$0.25 per share.
(c) A claim for unpaid salary relating to a former officer's employment with the
Company in prior years was settled for $58,000 and accrued in 1996. In 1997,
the claim was settled for 232,000 common shares of the Company at $0.25 per
share.
9. LITIGATION:
The Company is engaged in the following litigation:
(a) During the year ended April 30, 1997, a former director of the Company
commenced legal proceedings against the Company for $276,000 alleged to be
owing to him for unpaid consulting fees and funds loaned or advanced on
behalf of the Company. The Company has filed a defense and counterclaim.
(b) During the year ended April 30, 1997, four former directors commenced legal
proceedings against the Company and certain of its present directors
claiming unspecified damages for libel. The Company has filed a defense.
(c) During the year ended April 30, 1996 the Company commenced legal proceedings
against former directors and officers of the Company, companies related to a
former director, and the Company's former solicitors and auditors. The
relief claimed included damages for breach of fiduciary duty and negligence,
an injunction preventing the sale of a computer program named "E-Glue", and
an order setting aside a disputed general security agreement against the
Company's assets. 484117 B.C. Ltd., a company controlled by a former
director, filed a counterclaim alleging that the Company was indebted to it
in the amount of $1,495,594 as at November 4, 1994, and seeking to
F-37
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
9. LITIGATION: (CONTINUED)
enforce the disputed general security agreement. The Company's former
auditors filed a counterclaim for approximately $50,000 alleged to be owing
for professional services.
(d) On January 11, 1999 parties related to a former director commenced
proceedings against the Company claiming damages for abuse of process. The
Company has filed a defense and counterclaim.
While the ultimate outcomes of these claims are uncertain, management of the
Company believes it will be successful in defending these actions and
accordingly no amounts have been provided in these financial statements.
10. COMMITMENTS:
The Company has the following minimum lease payments under operating leases
for its premises:
<TABLE>
<S> <C>
1999........................................................ $ 354,000
2000........................................................ 418,000
2001........................................................ 428,000
2002........................................................ 445,000
2003........................................................ 379,000
----------
$2,024,000
==========
</TABLE>
Pursuant to an agreement with a company with certain common shareholders and
directors of the Company, approximately $100,000 of these amounts are
recoverable for the fiscal years from 1999 to 2002, and approximately $70,000
for the fiscal year ending 2003.
11. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems, which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure, which
could affect an entity's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
F-38
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
12. SUBSEQUENT EVENTS:
(a) STOCK OPTIONS:
Subsequent to December 31, 1998, 221,000 stock options were exercised and
converted to common shares for total cash proceeds of $115,260.
On April 14 and 29, 1999, the Company granted 760,000 and 220,000 stock
options, respectively, all subject to regulatory approval, exercisable at prices
of $1.14 and $1.35 per share until April 2004.
(b) SHARE PURCHASE WARRANTS:
Subsequent to December 31, 1998, 3,612,500 share purchase warrants were
exercised and converted to common shares for total cash proceeds of $1,648,750.
(c) SPECIAL WARRANTS:
Subsequent to December 31, 1998, the Company issued, through private
placements, 9,111,333 special warrants, 4,582,805 of which were announced prior
to year end (see note 6(d)), at prices ranging from $0.28 to $0.51 each, for
total proceeds of $4,076,000. Each special warrant is exercisable into one
common share and one non-transferable share purchase warrant. Each share
purchase warrant will entitle the holder thereof to purchase one common share at
prices ranging from $0.28 to $0.59 for a two year period from the date of
special warrant issuance.
On January 5, 1999, the Company issued 125,000 special warrants at $0.60.
Each special warrant is excercisable into one common share and one
non-transferable share purchase warrant. Each share purchase warrant entitles
the holder thereof to purchase one common share at prices ranging from $0.60 to
$0.75 until January 3, 2001. All special warrants were immediately exercised and
converted to 125,000 common shares and 125,000 share purchase warrants.
Certain special warrants are subject to a 10% increase in the number of
shares and share purchase warrants to be issued upon exercising (see
note 6(d)).
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
These financial statements have been prepared in accordance with Canadian
generally accepted accounting principles ("GAAP") the measurement principles of
which conform, in all material respects, with those of the United States except
as described below:
(a) INCOME TAXES:
Under the asset and liability method of United States Statement of Financial
Accounting Standards No. 109 ("FAS 109"), deferred income tax assets and
liabilities are measured using enacted tax rates for the future income tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases. The application of the provisions of FAS 109 on the Company's balance
sheet would result in no net
F-39
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
difference in deferred taxes from that reported under Canadian GAAP. At
December 31, 1998, the gross deferred tax asset amount relating to a non-capital
loss carry forward was $4,062,300 which is reduced by a valuation allowance of
$4,062,300 as management does not consider that it is more likely than not that
such assets will be realized in the carry forward period. There was no deferred
tax liability.
(b) STOCK-BASED COMPENSATION:
For United States GAAP purposes, the Company has elected to follow the
disclosure-only provisions under Statement of Financial Accounting Standards
No. 123 ("FAS 123"), "Accounting for Stock-Based Compensation", and applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations in accounting for its
stock-based compensation to employees. Accordingly, the Company's stock-based
compensation expense is measured based on the intrinsic value of the option on
the date of grant. FAS 123 requires companies that continue to follow APB 25 to
disclose the impact of applying the fair value method of FAS 123.
Under the intrinsic value method of APB 25, the stock option compensation is
the excess, if any, of the quoted market value of the stock at the measurement
date of the grant over the amount an optionee must pay to acquire the stock.
Accordingly, stock-based compensation for the period ended December 31, 1998,
and the years ended April 30, 1998, 1997 and 1996, for United States GAAP
purposes, would be $44,400, $nil, $19,350 and $nil, respectively.
Had stock compensation expense for the Company's stock option plan been
determined based on the fair value methodology under FAS 123, the Company's net
loss would have increased for the period ended December 31, 1998, and the years
ended April 30, 1998, 1997 and 1996 by $162,016, $315,452, $495,158 and $nil,
respectively. In addition, the Company's loss per share under United States GAAP
for the period ended December 31, 1998, and the years ended April 30, 1998, 1997
and 1996 would have been $0.09, $0.13, $0.17 and $0.15, respectively.
The fair value for the options was estimated using the Black-Scholes option
pricing model with the following assumptions: Expected volatility of 70%,
risk-free interest rate ranging from 5.3% to 6.3%, expected life of five years,
and a 0% dividend yield.
The weighted-average fair value of stock options granted for the period
ended December 31, 1998 and the years ended April 30, 1998, 1997 and 1996, are
$0.291, $0.39, $0.21 and $nil, respectively.
F-40
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------------
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Balances at April 30, 1996......................... -- --
Options granted.................................. 2,308,000 0.49
Options exercised................................ (123,000) 0.36
Options canceled................................. (120,000) 0.50
--------- -----
Balances at April 30, 1997......................... 2,065,000 0.50
Options granted.................................. 800,000 0.70
Options exercised................................ (699,000) 0.50
Options canceled................................. (45,000) 0.68
--------- -----
Balances at April 30, 1998......................... 2,121,000 0.57
Options granted.................................. 555,000 0.36
Options exercised................................ -- --
Options canceled................................. (96,000) 0.67
--------- -----
Balances at December 31, 1998...................... 2,580,000 0.52
========= =====
</TABLE>
F-41
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(c) DEVELOPMENT STAGE ENTERPRISES:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 7, "Development Stage Enterprises", the Company would be defined to be a
development stage enterprise which would require the following additional
disclosures:
(i) The amounts in the consolidated statement of operations and deficit
accumulated during the development stage would be presented on a
cumulative basis from the Company's inception which is summarized as
follows:
<TABLE>
<S> <C>
Revenues.................................................... $ 1,213,427
Cost of sales (exclusive of amortization and other costs
disclosed separately below)............................... 236,047
-----------
977,380
Operating expenses:
Amortization.............................................. 942,199
Bad debts................................................. 261,867
Employee wages and benefits............................... 1,492,055
Filing and transfer fees.................................. 165,472
Investment advisory services.............................. 75,000
Marketing................................................. 2,578,962
Office, printing and sundry............................... 1,442,073
Professional fees......................................... 3,774,871
Research and development.................................. 3,388,488
-----------
14,120,987
-----------
Loss before undernoted...................................... 13,143,607
Other income................................................ (375,355)
-----------
Loss accumulated during the development stage under
U.S. GAAP................................................. $12,768,252
===========
</TABLE>
F-42
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(ii) The amounts in the consolidated statement of cash flows would also be
presented on a cumulative basis from the Company's inception which is
summarized as follows:
<TABLE>
<S> <C>
Operating activities:
Loss accumulated during the development stage............. $(12,768,252)
Items not involving the use of cash:
Amortization............................................ 942,199
Other................................................... 190,336
Changes in non-cash operating working capital items....... (458,019)
------------
(12,093,736)
Investing activities........................................ (749,439)
Financing activities........................................ 13,160,576
------------
Increase in cash during the development stage............... 317,401
Cash, inception of development stage........................ (57)
------------
Cash, December 31, 1998..................................... $ 317,344
============
</TABLE>
(iii) A cumulative statement of stockholders' equity would be presented as
follows:
<TABLE>
<CAPTION>
SHARE CAPITAL RETAINED
------------------------ SPECIAL EARNINGS
NUMBER ASSIGNED WARRANTS (DEFICIT)
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, inception of development stage......... 1,044,719 $ 526,961 $ -- $ 382,003
Shares issued for cash.......................... 400,000 100,000 -- --
Loss for the year............................... -- -- -- (90,976)
---------- ----------- ----------- ------------
Balance, April 30, 1990......................... 1,444,719 626,961 291,027
Shares issued for acquisition of subsidiary..... 6,660,452 1,105,231 -- --
Shares issued as settlement for debt............ 900,000 225,000 -- --
Loss for the year............................... -- -- -- (2,237,102)
---------- ----------- ----------- ------------
Balance, April 30, 1991......................... 9,005,171 1,957,192 -- (1,946,075)
Shares issued for cash.......................... 500,000 200,000 -- --
Shares issued for cash.......................... 220,000 198,000 -- --
Loss for the year............................... -- -- -- (431,506)
---------- ----------- ----------- ------------
Balance, April 30, 1992......................... 9,725,171 2,355,192 -- (2,377,581)
Shares issued for cash.......................... 783,000 567,250 -- (781,817)
Loss for the year............................... -- -- -- --
---------- ----------- ----------- ------------
Balance, April 30, 1993......................... 10,508,171 2,922,442 -- (3,159,398)
</TABLE>
F-43
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
<TABLE>
<CAPTION>
SHARE CAPITAL RETAINED
------------------------ SPECIAL EARNINGS
NUMBER ASSIGNED WARRANTS (DEFICIT)
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Shares issued as a finders fee.................. 53,881 92,675 -- --
Shares issued for cash.......................... 1,588,550 1,671,710 -- --
Shares issued as settlement for debt............ 406,450 705,141 -- --
Loss for the year............................... -- -- -- (2,256,961)
---------- ----------- ----------- ------------
Balance, April 30, 1994......................... 12,557,052 5,391,968 -- (5,416,359)
Shares issued as settlement for debt............ 162,165 60,001 -- --
Earnings for the year........................... -- -- -- 277,200
---------- ----------- ----------- ------------
Balance, April 30, 1995......................... 12,719,217 5,451,969 -- (5,139,159)
Cancellation of escrow shares................... (1,926,908) -- -- --
Loss for the year............................... -- -- -- (898,154)
---------- ----------- ----------- ------------
Balance, April 30, 1996, carried forward........ 10,792,309 5,451,969 -- (6,037,313)
Balance, April 30, 1996, brought forward........ 10,792,309 $ 5,451,969 $ -- $ (6,037,313)
Special warrants issued......................... -- -- 3,250,500 --
Shares issued on exercise of special warrants... 7,683,000 1,754,500 (1,754,500) --
Shares issued on exercise of non-transferable
warrants...................................... 404,500 202,250 (202,250) --
Cancellation of shares.......................... (3,924,396) -- -- --
Shares issued as settlement for debt............ 1,489,446 372,362 -- --
Performance shares issued for cash.............. 750,000 7,500 -- --
Shares issued on exercise of options............ 123,000 44,280 -- --
Share issue costs............................... -- (93,437) -- --
Loss for the year............................... -- -- -- (2,002,863)
---------- ----------- ----------- ------------
Balance, April 30, 1997......................... 17,317,859 7,739,424 1,293,750 (8,040,176)
Shares issued on exercise of non-transferable
warrants...................................... 4,203,100 2,106,500 -- --
Shares issued on exercise of options............ 699,000 352,100 -- --
Shares issued in satisfaction of a royalty
claim......................................... 100,000 25,000 -- --
Special warrants converted to shares............ 4,450,000 1,293,750 (1,293,750) --
Special warrants issued......................... -- -- 1,200,000 --
Loss for the year............................... -- -- -- (2,409,390)
---------- ----------- ----------- ------------
Balance, April 30, 1998......................... 26,769,959 11,516,774 1,200,000 (10,449,566)
Shares issued on exercise of special warrants... 500,000 1,200,000 (1,200,000) --
Special warrant subscriptions................... -- -- 997,082 --
Loss for the period............................. -- -- -- (1,936,683)
---------- ----------- ----------- ------------
Balance, December 31, 1998...................... 27,269,959 $12,716,774 $ 997,082 $(12,386,249)
========== =========== =========== ============
</TABLE>
F-44
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
Identification as a development stage enterprise would not impact the
measurement principles applied.
(d) RESEARCH AND DEVELOPMENT:
For United States GAAP purposes, Statement of Financial Accounting Standards
No. 2, "Research and Development Expenditures", requires development costs to be
expensed as incurred. Accordingly:
- Deferred development costs of $47,857 which were capitalized during the
year ended April 30, 1996 would be expensed as incurred;
- Prior to the year ended April 30, 1996, the Company capitalized acquired
intellectual property under development with an assigned value of
$1,921,500 from the acquisition of a subsidiary which would be expensed as
incurred;
- Deferred development costs of $634,758 which were capitalized prior to the
year ended April 30, 1996 would be expensed as incurred under FAS 86;
- As a result, the deferred development costs of $2,604,115 that were
written off in the year ended April 30, 1997 under Canadian GAAP would
have been expensed in prior years under United States GAAP.
(e) LOSS PER SHARE:
For United States GAAP purposes, 1,030,378 shares held in escrow as at
December 31, 1998 (April 30, 1998 and 1997 - 1,030,378) are considered
contingently issuable. Accordingly, these shares have been excluded from the
weighted average number of shares outstanding for the purposes of calculating
loss per shares amounts. To the extent that common shares held in escrow are
releasable based on the achievement of performance measures and such shares are
held by employees of the Company, compensation expense will be recognized under
United States GAAP at the date the shares became releasable for the difference
between the market value of the shares at that date and the nominal
consideration originally paid.
F-45
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
(f) SUMMARY OF UNITED STATES GAAP ADJUSTMENTS:
The following table sets forth the effect on the loss for the period and
loss per share:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
EIGHT MONTHS ENDED --------------------------------------
DECEMBER 31, 1998 1998 1997 1996
------------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
Loss determined under Canadian
GAAP......................... $ 1,892,283 $ 2,409,390 $ 4,587,628 $ 850,297
Expenses relating to
stock-based compensation..... 44,400 -- 19,350 --
Difference in accounting for
deferred development costs
and software, including
reversal in 1997 of
write-down recorded under
Canadian GAAP for costs that
would have been expensed in a
prior year under United
States GAAP.................. -- -- (2,604,115) 47,857
----------- ----------- ----------- ----------
Loss determined under United
States GAAP.................. $ 1,936,683 $ 2,409,390 $ 2,002,863 $ 898,154
=========== =========== =========== ==========
Loss determined under United
States GAAP.................. $ 1,936,683 $ 2,409,390 $ 2,002,863 $ 898,154
=========== =========== =========== ==========
Weighted average number of
shares outstanding, United
States GAAP.................. 25,878,357 20,400,346 14,675,347 5,860,951
=========== =========== =========== ==========
Loss per share under United
States GAAP.................. $ 0.07 $ 0.12 $ 0.14 $ 0.15
=========== =========== =========== ==========
</TABLE>
There would be no impact from the above adjustments on total assets or
shareholders' equity reported under Canadian GAAP at December 31, 1998 and
April 30, 1998.
(g) STATEMENT OF CASH FLOWS:
The settlement of debt through issue of $372,362 of common shares in the
year ended April 30, 1997 would be excluded from operating and financing
transactions in a statement of cash flows under United States GAAP. The value
assigned to shares issued in satisfaction of a royalty claim of $25,000 in the
year ended April 30, 1998 would also be excluded from operating and financing
transactions under United States GAAP. The bank indebtedness would be reflected
as a financing item rather than included with cash under United States GAAP.
F-46
<PAGE>
SIDEWARE SYSTEMS INC.
(A Company in the Development Stage)
CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
EIGHT MONTHS ENDED DECEMBER 31, 1998
YEARS ENDED APRIL 30, 1998, 1997 AND 1996
13. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: (CONTINUED)
As a result, cash flows from operating, financing and investing activities
under United States GAAP would be presented as follows:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
EIGHT MONTHS ENDED -------------------------------------
DECEMBER 31, 1998 1998 1997 1996
------------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Cash flows from:
Operating activities.......... $(2,338,862) $(1,910,207) $(1,708,200) $(856,649)
Financing activities.......... 1,050,952 3,415,367 2,371,596 919,610
Investing activities.......... (232,525) (336,802) 4,714 (62,650)
----------- ----------- ----------- ---------
Increase (decrease) in cash..... $(1,520,435) $ 1,168,358 $ 668,110 $ 311
=========== =========== =========== =========
</TABLE>
14. COMPARATIVE FIGURES:
Certain comparative figures have been reclassified to conform to the
financial statement presentation adopted in the current year.
F-47
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION
WHERE SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information........................ 2
Enforcement of Civil Liabilities.............. 2
Conventions and Currency of Presentation...... 2
Prospectus Summary............................ 3
Risk Factors.................................. 5
Cautionary Notice Regarding Forward
Looking Statements.......................... 12
Use of Proceeds............................... 13
Exchange Rates................................ 13
Dividend Policy............................... 14
Capitalization................................ 15
Selected Consolidated Financial Data.......... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 18
Business...................................... 25
Management.................................... 41
Principal Shareholders........................ 45
Certain Transactions.......................... 46
Description of Capital Stock.................. 48
Certain Tax Considerations.................... 53
Selling Shareholders.......................... 55
Plan of Distribution.......................... 56
Legal Matters................................. 56
Experts....................................... 56
Index to Financial Statements................. F-1
</TABLE>
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
SIDEWARE SYSTEMS INC.
5,493,666 COMMON SHARES
---------------------
PROSPECTUS
---------------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We will not receive any proceeds from the sale of Shares or Warrant Shares
by the Selling Shareholders.
We will pay substantially all the expenses incident to the registration,
offering and sale of the Shares and Warrant Shares to the public by the Selling
Shareholders other than fees, discounts and commissions of underwriters, dealers
or agents, if any, and transfer taxes. Those expenses are estimated as follows:
<TABLE>
<CAPTION>
AMOUNT(1)
---------------
(STATED IN US$)
<S> <C>
SEC Registration Fee........................................ $ 3,000
Legal Fees and Expenses..................................... 75,000
Accounting Fees and Expenses................................ 30,000
Blue Sky Qualification Fees and Expenses.................... 25,000
Printing.................................................... 15,000
Transfer Agent and Registrar Fees........................... Nil
Miscellaneous Expenses and Qualification.................... 12,000
--------
Total................................................... $160,000
========
</TABLE>
- ------------------------------
(1) All amounts have been estimated except the SEC registration fee. All of the
above expenses will be payable by us.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Articles of Incorporation of the Company, subject to the
provisions of the Company Act British Columbia (the "Act"), the directors shall
cause the Company to indemnify a director or former director of the Company and
the directors may cause the Company to indemnify a director or former director
of a corporation of which the Company is or was a shareholder and the heirs and
personal representatives of any former director against all costs, charges and
expenses, including an amount to settle an action or satisfy a judgment,
actually and reasonably incurred by him or them including an amount paid to
settle an action or satisfy a judgment in a civil, criminal or administrative
action or proceeding to which he is or they are made a party by reason of his
being or having been a director including any action brought by the Company.
Each director of the Company on being elected or appointed shall be deemed to
have contracted with the Company on the terms of this indemnity.
Subject to the provisions of the Act, the directors may cause the Company to
indemnify any officer, employee or agent of the Company or of a corporation of
which the Company is or was a shareholder (notwithstanding that he is also a
director) and his heirs and personal representatives against all costs, charges
and expenses whatsoever incurred by him or them and resulting from his acting as
an officer, employee or agent of the Company or the corporation. In addition,
the Company shall indemnify the Secretary or an Assistant Secretary of the
Company (if he shall not be a full-time employee of the Company and
notwithstanding that he is also a director) and his respective heirs and legal
representatives against all costs, charges and expenses whatsoever incurred by
him or them and arising out of the functions assigned to the Secretary by the
Act or Articles.
The failure of a director or officer of the Company to comply with the
provisions of the Act or of the Memorandum or the Articles shall invalidate any
indemnity to which he is entitled.
The directors may cause the Company to purchase and maintain insurance for
the benefit of any person who is or was serving as a director, officer, employee
or agent of the Company or as a director,
II-1
<PAGE>
officer, employee or agent of any corporation of which the Company is or was a
shareholder and his heirs or personal representatives against any liability
incurred by him as a director, officer, employee or agent.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(i) Effective September 10, 1996, the Company issued 6,750,000 Special
Warrants at a price of $0.25 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within one year, without additional
consideration, into 1.1 units, with each unit comprised of one share and one
non-transferable share purchase warrant. Each share purchase warrant would
entitle the holder thereof to purchase one additional share of the Company
for a period of two years at a price of $0.50 per share for the first year
and $0.575 per share in the second year. The Special Warrants were exercised
on November 8, 1996. The purchasers of Special Warrants included the
following officers and directors of the Company:
<TABLE>
<S> <C>
Owen Jones............................. 400,000 Special Warrants
Grant Sutherland....................... 1,318,000 Special Warrants
Peter Kozicki.......................... 40,000 Special Warrants
</TABLE>
In addition, Paul Hildebrand and Alder Enterprises Ltd. acquired,
respectively, 100,000 and 200,000 Special Warrants. 100,000 of the Special
Warrants were issued to Gold Capital Securities Ltd. as consideration for
acting as the Company's sponsor in respect of its return to trading on the
Canadian Venture Exchange.
(ii) Effective September 10, 1996, the Company issued 1,489,446 shares
to settle certain debts of the Company. The persons receiving the shares
included the following directors and officers of the Company:
<TABLE>
<S> <C>
Owen Jones........................................... 300,000 shares
Grant Sutherland..................................... 463,600 shares
Edward White......................................... 164,780 shares
</TABLE>
(iii) Effective September 10, 1996, the Company issued 750,000
performance shares at a price of $0.01 per share. The persons receiving the
shares included the following directors and officers of the Company:
<TABLE>
<S> <C>
Owen Jones........................................... 275,000 shares
Grant Sutherland..................................... 275,000 shares
Edward White......................................... 25,000 shares
</TABLE>
In addition, Paul Hildebrand received 125,000 of the performance shares.
The performance shares will be held in escrow to be released, pro rata
to the holders of performance shares, on the basis of one share for each
$0.18 in cumulative cash flow of the Company, based on audited financial
statements.
"Cumulative cash flow" for this purpose means, at any time, the
aggregate cash flow of the Company up to that time, net of any negative cash
flow.
"Cash flow" means net income or loss before tax, adjusted to add back
the following expenses:
(a) depreciation;
(b) amortization of goodwill and deferred research and development
costs, excluding general and administrative costs;
II-2
<PAGE>
(c) expensed research and development costs, excluding general and
administrative costs; and
(d) any other amounts permitted or required by the CVE.
As at the date of the Registration Statement, the Company has not had
any Cumulative Cash Flow for purposes of the escrow agreement, and none of
the 750,000 performance shares have been released from escrow. Any
performance shares not released by September 10, 2001 will be subject to
cancellation.
(iv) Effective October 30, 1996, the Company issued 268,000 Special
Warrants at a price of $0.25 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within one year, without additional
consideration, into one unit comprised of one share and one non-transferable
share purchase warrant. Each share purchase warrant would entitle the holder
thereof to purchase one additional share of the Company for a period of two
years at a price of $0.50 per share in the first year or $0.575 in the
second year. The Special Warrants were exercised on November 8, 1996.
(v) Effective April 14, 1997, the Company issued 450,000 Special
Warrants at a price of $0.375 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within one year, without additional
consideration, into one unit comprised of one share and one non-transferable
share purchase warrant. Each share purchase warrant would entitle the holder
thereof to purchase one additional share of the Company for a period of two
years at a price of $0.465 per share. The Special Warrants were exercised on
various dates on or before April 14, 1998. The purchasers of the Special
Warrants included the following directors and officers of the Company:
<TABLE>
<S> <C>
Grant Sutherland............................ 340,000 Special Warrants
</TABLE>
(vi) Effective April 14, 1997, the Company issued 3,000,000 Special
Warrants at a price of $0.375 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within one year, without additional
consideration, into one unit comprised of one share and one non-transferable
share purchase warrant. Each share purchase warrant would entitle the holder
thereof to purchase one additional share of the Company for a period of two
years at a price of $0.375 per share for the first year and $0.43 per share
in the second year. The Special Warrants were exercised on various dates on
or before April 14, 1998. The purchasers of the Special Warrants included
the following directors and officers of the Company:
<TABLE>
<S> <C>
Owen Jones............................... 1,000,000 Special Warrants
Grant Sutherland......................... 300,000 Special Warrants
</TABLE>
In addition, Paul Hildebrand and Alder Enterprises Ltd. acquired,
respectively, 35,000 and 70,000 Special Warrants.
(vii) Effective August 7, 1997, the Company issued 100,000 shares to Ian
Lovejoy, then a director of the Company, in consideration of the surrender
to the Company of certain royalty rights held by Mr. Lovejoy.
(viii) Effective October 24, 1997, the Company issued 1,500,000 Special
Warrants at a price of $0.80 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within one year, without additional
consideration, into one unit comprised of one share and one non-transferable
share purchase warrant. Each share purchase warrant would entitle the holder
thereof to purchase one additional share of the Company for a period of two
years at a price of $0.80 per share for the first year and $0.92 per share
in the second year. The Special Warrants
II-3
<PAGE>
were exercised on various dates on or before October 24, 1998. The
purchasers of the Special Warrants included the following directors and
officers of the Company:
<TABLE>
<S> <C>
Owen Jones................................. 200,000 Special Warrants
Grant Sutherland........................... 500,000 Special Warrants
</TABLE>
In addition, Paul Hildebrand and Alder Enterprises Ltd. acquired,
respectively, 50,000 and 100,000 Special Warrants.
(ix) Effective December 28, 1998,, the Company issued 500,000 Special
Warrants at a price of $0.35 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within a period of one year, without
additional consideration, into 1.1 units, with each unit comprised of one
share and one non-transferable share purchase warrant. Each share purchase
warrant would entitle the holder thereof to purchase one additional share of
the Company for a period of two years at a price of $0.35 per share for the
first year and $0.40 per share in the second year. The Special Warrants were
sold through Bolder Capital Corp. as broker. In consideration for acting as
broker, Bolder Capital Corp. received a cash commission of $13,125, as well
as 125,000 share purchase warrants.
(x) Effective January 5, 1999, the Company issued 125,000 Special
Warrants to Golden Capital Securities Ltd. in consideration for services
provided by Golden Capital Securities Ltd. in connection with a proposed
prospectus filing by the Company during 1997. Each Special Warrant was
exercisable, without further consideration into one unit consisting of one
share and one share purchase warrant. Each share purchase warrant will
entitle the holder thereof to purchase one additional share for a period of
two years at a price of $0.60 in the first year and $0.75 in the second
year. The Special Warrants were exercised on June 4, 1999.
(xi) Effective January 14, 1999, the Company issued to James Speros, a
director of the Company, 600,000 Special Warrants at a price of $0.28 per
Special Warrant. Each Special Warrant was exercisable by its holder at any
time within one year, without additional consideration, into one unit
comprised of one share and one non-transferable share purchase warrant. Each
share purchase warrant would entitle the holder thereof to purchase one
additional share of the Company for a period of two years at a price of
$0.28 per share for the first year and $0.32 per share in the second year.
The Special Warrants were exercised on June 4, 1999.
(xii) Effective January 7, 1999, the Company issued 1,432,805 Special
Warrants at a price of US$0.265 per Special Warrant. Each Special Warrant
was exercisable by its holder at any time within one year, without
additional consideration, into 1.1 units, with each comprised of one share
and one non-transferable share purchase warrant. Each share purchase warrant
would entitle the holder thereof to purchase one additional share of the
Company for a period of two years at a price of US$0.265 per share for the
first year and US$0.305 per share in the second year. The Special Warrants
were exercised on June 4, 1999.
(xiii) Effective November 19, 1998, (but with delivery in January 1999),
the Company issued to Paul Hildebrand, the Company's Secretary, 90,000
Special Warrants at a price of $0.32 per Special Warrant. Each Special
Warrant was exercisable by its holder at any time within a period of one
year, without additional consideration, into one unit comprised of one share
and one non-transferable share purchase warrant. Each share purchase warrant
would entitle the holder thereof to purchase one additional share of the
Company for a period of two years from the date of issuance of the Special
Warrants at a price of $0.32 per share for the first year and $0.37 per
share in the second year. The Special Warrants were exercised on June 4,
1999.
(xiv) Effective January 7, 1999, the Company issued 2,050,000 Special
Warrants at a price of $0.35 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within a period of one year, without
additional consideration, into 1.1 units, with each unit comprised of
II-4
<PAGE>
one share and one non-transferable share purchase warrant. Each share
purchase warrant would entitle the holder thereof to purchase one additional
share of the Company for a period of two years at a price of $0.35 per share
for the first year and $0.40 per share in the second year. The Special
Warrants were exercised on June 4, 1999. The purchasers of the Special
Warrants included the following directors and officers of the Company:
<TABLE>
<S> <C>
Owen Jones................................. 250,000 Special Warrants
Grant Sutherland........................... 297,500 Special Warrants
Peter Kozicki.............................. 50,000 Special Warrants
</TABLE>
In addition, Paul Hildebrand and Alder Enterprises Ltd. acquired,
respectively, 30,000 and 277,500 Special Warrants.
(xv) Effective April 7, 1999, the Company issued 1,528,527 Special
Warrants at a price of $US0.333 per Special Warrant. Each Special Warrant
was exercisable by its holder at any time within a period of one year the
Special Warrants, without additional consideration, into one unit comprised
of one share and one non-transferable share purchase warrant. Each share
purchase warrant would entitle the holder thereof to purchase one additional
share of the Company for a period of two years at a price of US$0.333 per
share for the first year and US$0.383 per share in the second year. The
Special Warrants were exercised on June 4, 1999.
(xvi) Effective April 14, 1999, the Company issued 3,000,000 Special
Warrants at a price of $0.55 per Special Warrant. Each Special Warrant was
exercisable by its holder at any time within a period of one year, without
additional consideration, into one unit comprised of one share and one
non-transferable share purchase warrant. Each share purchase warrant would
entitle the holder thereof to purchase one additional share of the Company
for a period of two years at a price of $0.55 per share for the first year
and $0.63 per share in the second year. The Special Warrants were exercised
on June 4, 1999. The purchasers of the Special Warrants included the
following directors and officers of the Company:
<TABLE>
<S> <C>
Owen Jones............................... 1,000,000 Special Warrants
Grant Sutherland......................... 1,000,000 Special Warrants
Jim Speros............................... 1,000,000 Special Warrants
</TABLE>
(xvii) Effective July 5, 1999, the Company issued 250,000 shares to
National Securities Corp. of Chicago, Illinois pursuant to a Financial
Advisory and Consulting Agreement.
(xviii) Effective September 14, 1999, the Company issued 2,746,833 units
at a price of US$1.64 per unit. Each unit consisted of one share and one
share purchase warrant. Each share purchase warrant entitles the holder
thereof to purchase one additional share of the Company for a period of two
years at a price of US$1.64 in the first year or US$1.89 in the second year.
The Company paid commissions US$133,000 to Heideman Law Group, P.C. and
Venture Consultants, LLC and US$13,120 to Bolder Investment Partners Ltd. in
connection with the private placement.
(xix) Up to November 30, 1999 the Company has issued 2,132,500 shares on
the exercise of incentive stock options. See "DESCRIPTION OF CAPITAL
STOCK--Share Capital."
(xix) Up to November 30, 1999 the Company has issued 11,336,329 shares on
the exercise of share purchase warrants as follows:
(a) 3,000,000 shares at $0.43 per share;
(b) 450,000 shares at $0.465 per share;
(c) 1,500,000 shares at $0.92 per share;
(d) 478,918 shares at US$0.333 per share;
II-5
<PAGE>
(e) 829,400 shares at US$0.265 per share; and
(f) 988,500 shares at $0.35 per share; and
(g) 4,299,600 shares at $0.50 per share.
See "DESCRIPTION OF CAPITAL STOCK--Share Capital."
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following is a complete list of Exhibits filed as part of this
Registration Statement and which are incorporated herein.
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<C> <S>
3.1 (1) Memorandum of Incorporation dated March 30, 1983
3.2 (1) Articles of Incorporation dated March 30, 1983
3.3 (1) Special Resolution dated January 12, 1984
3.4 (1) Special Resolution dated June 15, 1989
3.5 (1) Special Resolution dated September 27, 1990
3.6 (1) Special Resolution dated December 18, 1996
3.7 (1) Articles of Incorporation
3.8 (1) Special Resolution dated January 29, 1998
4.1 (1) Escrow Agreement dated June, 1996
4.2 (1) Agreement dated November 23, 1998 between the Company and
certain warrant holders of the Company
4.3 (1) Agreement dated April 14, 1999 between the Company and
certain warrant holders of the Company
4.4 (1) Agreement dated October 28, 1999 between the Company and
certain warrant holders of the Company
5.1 (1) Legal Opinion of Dale W. Wilcox, A Law Corporation
10.1 (1) Operating Agreement between the Company and
BrainTech, Inc., dated October 18, 1996
10.2 (1) Software Development and License Agreement dated
September 20, 1999 between the Company and
BrainTech, Inc.
10.3 (1) Software Development License between the Company and
Sideware International SRL effective August 27, 1999
10.4 (1) Research and Development Cost Sharing Agreement between the
Company and Sideware International SRL effective
August 27, 1999
10.5 (1) Distribution and Sales Agreement between the Company and
Sideware Corp. effective January 1, 1999
10.6 (1) Assignment of Lease and Modification of Lease Agreement
dated August 17, 1998 between HOOPP Realty Inc., Techwest
Management Inc., Sideware Systems Inc., and
BrainTech, Inc.
10.7 (1) Lease Agreement dated January 25, 1999 between Sideware
Corp. and Elden Investments, LLC with Addendum dated
February 8, 1999
10.8 (1) Agreement between the Company and IBM for participation in
the Enterprise Growth Opportunity program
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ------ -------
<C> <S>
10.9 (1) Reseller agreement between the Company and Enterprise Soft
10.10(1) Software license agreement between the Company and ICEsoft
AS
10.11(1) Lease effective as of July 1, 1999 between the Company,
Techwest Management Ltd., BrainTech, Inc. and Pacific
Centre Leaseholds Ltd.
10.12(1) Assignment Agreement effective as of July 1, 1999 between
the Company, Techwest Management Ltd., BrainTech, Inc.,
and SJM Management Ltd.
10.13(1) Cost Sharing and Allocation Agreement dated October 29, 1999
between the Company and BrainTech, Inc.
10.14(1) Agreement between the Company and Advanced Contact
Solutions Inc.
10.15(1) Contract Agreement No. SDW001 between the Company and
Science Applications International Corp.
10.16 IBM International Independent Software Vendor Agreement
10.17 Distribution and Sales Agreement between Sidware Corp. and
Sideware International SRL
21.1 (1) List of Subsidiaries
23.1 (1) Consent of KPMG LLP
27.1 Financial Data Schedule for the nine month period ended
September 30, 1999
27.2 (1) Financial Data Schedule for the eight month period ended
December 31, 1998
27.3 (1) Financial Data Schedule for the fiscal year ended April 30,
1998
</TABLE>
- ------------------------------
(1) Exhibit already on file.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To file a post-effective amendment to the Registration Statement to
include any financial statements required by Rule 3-19.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form F-1 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Vancouver, British Columbia, on December 15, 1999.
<TABLE>
<S> <C> <C>
SIDEWARE SYSTEMS INC.
By: "W. GRANT SUTHERLAND"
---------------------------------------
W. Grant Sutherland
CHAIRMAN OF THE BOARD OF DIRECTORS
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director, Chairman of the Board of
* Directors, Principal Financial
--------------------------------- Officer, Principal Accounting December 15, 1999
W. Grant Sutherland Officer
* President, Chief Executive Officer
--------------------------------- and Director (Principal Executive December 15, 1999
Owen L.J. Jones Officer)
*
--------------------------------- Director December 15, 1999
Peter Kozicki
*
--------------------------------- Director December 15, 1999
Edward A. White
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ W. GRANT SUTHERLAND
--------------------------------------
ATTORNEY IN FACT
</TABLE>
II-8
<PAGE>
We welcome you as an IBM Independent Software Vendor (ISV). This Profile
covers the details of your approval.
IBM International Business Machines Corporation and its Subsidiaries
(including Lotus Development Corporation, and Tivoli Systems, Inc.).
By signing below, each of us agrees to the terms of the following
(collectively called the "Agreement"):
this Profile; and
the General and Relationship Terms; and if applicable,
the Replicated License Attachment; and
the Exhibit.
This Agreement and its applicable transaction documents are the complete
agreement regarding this relationship and replace any prior oral or written
communication between us. Once this Profile is signed, any reproduction of
this Agreement for a transaction document made by reliable means (for
example, photocopy or facsimile) is considered an original, to the extent
permissible under applicable law and all activities you perform under this
Agreement are subject to is. If you have not already signed an Agreement for
Exchange or Confidential Information (AECI), you signature on this Profile
includes your acceptance of the AECI (including the supplemental terms in the
General and Relationship terms section of this Agreement).
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
AFTER SIGNING THIS PROFILE, PLEASE RETURN A COPY TO THE IBM ADDRESS SHOWN BELOW
---------------------------------------------------------------------------------------------------------
<S> <C>
Agreement Start Date: 12/10/99 Agreement End Date: 12/10/2000
----------------------- ---------------------------
(month/day/year)
Revised Profile (yes/no): NO Date received by IBM:
------------------------ --------------------------
Agreed to: SIDEWARE SYSTEMS INC. Agreed to IBM CORPORATION
----------------------------------- ------------------------------------
By: "OWEN JONES" By: "RAYMOND YBARRA"
----------------------------------- ------------------------------------
Authorized Signature Authorized Signature
Name: OWEN JONES Name: RAYMOND L. YBARRA
----------------------------------- ------------------------------------
Type or print Type or print
Title: PRESIDENT, CEO, AND DIRECTOR Title: WW CUSTOMER SOLUTIONS PROCUREMENT
----------------------------------- ------------------------------------
Type or print the title of individual authorized to sign Type or print the title of individual authorized to sign
ISV Address: IBM Address:
102 - 930 West 1st Street 11400 Burnet Rd.
North Vancouver, B.C. V7P 3N4 Austin, TX 78758 USA
Canada
Agreement No. AUS-FWAS-3XT628
</TABLE>
<PAGE>
-2-
APPROVED RELATIONSHIP
For each approved element of our relationship, each of us agrees to the terms as
specified in the Agreement.
<TABLE>
<CAPTION>
IBM
Applicable Funding
APPROVED RELATIONSHIP ELEMENT Yes/No Maximum
----------------------------- ---------- -------
<S> <C> <C>
Development Assistance (1) NO 0
Marketing Assistance (1) YES 45,009
The cumulative total of IBM funding will not exceed: 45,009
------
Replicated Programs (1,2,3) NO
Initial Purchase (1,2,3) NO
Revenue Commitment (1,2,3) NO
</TABLE>
Note: 1) Terms of the Agreement that reference this
Relationship Element only apply to you when "Yes" is
specified as applicable.
2) The Replicated License Attachment and Exhibit are
included with the Agreement.
3) The Replicated Program Element, Initial Purchase
Element and Revenue Commitment Element are mutually
exclusive. All may be specified as "NO". Only one
element may be specified as "YES", if applicable.
You agree to develop and make generally available an Offering which is a new
product or a new version of your product (specify the name of your product):
Dr. Bean
Schedule
Date
You agree to the following schedule date: (Month/Day/Year)
Offering General Availability 12/10/99
VOLUME AND REVENUE COMMITMENTS FOR PROGRAMS (PROVIDE INFORMATION FOR EACH
PROGRAM) You agree to the following Program volume and revenue commitments for
the period beginning with the Offering GA specified above:
<TABLE>
<CAPTION>
Program Part Program Description 1 2 3 4
Number Total Total First 12 First 12 Months
Volume Revenue Months Revenue
Volume
<S> <C> <C> <C> <C> <C>
41L1662 DB2 Univ. Database 55 32,967.00 55 32,967.00
Workgroup Ed. V6.1
English Prog. Pack w/1
Svr Inst & 1 Usr
41L1668 DBS Universal 55 99,000.00 55 99,000.00
Ed. V6.1 - Internet
Access for 1 Procr
41L1685 DBS Universal 6 45,180.00 6 45,180.00
Database Enterprise
</TABLE>
<PAGE>
-3-
IBM INTERNATIONAL INDEPENDENT SOFTWARE VENDOR AGREEMENT - PROFILE
<TABLE>
<S> <C> <C> <C> <C> <C>
Edition V6.1 English
Prog Pk
41L3278 DB2 Universal 2 15,000.00 2 15,000.00
Database Enterprise
Ed. V6. 1 - 1 Addit'l
Proc Ent
41L0627 Websphere Application 54 25,758.00 54 25,758.00
Server V3.0 Std. Ed
128b NLV (N.A.M)
41L0624 WebS Appl. Svr. v3.0 1 4,485.00 1 4,485.00
Adv 128, Server/First
Processor Install
Authorizations
41L0621 Websphere Appl.
Server v3.0 Adv. 128b
w/1 Server/First
Processor Install
04L18300 MQSeries for Windows
NT, v5.1 Pgm Pkg
94H5654 1 Capacity Unit Pack 2 1,800.00 2 1,800.00
41L1741 Net.Com 3.2 Start Prog
Pkg. NT w/1 1 Svr/First
Proc Instl & Web Site
Eng NE
Total 182 250,048.80 182 250,048.80
</TABLE>
MISCELLANEOUS TERMS AND CONDITIONS (SPECIFY IF APPLICABLE):
1. IBM will review your progress against the revenue commitment in this
Agreement on March 31, 2000 and June 30, 2000. As of these dates, you
should have cumulatively reported $19,000 and $62,000 respectively, of
IBM Software influenced by the sale of Dr. Bean.
2. IBM will review the progress of the integration testing of Dr. Bean; i)
with Websphere Application Server version 3 and DB@ UDB version 6 on
Jan. 31, 2000; and, (ii) with Websphere Application Server version 3
Advanced Edition using Enterprise Java Beans (EJB) on March 31, 2000.
3. If you have not met any of the above targets, IBM may terminate this
Agreement for cause.
<PAGE>
-4-
IBM INTERNATIONAL INDEPENDENT SOFTWARE VENDOR AGREEMENT -
GENERAL AND RELATIONSHIP TERMS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION HEADING PAGE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Our Relationship 5
1. Definition 5
2. Structure, Changes and Ending the Agreement 5
3. Responsibilities 6
4. Status Change 9
5. Confidential Information 9
6. Trademarks, Patents and Copyrights 9
7. Liability 9
8. Electronic Communications 9
9. Geographic Scope 9
10. Governing Law 9
</TABLE>
IBM INTERNATIONAL INDEPENDENT SOFTWARE VENDOR AGREEMENT -
GENERAL AND RELATIONSHIP TERMS
OUR RELATIONSHIP
Under the terms of this Agreement, you will develop and market an
Offering which is a new product, or a version of an existing product,
which require Programs as we mutually agree. IBM will provide
reimbursement for approved development and marketing activities as
specified in the Approved Relationship section of the Profile.
1. DEFINITIONS
CUSTOMER is either an End User or a Remarketer.
END OF USER is anyone, who is not part of the Enterprise of which you
are a part, who acquires your Offering for its own use and not to
remarket.
ENTERPRISE is any legal entity (such as a corporation) and the
subsidaries it owns by more than 50 percent.
GENERAL AVAILABILITY (GA) is the date on which the Offering becomes
available for marketing to Customers.
<PAGE>
-5-
MAINTENANCE MODIFICATIONS are revisions that correct errors in
Programs.
OFFERING is what you develop, market and distribute to Customers only
under your company name and logo, and which require one or more
Programs and your Value-Add Components.
PROGRAM is an IBM program which is Specified in the Profile or is
complementary to a Specified Program.
REMARKETER is a business entity which acquires your Offering for the
purpose of marketing.
VALUE-ADD COMPONENTS are your required product components that you will
include in the Offering.
2. Structure, Changes and Ending the Agreement
Structure
The Agreement consists of the:
- Profile which includes the key elements and options specific to the
Agreement;
- General and Relationship Terms which apply to all ISV relationships
under the Agreement; and
When the Replicated Program Element, Initial Purchase Element, or the
Revenue Commitment Element is specified in the Profile, the Agreement
also includes the:
- Replicated License Attachment which includes terms related to
Replicated Programs;
and
- Exhibit which includes Replicated Program details.
By signing the Profile, each of us agree to the terms of the Agreement.
If there is a conflict among the terms in the various documents, the
terms of:
1. the Exhibit prevail over the terms of the Profile, Attachment and
the General and Relationship Terms;
2. the Attachment prevail over the General and Relationship Terms; and
3. the Profile prevail over the terms of the General and Relationship
Terms.
If there is an order of precedence within a document, such order will
be stated in the document.
<PAGE>
-6-
Changes to the Agreement
When an Exhibit is included in the Agreement, we may change the terms
of the Exhibit upon written notice. Otherwise, for any other change to
be valid, both of us must agree in writing.
Ending the Agreement
We specify the Agreement start date and end date in your Profile.
IBM INTERNATIONAL INDEPENDENT SOFTWARE VENDOR AGREEMENT -
GENERAL AND RELATIONSHIP TERMS
Regardless of the Agreement end date, either of us may terminate this
Agreement, with or without cause, on three months written notice. If,
under applicable law, a longer period is mandatory, then the notice
period is the minimum notice period allowable. If we terminate for
cause (such as failure to meet key terms specified in your Profile) we
may, at our discretion, allow you a reasonable opportunity to cure. If
you fail to do so, the date of termination is that specified in the
notice.
However, if either party breaches a material term of the Agreement, the
other party may terminate the Agreement on written notice. Examples of
such breach by you are: if you do not maintain customer satisfaction;
if you do not comply with the terms of an invoice document; if you
repudiate the Agreement; or if you make any material misrepresentations
to us. You agree that our only obligation is to provide the notice
called for in this section and we are not liable for any claims or
losses if we do so.
Within three months following the end of the Agreement, each of us
agrees to settle any accounts with the other (for example, any unpaid
funds we owe you or reimbursement of any funds you owe us). WE may
offset any amounts due you against amounts due IBM as allowable under
applicable law. You agree to return to IBM or destroy, as we specify,
any Programs and related materials that we have provided to you at no
charge. Unless IBM has terminated for breach, you may keep on archival
copy of each Program.
You agree that if we permit you to perform other activities after the
Agreement ends, you will do so under the terms of the Agreement.
3. Responsibilities
Our Responsibilities
Each of us agrees that:
1. you are an independent contractor, and the Agreement is
non-exclusive. Neither of us is a legal representative or legal agent
of the other. Neither of us is legally a partner of the other (for
example, neither of us is responsible for debts incurred by the
other),and neither of us is an employee or franchise of the other, nor
does the Agreement create a joint venture between us;
<PAGE>
-7-
2. except as provided in the Profile, each of us is responsible for our
own expenses regarding fulfilment of our responsibilities and
obligations under the terms of the Agreement;
3. neither of us will disclose the terms of the Agreement, unless both
of us agree in writing to do so, or unless required by law. However, if
either of us deem it necessary to fulfill the responsibilities or
obligations of the Agreement, either of us may disclose the terms of
the Agreement to a third party such as an accountant, attorney or other
professional advisor under a confidentiality agreement with them;
4. neither of us will assume or create any obligation on behalf of the
other or make any representations or warranties about the other, other
than those approved in writing;
5. we will allow the other a reasonable opportunity to comply before
claiming the other has not met its obligations, unless we specify
otherwise in the Agreement;
6. failure by either of us to insist on strict performance or to
exercise a right when entitled does not prevent either of us from doing
so at a later time, either in relation to that default or any
subsequent one;
7. neither of us is responsible for failure to fulfill obligations due
to causes beyond the reasonable control of either of us;
8. IBM reserves the right to assign, in whole or in part, the
Agreement.
9. neither party will issue press releases or other publicity regarding
the Agreement, or our relationship under it, without the prior written
approval of the other party;
10. each party will comply with all applicable laws and regulations at
its own expense. This includes all export and import laws and
regulations. For example, you will not provide the Offerings or
technical data into countries where prohibited by law or regulation;
11. if any term or condition of the Agreement is unenforceable by law,
all other terms and conditions continue to apply;
12. neither of us will bring a legal action against the other more than
two years after the cause of action arose, unless otherwise provided by
local law without the possibility of contractual waiver. However, this
does not apply to actions brought to enforce intellectual property
rights or obligations specified under Trademarks, Patents and
Copyrights. Both parties will act in good faith to resolve disputes.
Each party waives its right to a jury trial in any resulting
litigation; and
13. each party warrants to the other that it has the necessary
expertise, capabilities and resources to perform all its obligations
under the Agreement;
<PAGE>
-8-
Your Responsibilities
You agree:
1. to the business plan which was developed and mutually agreed to by
us. Such plan documents the specific Programs which are required by
your Offering, your volume and revenue commitments, and as applicable,
an Offering development plan, marketing plan, training schedule,
milestones, marketing and development activities, planned start and
finish dates for each item it covers and other details, as appropriate.
We will periodically meet to review and revise the business plan as
applicable;
2. that Program sales which count toward your volume and revenue
commitments are for Programs specified in the Profile, and other
products we may approve. Additionally, qualifying sales are only those
which result from your activities under this agreement and which
represent a net increase over all other sales revenue and volumes for
such Programs not related to this Agreement.
3. to be responsible for customer satisfaction for all your activities,
and to participate in customer satisfaction programs as we mutually
agree:
4. to comply with the highest ethical principles in performing under
the Agreement. You will not offer or make payments or gifts (monetary
or otherwise) to anyone for the purpose of wrongfully influencing
decisions in favour of IBM, directly or indirectly. IBM may terminate
the Agreement in case of 1) a breach of this clause or 2) when IBM
reasonable believes such a breach has occurred;
5. not to assign or otherwise transfer the Agreement, your rights under
it, or any of its approvals, or delegates any duties, unless expressly
permitted to do so under the Agreement or in connection with a merger,
consolidation or sale of assets of your company. Otherwise, any attempt
to do so is void;
6. that except for Programs, you warrant that you have the rights and
licenses need to develop Offerings and market them to your Customers;
7. you agree that your Value-Add Components must be of greater value
than that of the Programs or must, in IBM's opinion, provide
significant function and value to the End User;
8. to conduct business activities (for example, registration, sales
reporting as we agree to in a Measurement Letter and Submitting
reimbursement requests) with us as we specify in the ISV Program
Guidelines (Guidelines), using our automated electronic system if
available. You agree to pay all of your expenses associated with it
such as your equipment and communication costs.
9. to retain records, as we specify in the Guidelines, to support
invoices issued to Customers, sales reporting, and payments made to IBM
as applicable. You will retain make these records available for three
years from the date of the related transaction or payment.
<PAGE>
-9-
10. to ensure your Remarketer agreements for Offerings are consistent
with your obligations under the Agreement;
11. to provide high quality technical support to your Customers. You
further agree that you or your Remarketer, as applicable, will provide
primary support to End Users for your Offering. If an error is
determined to be within a Program we will work with you to resolve the
problem;
12. you are solely responsible of managing the development, manufacture
and marketing of your Offering. You agree to employ reasonable project
management techniques to ensure that milestones are met, quality is
maintained, and the project remains on-time and within budget. However,
you agree that IBM reserves the right to review and approve, prior to
your use or delivery, your packaging, advertising, press releases and
other marketing deliverables related to your Offering or the Programs;
13. that Value-Add Components included in your Offering are Year 2000
Ready. Your 2000 Ready means that the Value-Add Component, when used in
accordance with its associated documentation, is capable of correctly
processing, providing and receiving date data within and between the
twentieth and twenty-first centuries, provided that all products used
with your Offering property exchange accurate date data with the
Offering;
14. that, as applicable your Offering is EuroReady that it will
correctly process monetary data in the euro demonination and respecting
the eruro currency formatting conventions, including the euro sign,
when used in accordance with its associated documentation.
15. that prior to GA, you will test the Offering to ensure that all
Value-Add Components work with the Programs.
16. htat should you fall to deliver the Offering (no GA), you will
refund to IBM any funds paid to you under the Agreement;
17. that twelve months after the General Availability date specified
int he Profile and at the end of the Agreement, we will conduct a
review to compare your reported sales to your Volume and Revenue
Commitments. If you have not achieved these commitments, you will
either refund to IBM a prorated share of the funds we paid you or
provide information showing incremental revenue for the non-IBM version
of your solultions which occured during each reveiw period. If, in
IBM's opinion it is evident that you received incremental revenue from
the non-IBM versions but failed to achieve the commitments specified in
the Profile, you will return a prorated portion of the funds paid to
you. For planning purpose, we may provide you with more frequent
reviews of your performance.
18. that if in the course of this Agreement, in our reasonable opinion,
you are not on target to achieve you revenue commitments, upon written
notice to you, we may suspend future Co-funding; and
<PAGE>
-10-
19. to actively market your Offering only within the geographic scope
specified in the Agreement. You further agree to not use anyone else to
do otherwise.
<PAGE>
-11-
YOUR REMARKETERS' RESPONSIBILITIES
You agree to inform your Remarketers, and gain their agreement to:
1. conduct their business in a way that does not conflict with your
obligations under the Agreement;
2. maintain records of Offering sales for 3 years;
3. provide you with access to their records to verify compliance with
the terms specified in the Agreement;
4. your right to suspend deliver of, or recall, your Offering (in
addition to other legal remedies) if they are in breach; and
5. bind any Remarketer they market to, to these terms.
IBM RESPONSIBILITES
1. to provide you, at no charge, a reasonable number of copies of the
IBM Program(s) which, as specified on the Profile, are required by your
Offering. Your use of these Program is under the IBM license agreement
with the exception that such use is limited to development and
marketing activities necessary to perform your responsibilities under
the Agreement, and the Programs may not be transferred;
2. to reimburse up to 50% of the lesser of your actual expense or the
approved expense for each development and marketing activity specified
in your business plan. The cumulative maximum of such reimbursement is
specified in the Profile.
3. to provide, at our discretion, IBM marketing resources, which may
include: a) lead generation resources such as direct marketing
(mailings), b) telemarketing, c) advertising support, and d) IBM
marketing professionals.
4. to provide you with Guidlines which specify the processes and
procedures to support the business activities required under the
Agreement, such as registration, activity reimbursement, sales
reporting, report formats and forms, report frequency and reporting
methods, etc.; and
5. that IBM will, at its discretion, provide you with access to the IBM
Solution Development Centures, and to technical skills from an IBM
laboratory, either on-site or by telephone, as appropriate.
OUR REVIEW OF YOUR COMPLIANCE WITH THE AGREEMENT We may periodically
review your compliance with the Agreement. You agree to provide us with
relevant records on request. We may reproduce and retain copies of
these records.
<PAGE>
-12-
We, or an independent auditor, may conduct a review of your compliance
with the relevant records on request. We may reproduce and retain
copies of these records.
We, or an independent auditor, may conduct a review of your compliance
with the Agreement on your premises during your normal business hours.
4. STATUS CHANGE
You agree to give us prompt written notice (unless precluded by law or
regulation) of any material change or anticipated change in your
financial condition, business structure, or operating enviornment (for
example, a material change in equity ownership or management or any
substantive change to information supplied in your application). Upon
notification of such change, (or in the event of failure to give notice
of such change) IBM may, at its sole discretion, immediately terminate
the Agreement.
5. CONFIDENTIAL CHANGE
All information exchange between us is non-confidential, unless
disclosed under a separate Supplement to the IBM Agreement for Exchange
of Confidential Information.
6. TRADEMARKS, PATENTS AND COPYRIGHTS
Each party keeps little to its copyrights, patents and any other
intellecutal property rights in the materials in your Offerings.
Programs are copyrighted and licensed, not sold. You do not receive any
other rights to IBM intellectual property other than as defined under
this Agreement.
IBM will notify you in written quidelines of the IBM trademarks or
service marks (Trademarks) which you are approved to use. You may not
modify the Trademarks in any way.
You may use our Trademarks only in conjunction with the marketing of
Offerings.
The royalty normally associated with the non-exclusive use of the
Trademarks will be waived provided they are used only in conjunction
with the marketing of Offerings.
You agree to promptly moidify any advertising or promotional materials
that do not comply with our quidelines. If you receive any complaints
about your use of a Trademark, you agree to promply notify IBM. When
the Agreement ends, you agree to promply stop using our Trademarks. If
you do not, you agree to pay any expenses and fees IBM incurs in
getting you to stop.
Trademarks and any goodwill resulting from them, belong to their
respective owners.
<PAGE>
-13-
7. LIABILITY
Circumstances may arise where, because of a default or other liability,
one of us is entitled under this Agreement to recover damages from the
other. In each such instance, regardless of the basis on which damages
can be claimed., each of us will only be liable to the other for an
amount equal to the cumulative total of IBM funding as specified in the
Profile. Neither of us will be liable for any lost profits, lost
savings, indirect, special, incidental or other consequential damages,
even if advised of their possibility.
IBM INTERNATIONAL INDEPENDENT SOFTWARE VENDOR AGREEMENT -
GENERAL AND RELATIONSHIP TERMS
8. ELECTRONIC COMMUNICATIONS
ach of us may communicate with the other by electronic means, and such
communication is acceptable as a signed writing to the extent
permissible under applicable law. Both of us agree that for all
electronic communications, an identification code (called a "user ID")
contained in an electronic document is sufficient to verify the
sender's identity and the document's authenticity.
9. GEOGRAPHIC SCOPE
All the rights and obligations of both of us are valid only in
countries in which IBM has announced our Programs as available for
marketing. In addition, when your Offering requires, but does not
include a Program, you may market the Offering in other countries where
our Programs have been announced as available for marketing.
10. GOVERNING LAW
The laws of the State of New York govern the Agreement. The "United
Nations Convention on International Sale of Goods" does not apply.
IBM INTERNATIONAL INDEPENDENT SOFTWARE VENDOR AGREEMENT
GEOGRAPHIC SCOPE SCHEDULE
EMBARGO BY U.S. GOVERNMENT
IBM does not market or sell in the following countries which are under the rules
of Embargo by the U.S. Government:
Cuba
Iran
Iraq
Libya
North Korea
Yugoslavia (Serbia, Montenegro)
You may not claim any sales in these countries. IBM software may not be taken to
these countries under any circumstances.
<PAGE>
-14-
COUNTRIES WHERE IBM HAS A THIRD PARTY EXCLUSIVE DISTRIBUTOR IBM has granted
exclusive distribution rights to a third party in the following countries:
AbuDhabi
Algeria
Bahrain
Belize
Costa Rica
Dominican Republic
Dubai
El Salvador
Guatemala
Haiti
India
Indonesia
Kuwait
Malaysia
Nicaragua
Oman
Panama
Qatar
Saudi Arabia
Tunisia
In these countries where IBM has granted an exclusive distributorship, you may
not re-market (or replicate and sell) IBM software. If you choose to market your
solution in these countries, any required IBM software must be fulfilled by the
IBM exclusive distributor.
<PAGE>
-15-
IBM INTERNATIONAL INDEPENDENT SOFTWARE VENDOR AGREEMENT
MARKETING ACTIVITY LISTING
<TABLE>
<CAPTION>
- --------------------- --------- -------------- ------------- ----------- ---------------- -----------------------------
ACTIVITY DATE EXPENSE ISV IBM VALIDATION OBJECTIVE
PAYS PAYS CRITERIA
- --------------------- --------- -------------- ------------- ----------- ---------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
- --------------------- --------- -------------- ------------- ----------- ---------------- -----------------------------
Database Development 00 Q1 5,000 2,500 2,500 Per Operations Invoice for list rental
Guide
- --------------------- --------- -------------- ------------- ----------- ---------------- -----------------------------
Direct Mail 00 Q1 65,000 32,500 32,500 Per Operations Invoice for creative
Guide invoice for production,
invoice for mailing costs,
copy of direct mail piece
and any other related
invoices
- --------------------- --------- -------------- ------------- ----------- ---------------- -----------------------------
Trade Shows 00 Q1 5,000 2,500 2,500 Per Operations Invoice for show floor
Guide space, invoice for booth,
any related invoices
- --------------------- --------- -------------- ------------- ----------- ---------------- -----------------------------
Trade Shows 00 Q2 5,000 2,500 2,500 Per Operations Invoice for show floor
Guide space, invoice for booth,
any related invoices
- --------------------- --------- -------------- ------------- ----------- ---------------- -----------------------------
Trade Shows 00 Q3 5,000 2,500 2,500 Per Operations Invoice for show floor
Guide space, invoice for booth,
any related invoices
- --------------------- --------- -------------- ------------- ----------- ---------------- -----------------------------
Trade Shows 00 Q4 3,000 1,500 1,500 Per Operations Invoice for show floor
Guide space, invoice for booth,
any related invoices
- --------------------- --------- -------------- ------------- ----------- ---------------- -----------------------------
Discretionary Funds 00 Q1 1,009 505 505 Per Operations Any related invoices
Guide
- --------------------- --------- -------------- ------------- ----------- ---------------- -----------------------------
Discretionary Funds 00 Q2 1,009 505 505 Per Operations Any related invoices
Guide
- --------------------- --------- -------------- ------------- ----------- ----------------------------------------------
Total IBM Pays 45,009
- --------------------- --------- -------------- ------------- ----------- ----------------------------------------------
Total ISV Pays 45,009
- --------------------- --------- -------------- ------------- ----------- ----------------------------------------------
Total Expense 90,018
- --------------------- --------- -------------- ------------- ----------- ----------------------------------------------
</TABLE>
<PAGE>
DISTRIBUTION AND SALES AGREEMENT
DATED for reference the 1st day of November, 1999.
BETWEEN:
SIDEWARE INTERNATIONAL SRL, organized pursuant to the laws of
Barbados, and having an office at 2nd Street, Holetown, St.
James, Barbados, West Indies
("Sideware")
OF THE FIRST PART;
AND:
SIDEWARE CORP., a company incorporated pursuant to the laws of
the State of Washington, U.S.A., and having an office at
#200-208 Elden Street, Herndon, Virginia 20170, U.S.A.
(the "Distributor")
OF THE SECOND PART;
WHEREAS:
A. Sideware has developed computer software described in Schedule "A"
hereto which provides real-time communication support and services to
internet users and which is called Dr. Bean Version 3.0 (the
"Software");
B. Sideware has appointed the Distributor, and the Distributor has agreed,
to market and distribute the Software in the 50 United States, the
District of Columbia, and Puerto Rico (the "Authorized Area") on the
terms and conditions contained herein.
IN CONSIDERATION of the mutual promises and covenants contained herein,
the parties record their agreement as follows:
<PAGE>
-2-
1.0 GRANT OF DISTRIBUTION RIGHTS
1.1 Subject to the terms of this Agreement, Sideware hereby grants to the
Distributor a non-exclusive right to market, sell and distribute the
Software in the Authorized Area to end users, value-added resellers,
distributors and original equipment manufacturers ("OEMS") for the Term
of this Agreement, as defined herein.
1.2 Notwithstanding paragraph 1.1, the Distributor shall have the right to
sell and distribute the Software outside the Authorized Area provided
that Sideware has consented in writing to each such sale.
1.3 Sideware shall deliver to the Distributor copies of the Software for
sale and distribution to end users, resellers, distributors and OEMS in
accordance with section 3.0 herein. Sideware shall provide to the
Distributor one (1) copy of the Software for demonstration purposes
free of charge, and the Distributor shall be entitled to make copies
thereof solely for demonstration and backup purposes only.
1.4 SOFTWARE CHANGES - Sideware may make changes to the Software as
Sideware deems necessary or advisable without advance notice to
Distributor, except that Sideware shall give the Distributor at least
thirty (30) days written notice before discontinuing the sale or
distribution of the Software pursuant to this Agreement.
2.0 TERM
2.1 TERM - The Term of this Agreement shall commence November 1, 1999, and
subject to earlier termination in accordance with this Agreement, shall
expire on December 31, 2001. The Term shall automatically be renewed
for one (1) year periods thereafter unless either party gives notice to
the other party, at least sixty (60) days before the end of the then
current year period, of its desire to let the Agreement expire at the
end of such year period (the "Term").
<PAGE>
-3-
3.0 PURCHASE ORDERS
3.1 The Distributor shall order copies of the Software from Sideware by
issuance of a written purchase order to Sideware. Each purchase order
shall state components of the Software required in each copy ordered, a
requested shipment date, the method of shipment, and the location to
which each unit of Software should be shipped.
3.2 Sideware will use its best efforts to meet the requested shipment date
in the Distributor's purchase order, but will not be liable to the
Distributor or to any other person if it fails to meet the requested
shipment date. Orders without a requested shipment date will be
processed for shipment according to Sideware's then current shipping
schedule.
3.3 Shipping charges shall be paid by the Distributor and will be shown
separately on Sideware invoices.
4.0 SOFTWARE PRICES
4.1 SIDEWARE PRICE - The price payable by Distributor for each copy of the
Software shall be equal to Sideware's then current list price for the
Software less the Distributor's Discount. Sideware's current list price
schedule and the Distributor's Discount are contained in Schedule "B"
hereto. All prices are quoted F.O.B. Sideware's shipping point,
exclusive of taxes, shipping, and insurance charges, which shall all be
the Distributor's costs.
4.2 CHANGE IN LIST PRICE - The Distributor hereby acknowledges that
Sideware may change the list price for the Software in Schedule "B" by
giving written notice to the Distributor no less than thirty (30) days
prior to the effective date of such changes. Any such written notice
given by Sideware shall set forth the new effective date and shall be
attached hereto as an Amended Schedule "B". Upon Sideware making
changes to the list price for the Software, the Distributor may request
a renegotiation of the Distributor's Discount specified in Schedule
"B".
<PAGE>
-4-
4.3 If any change in the suggested list price and Distributor's Discount
results in a higher price to the Distributor, Sideware agrees to honour
the previous lower price for purchase orders based on the Distributor's
outstanding quotations to customers executed within ninety (90) days of
the price change. The Distributor will provide a list of outstanding
proposals within ten (10) working days of receiving notice of the
change.
4.4 RESALE PRICES - The Distributor is free to determine its own resale
prices for the Software.
4.5 TAXES AND DUTIES - The prices listed in Schedule "B" are exclusive of
all applicable taxes and duties. The Distributor shall pay all taxes
and duties associated with the sale and delivery of the Software,
exclusive of taxes based on Sideware's income. If claiming tax
exemption, the Distributor must provide Sideware with valid tax
exemption certificates.
4.6 PAYMENT TERMS - Payment to Sideware for delivered copies of the
Software shall be made no later than thirty (30) days after the invoice
date.
4.7 NO WITHHOLDING OR SET-OFF - The Distributor shall not withhold any
amount due and owing pursuant to this Agreement either on the basis
that the Distributor disputes some issue in respect of, or its
obligations under, this Agreement, or as a set-off of obligations which
are allegedly owing to the Distributor by Sideware.
4.8 CURRENCY - All payments due hereunder to Sideware shall be made in
United States currency by wire transfer or cheque drawn on a United
States bank, unless otherwise specified by Sideware.
4.9 OVERDUE ACCOUNTS - Overdue payments for Software will bear interest at
the rate of 1.5% per month.
<PAGE>
-5-
5.0 RECORDS
5.1 ACCESS TO RECORDS - During the Term and for one (1) year following the
termination of this Agreement, the Distributor shall keep at its
principal place of business full, accurate and complete records and
books of account relating to the Software, and shall make them
available for examination, inspection and audit at all reasonable times
by Sideware or duly authorized independent accountants designated by
Sideware. Sideware and the accountants shall also be entitled to
investigate generally all the business transactions carried on by the
Distributor relating to this Agreement, to call for all vouchers
supporting the account documentation, including orders received, work
sheets, invoices, bank account documentation, and all other relevant
documents, and to make notes and copies of any information.
6.0 END USER LICENSE AGREEMENTS
6.1 All copies of the Software sold by the Distributor directly to end
users or indirectly to end users through resellers shall be subject to
the software license agreement provided by Sideware to the Distributor
from time to time, including any modifications or amendments thereof
(the "Software License Agreement"). The Distributor shall not install,
nor permit any of its resellers to install, a copy of the Software
until the end user purchasing the Software has executed the Software
License Agreement. The Distributor shall utilize the latest version of
the Software License Agreement when selling the Software directly to
end users or otherwise require the resellers to utilize the latest
version.
7.0 SUBDISTRIBUTION AGREEMENTS
7.1 APPOINTMENT OF SUBDISTRIBUTORS - The Distributor may appoint
subdistributors of the Software provided that such subdistributors
enter into the subdistributor agreement provided by Sideware to the
Distributor with respect to the marketing, sale, installation and
integration of the Software (the "Subdistributor Agreement"). Sideware
reserves the
<PAGE>
-6-
right to change the Subdistributor Agreement from time to time, and
the Distributor shall utilize the latest version of such agreement
when appointing subdistributors.
8.0 DISTRIBUTOR'S RESPONSIBILITIES
8.1 INSTALLATION, INTEGRATION AND TRAINING - The Distributor will be
responsible for the installation and integration of all copies of
Software the Distributor sells directly to end users. The Distributor
shall further provide training to its subdistributors regarding the
installation, integration and use of the Software.
8.2 MAINTENANCE AND SUPPORT - The Distributor will be responsible for
operating telephone and Internet support systems to provide maintenance
and support to all end users and resellers of the Software. The
Distributor and Sideware will consult from time to time on the scope
and content of the support systems to be provided by the Distributor.
8.3 Notwithstanding the above, Distributor may subcontract the provision of
maintenance and support to end users and resellers of the Software.
8.4 FEES - The Distributor may, at its discretion, determine the fees to be
charged to end users and subdistributors with respect to the
installation, integration, training, maintenance and support services
provided by the Distributor.
8.5 MARKETING - The Distributor will use its best efforts to actively
promote, market and sell the Software in the Authorized Area. From time
to time as requested by Sideware, the Distributor will meet with
Sideware for review and consultation regarding the Distributor's
marketing plans and activities. For purposes of such review, the
Distributor will make available to Sideware such information concerning
the Distributor's marketing plans and activities as Sideware may
reasonably request.
8.6 SALES LITERATURE - The Distributor shall be responsible for developing
and producing its own literature for the promotion and marketing of the
Software, however, Sideware will
<PAGE>
-7-
provide samples of its sales literature to the Distributor at no
charge. The Distributor may purchase Sideware's sales literature at
Sideware's cost.
8.7 The Distributor agrees to conduct its marketing and sales of the
Software in a manner that reflects favourably on the Software and on
the reputation and good will of Sideware.
9.0 INTELLECTUAL PROPERTY RIGHTS
9.1 OWNERSHIP OF SOFTWARE - The Distributor acknowledges that all title and
intellectual property rights, copyright, moral rights, and patent
rights in and to the Software (including but not limited to any images,
photographs, animation, video, audio, music, text and "applets"
incorporated into the Software, and all written materials relating to
the Software) are owned or licensed by Sideware. Nothing in this
Agreement shall constitute a grant, transfer, or assignment to the
Distributor of any of the foregoing rights.
9.2 The Distributor warrants that neither it nor any of its employees will
knowingly convert to their own use or to the use of any other party any
industrial secrets or trade secrets owned or licensed by Sideware in
relation to the Software.
9.3 The Distributor acknowledges that Sideware would be irreparably harmed
by any breach of the Distributor's covenants in this section 9.0 and
accordingly, would be entitled to equitable and injunctive relief. The
Distributor also acknowledges that Sideware has developed and uses
valuable technical and non-technical information and trade secrets in
the Software. The Distributor will use its best efforts not to effect
or permit the removal or alteration of any trade names or marks,
warning labels, serial numbers or other similar markings affixed to the
Software.
9.4 The Distributor shall not disclose, and shall keep confidential, all
confidential and proprietary information provided by Sideware or
relating to the Software. This provision shall not apply to information
which (i) is or becomes part of the public domain through no act or
omission of the Distributor, (ii) the Distributor receives from a third
party acting
<PAGE>
-8-
without any obligation or restriction of confidentiality in favour
of Sideware, (iii) Sideware releases from confidential treatment by
written consent, or (iv) the Distributor is required by any applicable
law or court order to disclose. The provisions of this clause shall
survive the termination of this Agreement.
10.0 WARRANTIES
10.1 Sideware's warranties with respect to the Software are limited to the
warranties set out in the Software License Agreement referred to in
section 6.0. Except as expressly set out below, Sideware makes no
separate warranty to the Distributor.
10.2 Sideware warrants to the Distributor that Sideware has all right,
title, ownership interest and/or marketing rights necessary to provide
the Software to the Distributor.
10.3 THE WARRANTIES AND COVENANTS SET FORTH ABOVE ARE COMPLETE AND ARE IN
LIEU OF ALL OTHER WARRANTIES, CONDITIONS OR REPRESENTATIONS, EXPRESS OR
IMPLIED BY STATUTE, USAGE, CUSTOM OF THE TRADE OR OTHERWISE.
NOTWITHSTANDING ANY OTHER OR PRIOR STATEMENT, WRITTEN OR ORAL, SIDEWARE
MAKES NO OTHER WARRANTIES REGARDING THE SOFTWARE. WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, SIDEWARE EXPRESSLY DISCLAIMS WARRANTIES OR
REPRESENTATIONS OF WORKMANSHIP, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, LACK OF NEGLIGENCE, DURABILITY, ACCURACY OR
COMPLETENESS OR RESPONSES, LACK OF VIRUSES, THAT THE SOFTWARE WILL MEET
ANY OF A CUSTOMER'S NEEDS, OR THAT THE SOFTWARE WILL OPERATE ERROR
FREE.
<PAGE>
-9-
11.0 INFRINGEMENT INDEMNIFICATION
11.1 INDEMNIFICATION FOR THIRD PARTY RIGHTS - Sideware shall indemnify and
hold harmless the Distributor, from any claim that the Software
supplied hereunder infringes a patent, copyright, trade secret, or
similar proprietary right of a third party. If such claim occurs, or in
Sideware's judgment is likely to occur, the Distributor agrees to allow
Sideware, at Sideware's option, to procure the right for the
Distributor to continue using the Software in accordance with the terms
hereof or to replace or modify the Software in a functionally
equivalent manner so it becomes non-infringing. If neither of the
foregoing is available on terms that are reasonable in Sideware's
judgment, the Distributor, upon written request by Sideware, shall
return the Software to Sideware and Sideware shall have no further
obligations under this indemnity.
11.2 INDEMNIFICATION BY DISTRIBUTOR - The Distributor shall indemnify and
hold harmless Sideware, its shareholders, officers, directors or agents
against any and all losses which they may suffer or incur in connection
with any claim arising out of, as a result of, or relating in any
manner whatsoever to the Distributor's breach of any covenant,
representation or warranty contained in this Agreement.
11.3 INDEMNIFICATION BY SIDEWARE - Sideware shall indemnify and hold
harmless the Distributor, its shareholders, officers, directors or
agents against any and all losses which the Distributor may suffer or
incur in connection with any claim arising out of, as a result of, or
relating in any manner whatsoever to Sideware's breach of any covenant,
representation or warranty contained in this Agreement.
11.4 The foregoing indemnities shall be contingent upon the following:
(a) the party seeking indemnity shall give prompt written notice
to the other party for any claim, demand, or action for which
indemnity is sought;
<PAGE>
-10-
(b) the party seeking indemnity shall fully co-operate in the
defence or settlement of any such claim, demand or action and
shall make no admission without the indemnifying party's
consent; and
(c) the party seeking indemnity shall obtain the prior written
agreement of the indemnifying party to any settlement or
proposal of settlement which agreement shall not be
unreasonably withheld, providing such settlement or proposal
does not conflict with the terms of this section.
12.0 DAMAGES AND LIABILITY
12.1 TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES AGREE
THAT IN NO EVENT SHALL SIDEWARE BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
INDIRECT, OR CONSEQUENTIAL DAMAGES WHATSOEVER (INCLUDING, BUT NOT
LIMITED TO, DAMAGES FOR LOSS OF PROFITS OR CONFIDENTIAL OR OTHER
INFORMATION, FOR BUSINESS INTERRUPTION, FOR PERSONAL INJURY, FOR LOSS
OF PRIVACY, FOR FAILURE TO MEET ANY DUTY INCLUDING OF GOOD FAITH OR OF
REASONABLE CARE, FOR NEGLIGENCE, AND FOR ANY OTHER PECUNIARY OR OTHER
LOSS WHATSOEVER) ARISING OUT OF OR IN ANY WAY RELATED TO THE USE OF OR
INABILITY TO USE PRODUCTS DEVELOPED PURSUANT TO THIS AGREEMENT, EVEN IN
THE EVENT OF THE FAULT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY,
BREACH OF CONTRACT, OR BREACH OF WARRANTY OF SIDEWARE, AND EVEN IF
SIDEWARE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO
EVENT WILL SIDEWARE'S TOTAL LIABILITY, IN DAMAGES OR OTHERWISE, EXCEED
THE AMOUNTS ACTUALLY RECEIVED BY SIDEWARE FOR DEVELOPING THE PRODUCTS.
NO ACTION REGARDLESS OF FORM, ARISING OUT OF OR IN ANY WAY CONNECTED
WITH PRODUCTS DEVELOPED BY SIDEWARE MAY BE BROUGHT BY THE DISTRIBUTOR
MORE THAN TWO (2) YEARS AFTER THE
<PAGE>
-11-
CAUSE OF AN ACTION HAS ACCRUED OR SUCH SHORTER STATUTORY PERIOD AS
MAY BE APPLICABLE.
13.0 TERMINATION
13.1 TERMINATION UPON NOTICE - Sideware may terminate this Agreement
forthwith upon written notice to the Distributor if:
(a) the Distributor is in breach of, or attempts to breach, any of
its obligations under this Agreement;
(b) the Distributor is in breach of any of its representations and
warranties under this Agreement;
(c) the Distributor has failed to protect the confidentiality and
proprietary rights of Sideware, or has otherwise failed to
take reasonable steps to protect such confidentiality and
proprietary rights as required herein; and/or
(d) the Distributor is unable to pay its debts when due or is
insolvent, is ordered or adjudged to be a bankrupt, is placed
in the hands of a receiver, enters into any scheme or
composition with its creditors, is dissolved, liquidated or
wound up, makes an assignment for the benefit of its creditors
or takes the benefit of any statutory protection for its
debts.
13.2 TERMINATION FOR CONVENIENCE - Either of the parties may in its sole
discretion terminate this Agreement at any time without cause on sixty
(60) days written notice to the other party, such termination to become
effective at the conclusion of such sixty (60) day period.
13.3 CONSEQUENCES OF TERMINATION OR EXPIRATION - In the event of the
termination or expiration of this Agreement, the Distributor shall have
no further rights except those expressly
<PAGE>
-12-
granted by this section. Upon termination or expiration of this
Agreement, the Distributor shall:
(a) cease all marketing, sale and distribution of the Software;
(b) at Sideware's option and at the Distributor's expense, deliver
to Sideware all of the Software;
(c) refrained from stating or implying that the Distributor is
authorized to market, sell and distribute the Software;
(d) pay all amounts invoiced by Sideware notwithstanding that such
amounts may not yet be due to Sideware; and
(e) at Sideware's request, execute all such documents and do such
further acts and things which are necessary to assign and
transfer the Distributor's rights and obligations in any and
all agreements with end users, resellers, distributors or OEMS
relating to the Software to Sideware.
14.0 GENERAL
14.1 NOTICE - Any notice required or permitted to be given under this
Agreement shall be deemed to have been well and sufficiently given only
if delivered at the address of the other party herein before set forth
or to such other address as the other party may direct in writing.
14.2 MODIFICATION - No amendment to or modification of this Agreement shall
be effective unless set forth in writing and signed by both Sideware
and the Distributor.
<PAGE>
-12-
14.3 FURTHER ASSURANCES - The parties shall execute all such further
documents and do such further acts and things as are necessary or
convenient to carry out the full intent of this Agreement.
14.4 SUCCESSORS AND ASSIGNS - This Agreement shall be binding upon and shall
enure to the benefit of the parties hereto, their successors and
permitted assigns.
14.5 WAIVER - No waiver by either party of any default hereunder shall be
deemed as a waiver of any prior or subsequent default of the same or
other provisions of this Agreement.
14.6 SEVERABILITY - If any provision hereof is held invalid or unenforceable
by a court of competent jurisdiction, such invalidity shall not affect
the validity or operation of any other provision and such invalid
provision shall be deemed to be severed from the Agreement.
14.7 ASSIGNABILITY - The rights and license granted hereunder to the
Distributor may not be assigned by any act of the Distributor or by
operation of law without the consent of Sideware, such consent may be
arbitrarily withheld.
14.8 GOVERNING LAW - This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by,
the laws of the United States.
<PAGE>
-14-
14.9 ENTIRE AGREEMENT - This Agreement constitutes the entire understanding
of the parties, and revokes and supersedes all prior agreements between
the parties and is intended as a final expression of their agreement.
IN WITNESS WHEREOF the parties hereto have recorded their agreement on
the above terms this 14TH day of DECEMBER, 1999, intending the agreement
to be effective from November 1, 1999.
SIDEWARE INTERNATIONAL SRL
Per:
"signed"
- -----------------------------
SIDEWARE CORP.
Per:
"signed"
- -----------------------------
<PAGE>
Schedule "A"
THE SOFTWARE
The Software is the Dr. Bean Software, Version 3.0 which consists of: (a)
instructions or statements in machine-readable object code, including the Server
Component, the CSR Interface Component, the Server Administration Component, and
the CSR Administration Component; a multiple server pack, an intelligent router,
and an enterprise reporting system, and (b) all user manuals, handbooks, and
other written materials relating to (a) above.
<PAGE>
Schedule "B"
SUGGESTED LIST PRICE OF PRODUCTS
AS OF NOVEMBER 1, 1999
(all amounts in U.S. Dollars)
A.
<TABLE>
<CAPTION>
- ------------------------------------ ----------------- ------------------- ------------- --------------- ---------------
Unix-based
Platform System/ Component Windows NT Windows NT IBM S390 IBM S390 IBM S390
multi-processor Small Average Large
- ------------------------------------ ----------------- ------------------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------ ----------------- ------------------- ------------- --------------- ---------------
Basic System $10,000 $25,000 $40,000 $70,000 $100,000
- ------------------------------------ ----------------- ------------------- ------------- --------------- ---------------
Multiple Server Pack $5,000 $12,000 $20,000 $35,000 $50,000
- ------------------------------------ ----------------- ------------------- ------------- --------------- ---------------
Intelligent Router $2,000 $4,000 $6,000 $8,000 $15,000
- ------------------------------------ ----------------- ------------------- ------------- --------------- ---------------
Enterprise Reporting System $4,000 $6,000 $8,000 $10,000 $20,000
- ------------------------------------ ----------------- ------------------- ------------- --------------- ---------------
</TABLE>
B. DISTRIBUTOR'S DISCOUNT
1. For Dr. Bean Software Version 3.0 resold to end users, resellers, and
OEMS, the Distributor's Discount = 50%
C. DISCOUNT ADJUSTMENT
1. The parties have established the Distributor's Discount at what they
believe would be agreed between unrelated parties dealing at arm's
length in the same circumstances.
2. If the Internal Revenue Service or its authorized representatives or
any similar authority should assess or reassess either or both of the
parties on the basis that the Discount should be different than that
established by the parties, then the Discount shall be deemed to be
determined as follows:
(a) such amount as may be agreed upon by the parties and all of
the relevant government tax authorities; or
<PAGE>
-2-
(b) in the absence of any agreement pursuant to paragraph (a)
above, such amount as may be determined by a court having
jurisdiction in the matter (after all appeal rights have been
exhausted or all times for appeal have expired without appeals
having been filed) to be the Discount.
3. If at any time after the commencement of this Agreement, either of the
parties undertakes a transfer pricing study with respect to the
Discount and the results of the study indicate that the Discount should
be adjusted to comply with the arm's length requirement for
"transactions" between related parties (the "Proposed Adjustments"),
the other party may agree to make the Proposed Adjustments or reject
the Proposed Adjustments stating its reasons for rejecting the Proposed
Adjustments. After considering the other party's reasons for rejecting
the Proposed Adjustments, if any, the first party may propose Amended
Proposed Adjustments or obtain the opinion of an independent third
party expert on the matter. The other party shall:
(a) accept the Amended Proposed Adjustments; or
(b) reach some other agreement on the adjustments to the Discount
within forty-five (45) days of receiving the Amended Proposed
Adjustments; or
(c) accept the opinion of the third party independent expert.
4. Where the Discount is adjusted pursuant to paragraphs 2 or 3, the
parties will make whatever payments or refunds are required to fully
implement the terms of the adjustment.
5. Each of the parties shall bear their own costs with respect to any
actions taken by a party under this section relating to Discount
adjustment.
<PAGE>
- -------------------------------------------------------------------------------
DATED: November 1, 1999
BETWEEN:
SIDEWARE INTERNATIONAL SRL
OF THE FIRST PART;
AND:
SIDEWARE CORP.
OF THE SECOND PART;
- -------------------------------------------------------------------------------
DISTRIBUTION AND SALES AGREEMENT
- -------------------------------------------------------------------------------
<PAGE>
COMPUTATION OF NET LOSS PER SHARE FOR NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
------------------------------------
BEGINNING BALANCE 27,269,959 27,269,959
------------------------------------
# OF SHARES DATE DAYS WEIGHT WEIGHTED AV
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
260,000 18-Jan 18 0.934066 242,857 27,529,959
21,000 21-Jan 21 0.923077 19,385 27,550,959
20,000 21-Jan 21 0.923077 18,462 27,570,959
20,000 21-Jan 21 0.923077 18,462 27,590,959
25,000 22-Jan 22 0.919414 22,985 27,615,959
200,000 26-Jan 26 0.904762 180,952 27,815,959
20,000 29-Jan 29 0.893773 17,875 27,835,959
15,000 29-Jan 29 0.893773 13,407 27,850,959
21,000 29-Jan 29 0.893773 18,769 27,871,959
22,000 4-Feb 35 0.871795 19,179 27,893,959
15,000 4-Feb 35 0.871795 13,077 27,908,959
100,000 9-Feb 40 0.85348 85,348 28,008,959
40,000 17-Feb 48 0.824176 32,967 28,048,959
60,000 26-Feb 57 0.791209 47,473 28,108,959
32,000 2-Mar 61 0.776557 24,850 28,140,959
30,000 10-Mar 69 0.747253 22,418 28,170,959
50,000 12-Mar 71 0.739927 36,996 28,220,959
100,000 16-Mar 75 0.725275 72,527 28,320,959
60,000 19-Mar 78 0.714286 42,857 28,380,959
20,000 24-Mar 83 0.695971 13,919 28,400,959
55,000 25-Mar 84 0.692308 38,077 28,455,959
700,000 7-Apr 97 0.644689 451,282 29,155,959
62,500 7-Apr 97 0.644689 40,293 29,218,459
20,000 7-Apr 97 0.644689 12,894 29,238,459
300,000 12-Apr 102 0.626374 187,912 29,538,459
120,000 12-Apr 102 0.626374 75,165 29,658,459
20,000 12-Apr 102 0.626374 12,527 29,678,459
200,000 12-Apr 102 0.626374 125,275 29,878,459
125,000 13-Apr 103 0.622711 77,839 30,003,459
100,000 13-Apr 103 0.622711 62,271 30,103,459
70,000 13-Apr 103 0.622711 43,590 30,173,459
15,000 14-Apr 104 0.619048 9,286 30,188,459
10,000 14-Apr 104 0.619048 6,190 30,198,459
35,000 15-Apr 105 0.615385 21,538 30,233,459
35,000 19-Apr 109 0.600733 21,026 30,268,459
35,000 19-Apr 109 0.600733 21,026 30,303,459
300,000 16-Apr 106 0.611722 183,516 30,603,459
500,000 16-Apr 106 0.611722 305,861 31,103,459
70,000 16-Apr 106 0.611722 42,821 31,173,459
10,000 21-Apr 111 0.593407 5,934 31,183,459
75,000 27-Apr 117 0.571429 42,857 31,258,459
50,000 13-May 133 0.512821 25,641 31,308,459
30,000 13-May 133 0.512821 15,385 31,338,459
20,000 17-May 137 0.498168 9,963 31,358,459
75,000 19-May 139 0.490842 36,813 31,433,459
100,000 20-May 140 0.487179 48,718 31,533,459
20,000 20-May 140 0.487179 9,744 31,553,459
95,000 20-May 140 0.487179 46,282 31,648,459
50,000 21-May 141 0.483516 24,176 31,698,459
10,000 24-May 145 0.468864 4,689 31,708,459
20,000 25-May 146 0.465201 9,304 31,728,459
13,000 30-May 151 0.446886 5,810 31,741,459
125,000 30-May 151 0.446886 55,861 31,866,459
500,000 30-May 151 0.446886 223,443 32,366,459
75,000 1-Jun 153 0.43956 32,967 32,441,459
9,099,611 3-Jun 155 0.432234 3,933,165 41,541,070
20,000 16-Jun 168 0.384615 7,692 41,561,070
----------------- ------------------------------------
JUN-99 14,291,111 34,511,556 41,561,070
----------------- ------------------------------------
250,000 5-Jul 187 0.315018 78,755 41,811,070
10,000 8-Jul 190 0.304029 3,040 41,821,070
5,000 8-Jul 190 0.304029 1,520 41,826,070
5,000 8-Jul 190 0.304029 1,520 41,831,070
5,000 8-Jul 190 0.304029 1,520 41,836,070
10,000 8-Jul 190 0.304029 3,040 41,846,070
10,000 8-Jul 190 0.304029 3,040 41,856,070
15,000 8-Jul 190 0.304029 4,560 41,871,070
15,000 13-Jul 195 0.285714 4,286 41,886,070
5,000 15-Jul 197 0.278388 1,392 41,891,070
125,000 15-Jul 197 0.278388 34,799 42,016,070
829,400 15-Jul 197 0.278388 230,895 42,845,470
20,000 26-Jul 208 0.238095 4,762 42,865,470
20,000 10-Aug 223 0.18315 3,663 42,885,470
5,000 18-Aug 231 0.153846 769 42,890,470
313,500 3-Sep 247 0.095238 29,857 43,203,970
5,000 3-Sep 247 0.095238 476 43,208,970
12,500 13-Sep 257 0.058608 733 43,221,470
3,356,833 14-Sep 258 0.054945 184,441 46,578,303
22,500 14-Sep 258 0.054945 1,236 46,600,803
62,500 20-Sep 264 0.032967 2,060 46,663,303
10,000 27-Sep 271 0.007326 73 46,673,303
(610,000) 30-Sep 273 0 - 46,063,303
------------------------------------
SEP-99 18,793,344 35,107,996 46,063,303
----------------- ------------------------------------
Loss (4,080,781)
-----------------
Loss per share ($0.12)
-----------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,422,659
<SECURITIES> 0
<RECEIVABLES> 104,620
<ALLOWANCES> 0
<INVENTORY> 22,627
<CURRENT-ASSETS> 9,071,570
<PP&E> 2,205,013
<DEPRECIATION> 1,109,818
<TOTAL-ASSETS> 10,543,135
<CURRENT-LIABILITIES> 399,537
<BONDS> 0
0
0
<COMMON> 26,546,878
<OTHER-SE> (16,403,280)
<TOTAL-LIABILITY-AND-EQUITY> 10,543,135
<SALES> 326,494
<TOTAL-REVENUES> 446,054
<CGS> 318,415
<TOTAL-COSTS> 318,415
<OTHER-EXPENSES> 4,155,970
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,028,311)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,028,311)
<DISCONTINUED> 0
<EXTRAORDINARY> (52,450)
<CHANGES> 0
<NET-INCOME> (4,080,781)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
