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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period ended SEPTEMBER 30, 2000
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________
SIDEWARE SYSTEMS INC.
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(Exact name of Registrant as specified in its charter)
BRITISH COLUMBIA,
CANADA
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(State or jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
930 WEST 1ST ST. #102, NORTH VANCOUVER, B.C., CANADA, V7P 3N4
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(Address of Principal Executive offices)
Issuers Telephone Number: (604) 988-0440
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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Common Shares without par value
(Title of Class)
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Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 60,344,040 common shares, par value
$0.001, as at October 31, 2000.
Index to Exhibits on Page 15
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Sideware Systems Inc.
Form 10-Q
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.............................................. 1
Item 2. Management's Discussion and
Analysis or Plan of Operation..................................... 1
Item 3. Qualitative and Quantitative Disclosure
about Market Risk................................................. 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 13
Item 2. Changes in Securities and Use of Proceeds......................... 14
Item 3. Defaults upon Senior Securities................................... 15
Item 4. Submission of Matters to a Vote of
Securities Holders................................................ 15
Item 5. Other Matters..................................................... 15
Item 6. Exhibits and Reports on Form 8-K.................................. 15
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Each of the following items are contained in our Consolidated Financial
Statements and are set forth herein.
(i) Consolidated Balance Sheets as of December 31, 1999 and September 30,
2000;
(ii) Consolidated Statements of Operations for the nine month and three
month periods ended September 30, 1999 and 2000;
(iii) Consolidated Statements of Stockholders' Deficit for the period
beginning December 31, 1998 and ending September 30, 2000;
(iv) Consolidated Statements of Cash Flows for the nine month periods
ended September 30, 1999 and 2000; and
(v) Notes to Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
Unless otherwise stated, all monetary figures contained in this Report are in
United States dollars. Many of our transactions (including payment of
salaries to our Canadian employees) are completed in Canadian dollars. For
purposes of this Report, other than amounts extracted from our financial
statements, Canadian dollar amounts have been converted to United States
dollars at an exchange rate of Cdn$1.00 = US$0.66.
OVERVIEW
Following a change in management in May 1995, new management commenced
rebuilding our business. The initial efforts of new management were focused
on raising sufficient financing to recommence business operations and to
permit our shares to resume trading. Our shares resumed trading on September
10, 1996. Our current focus is on the development and marketing of our Dr.
Bean products. As yet, we have not been able to generate substantial sales
revenue from our products.
RESULTS OF OPERATIONS
We believe that our limited history of revenue generation and recent business
developments make the prediction of future results of operations difficult,
and, accordingly, that our operating results should not be relied upon as an
indication of future performance.
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NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED WITH THE NINE MONTH
PERIOD ENDED SEPTEMBER 30, 1999
During the nine month period ended September 30, 2000 we recognized revenue
of $379,743, consisting of:
(a) $251,225 in license revenue from sales of Dr. Bean;
(b) $44,141 for services rendered in installing Dr. Bean; and
(c) $84,377 in hardware and software re-sales.
Of the $84,377 in hardware and software re-sales, approximately $65,000 came
from sales to related parties.
In addition, we have recorded $125,915 in deferred revenue as at September
30, 2000. Our deferred revenue consists of payments we have received, and
accounts receivable we have recorded, on account of:
(a) future maintenance obligations; and
(b) Dr. Bean sales which were not sufficiently completed by
September 30, 2000 to comply with our revenue recognition policy.
We expect to continue completing our obligations in these transactions, so
that the deferred revenue can be recognized as revenue in future periods.
Cost of revenues for the nine month period ended September 30, 2000 was
$106,712. Cost of revenues allocated to hardware and software re-sales was
$84,377, of which approximately $65,000 resulted from sales to related
parties. Our sales to related parties are made at cost. Our re-sales of
hardware and software to arm's length parties are generally included in sales
of Dr. Bean. Our current practice is to allocate:
(a) an amount equal to the cost of hardware or software sold as revenue
attributed to the re-sale of hardware and software; and
(b) the balance of the revenue from any sale to license revenue or
services.
Cost of revenues allocated to services and license revenue were,
respectively, $21,503 and $832.
We did not realize any revenue from sales of software during the nine month
period ended September 30, 1999. Revenue from hardware and software re-sales
was $24,735, all of which came from sales to related parties. Cost of
revenues was also $24,735, in accordance with our policy re-selling hardware
and software to related parties at cost. We previously reported revenue and
cost of revenue for the nine month period ended September 30, 1999 of
Cdn$326,494, all of which also came from sales to related parties. We have
reduced both revenue and cost of revenues for that period by excluding
certain related party sales in accordance with adjustments made at the 1999
year end.
Interest income increased from $80,241 for the nine month period ended
September 30, 1999 to $529,861 for the nine month period ended September 30,
2000. The reason for the increase was higher cash balances held during the
nine month period ended September 30, 2000.
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Owing to the large increase in our work force, expenses increased in
virtually all categories from the nine month period ended September 30, 1999
to the nine month period ended September 30, 2000.
Sales and marketing expenses increased from $936,757 for the nine month
period ended September 30, 1999 to $7,986,541 for the nine month period ended
September 30, 2000. The principal factors which contributed to this increase
included the following:
(a) Salaries allocated to sales and marketing increased from approximately
$400,000 to approximately $3,700,000.
(b) Trade show costs increased from approximately $150,000 to
approximately $735,000.
(c) Travel costs increased from approximately $80,000 to approximately
$625,000.
(d) Advertising costs increased from approximately $12,000 to
approximately $470,000.
Research and development expenses increased from $740,296 for the nine month
period ended September 30, 1999 to $2,455,096 for the nine month period ended
September 30, 2000. Salaries allocated to research and development increased
from approximately $530,000 to approximately $1,300,000. In addition,
research and development expenses for the nine month period ended September
30, 2000 included approximately $480,000 paid to Science Applications
International Corp., principally for research and development work relating
to telephony integration and "voice over Internet" features for potential
incorporation into our products in the future. Research and development
expenses are reported net of government grants, which totalled approximately
$2,400 for the nine month period ended September 30, 2000.
General and administrative expenses increased from $1,106,766 for the nine
month period ended September 30, 1999 to $2,012,615 for the nine month period
ended September 30, 2000. Several factors contributed to the increase. The
principal factors were as follows.
(a) Employee wages and benefits not allocated to other categories increased
from approximately $110,000 to approximately $1,010,000, as a result
of the increase in our workforce.
(b) Professional fees increased from approximately $360,000 to approximately
$635,000. Legal expenses increased from approximately $250,000 to
approximately $425,000, principally as a result of costs relating to our
financing activities, to the establishment of our offshore subsidiaries,
and to costs incurred in hiring additional personnel. Accounting and
auditing expenses increased from approximately $76,000 to approximately
$175,000, principally as a result of costs incurred in the establishment
of our offshore subsidiaries and as a result of the generally higher
level of business activity within our company. These increases were
offset in part by hiring corporate personnel to do some of the work
previously done by professional firms.
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(c) During the nine month period ended September 30, 2000 we recognized a
foreign exchange gain of approximately $450,000, compared with a foreign
exchange loss of approximately $93,000 for the nine month period ended
September 30, 1999. Our foreign exchange gains and losses result
principally from adjusting entries made in respect of transactions
recorded in Canadian dollars, but actually carried out in United States
dollars, and from gains and losses we incur on short term financial
instruments held in United States dollars.
Apart from the increase in our foreign exchange gain, the increase in our
general and administrative expenses resulted principally from the substantial
increase in our workforce and in the general level of our business activity.
For the quarter ended September 30, 2000, and for the comparable 1999 figures
stated above, we have adopted a policy of allocating overhead expenses such
as rent and amortization among different categories of expenses, such as
sales and marketing or research and development. During previous fiscal
years we reported all expenses of this nature as general and administrative.
Total rent expenses and facilities costs increased from approximately
$350,000 for the nine month period ended September 30, 1999 to approximately
$500,000 for the nine month period ended September 30, 2000. This increase
resulted from the additional office premises we have occupied. Total
amortization charges increased from approximately $140,000 to approximately
$215,000, principally as a result of amortization charges in respect of
additional computer equipment we have purchased and additional office
premises we have occupied.
We recorded a compensation expense of $11,421,903 for the nine month period
ended September 30, 2000, arising from the issuance of stock options at
prices below the trading prices of our shares. The corresponding expense for
the nine month period ended September 30, 1999 $211,544.
PLAN OF OPERATION - LIQUIDITY AND CAPITAL RESOURCES
From the time new management took control of our company in May 1995 up to
November 1, 2000, we have raised in excess of $30 million in equity financing
through private placements (including the exercise of warrants issued
pursuant thereto) and the exercise of stock options. This includes
approximately $18 million which we raised thus far during 2000 through
private placements, and through the exercise of outstanding share purchase
warrants and incentive stock options.
During 2000 we have substantially expanded our work force, particularly in
the United States, where our sales and marketing efforts are centered.
Accordingly, our current rate of expenditure is substantially higher than we
have experienced in previous fiscal years.
As at November 1, 2000 we have approximately 80 Canadian employees or
officers working in Vancouver and North Vancouver, British Columbia, as well
as a regional sales representative in Toronto, Ontario. Of our Canadian
employees:
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(a) approximately half work in the development of our products or in running
our internal systems;
(b) approximately one third work in sales, customer support, and related
areas; and
(c) the remainder work in executive or administrative positions.
Monthly salary costs in our Canadian offices are approximately $300,000 per
month.
We have approximately 75 employees in the United States, operating from 12
different locations. The majority of our United States employees work in our
US head office, in Reston, Virginia. We also have regional sales offices in
Atlanta, Chicago, San Jose, New York, Indiana, Los Angeles, Dallas, Boston,
Miami, Phoenix, and Denver. Over 50 of our United States employees have been
hired subsequent to January 1, 2000. The large majority of our United States
employees work in sales, customer service, and related areas. Our monthly
salary costs in the United States are approximately $550,000 per month.
As a result of the increase in our work force, we have added to our office
facilities. We have occupied new, larger premises for our Virginia head
office, and we have leased premises in Atlanta, San Jose, Chicago, Los
Angeles, Boston, and New York. Our sales representatives in other cities
currently operate from private premises. Monthly rental costs for our
existing premises, in both Canada and the United States, total approximately
$85,000 per month. We may open additional regional sales offices during the
balance of 2000, but we presently have no specific plans to do so.
Our current overhead and administrative expenses are also substantially
higher than we have experienced in previous fiscal years. Excluding
discretionary sales and marketing expenses, our average monthly expenditures
are approximately $1.25 million per month (including an allowance for
projected capital expenditures). Discretionary sales and marketing expenses
could range up to $350,000 per month, but future expenses of that nature will
be dependant on both our capital resources and the success of our marketing
efforts.
As at October 1, 2000, our cash balance (including short term investments) is
approximately $11 million. We also have outstanding share purchase warrants
and stock options which are in the money, and which will yield approximately
$1 million if exercised. We have also begun to generate sales revenue, with
sales contracts totalling approximately $930,000 during the third quarter of
2000. If we are able to maintain that rate of sales, our current and
projected sources of cash should be sufficient to meet our cash requirements,
exclusive of discretionary expenses, through to the end of the third quarter
of 2001.
Investors are cautioned that we cannot at present make accurate estimates of
our future operating costs. Our rate of expenditure has increased
substantially in the last few months, so that we have limited historical data
from which we can predict future expenses. In addition, we may incur
substantial discretionary sales and marketing expenses, depending on our
available resources and on customer response to Dr. Bean. If
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we are able to generate substantial sales of Dr. Bean, we may also increase
our workforce and labour costs substantially.
STATUS OF PRODUCTS AND MARKETING
Our current product is Dr. Bean 3.2. We are also developing Dr. Bean On
Call. Dr. Bean On Call can be sold as an installed application, similar to
Dr. Bean 3.2, and also permits us (or a licensee) to sell the essential
functions of Dr. Bean as a service over the internet. Dr. Bean On Call 2.0
is scheduled for release at the end of November 2000. For the next six
months, we intend to focus the majority of our product development efforts on
Dr. Bean On Call.
(i) DESCRIPTION OF DR. BEAN 3.2
Dr. Bean 3.2 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 3.2 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. Server
software is incorporated into the producer company's website server, and
monitors the actions of the customer.
On clicking the Dr. Bean icon, Dr. Bean opens an interactive peer-to-peer
link between the customer and a CSR. The customer and CSR can 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 3.2 incorporates the following components and features.
QUEUE MANAGEMENT
When all customer service representatives (CSRS) are busy, Dr. Bean can
establish a queue of customers waiting for service. When they come
available, CSRs can choose a new customer from the queue.
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CUSTOMER INTERFACE
The customer interface is the graphical user interface shown to
customers when they first open Dr. Bean. Dr. Bean permits a company to
adjust the size and colour of the Dr. Bean window that its customers
see, and to include corporate logos and other "look and feel" components
that the company wants.
Dr. Bean previously offered two versions of the graphical user
interface, one written as a Java applet, and one written in Hypertext
Mark-up Language ("HTML"). In version 3.2 we presently offer only an
HTML version.
FIREWALL ROUTER
Dr. Bean operates compatibly with system firewalls, and can be
configured to operate within a company's established security
environment.
DATA SOURCE MANAGER
The Data Source Manager permits Dr. Bean to read data from databases
stored in other components of a user's system. The data source manager
can access multiple databases, and multiple database servers,
simultaneously. Dr. Bean is compatible with a wide range of database
software, including IBM's DB2 and Oracle's 8i.
SUPERVISOR MODULE
The supervisor module enables a supervisor to monitor various aspects of
CSR performance. The supervisor can view the chat messages being
exchanged by a CSR. The supervisor can also view, in graphical form,
data analysing the level of service being provided to customers. The
type of data available can include such items as the average queue time
for customers or the number of CSRs available.
WEB PAGE PUSH
Dr. Bean permits a CSR to push web pages to a customer. This allows a
CSR, for example, to lead a customer to a web page covering a specific
product the customer is interested in.
WHITE BOARDING
Using the white boarding feature, a CSR can draw graphics on an image
sent to the customer. For example, a CSR can push a picture of a
particular product to the customer, and can circle a section of the
picture, in much the same way that telestrators are used in television
broadcasts.
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KNOWLEDGE BASED ROUTER
Dr. Bean can direct a customer to the most appropriate CSR (or CSR
group) through the following methods:
(a) icons in different locations on a company's website can direct a
customer to different CSRs; and
(b) keywords embedded in a web page can direct customers using that web
page to specified CSRs.
The criteria used by the intelligent routing can be customized to meet
the sales protocols and priorities of individual companies. For
example, Dr. Bean permits the company to designate groups of CSR's who
will specialize in a common area. Dr. Bean users can designate the
criteria used for routing customers to a particular CSR or group of
CSR's.
COLLABORATIVE SERVICES
The collaborative services feature permits CSR's to communicate among
themselves while a customer chat session is under way. For example, if
the customer asks a question which the CSR is unable to answer, the CSR
can contact other CSRs to find the answer. The CSR can communicate
with a specific individual, or can send messages to a group.
ENTERPRISE REPORTING SERVICES
The enterprise reporting feature permits Dr. Bean users to assemble a
broad range of information and reports relating to system performance.
Examples could include statistics concerning the activities of
individual CSRs or a specific group of CSRs, or the frequency of calls
during specified periods of the day. The enterprise reporting feature
allows the user to specify the contents and format of any report.
E-MAIL RESPONSE
Dr. Bean allows CSRs to respond to customers through e-mail messages.
MULTI-CHANNEL INTEGRATION
The multi-channel integration feature is designed to permit companies to
integrate different channels of Internet-based customer service.
In its present configuration, the multi-channel integration feature
permits customers to request chat communication, e-mail communication,
or a return call by telephone. All of these requests are handled
through a common queue. For customers requesting telephone
communication, Dr. Bean shows the CSR the customer's name and telephone
number, and the date and time of the request. For customers requesting
e-mail communication, Dr. Bean shows the CSR the customer's e-mail
address. When the
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customer is chosen from the queue, the CSR can respond to the customer
in the manner the customer has chosen.
(ii) DESCRIPTION OF DR. BEAN ON CALL
Dr. Bean On Call performs functions similar to those of Dr. Bean 3.2. It can
be sold as an installed solution, like Dr. Bean 3.2, or it can be used to
provide the functions of Dr. Bean as a service, over the Internet. When
implemented as a service, Dr. Bean On Call runs on the centralized server of
an ASP (application service provider). Companies communicate with their
customers through the ASP server. Dr. Bean On Call thus gives companies the
option of enjoying the functions offered by Dr. Bean without having to
purchase Dr. Bean as a product, and without incurring the resulting system
administration and maintenance costs.
Dr. Bean On Call offers three different customer interfaces, one written in
HTML, one written as a Java applet, and one which runs as an application
installed on the client computer. The three interfaces support different
levels of features.
During the summer of 2000 we conducted a beta test program of Dr. Bean On
Call 1.0. The principal features included in Dr. Bean On Call 1.0 were:
- customer chat (available with all interfaces);
- web page push (available with all interfaces);
- white boarding (one-way with the HTML interface, and two-way with
other interfaces); and
- voice over internet protocol (available only with the application
interface, and through high speed internet connections).
As a result of the beta testing program, we have added modifications and
features to Dr. Bean On Call. We are currently beta testing Dr. Bean On Call
1.2, which includes the features of version 1.0, plus a queuing feature which
will direct customers to the next available CSR. We expect to continue
adding features during the beta testing program, and to release Dr. Bean On
Call 2.0 by the end of November 2000. Dr. Bean On Call 2.0 will include the
following additional features:
- supervisor functions, similar to those included in Dr. Bean 3.2; and
- a multi-tenant CSR module, permitting a single CSR to respond to
calls directed to different companies.
The multi-tenant CSR feature will permit licensees of Dr. Bean On Call to
establish out-sourcing operations, through which companies wishing to use Dr.
Bean can hire outside personnel to respond to their customers.
(iii) DR. BEAN - FUTURE DEVELOPMENTS
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Our present development plans are focussed on further development of Dr. Bean
On Call, as its design is better suited to large installations, servicing a
large number of CSR's. During the first quarter of 2001, we plan to release
Dr. Bean On Call 2.1. Dr. Bean On Call 2.1 will include the features of Dr.
Bean On Call 1.2, as well as features similar to those of Bean 3.2, as
described in section (i), above. In addition, Dr. Bean On Call 2.1 will:
- include application programmer interfaces, permitting Dr. Bean On
Call 2.1 to communicate with other software applications; and
- support remote CSR operation, permitting a CSR to operate from a
remote location, such as his residence, over an internet connection.
With the introduction of Dr. Bean On Call 2.1, it will become our primary
product and development platform. We do not currently plan any further
development work on Dr. Bean 3.2, as we expect to market Dr. Bean On Call 2.1
in any environments in which Dr. Bean 3.2 could be installed.
We are continuing development work on the multi-channel integration feature,
to integrate telephone and fax transmissions, so that incoming customer
communications from different sources can be handled through a single queue.
We do not presently have a definitive timetable for completion of the
multi-channel integration feature.
We have also commenced design work on a future version of Dr. Bean to be
based on EJB (Enterprise Java Beans) design standards. This design work is
in its preliminary stage, and we have not yet set a timetable for the
development of this product.
(iv) DR. BEAN - MARKETING
Our Dr. Bean products are intended to service the rapidly growing market for
software which facilitates business over the Internet. International Data
Corporation has projected that the number of customers buying goods and
services over the Internet will grow from approximately 30 million in 1998 to
133 million in 2002. The total value of goods and services purchased over the
Internet was projected to grow from approximately $50 billion in 1998 to over
$734 billion by 2002.
A corresponding demand is predicted for software that facilitates Internet
commerce. International Data Corporation has estimated that the market for
eCRM license revenue was approximately $42 million in 1998 and that it will
grow to over $2 billion by 2003, representing a compound annual growth rate
of 117%. We have not taken independent steps to verify these projections, or
to create our own projections. However, based on these projections and the
rapid growth of the Internet as a medium for business, we expect a large
market for eCRM software to develop. Our objective is to capture, through Dr.
Bean, a significant share of that market.
We plan to market our Dr. Bean products through two principal channels, our
direct sales personnel and value added resellers.
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In the United States, we employ approximately 75 employees, the majority of
whom work in sales, integration, customer support, and related areas. Our
head office in the United States is in Reston, Virginia. In addition, we
employ regional sales personnel in Atlanta, San Jose, Los Angeles, Dallas,
Boston, New York, Miami, Denver, Phoenix, Indiana, and Chicago. In Canada,
we employ approximately 25 employees in sales, integration, customer support,
and related areas. We have one regional sales representative in Toronto,
Ontario, with the rest of our Canadian sales personnel stationed in Vancouver
and North Vancouver, British Columbia.
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 report, we have
signed reseller agreements with approximately 30 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 2000 and 2001. 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 into 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 with IBM on a
worldwide basis, and access and introductions to both IBM customers and
IBM resellers. We have signed an Independent Software Vendor Agreement,
pursuant to which IBM 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) 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.
In June 2000 we were also accepted into the Siebel Alliance Program of Siebel
Systems, Inc., as a Siebel Premier Software Partner. Under the Siebel
Alliance Program we are entitled to participate in marketing programs
organized by Siebel Systems, Inc., to receive training in the use and
installation of Siebel products, and to use Siebel computer programs for
demonstration and marketing purposes.
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Including both completed installations and signed contracts, we have
approximately 30 customers for Dr. Bean. During the second and third
quarters of 2000 we recognized license revenue from sales of Dr. Bean of
$103,000 and $144,445, respectively. This represented our first material
revenue from the sale of Dr. Bean. During the third quarter of 2000, we
signed sales contracts totalling approximately $930,000. Part of
this amount was recognized as revenue in the third quarter, and the balance
will be recognized in future quarters, as it is earned.
To date, most of our installations of Dr. Bean have been small, involving
only a few CSR workstations. We have never completed a large installation of
any version of Dr. Bean, and we have no experience to confirm how well Dr.
Bean 3.2 will operate in large installations. As a result, our marketing of
Dr. Bean 3.2 has been targeted at SME (small to medium enterprise) customers,
intending to operate, or to commence operation, with 50 CSR seats or fewer.
With the release of Dr. Bean On Call 2.1, scheduled for the first quarter of
2001, we intend to focus our marketing efforts on Dr. Bean On Call. We are
soliciting ASPs as potential licensees of Dr. Bean On Call, and we also
intend to offer Dr. Bean On Call as an application service through our own
facilities. We will also market Dr. Bean On Call as our primary installed
solution, suitable for both large and small installations. For customers
intending to operate larger installations, we presently intend to contract
for future delivery of Dr. Bean On Call 2.1, and to offer Dr. Bean 3.2 as an
introductory product while the customer initiates web-based customer service.
Our ability to attract customers operating large call centres will be
dependent on completing Dr. Bean On Call 2.1.
To date, substantially all of our sales have come through our direct sales
force, as we have not generated significant sales through re-sellers.
Depending on customer requirements and the systems they are meant to operate
with, our Dr. Bean products can require varying levels of integration and
customization in particular installations. Potential re-sellers of our
products may not have sufficient expertise or experience with our products to
complete the integration or customisation required in more complex
installations. We are developing APIs for Dr. Bean On Call to make
integration and customization work easier and thus, in part, to facilitate
sales by re-sellers.
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CHANGES IN MANAGEMENT
During the quarter ended September 30, 2000 we hired Rahul Bardhan as our
Chief Technology Officer. Mr. Bardhan was previously employed as a Senior
Practice Director in the Advanced Technology Solutions division of Oracle
Corp. During a six year career with Oracle Corp. Mr. Bardhan also worked in
Oracle's national e-commerce consulting practice and in the development of
internet-based systems.
Effective October 16, 2000, Owen Jones resigned as our President and Chief
Executive Officer. James Speros was appointed to replace Mr. Jones as
President and Chief Executive Officer. Mr. Jones remains a director.
STOCK OPTIONS
Subsequent to June 30, 2000 we have issued 1,948,000 new stock options, with
exercise prices of US$2.25 per share, pursuant to our 2000 Stock Option Plan.
Each option has a term of 5 years, expiring August 30, 2005. Pursuant to
policies of the Canadian Venture Exchange, the options vest over periods of
not less than eighteen months.
Rahul Bardhan, our Chief Technology Officer, received 1,000,000 of the
options. The remainder were granted to approximately 65 employees, officers,
and consultants.
REGULATORY STATUS - TRADING OF SHARES
On October 25, 2000 we filed a Form 8-K stating that we may now be a domestic
issuer for purposes of the Securities and Exchange Act of 1934. Accordingly,
we intend to begin filing reports on the forms prescribed for domestic
issuers.
On November 10, 2000 our shares commenced trading on the Toronto Stock
Exchange. We intend to delist our shares from the Canadian Venture Exchange.
PART III. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
As at September 30, 2000 we have not entered into or acquired financial
instruments that have a material market risk. We have no financial
instruments for trading or other purposes or derivative or other financial
instruments with off balance sheet risk. All financial assets and liabilities
are due within the next twelve months and are classified as current assets or
liabilities in the consolidated balance sheet provided with this prospectus.
The fair value of all financial instruments at September 30, 2000 is not
materially different from their carrying value.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Since new management took control of the Company in May 1995, we have been
engaged in several legal disputes with former management. We have recently
settled some of those legal disputes, and are in the course of settling the
remainder. Upon completion of all of the pending settlements:
(a) we will issue a total of 80,000 shares, and will make cash payments of
approximately $20,000, to opposing parties;
(b) 9123 Investments Ltd., our subsidiary, will return approximately $45,000
which it received from one of the opposing parties in foreclosure
proceedings;
13
<PAGE>
(c) we will receive cash payments totalling approximately $165,000; and
(d) the legal proceedings will be terminated, and the parties will exchange
mutual releases.
The legal actions which will be terminated as a result of this settlement
include the following:
- EVERGREEN V. KOSTIUK ET AL; ACTION NO. C952721 IN THE BRITISH COLUMBIA
SUPREME COURT
- KOWALEWICH ET AL V. EVERGREEN ET AL; ACTION NO. C963748 IN THE BRITISH
COLUMBIA SUPREME COURT
- KOWALEWICH V. EVERGREEN; ACTION NO. C963717 IN THE BRITISH COLUMBIA
SUPREME COURT
- KOWALEWICH ET AL V. EVERGREEN; ACTION NO. A963030 IN THE BRITISH
COLUMBIA SUPREME COURT
Some aspects of the settlement agreements are conditional upon receiving the
approval of the stock exchanges on which our shares trade. We are in the
course of seeking the required approvals.
Following completion of the pending settlements, we will not be party to any
material court proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to approval received from the Canadian Venture Exchange, we have
re-priced 810,000 share purchase warrants issued April 13, 2000.
The warrants have a two-year term and original exercise prices of US$10.00 in
the first year and US$11.50 in the second year. Under the re-pricing, the
exercise prices will be US$2.82 in the first year and US$3.24 in the second
year. Pursuant to the policies of the Canadian Venture Exchange the term of
the re-priced warrants will be reduced to 30 days if, for ten consecutive
days, the closing trading price of the company's shares exceeds either
US$3.32 in the first year, or U$3.82 in the second year. The 30-day term
commences seven days after the ten-day trading threshold has been met.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
During the three month period ended September 30, 2000 we did not submit
any matters to a vote of security holders.
14
<PAGE>
ITEM 5. OTHER MATTERS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On October 25, 2000 we filed a Form 8-K stating that we may now be a domestic
issuer for purposes of the Securities and Exchange Act of 1934. Accordingly,
we intend to begin filing reports on the forms prescribed for domestic
issuers.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number EXHIBIT
-------- -------
<S> <C>
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
3.9 Special Resolution dated June 28, 2000
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(2) Agreement dated October 28, 1999 between the Company and certain warrant
holders of the Company
4.5(4) 2000 Stock Option Plan
4.6(4) Agreement dated April 30, 2000 between the Company and certain warrant
holders of the Company
4.7(4) Amended 2000 Stock Option Plan
10.1(1) Operating Agreement between the Company and BrainTech, Inc., dated October 18,
1996
10.2(2) Software Development and License Agreement dated September 20, 1999 between
the Company and BrainTech, Inc.
10.3(2) Software Development License Agreement between the Company and Sideware
International SRL effective August 27, 1999
10.4(2) Research and Development Cost Sharing Agreement between the Company and
Sideware International SRL effective August 27, 1999
10.5(2) 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.
15
<PAGE>
10.7(1) Lease Agreement dated January 25, 1999 between Sideware Corp. and Elden
Investments, LLC with Addendum dated February 8, 1999
10.8(2) Agreement between the Company and IBM for participation in the Enterprise
Growth Opportunity program
10.9(2) Reseller agreement between the Company and Enterprise Soft
10.10(2) Software license agreement between the Company and ICEsoft AS
10.11(2) Lease effective as of July 1, 1999 between the Company, Techwest Management
Ltd., BrainTech, Inc. and Pacific Centre Leaseholds Ltd.
10.12(2) Assignment Agreement effective as of July 1, 1999 between the Company,
Techwest Management Ltd., BrainTech, Inc., and SJM Management Ltd.
10.13(2) Cost Sharing and Allocation Agreement dated October 29, 1999 between the
Company and BrainTech, Inc.
10.14(2) Agreement between the Company and Advanced Contact Solutions Inc.
10.15(2) Contract Agreement No. SDW001 between the Company and Science Applications
International Corp.
10.16(2) IBM International Independent Software Vendor Agreement
10.17(2) Distribution and Sales Agreement between Sideware Corp. and Sideware
International SRL
10.18(3) Lease Agreement dated March 6, 2000 between Sideware Corp. and Reston L.L.C.
10.19(3) Lease Agreement between Sideware Corp. and Sanctuary Park Realty Holding
Company
10.20(3) Sub-Lease Agreement dated January 15, 2000 between San Jose State University
Foundation and Sideware Systems Inc.
10.21(3) Lease Agreement dated February 24, 2000 between CEO Suites, Inc. and Sideware
Corp.
10.22(4) Alliance Agreement with Siebel Systems, Inc.
11.1 Computation of net loss per share
21.1 List of Subsidiaries
27.1 Financial Data Schedule
</TABLE>
(1) Exhibit already on file - exhibit to our Form20-F registration
statement filed in May 1999.
(2) Exhibit already on file - exhibit to our Form F-1 registration statement
333-90893 filed in December 1999.
(3) Exhibit already on file - exhibit to our Form 20-F annual report
covering the year ended December 31, 1999.
(4) Exhibit already on file - exhibit to our Form F-3 registration statement
no. 333-34984 filed in April 2000.
16
<PAGE>
SIGNATURES
In accordance with Section 13 of the Securities Exchange Act of 1934, the
registrant caused this Quarterly Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 14, 2000 Sideware Systems Inc.
"Grant Sutherland"
------------------------------
W. Grant Sutherland
Director
Chairman of the Board of Directors
Chief Financial Officer
17
<PAGE>
Consolidated Financial Statements of
SIDEWARE SYSTEMS INC.
(Expressed in US dollars)
(Prepared in accordance with generally accepted
accounting principles in the United
States)
Nine months ended September 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
<PAGE>
SIDEWARE SYSTEMS INC.
Consolidated Balance Sheets
(Unaudited)
(Expressed in US dollars)
(Prepared in accordance with generally accepted accounting principles in
the United States)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 6,090,242 $ 5,929,801
Short-term investments 5,232,863
Accounts receivable:
Trade 319,673 -
Other 215,071 123,297
Due from officers 32,075 -
Inventory 18,617 73,894
Prepaid expenses 402,631 243,045
Current portion of long-term receivables 6,319 14,041
---------------------------------------------------------------------------------------------------------
12,317,491 6,384,078
Deposit on lease 108,001 20,212
Long-term receivables 105,003 108,655
Deferred charges 94,343 100,763
Fixed assets 1,983,300 923,536
--------------------------------------------------------------------------------------------------------------
$ 14,608,138 $ 7,537,244
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 977,358 $ 404,000
Due to related parties - 39,340
Due to officers - 219,636
Deferred revenue 125,915 -
---------------------------------------------------------------------------------------------------------
1,103,273 662,976
Shareholders' equity:
Share capital (note 3) 40,570,524 21,501,023
Additional paid in capital 12,772,373 228,954
Deferred stock-based compensation (1,202,234) -
Cumulative translation account (558,347) 148,479
Deficit (38,077,451) (15,004,188)
---------------------------------------------------------------------------------------------------------
13,504,865 6,874,268
--------------------------------------------------------------------------------------------------------------
$ 14,608,138 $ 7,537,244
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIDEWARE SYSTEMS INC.
Consolidated Statements of Operations and Deficit
(Unaudited)
(Expressed in US dollars)
(Prepared in accordance with generally accepted accounting principles in
the United States)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Three months ended September 30, Nine months ended September 30,
-------------------------------- ---------------------------------
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Licenses $ 144,445 $ - $ 251,225 $ -
Services 33,826 - 44,141 -
Hardware and software resales (note 6) 12,477 357 84,377 24,735
------------------------------------------------------------------------------------------------------------------
190,748 357 379,743 24,735
Cost of revenues:
Licenses 347 - 832 -
Services 13,926 - 21,503 -
Hardware and software resales (note 6) 12,477 357 84,377 24,735
------------------------------------------------------------------------------------------------------------------
26,750 357 106,712 24,735
-----------------------------------------------------------------------------------------------------------------------
Gross margin 163,998 - 273,031 -
Operating expenses:
Sales and marketing 3,228,977 402,980 7,986,541 936,757
Research and development 747,528 322,880 2,455,096 740,296
General and administrative 876,367 688,654 2,012,615 1,106,766
Stock-based compensation 2,949,207 - 11,421,903 211,544
------------------------------------------------------------------------------------------------------------------
7,802,079 1,414,514 23,876,155 2,995,363
-----------------------------------------------------------------------------------------------------------------------
Operating loss for the period (7,638,081) (1,414,514) (23,603,124) (2,995,363)
Non operating items:
Interest income 164,983 78,687 529,861 80,241
Write-off of capital assets - (35,296) - (35,201)
------------------------------------------------------------------------------------------------------------------
164,983 43,391 529,861 45,040
-----------------------------------------------------------------------------------------------------------------------
Net loss (7,473,098) (1,371,123) (23,073,263) (2,950,323)
Deficit, beginning of period (30,609,041) (10,932,110) (15,004,188) (9,352,910)
-----------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (38,077,451) $ (12,303,233) $(38,077,451) $(12,303,233)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Loss per share information:
Basic and diluted $ 0.12 $ 0.03 $ 0.40 $ 0.07
Basic and diluted, net of stock-based
compensation 0.08 0.03 0.20 0.07
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding 59,040,229 42,281,536 57,502,937 41,450,159
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIDEWARE SYSTEMS INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in US dollars)
(Prepared in accordance with generally accepted accounting principles in
the United States)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Nine months ended September 30,
------------------------------------
2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operations:
Net loss $ (23,073,263) $ (2,950,323)
Items not involving the use of cash:
Amortization 436,995 142,319
Stock-based compensation 11,421,903 211,544
Write-off of capital assets - 35,201
Investment advisory services settled
by equity instruments - 107,383
Changes in non-cash operating working capital:
Accounts receivable (425,233) 87,625
Due to (from) related parties (71,335) 92,999
Due to (from) officers (215,353) -
Inventory 53,438 14,415
Prepaid expenses (172,942) (125,174)
Accounts payable and accrued liabilities 602,150 81,073
Deferred revenue 128,609 -
---------------------------------------------------------------------------------------------------------
(11,315,031) (2,302,938)
Financing:
Special warrants issued for cash - 1,993,852
Shares issued for cash, net of share issue costs 18,988,783 6,474,619
---------------------------------------------------------------------------------------------------------
18,988,783 8,468,471
Investments:
Purchase of short-term investments (5,425,938)
Long-term receivables and deferred charges 9,036 (235,277)
Purchase of fixed assets (1,557,207) (478,639)
Deposit on lease (90,494) (11,808)
---------------------------------------------------------------------------------------------------------
(7,064,603) (725,724)
--------------------------------------------------------------------------------------------------------------
Unrealized foreign exchange loss on translation (448,708) 93,075
Increase in cash and cash equivalents 160,441 5,532,884
Cash and cash equivalents, beginning of period 5,929,801 206,368
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 6,090,242 $ 5,739,852
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Supplemental information:
Cash paid for interest $ - $ -
Cash paid for taxes - -
Non-cash financing activities:
Shares issued on exercise of special warrants - 676,978
--------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in US dollars)
(Prepared in accordance with generally accepted accounting principles in the
United States)
Nine months ended September 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION:
The unaudited condensed consolidated financial statements have been
prepared by Sideware Systems Inc. ("Sideware") in accordance with generally
accepted accounting principles in the United States and reflect all
adjustments (all of which are normal and recurring in nature) that, in the
opinion of management, are necessary for fair presentation of the interim
periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results to be expected for
any subsequent quarter or for the entire year ending December 31, 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These unaudited condensed
consolidated financial statements and notes included herein should be read
in conjunction with Sideware's audited consolidated financial statements
and notes for the year ended December 31, 1999, included in Sideware's
Registration Statement on Form 20-F.
The consolidated financial statements include the accounts of the Company,
and its subsidiaries, Sideware International SRL, 3032650 Nova Scotia
Company, 9050 Investments Ltd.(inactive), Sideware Corp., Doorchester 52613
Investments Ltd., Evergreen International Technology Inc.(Inactive), all of
which are wholly-owned. All material intercompany balances and transactions
have been eliminated.
As the Company commenced its principle business activities in the nine
month period ended September 30, 2000 the Company is no longer
considered to be in the development stage.
2. REVENUE RECOGNITION:
License revenue and revenue from the resale of third party hardware and
software are generally recognized when an agreement has been signed, the
product has been delivered, the fee is fixed and determinable, collection
is probable and the Company's remaining contractual obligations are
insignificant.
Services revenue arises from the sale of maintenance contracts and the
provision of consulting and implementation services provided in connection
with the sale of the Company's software. Revenue from maintenance contracts
is deferred and recognized ratably over the term of the contract. Revenue
from consulting and implementation services is generally recognized at the
time the service is performed.
The Company recognizes sales of equipment to related parties in revenues
and related costs in cost of revenues as the Company takes title to and
holds the equipment, bearing all of the risks and rewards of 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.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 2
(Unaudited)
(Expressed in US dollars)
(Prepared in accordance with generally accepted accounting principles in the
United States)
Nine months ended September 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
3. SHARE CAPITAL:
Authorized:
200,000,000 common shares without nominal or par value.
Issued:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Number
of shares Amount
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1999 51,769,238 21,501,023
Shares issued on exercise of non-transferable warrants 3,919,702 3,803,797
Shares issued on exercise of options 1,071,100 1,346,619
Shares issued for cash 3,340,100 14,557,887
Shares issued for subscriptions previously received 243,900 -
Compensatory benefit of stock options
Assignment of capital on stock options exercised -
Less share issue costs - 80,717
-------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 (Unaudited) 60,344,040 $40,570,524
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
</TABLE>
(a) Stock options:
Activity during the nine months ended September 30, 2000 is as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
Exercise Outstanding Outstanding Vested
price per December 31, Expired/ September 30, September 30,
Expiry date share 1999 Granted Exercised cancelled 2000 2000
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
June 24, 2001 $ CDN 0.50 753,000 - (100,000) - 653,000 653,000
February 12, 2002 CDN 0.36 123,000 - - - 123,000 123,000
March 26, 2002 CDN 0.82 10,000 - (10,000) - - -
December 16, 2002 CDN 0.70 380,000 - (95,000) - 285,000 285,000
July 6, 2003 CDN 0.36 365,000 - (60,000) - 305,000 305,000
April 14, 2004 CDN 1.14 470,000 - (130,000) (50,000) 290,000 290,000
April 29, 2004 CDN 1.35 161,000 - (82,500) - 78,500 78,500
June 17, 2004 CDN 2.33 967,000 - (122,500) - 844,500 844,500
October 4, 2004 CDN 2.66 728,500 - (403,000) - 325,500 325,500
October 20, 2004 CDN 2.78 149,000 - (68,100) - 80,900 55,900
January 14, 2005 US 8.69 - 1,000,000 - - 1,975,000 300,000
January 21, 2005 US 11.08 - 1,000,000 - (75,000) 1,925,000 665,000
April 20, 2005 US 5.10 - 4,912,000 - - 4,912,000 1,021,750
August 30, 2000 US 2.25 - 1,948,000 - - 1,948,000 204,375
------------------------------------------------------------------------------------------------------------------------
4,106,500 8,860,000 (1,071,100) (125,000) 11,770,400 5,151,525
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
</TABLE>
Stock options generally vest over periods of up to two years.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 3
(Unaudited)
(Expressed in US dollars)
(Prepared in accordance with generally accepted accounting principles in the
United States)
Nine months ended September 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
3. SHARE CAPITAL (CONTINUED):
(b) Share purchase warrants:
The following non-transferable share purchase warrants were
outstanding at September 30, 2000:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Exercise price Number
Expiry date per share of shares
--------------------------------------------------------------------------------
<S> <C> <C>
December 23, 2000 $CDN 0.40 176,000
March 26, 2001 $US 0.383 197,882
April 7, 2001 $CDN 0.63 2,000,000
September 14,2001 $US 1.89 1,417,254
December 14, 2000/2001 $US1.64/1.89 1,901,271
March 20 ,2001/2002 $US10.00/11.50 1,084,000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
Subsequent to September 30, 2000 the share purchase warrants
outstanding at September 30, 2000 having an exercise price of
US$10.00 in the first year and US$11.50 in the second year have
been repriced. Under the repricing, the exercise prices will be
US$2.82 in the first year and US$3.24 in the second year. Pursuant
to the policies of the Canadian Venture Exchange the term of the
re-priced warrants will be reduced to 30 days if, for ten
consecutive days, the closing trading price of the company's shares
exceeds either US$3.32 in the first year, or US$3.82 in the second
year. The 30-day term commences seven days after the ten day
trading threshold has been met.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 4
(Unaudited)
(Expressed in US dollars)
(Prepared in accordance with generally accepted accounting principles in the
United States)
Nine months ended September 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
4. LITIGATION:
As at September 30, 2000 the Company was engaged in several court
proceedings with former management and with the Company's former lawyers
and auditors. The Company is in the process of completing settlements of
those court proceedings. Pursuant to the pending settlements, the Company
will issue 80,000 shares, and will make payments of approximately 21,000,
to opposing parties. In addition, the Company will return approximately
$29,000 received previously in foreclosure proceedings from one of the
opposing parties. The Company will receive cash payments totaling
approximately $106,000 from opposing parties. All material net obligations
under this settlement are reflected in the consolidated financial
statements. Following completion of the settlements, the Company will have
no outstanding legal proceedings.
5. COMMITMENTS:
The Company has obligations under operating lease arrangements which
require the following minimum annual payments:
<TABLE>
<S> <C>
2000 $ 246,000
2001 979,000
2002 940,000
2003 790,000
2004 527,000
2005 and thereafter 3,295,000
----------------------------------------------------------
$6,777,000
----------------------------------------------------------
----------------------------------------------------------
</TABLE>
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 5
(Unaudited)
(Expressed in US dollars)
(Prepared in accordance with generally accepted accounting principles in the
United States)
Nine months ended September 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
6. RELATED PARTY TRANSACTIONS:
Included in hardware and software resale revenues and cost of revenues are
$65,524(September 30, 1999 - $25,535) in 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, and to a director of the Company.
7. DEFERRED STOCK-BASED COMPENSATION:
The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is
recognized for any of its stock options when the exercise price of each
option equals or exceeds the fair value of the underlying common stock as
of the grant date for each stock option.
