<PAGE>
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
Of the SECURITIES EXCHANGE ACT OF 1934
For the month of August, 2000.
Sideware Systems Inc.
Suite 102, 930 West First Street, North Vancouver, British Columbia,
Canada V7Y 3N4
[Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.]
Form 20-F X . Form 40-F _________ .
---------
[Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to RULE 12g3-2(b) under the Securities Exchange Act of
1934.]
Yes _________ . No X .
---------
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with RULE 12g3-2(b): 82 - _____________________ .
SIDEWARE SYSTEMS INC. HEREBY INCORPORATES THIS FORM 6-K BY REFERENCE INTO THE
FOLLOWING REGISTRATION STATEMENTS:
1. THE FORM F-3 REGISTRATION STATEMENT OF SIDEWARE SYSTEMS INC. FILED APRIL
18, 2000, UNDER REGISTRATION NO. 333-34984, AND AMENDED JUNE 8, 2000.
2. THE FORM F-3 REGISTRATION STATEMENT OF SIDEWARE SYSTEMS INC. FILED JUNE 8,
2000, UNDER REGISTRATION NO. 333-38876.
<PAGE>
QUARTERLY REPORT FORM 61
Incorporated as part of: X Schedule A
----------------------------------
Schedule B & C
----------------------------------
(PLACE X IN APPROPRIATE CATEGORY)
ISSUER DETAILS
NAME OF ISSUER: SIDEWARE SYSTEMS INC.
ISSUER ADDRESS: 102 - 930 WEST FIRST STREET, VANCOUVER, BC,V7P 3N4
ISSUER PHONE NUMBER: (604) 986-6121
ISSUER FAX NUMBER: (604) 980-7121
CONTACT PERSON: GRANT SUTHERLAND
CONTACT POSITION: CHAIRMAN
CONTACT TELEPHONE NUMBER: (604) 688-0047
FOR QUARTER ENDED: JUNE 30, 2000
DATE OF REPORT: AUGUST 28, 2000
CERTIFICATE
The three schedules required to complete this Quarterly Report are attached and
the disclosure contained therein has been approved by the Board of Directors. A
copy of this Quarterly Report will be provided to any shareholder who requests
it.
GRANT SUTHERLAND "GRANT SUTHERLAND" AUGUST 28, 2000
-------------------------------------------------------------------------------
DIRECTORS NAME SIGN (TYPED) DATE SIGNED
EDWARD WHITE "E.A. WHITE" AUGUST 28, 2000
-------------------------------------------------------------------------------
DIRECTORS NAME SIGN (TYPED) DATE SIGNED
(SIGNATURES FOR THIS FORM SHOULD BE ENTERED IN TYPED FORM)
<PAGE>
Consolidated Financial Statements of
SIDEWARE SYSTEMS INC.
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31,1999
<PAGE>
SIDEWARE SYSTEMS INC.
Consolidated Balance Sheets
(Unaudited)
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
June 30, December 31,
2000 1999
-------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,517,289 $ 8,558,482
Accounts receivable:
Trade 143,178 --
Other (note 4) 272,190 177,955
Due from officers (note 5(c)) 10,673 --
Share subscriptions receivable (note 8) 26,600 --
Inventory 22,504 106,651
Prepaid expenses 421,537 350,786
Current portion of long-term receivables (note 6) 9,500 20,266
--------------------------------------------------------------------------------
24,423,471 9,214,140
Deposit on lease 117,863 29,172
Long-term receivables (note 6) 163,168 156,822
Deferred charges (note 6) 144,194 145,431
Fixed assets (note 7) 2,461,477 1,332,939
-------------------------------------------------------------------------------------
$ 27,310,173 $ 10,878,504
=====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 938,874 $ 583,093
Due to related parties(note 5(b)) 173,170 56,780
Due to officers(note 5(c)) -- 317,000
Deferred revenue 153,141 --
--------------------------------------------------------------------------------
1,265,185 956,873
Shareholders' equity:
Share capital (note 8) 56,805,642 30,236,799
Deficit (30,760,654) (20,315,168)
-------------------------------------------------------------------------------------
26,044,988 9,921,631
Future operations (note 2)
Litigation (note 10)
Commitments (note 12)
Subsequent event (note 13)
-------------------------------------------------------------------------------------
$ 27,310,173 $ 10,878,504
=====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board
"GRANT SUTHERLAND" Director "E.A. WHITE" Director
------------------- -------------
<PAGE>
SIDEWARE SYSTEMS INC.
Consolidated Statements of Operations and Deficit
(Unaudited)
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
2000 1999
----------------------------------------------------------------------------------------
<S> <C> <C>
Revenue:
Licenses $ 155,707 $ --
Services 14,839 --
Hardware and software resales (notes 5(a) and 15) 105,710 36,324
-----------------------------------------------------------------------------------
276,256 36,324
Cost of revenues:
Licenses 712 --
Services 11,010 --
Hardware and software resales (notes 5(a) and 15) 105,710 36,324
-----------------------------------------------------------------------------------
117,432 36,324
----------------------------------------------------------------------------------------
Gross margin 158,824 --
Operating expenses:
Sales and marketing 6,970,195 796,940
Research and development, net of government
grants of $3,427 (June 30, 1999 - $nil) 2,505,915 623,242
General and administrative (note 15) 1,663,619 625,741
-----------------------------------------------------------------------------------
11,139,729 2,045,923
----------------------------------------------------------------------------------------
Operating loss for the period 10,980,905 2,045,923
Interest income 535,419 2,631
----------------------------------------------------------------------------------------
Net loss 10,445,486 2,043,292
Deficit, beginning of period 20,315,168 12,322,499
----------------------------------------------------------------------------------------
Deficit, end of period $30,760,654 $14,365,791
========================================================================================
Loss per share information:
Basic and diluted $ 0.18 $ 0.07
========================================================================================
Weighted average number of common shares outstanding 57,779,198 30,986,800
========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
SIDEWARE SYSTEMS INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in Canadian dollars)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operations:
Net loss $(10,445,486) $(2,043,292)
Amortization, an item not involving cash 348,256 134,705
Changes in non-cash operating working capital:
Accounts receivable (237,413) 177,441
Due to (from) related parties 116,390 (51,724)
Due to (from) officers (327,673) --
Inventory 84,147 12,248
Prepaid expenses (70,751) (209,895)
Accounts payable and accrued liabilities 355,781 83,290
Deferred revenue 153,141 --
------------------------------------------------------------------------------
(10,023,608) (1,897,227)
Financing:
Share subscriptions receivable (26,600) --
Special warrants issued for cash -- 2,970,840
Shares issued for cash, net of share issue costs 26,568,843 2,350,388
------------------------------------------------------------------------------
26,542,243 5,321,228
Investments:
Long-term receivables and deferred charges 5,657 --
Purchase of fixed assets (1,476,794) (454,155)
Deposit on lease (88,691) (17,594)
------------------------------------------------------------------------------
(1,559,828) (471,749)
-----------------------------------------------------------------------------------
Increase in cash and cash equivalents 14,958,807 2,952,252
Cash and cash equivalents, beginning of period 8,558,482 317,344
-----------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 23,517,289 $ 3,269,596
===================================================================================
Supplemental information:
Cash paid for interest $ -- $ --
Cash paid for taxes $ -- $ --
Non-cash financing activities:
Shares issued on exercise of special warrants $ -- $ 977,082
===================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
1. GENERAL:
The Company was incorporated in 1983 under the Company Act (British
Columbia). The Company's principal business activity is developing and
marketing electronic customer relationship software. As the company
commenced its principal business activities in the period ended June 30,
2000, the company is no longer considered to be in the development stage.
2. FUTURE OPERATIONS:
The Company has not generated significant revenues from these operations.
As at June 30, 2000, the Company has an accumulated deficit of $30,760,654
and incurred a loss of $10,445,486 during the six months ended June 30,
2000. In addition, the Company is the defendant in a number of legal
proceedings and claims, for which the maximum potential losses are material
(note 10). The Company has filed counterclaims on certain of these claims.
These financial statements have been prepared in accordance with Canadian
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 intends on
applying existing working capital to continue development of its products
and to pursue sales and strategic alliance opportunities with respect to
such products.
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 14, 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, Sideware International SRL, 3032650
Nova Scotia Company, 9050 Investments Ltd. (inactive), Sideware Corp.
(formerly Collaborative Groupware Inc.), Doorchester 52613 Investments
Ltd., Evergreen International Technology Inc. (inactive) and 9123
Investments Ltd. (inactive), all of which are wholly-owned. All
material intercompany balances and transactions have been eliminated.
(b) Cash and cash equivalents:
Cash equivalents are highly liquid financial instruments having terms
to maturity at the date of acquisition of not more than three months.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 2
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(c) Share subscriptions receivable:
Share subscriptions receivable represent amounts receivable on issued
common shares.
(d) Inventory:
Inventory is valued at the lower of cost and net realizable value with
cost being determined on a first-in-first-out basis. Cost is defined as
the cost paid to third parties for materials plus other applicable
direct costs.
(e) Fixed assets:
Fixed 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>
(f) Deferred charges:
Deferred charges represent the discount on notes receivable and will be
recognized by the yield method over the term of the note.
(g) Income taxes:
The Company follows the asset and liability method of accounting. Under
this method, future income tax assets and liabilities are measured
using enacted tax rates for future income tax consequences attributable
to differences between the financial statement carrying amount of
existing assets and liabilities and their respective tax bases. 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.
(h) 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.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 3
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(i) 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.
Cash received in advance of meeting the revenue recognition criteria is
recorded as deferred revenue.
(j) Foreign currency translation:
Monetary assets and liabilities denominated in a foreign currency have
been translated into Canadian dollars at rates of exchange in effect at
the balance sheet dates. Non-monetary assets and liabilities and
revenue and expense items are translated at rates prevailing when they
were acquired or incurred. Exchange gains and losses arising on
translation of assets and liabilities denominated in foreign currencies
are included in operations.
The Company's subsidiaries are treated as integrated operations and the
related accounts are translated into Canadian dollars using the
temporal method as follows:
(1) Revenue and expenses at average exchange rates for the period;
(2) Monetary items at the rates of exchange prevailing at the balance
sheet dates;
(3) Non-monetary items at historical exchange rates; and
(4) Exchange gains and losses arising from translation are included in
the determination of net earnings for the period.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 4
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(k) Use of estimates:
The preparation of consolidated financial statements in conformity with
Canadian 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 consolidated 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 useful lives of assets for amortization. Actual amounts
may differ from these estimates.
(l) Loss per share:
Loss per share is calculated based on the weighted average number of
shares outstanding including contingently refundable shares.
As the effect of outstanding options and warrants are anti-dilutive,
fully diluted loss per share does not differ from basic loss per share.
(m) Unaudited interim financial statements:
The financial information as at June 30, 2000 and for the six months
ended June 30, 2000 and June 30, 1999 is unaudited. In the opinion of
management, such financial information reflects all adjustments
(consisting solely of normal recurring adjustments) which are necessary
for a fair presentation of the results for the periods presented.
4. ACCOUNTS RECEIVABLE OTHER:
Accounts receivable other at June 30, 2000 is comprised of $130,934
(December 31, 1999 - $162,187) of Goods and Services Tax credits
receivable, and $52,117 (December 31, 1999 - $nil) of employee advances,
with the balance made up of miscellaneous recoverable amounts.
5. RELATED PARTY TRANSACTIONS:
(a) Transactions with related parties:
The following table summarizes the Company's related party transactions
with certain directors of the Company:
<TABLE>
<CAPTION>
=====================================================================
Six months ended June 30,
-------------------------
2000 1999
---------------------------------------------------------------------
<S> <C> <C>
Services rendered $163,421 $111,059
Salaries 577,734 223,848
=====================================================================
</TABLE>
Included in hardware and software resale revenues and cost of revenues
are $84,094 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.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 5
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
5. RELATED PARTY TRANSACTIONS (CONTINUED):
(b) Due to related parties:
At June 30, 2000, the Company owed $173,170 (December 31, 1999 -
$56,780) with respect to costs incurred on behalf of the Company, and
purchases made, by Braintech Inc. and TechWest Management Inc.,
companies with directors in common, and for services provided by a
director of the Company.
These amounts are unsecured, payable on demand and bear no interest.
(c) Due to (from) officers:
The amounts due to (from) officers represents advances to (from)
officers of the Company and amounts owing for services provided by
officers of the Company. These amounts are unsecured, payable on demand
and bear no interest.
6. LONG-TERM RECEIVABLES:
<TABLE>
<CAPTION>
=============================================================================================
June 30, December 31,
2000 1999
---------------------------------------------------------------------------------------------
<S> <C> <C>
Employee loan, maturing September 30, 2024, bearing
interest at 1% per annum, repayable in bi-monthly blended
instalments of $565, except if employment is terminated
in which case it is repayable immediately, real estate
has been pledged as security, net of unamortized discount
of $144,194 (December 31, 1999 - $145,431) $148,884 $150,264
Employee loans, maturing September 30, 2002, bearing
interest at prime plus 1% per annum 23,784 26,824
---------------------------------------------------------------------------------------------
172,668 177,088
Less current portion 9,500 20,266
---------------------------------------------------------------------------------------------
$163,168 $156,822
=============================================================================================
</TABLE>
The employee loan secured by real estate has been discounted to the fair
market value calculated at prime plus 1%, which is the prevailing rate of
similar financial instruments, over 25 years.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 6
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
7. FIXED ASSETS:
<TABLE>
<CAPTION>
===============================================================
Accumulated Net book
JUNE 30, 2000 Cost amortization value
---------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures $ 947,167 $ 178,225 $ 768,942
Computer equipment 1,814,773 559,787 1,254,986
Trade show assets 210,661 49,499 161,162
Computer software 165,902 111,306 54,596
Leasehold improvements 991,462 769,671 221,791
---------------------------------------------------------------
$4,129,965 $1,668,488 $2,461,477
===============================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================
Accumulated Net book
DECEMBER 31, 1999 Cost amortization value
---------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures $ 485,287 $ 129,265 $ 356,022
Computer equipment 1,004,818 413,060 591,758
Trade show assets 124,020 29,532 94,488
Computer software 135,081 73,290 61,791
Leasehold improvements 903,965 675,085 228,880
---------------------------------------------------------------
$2,653,171 $1,320,232 $1,332,939
===============================================================
</TABLE>
8. 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, 1998 27,269,959 $ 12,716,774
Shares issued on exercise of special warrants 9,724,611 4,149,843
Shares issued on exercise of non-transferable warrants 10,434,335 5,078,666
Shares issued on exercise of options 1,343,500 1,198,310
Shares issued for cash 2,746,833 6,712,155
Shares issued for services rendered 250,000 160,000
Share subscriptions (243,900 common shares) - 589,296
Less share issue costs - (368,245)
------------------------------------------------------------------------------------------
Balance, December 31, 1999 51,769,238 30,236,799
Shares issued on exercise of non-transferable warrants 3,543,850 4,602,662
Shares issued on exercise of options 1,041,100 1,900,548
Shares issued for cash 3,340,100 21,108,936
Shares issued for subscriptions previously received 243,900 -
Less share issue costs - (1,043,303)
------------------------------------------------------------------------------------------
Balance, June 30, 2000 (Unaudited) 59,938,188 $ 56,805,642
==========================================================================================
</TABLE>
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 7
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
8. SHARE CAPITAL (CONTINUED):
Unless otherwise indicated, common shares issued for non-cash consideration
are valued at their market value at date of issuance.
Of the common shares issued on the exercise of options, $1,873,948 was
received in cash and $26,600 is receivable at June 30, 2000. Subsequent to
June 30, 2000, the receivable balance of $26,600 was received.
(a) Escrow shares:
Included in issued shares at June 30, 2000 are 1,030,378 shares (June
30, 1999 - 1,030,378) held in escrow to be released based on
achievement of a cash flow formula.
(b) Stock options:
(i) Activity during the six months ended June 30, 2000 is as follows:
<TABLE>
<CAPTION>
====================================================================================================
Exercise Outstanding Outstanding Vested
price per December 31, Expired/ June 30, June 30,
Expiry date share 1999 Granted Exercised cancelled 2000 2000
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
June 24, 2001 $ 0.50 753,000 - (100,000) - 653,000 653,000
February 12, 2002 0.36 123,000 - - 123,000 123,000
March 26, 2002 0.82 10,000 - (10,000) - - -
December 16, 2002 0.70 380,000 - (95,000) - 285,000 285,000
July 6, 2003 0.36 365,000 - (60,000) - 305,000 305,000
April 14, 2004 1.14 470,000 - (115,000) (50,000) 305,000 305,000
April 29, 2004 1.35 161,000 - (82,500) - 78,500 78,500
June 17, 2004 2.33 967,000 - (107,500) - 859,500 824,500
October 4, 2004 2.66 728,500 - (403,000) - 325,500 290,500
October 20, 2004 2.78 149,000 - (68,100) - 80,900 55,900
January 14, 2005 US 8.69 - 1,000,000 - - 1,000,000 300,000
January 21, 2005 US 11.08 - 1,000,000 - - 1,000,000 550,000
April 20, 2005 US 5.10 - 4,912,000 - - 4,912,000 911,750
----------------------------------------------------------------------------------------------------
4,106,500 6,912,000 (1,041,100) (50,000) 9,927,400 4,682,150
====================================================================================================
</TABLE>
Stock options generally vest over periods of up to two years.
(ii) Activity during the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
========================================================================================================
Exercise Outstanding Outstanding Vested
price per December 31, Expired/ December 31, December 31,
Expiry date share 1998 Granted Exercised cancelled 2000 2000
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
June 24, 2001 $ 0.50 895,000 - (142,000) - 753,000 753,000
February 12, 2002 0.36 267,000 - (124,000) (20,000) 123,000 123,000
February 12, 2002 0.50 40,000 - (40,000) - - -
March 26, 2002 0.82 93,000 - (83,000) - 10,000 10,000
December 16, 2002 0.70 740,000 - (280,000) (80,000) 380,000 380,000
July 6, 2003 0.36 555,000 - (190,000) - 365,000 365,000
April 14, 2004 1.14 - 760,000 (290,000) - 470,000 270,000
April 29, 2004 1.35 - 220,000 (59,000) - 161,000 161,000
June 17, 2004 2.33 - 1,090,000 (123,000) - 967,000 812,000
October 4, 2004 2.66 - 740,000 (11,500) - 728,500 683,500
October 20, 2004 2.78 - 150,000 (1,000) - 149,000 64,000
--------------------------------------------------------------------------------------------------------
2,590,000 2,960,000 (1,343,500) (100,000) 4,106,500 3,621,500
========================================================================================================
</TABLE>
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 8
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
8. SHARE CAPITAL (CONTINUED):
(b) Stock options (continued):
(iii) A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
================================================================================================
OUTSTANDING OPTIONS
-------------------------------
Number of Weighted average
shares exercise price
------------------------------------------------------------------------------------------------
<S> <C> <C>
Balances at December 31, 1998 2,590,000 $0.52
Options granted 2,960,000 2.06
Options exercised (1,343,500) 0.89
Options canceled/expired (100,000) 0.63
------------------------------------------------------------------------------------------------
Balances at December 31, 1999 4,106,500 1.51
Options granted 6,912,000 9.51
Options exercised (1,041,100) 1.83
Options canceled/expired (50,000) 1.14
------------------------------------------------------------------------------------------------
Balances at June 30, 2000 (Unedited) 9,927,400 $7.04
================================================================================================
</TABLE>
(c) Share purchase warrants:
(i) The following non-transferable share purchase warrants were
outstanding at June 30, 2000:
<TABLE>
<CAPTION>
================================================================================================
Number Exercise price Expiry
of shares per share date
------------------------------------------------------------------------------------------------
<S> <C> <C>
176,000 $0.40 December 23, 2000
197,882 $0.383 U.S. To March 26, 2001
2,000,000 $0.55 To April 7, 2000
$0.63 From April 8, 2000
To April 7, 2001
1,593,106 $1.64 U.S. To September 14,2000
$1.89 U.S. From September 15, 2000
To September 14, 2001
2,101,271 $1.64 U.S. To December 14, 2000
$1.89 U.S. From December 15, 2001
To December 14, 2001
1,084,000 $10.00 U.S. To April 13 ,2001
$11.50 U.S. From April 14, 2001
To April 13, 2002
================================================================================================
</TABLE>
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 9
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
8. SHARE CAPITAL (CONTINUED):
(c) Share purchase warrants (continued):
(i) The following non-transferable share purchase warrants were
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
================================================================================================
Number Exercise price Expiry
of shares per share date
------------------------------------------------------------------------------------------------
<S> <C> <C>
600,000 $0.32 July 22, 2000
286,000 $0.40 December 23, 2000
779,276 $0.333 U.S. To March 26, 2000
$0.383 U.S. From March 27, 2000
To March 26, 2001
2,700,000 $0.55 To April 7, 2000
$0.63 From April 8, 2000
To April 7, 2001
2,746,833 $1.64 U.S. To September 14,2000
$1.89 U.S. From September 15, 2000
To September 14, 2001
================================================================================================
</TABLE>
9. INCOME TAXES:
The Company has non-capital loss carry forwards for income tax purposes of
approximately $26,685,000 which are available to reduce taxable income of
future years which expire as follows:
<TABLE>
<S> <C>
2000 $ 1,285,000
2001 --
2002 650,000
2003 3,600,000
2004 2,200,000
2005 1,650,000
2006 7,250,000
2007 10,050,000
-----------------------------------
$26,685,000
===================================
</TABLE>
At June 30, 2000, the gross future tax asset amount relating to a
non-capital loss carry forward was $11,154,000 which is reduced by a
valuation allowance of $11,154,000 due to the uncertainty surrounding the
realization of the future income tax assets. There was no future tax
liability at June 30, 2000.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 10
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
10. 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 and counterclaim.
(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) During the year ended December 31, 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.
(e) The Company has received notice of a claim from a former consultant for
breach of contract and for reimbursement for equipment supplied to the
Company. The Company does not know the precise amount of the claim, but
expects it to be less than $225,000. The Company is presently in
negotiations to settle the claim.
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.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 11
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
11. FINANCIAL INSTRUMENTS:
(a) Fair values of financial instruments:
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts receivable, due to related parties, due to (from)
officers, accounts payable and accrued liabilities. The fair value of
these financial instruments approximate their carrying values due to
their short term maturity.
The fair value of the long-term receivables has been calculated using
the current market rate for such instruments of the same remaining
maturity term and credit risk and approximate carrying value.
(b) Foreign currency risk:
Foreign currency risk reflects the risk that the Company's net assets
or operations will be negatively impacted due to fluctuations in
exchange rates. Revenues billed in United States dollars by the Company
come due in the short-term and accordingly, management of the Company
believes there is no significant exposure to foreign currency
fluctuations. The Company does not have foreign currency hedges in
place.
(c) Credit risk:
Credit risk reflects the risk that the Company may be unable to recover
contractual receivables. No one contract represents a concentration of
credit risk. The Company employs established credit approval practices
to further mitigate this risk.
12. COMMITMENTS:
The Company has obligations under operating lease arrangements which
require the following minimum annual payments:
<TABLE>
<S> <C>
2000 $ 718,000
2001 1,455,000
2002 1,408,000
2003 1,178,000
2004 788,000
2005 4,927,000
-----------------------------------
$10,474,000
===================================
</TABLE>
Pursuant to agreements with companies with certain common shareholders and
directors of the Company, approximately $16,000 of these amounts are
recoverable from these related parties for the fiscal year 2000,
approximately $32,000 for the fiscal year 2001, and approximately $16,000
for the fiscal year 2002.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 12
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
13. SUBSEQUENT EVENT:
Subsequent to June 30, 2000, 100,000 share purchase warrants were exercised
and converted to common shares for total cash proceeds of $243,000.
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:
These consolidated financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") in Canada, the
measurement principles of which conform, in all material respects, with
those in the United States except as described below:
(a) 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. Compensation expense will be recognized
at fair value over the service period which generally represents the
vesting period. Accordingly, additional compensation expense and
paid-up capital of $12,441,726 would be recorded for the six months
ended June 30, 2000 (June 30, 1999 - $315,200) for United States GAAP
purposes. As the related options are exercised, the amounts recorded in
paid-in capital are reclassified to issued share capital.
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 under US GAAP would have increased for the six
months ended June 30, 2000 and 1999 by $ 32,966,919 and $2,785,399,
respectively. In addition, the Company's loss per share under United
States GAAP for the six months ended June 30, 2000 and 1999 would have
been $0.76 and $0.16, respectively.
The fair value for the options was estimated using the Black-Scholes
option pricing model with the following assumptions: Expected
volatility of 80%, risk-free interest rate of 5%, expected life of five
years, and a 0% dividend yield.
The weighted-average fair value of stock options granted for the six
months ended June 30, 2000 and 1999 are $8.98 and $1.35, respectively.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 13
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED):
(b) Statement of stockholders' equity
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Share capital Retained
------------------------ Paid-in Special earnings
Number Assigned capital warrants (deficit)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 27,269,959 $12,724,421 $ 56,103 $ 977,082 $(12,386,249)
Shares issued on exercise of
non-transferable warrants 10,434,335 5,078,666 - - -
Shares issued on exercise of options 1,343,500 1,198,310 - - -
Shares issued on exercise of
special warrants 9,724,611 4,149,843 - (977,082) -
Shares issued for cash 2,746,833 6,712,155 - - -
Shares issued for services rendered 250,000 160,000 - - -
Share subscriptions receivable
(243,900 common shares) - 589,296 - - -
Share issue costs - (368,245) - - -
Compensatory benefit of employee stock
options - - 404,000 - -
Assignment of capital on stock options
exercised - 120,292 (120,292) - -
Loss for the year - - - - (8,396,669)
----------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 51,769,238 30,364,738 339,811 - (20,782,918)
Shares issued on exercise of
non-transferable warrants 3,543,850 4,602,662 - - -
Shares issued on exercise of options 1,041,100 1,900,548 - - -
Shares issued for cash 3,340,100 21,108,936 - - -
Shares issued for subscriptions
previously received 243,900 - - - -
Share issue costs - (1,043,303) - - -
Compensatory benefit of employee stock
options - - 12,441,726 - -
Assignment of capital on stock options
exercised - 96,340 (96,340) - -
Loss for the year - - - - (22,887,212)
----------------------------------------------------------------------------------------------------------
Balance, June 30, 2000 (Unaudited) 59,938,188 $57,029,921 $12,685,197 $ - $(43,670,130)
==========================================================================================================
</TABLE>
(c) 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. Since April 30,
1996, 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.
<PAGE>
SIDEWARE SYSTEMS INC.
Notes to Consolidated Financial Statements, page 14
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30, 2000 and 1999 (Unaudited)
Year ended December 31, 1999
--------------------------------------------------------------------------------
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED):
(d) Loss per share:
For United States GAAP purposes, 1,030,378 shares held in escrow as at
June 30, 2000 (June 30, 1999 - 1,030,378) are considered contingently
issuable. Accordingly, these shares are excluded from the weighted
average number of shares outstanding for the purposes of calculating
loss per share amounts. To the extent that common shares held in escrow
are released based on the achievement of performance measures,
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.
(e) 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>
===============================================================================================
SIX MONTHS ENDED JUNE 30,
2000 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Loss determined under Canadian GAAP $10,445,486 $ 2,045,923
Expenses relating to stock-based compensation (b) 12,441,726 315,200
-----------------------------------------------------------------------------------------------
Loss determined under United States GAAP $22,887,212 $ 2,362,123
===============================================================================================
Weighted average number of common shares outstanding
under United States GAAP 56,748,820 29,956,422
===============================================================================================
Loss per share under United States GAAP $ 0.40 $ 0.08
===============================================================================================
</TABLE>
There would be no impact from the above adjustments on total assets or
shareholders' equity reported under Canadian GAAP at June 30, 2000 and
December 31, 1999.
15. CHANGES TO CONSOLIDATED STATEMENT OF OPERATIONS:
The Company has reduced revenue by $98,045, cost of sales by $87,982 and
general and administrative costs by $10,063, for the six months ended June
30, 1999 from amounts previously reported to be consistent with the
presentation in the annual audited consolidated financial statements for
the year ended December 31, 1999.
<PAGE>
QUARTERLY REPORT FORM 61
Incorporated as part of: Schedule A
--------------------
X Schedule B & C
--------------------
(PLACE X IN APPROPRIATE CATEGORY)
ISSUER DETAILS
NAME OF ISSUER: SIDEWARE SYSTEMS INC.
ISSUER ADDRESS: 102 - 930 WEST FIRST STREET,VANCOUVER, BC,V7P 3N4
ISSUER PHONE NUMBER: (604) 986-6121
ISSUER FAX NUMBER: (604) 980-7121
CONTACT PERSON: GRANT SUTHERLAND
CONTACT POSITION: CHAIRMAN
CONTACT TELEPHONE NUMBER: (604) 688-0047
FOR QUARTER ENDED: JUNE 30, 2000
DATE OF REPORT: AUGUST 28, 2000
CERTIFICATE
The three schedules required to complete this Quarterly Report are attached
and the disclosure contained therein has been approved by the Board of
Directors. A copy of this Quarterly Report will be provided to any
shareholder who requests it.
GRANT SUTHERLAND "GRANT SUTHERLAND" AUGUST 28, 2000
--------------------------------------------------------------------------------
DIRECTORS NAME SIGN (TYPED) DATE SIGNED
EDWARD WHITE "E.A. WHITE" AUGUST 28, 2000
--------------------------------------------------------------------------------
DIRECTORS NAME SIGN (TYPED) DATE SIGNED
(SIGNATURES FOR THIS FORM SHOULD BE ENTERED IN TYPED FORM)
<PAGE>
SIDEWARE SYSTEMS INC. SCHEDULE B
SHARE CAPITAL
FOR THE THREE MONTH PERIOD FROM APRIL 1, 2000 TO JUNE 30, 2000
COMMON SHARES
<TABLE>
<CAPTION>
$ PER $
NUMBER SHARE TOTAL
<S> <C> <C> <C>
April 1, 2000 Balance forward 57,936,765 $ 56,180,455
---------- ------------
April - June 2000 Shares issued on exercise of options (2,500) (665)
April - June 2000 Shares issued on exercise
of non-transferable warrants 919,923 1,276,089
April - June 2000 Shares issued for cash 1,084,000 15,739,680
April - June 2000 Share subscriptions received -- (15,739,680)
April - June 2000 Share issue costs -- (650,237)
---------- ------------
April - June 2000 Total for the quarter 2,001,423 625,187
---------- ------------
SHARE CAPITAL JUNE 30, 2000 59,938,188 $ 56,805,642
========== ============
</TABLE>
<PAGE>
SIDEWARE SYSTEMS INC. SCHEDULE B
(CONTINUED)
OPTIONS GRANTED
FOR THE THREE MONTH PERIOD FROM APRIL 1, 2000 TO JUNE 30, 2000
DATE: APRIL 20, 2000
EXERCISE PRICE: US$5.10
EXPIRY DATE: APRIL 20, 2005
<TABLE>
<CAPTION>
NAME NUMBER
<S> <C>
Friedlander, Scott 1,000,000
Means, Bob 10,000
Green, Charles 15,000
Woo, Anna 5,000
Mounts, Gary 5,000
Ostapovicz, Christopher 20,000
Gruzin, Mark 75,000
Sukut, Al 10,000
Wrenn, Christy 15,000
Donaldson, Teri-Ann 12,000
Goble, Rosie 50,000
Hildebrand, Paul 300,000
Nussbaum, Jay 200,000
Cairns, Nicholas 7,500
Divito, Catherine 15,000
Foucher, Tina 2,500
Gibbons, Michael 20,000
Harris, Shawn 5,000
Hsiao, Charles 20,000
Katsov, Michael 10,000
Leigh, Charles Paul H. 100,000
Matzele, Laura 2,500
Morrison, Bill 25,000
Nakashima, Sakae 10,000
Nedila, James 10,000
Rege, Abhijit 10,000
Smits, Jolanda 7,500
Tyutkov, Petr 10,000
Walke, Sarah 2,500
Van Dommelen, Sylvia 20,000
Xiao, Leonardo 12,500
Eymere, Olivier 20,000
Scott, Glen 20,000
Beaman, Lisa 25,000
Bjoring, Nicole 10,000
<PAGE>
Caracciolo, Anthony 15,000
Caponigro, Michael 25,000
Guyton, Will 25,000
Harrison, Michael 15,000
Kasoff, Brittain 15,000
Larkin, Michael 15,000
Price, Joseph Lee 5,000
Lieberman, Stephen 20,000
Nadorozny, Darren 15,000
O'Hare, George 15,000
Pasko, Frank 15,000
Pate, Chris 25,000
Perez, Rose 15,000
Pettengill, Meaghan 15,000
Remke, Mark 15,000
Saye, Robert 15,000
Scritchfield, Andrew 2,500
Siegrist, Brian 15,000
Sweeny, Tom 20,000
Weil, Jason Ryan 1,500
Woodward, Kathryn 25,000
Capannelli, Lou 75,000
Gubser, Lyn 7,500
Rogers, Lisa 10,000
Kozicki, Peter 25,000
Walchli, Stewart 200,000
Wedel, John 400,000
White, Edward 25,000
Forth, Clive 110,000
Jacques, Sheila 100,000
Johnston, Daniel 200,000
Masata, Daniela 100,000
Thomas, Daphne 100,000
Evans, Chris 100,000
Purcell, Colleen 10,000
Cavanaugh, Heather 10,000
Di Fonzo, Amalia 10,000
Cornish, Victoria 10,000
Wong, Marilyn 10,000
Potter, Robynn 10,000
Russell, Marie 25,000
Murray, Tom 25,000
Feka, Tatiana 2,500
Murata, Chantal 10,000
Peacock, Michael 25,000
Allan, Mac 25,000
Arias, Veronica 5,000
Burke, Jennifer 15,000
Dhat, Neelam 15,000
Drdul, Cindy 25,000
Drezet, Tony 5,000
Dykstra, John 15,000
Jurisic, Sava 15,000
Lai, Harry 5,000
<PAGE>
McCambley, Leeanne 15,000
Mahon, Alex 5,000
Regis, Dee 15,000
Simpson, Richard 15,000
Taylor, Vince 15,000
Tulloch, Jennifer 150,000
Unger, Al 5,000
Wong, Malcolm 15,000
Dreskai, Robert 40,000
Van Drimmelen, Ed 10,000
Gaidacheva, Victoria 20,000
Huang, May 20,000
McGregor, Michelle 20,000
Provirnitsin, Alex 30,000
Scott, Colin 20,000
Shackleford,Michael 20,000
Wickers, Meaghan 20,000
Zhang, John 30,000
Pretty, Dallas 100,000
Gilbert, Greg 10,000
Wei, Nancy 10,000
Burchat, Chris 15,000
Sibbald, Martyn 7,500
Robertson, Liz 25,000
Holland, Shawn 15,000
Ganote, Michael 15,000
Biggs, Scott 15,000
Kush, Ryan 10,000
Lockett, Gary 10,000
Perrine, Douglas 10,000
Sanguine, Rebecca 1,500
Kenedy, Brian 25,000
Barron, Michael 15,000
Kroner, Eric 10,000
Slade, Tony 15,000
Kenney, Denyse 2,000
</TABLE>
<PAGE>
QUARTERLY REPORT - FORM 61
QUARTER ENDED JUNE 30, 2000
SIDEWARE SYSTEMS INC.
SCHEDULE C: MANAGEMENT DISCUSSION
PERIOD: APRIL 1, 2000 TO AUGUST 28, 2000
1. PRODUCT DEVELOPMENT
DR. BEAN 3.2
Dr. Bean 3.2 represents the current version of our product, and is nearing
the completion of final beta testing. Beta testing of Dr. Bean 3.2 has taken
longer than previously expected, and we now expect that beta testing will be
complete by the first week of September, 2000. During August we commenced our
first customer installation of Dr. Bean 3.2, which is undergoing testing at
the customer's site.
We are presently developing application programmer interfaces ("API's") for
Dr. Bean 3.2. API's allow Dr. Bean users to customize the program to work in
conjunction with other software applications. Our target date for completion
of the API's is mid-October 2000.
Apart from development of the API's, we do not intend to develop substantial
additional features for Dr. Bean 3.2, as we intend to allocate additional
resources to the development of Dr. Bean EE, described below.
DR. BEAN EE
We have commenced development of Dr. Bean EE ("Enterprise Edition"), which
will be our next substantial product release. Dr. Bean EE will incorporate a
new server component which will be written in the Java 2 Enterprise Edition
programming language. Dr. Bean EE will be fully scalable, and suitable for
installation in large call centres. Dr. Bean EE will also include all of the
principal features of Dr. Bean 3.2, with the exception of the white boarding
feature. We have set a target release date of December 1, 2000 for a beta
version of Dr. Bean EE, and a target date of December 31, 2000 to release Dr.
Bean EE for commercial distribution. In addition, we will likely have to
develop API's for Dr. Bean EE. No specific timetable has been set for the
development of those API's.
Dr. Bean EE will be designed to operate in conjunction with an application
server such as IBM Websphere or BEA Weblogic. We expect that by our targeted
release date of December 31, 2000, Dr. Bean EE will support one or two
leading application servers. Additional development work will be required to
make Dr. Bean EE support additional application servers.
<PAGE>
MULTI-CHANNEL INTEGRATION
We are continuing development of the multi-channel integration feature, which
will permit companies to integrate all of the principal channels for customer
service into a single system. We have encountered technical difficulties in
implementing software that will be used to include telephone based
communication in the multi-channel integration feature. As a result, we are
not presently able to state a definitive timetable for completion of the
multi-channel integration feature.
DR. BEAN ON CALL
We are beta testing Dr. Bean On Call 1.0, and expect to complete that testing
by the first week of September 2000. Dr. Bean On Call will permit us, or
other companies we license Dr. Bean On Call to, to sell Dr. Bean as a service
as opposed to a product. Through Dr. Bean On Call, companies will be able to
receive customer communications through a central server system which we, or
a licensee, will establish. Dr. Bean On Call will thus enable users to enjoy
the principal features and 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 ("Hypertext Markup Language"), 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. The principal features
offered with Dr. Bean On Call include:
- 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).
Some of the features of Dr. Bean 3.2 which are not included in Dr. Bean On
Call include the Data Source Manager and Supervisor functions.
2. PRODUCT MARKETING
Including both completed installations and signed contracts, we have
approximately 20 customers for Dr. Bean. During the second quarter of 2000,
we have recognized revenue of $155,707 in license revenue from sales of Dr.
Bean. This represents our first material revenue from the sale of Dr. Bean.
<PAGE>
To date, substantially all of our sales have come through our direct sales
force. We continue to enlist value added re-sellers to participate in the
Sideware Partner Program, and we presently have approximately 25 participants
in that program. To date, we have not generated significant sales through
re-sellers. Depending on customer requirements and the system it is meant to
operate with, Dr. Bean 3.2 can require varying levels of integration and
customisation in particular installations. Potential re-sellers of our
product may not have sufficient expertise or experience with our product to
complete the integration or customisation required in more complex
installations. We are developing our API's to make integration and
customisation work easier and thus, in part, to facilitate sales by
re-sellers.
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 will operate in large installations. As a result, our marketing of Dr.
Bean 3.2 is presently targeted at companies intending to operate, or to
commence operation, with 50 CSR seats or fewer. For customers intending to
operate larger installations, we intend to contract for future delivery of
Dr. Bean EE, 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 EE in a timely way.
We are soliciting, as potential licensees for Dr. Bean On Call, companies
operating as application service providers. We also intend, through our own
facilities, to offer Dr. Bean On Call as an application service available
over the Internet. We do not expect to be able to sign any contracts with
either licensees or service customers prior to the completion of beta testing.
3. QUARTERLY FINANCIAL RESULTS
SIX MONTH PERIOD ENDED JUNE 30, 2000 COMPARED WITH SIX MONTH PERIOD ENDED
JUNE 30, 1999
During the six month period ended June 30, 2000 we recognized the following
revenue:
(a) $155,707 in license revenue from sales of Dr. Bean;
(b) $14,839 for services rendered in installing Dr. Bean; and
(c) $105,710 in hardware and software re-sales.
Of the $105,710 in hardware and software re-sales, $84,094 came from sales to
related parties.
In addition, we have recorded $153,141 in deferred revenue. Our deferred
revenue consists of payments we have received, and accounts receivable we
have recorded, on account of future maintenance obligations, and on account
of Dr. Bean sales for which our delivery obligations were not completed by
June 30, 2000. We expect to continue completing these maintenance and
delivery obligations, so that this amount can be included in revenue in
future periods.
Cost of revenues for the six month period ended June 30, 2000 was $117,432.
Cost of revenues allocated to hardware and software re-sales was $105,710, of
which $84,094 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, as revenue attributable to those re-sales, an amount
equal to the cost of hardware or software sold. The balance of the revenue is
allocated to license revenue or services.
<PAGE>
We did not realize any revenue from sales of software during the six month
period ended June 30, 1999. Revenue from hardware and software re-sales was
$36,324, all of which came from sales to related parties. Cost of revenues
was also $36,324, in accordance with our policy re-selling hardware and
software to related parties at cost. We previously reported revenue and cost
of revenue equal to $134,369, all of which also came from sales to related
parties. We have reduced both revenue and cost of revenues for the six month
period ended June 30, 1999 by excluding certain related party sales in
accordance with adjustments made at the 1999 year end.
Interest income increased from $2,631 for the six month period ended June 30,
1999 to $535,419 for the six month period ended June 30, 2000. The reason was
higher cash balances held during the six month period ended June 30, 2000.
Owing to the large increase in our work force, expenses increased in
virtually all categories from the six month period ended June 30, 1999 to the
six month period ended June 30, 2000.
Sales and marketing expenses increased from $796,940 for the six month period
ended June 30, 1999 to $6,970,195 for the six month period ended June 30,
2000. The principal factors which contributed to this increase included the
following:
(a) Salaries allocated to sales and marketing increased from $392,489
to $3,075,662.
(b) Trade show costs increased from $122,386 to $1,130,306.
(c) Travel costs increased from $69,801 to $645,607.
(d) Advertising costs increased from $15,980 to $181,918.
Research and development expenses increased from $623,242 for the six month
period ended June 30, 1999 to $2,505,915 for the six month period ended June
30, 2000. Salaries allocated to research and development increased from
$433,701 to $1,641,284. In addition, research and development expenses for
the six month period ended June 30, 2000 included approximately $130,000 paid
to Science Applications International Corp., principally for work done in
developing telephony integration and "voice over Internet" features for our
products. The payments to Science Applications International Corp.
represented a departure from our past practice of conducting substantially
all of our research and development through our own personnel. Research and
development expenses are reported net of government grants, which totalled
$3,427 for the six month period ended June 30, 2000 and $nil for the six
month period ended June 30, 1999.
General and administrative expenses increased from $625,741 for the six month
period ended June 30, 1999 to $1,663,619 for the six month period ended June
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 $156,796 to $989,939, as a result of the increase in
our workforce.
(b) Professional fees increased from $267,212 to $466,904. Legal
expenses increased from $170,496 to $211,502, principally as a
result of costs relating to our financing activities and the
establishment of our offshore subsidiaries. Accounting and auditing
expenses increased from $96,279 to $152,243, 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.
<PAGE>
(c) During the six month period ended June 30, 2000 we recognized a
foreign exchange gain of $553,368, compared to $15,021 for the six
month period ended June 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 June 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. We previously reported all
expenses of this nature as general and administrative. Total rent expenses
increased from $125,875 for the period ended June 30, 1999 to $409,986 for
the six month period ended June 30, 2000. This increase resulted from the
additional office premises we have occupied. Total amortization charges
increased from $134,705 to $348,256, principally as a result of amortization
charges in respect of additional computer equipment we have purchased and
additional office premises we have occupied.
For US GAAP purposes, we recorded a compensation expense of $12,441,726 for
the six month period ended June 30, 2000, arising from the issuance of stock
options at prices below the trading prices of our shares. The corresponding
expense for the six month period ended June 30, 1999 $315,200.
4. LIQUIDITY - PLAN OF OPERATION
From the time new management took control of our company in May 1995 up to
July 31, 2000, we have raised in excess of $50 million in equity financing
through private placements (including the exercise of warrants issued
pursuant thereto) and the exercise of stock options. This includes
approximately $26 million which we raised during the first half of 2000
through private placements, and through the exercise of outstanding share
purchase warrants and incentive stock options. As at August 1, 2000, our cash
balance is approximately $20 million.
During the first half of 2000 we have substantially expanded our work force,
particularly in the United States, where our sales and marketing efforts are
centered. Accordingly, we expect that for the balance of our present fiscal
year, our rate of expenditure will be substantially higher than we have
experienced in the past.
As at August 1, 2000 we have 77 employees or officers working in our offices
in Vancouver and North Vancouver, British Columbia, as well a regional sales
representative in Toronto, Ontario. Of our Canadian employees:
(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 $450,000 per
month.
<PAGE>
We currently operate from 10 different locations in the United States. Our
head office in the United States is in Reston, Virginia, where we have 52
employees. We also have 6 employees stationed in Atlanta, 5 employees in
Chicago, 4 employees in San Jose, 2 employees in New York, Indiana and Los
Angeles, and one employee in each of, Dallas, Boston, Miami, and Denver. Over
50 of our United States employees have been hired subsequent to December 31,
1999. 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 $750,000 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, 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 $125,000
per month. We may open additional regional sales offices during the balance
of 2000, but we presently have no specific plans to do so.
We also expect that our general overhead and administrative expenses will be
substantially higher during 2000 than we have experienced in the past. In
total, we expect that our average monthly expenses during the balance of 2000
will be at least $2,250,000 per month. At our projected minimum expenditure
rate of $2,250,000 per month, our present cash balance will be sufficient to
pay ongoing cash expenses for the balance of 2000 and part of the first half
of 2001. Our rate of expenditure may become substantially higher than
$2,250,000 per month if we continue to expand our work force, or if we incur
substantial advertising costs. Any decisions we make to continue expanding
our work force, or to undertake substantial advertising, will be based on our
financial resources and on customer response to Dr. Bean.
Investors are cautioned that 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 no historical
data from which we can predict future expenses. In addition, we may continue
to increase our expenditures, depending on our available resources and on
customer response to Dr. Bean.
We plan to continue seeking additional capital financing during the balance
of 2000. We will attempt to complete a substantial public offering, or to
raise additional capital through private placements. However, as at the date
of this report, we do not have specific plans for raising additional capital.
With the expansion of our United States work force, we have commenced our
first substantial sales thrust for Dr. Bean. We expect that the generation of
substantial sales revenue from 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.
<PAGE>
5. ANNUAL GENERAL MEETING
We held our 2000 Annual General Meeting on June 28, 2000. Our incumbent
directors were re-elected. Our 2000 Stock Option Plan received shareholder
approval.
6. STOCK OPTIONS
Effective April 20, 2000 we granted 4,912,000 stock options pursuant to our
2000 Stock Option Plan. All of the options have an exercise price of US$5.10.
Recipients of the options included the following directors and executive
officers.
<TABLE>
<S> <C>
Jay Nussbaum - 200,000 options
Edward White - 25,000 options
Peter Kozicki - 25,000 options
Scott Friedlander - 1,000,000 options
John Wedel - 400,000 options
</TABLE>
All of the stock options under our 2000 Stock Option Plan will be subject to
vesting schedules. Rules of the Canadian Venture Exchange require that stock
options granted pursuant to our 2000 Stock Option Plan vest no more quickly
than:
(a) 25% on the grant date;
(b) 25% six months following the grant date;
(c) 25% twelve months following the grant date; and
(d) 25% eighteen months following the grant date.
Our 2000 Stock Option Plan authorizes the granting of 7,000,000 shares in
total.
7. ADDITIONAL LEASEHOLD PREMISES
RESTON, VIGINIA
As a result of the increase in our Virginia workforce, we have moved our
Virginia office to larger premises at 1810 Samuel Morse Drive, Reston,
Virginia. The new premises consist of an office building with a rentable area
of approximately 16,000 square feet. The term of the lease is 7.5 years,
commencing April 14, 2000 and ending October 14, 2007. The rent commences at
US $38,666.66 per month (US$464,00.00 per annum) and escalates by
approximately 3% per year to US$47,555 per month (equivalent to US$570,661.42
per annum) during the final half year. We are also liable to pay the cost of
all utilities delivered to the premises, and to pay the amount of any
increase, over the 2000 base year, in the operating costs incurred by the
landlord in respect of the premises. We have an option to renew the lease for
an additional three years at rental rates which continue to escalate at
approximately 3% per year. The landlord of the Reston premises is Reston
L.L.C., an arm's length company.
NORTH VANCOUVER
We have entered into an agreement, through Techwest Management Inc., to add
another 2,000 square feet to our head office premises in North Vancouver,
British Columbia. The lease term for the additional premises will be three
years and three months, running from June 1, 2000 to August 31,
<PAGE>
2003. Including operating costs, the rent for the additional space will begin
at approximately $3,000 per month.
In addition, we have contracted for lease space in Atlanta, Chicago, San
Jose, Los Angeles, Boston, and New York. Total monthly rental costs for these
regional offices are approximately $25,000 per month.
8. AGREEMENT WITH CYBERREP.COM
In July 2000 we entered into a License and Service Agreement with
CyberRep.com, pursuant to which CyberRep.com will provide out-sourced call
response services to users of Dr. Bean. Out-sourced call response services
are intended for users of Dr. Bean who do not wish to incur the cost of
employing CSR's themselves. Enquiries to the websites of those users can be
routed to the facilities of CyberRep.com, where CyberRep.com personnel can
respond to the enquiries, performing the same functions as a CSR employed by
the Dr. Bean user. Our prospects for generating revenue through the sale of
out-sourced call response services are contingent on generating significant
sales of Dr. Bean.
9. RELATED PARTY TRANSACTIONS
We continue to acquire legal services on an ongoing basis from Sutherland
Johnston, a law firm in which Grant Sutherland, one of our directors, is a
partner. These are routine legal services, provided in the ordinary course of
business.
Otherwise, and except as disclosed above, we have not engaged in any material
related party transactions during the period April 1, 2000 to August 28, 2000.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act of 1933.
Forward-looking statements deal with our current plans, intentions, beliefs
and expectations and statements of future economic performance. Statements
containing terms like "believes," "does not believe," "plans," "expects,"
"intends," "estimates," "anticipates," and other phrases of similar meaning
are considered to imply uncertainty and are forward-looking statements.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause our actual results in future periods to differ materially from
what is currently anticipated. You should read these cautionary statements as
being applicable to all related forward-looking statements wherever they
appear in this report.
<PAGE>
We cannot guarantee our future results, levels of activity, performance or
achievements. Neither we nor any other person assumes responsibility for the
accuracy and completeness of these statements.
We are under no duty to update any of the forward-looking statements after
the date of this report.
LIST OF DIRECTORS AT AUGUST 28, 2000
OWEN JONES
JAMES SPEROS
GRANT SUTHERLAND
JAY NUSSBAUM
EDWARD WHITE
PETER KOZICKI
<PAGE>
SIGNATURES
Pursuant to the requirements of the SECURITIES EXCHANGE ACT OF 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Sideware Systems Inc.
"Grant Sutherland"
Date: August 30, 2000 By: Grant Sutherland, Chairman
