<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of November , 2000
--------------------------
Softcare EC.com Inc.
--------------------------------------------------------------------------------
(Translation of registrant's name into English)
107-980 West 1st Street
North Vancouver, British Columbia
Canada V7P 3N4
--------------------------------------------------------------------------------
(Address of principal executive offices)
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]
DESCRIPTION OF FILED INFORMATION:
QUARTERLY REPORT ON FORM 61 FOR THE QUARTER ENDED AUGUST 31, 2000
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.
Softcare EC.com Inc.
-------------------------------------
(Registrant)
Date November 6, 2000 By /s/ Martyn Armstrong
------------------ -------------------------------------
Martyn Armstrong, President and CEO
--------------------------
*Print the name and title under the signature of the signing officer.
<PAGE>
BRITISH COLUMBIA Q U A R T E R L Y R E P O R T
SECURITIES COMMISSION FORM 61
INSTRUCTIONS
This report is to be filed by Exchange Issuers within 60 days of the end of
their first, second and third fiscal quarters and within 140 days of the end of
their fourth fiscal quarter. Three schedules (typed) are to be attached to this
report as follows:
SCHEDULE A: FINANCIAL INFORMATION
Financial information prepared in accordance with generally accepted accounting
principles for the fiscal year-to-date, with comparative information for the
corresponding period of the preceding fiscal year. This financial information
should consist of the following:
FOR THE FIRST, SECOND AND THIRD FISCAL QUARTERS:
An interim financial report presented in accordance with Section 1750 of the
C.I.C.A. Handbook. This should include a summary income statement (or a
statement of deferred costs) and a statement of changes in financial position. A
summary balance sheet is also to be provided.
FOR THE FOURTH FISCAL YEAR QUARTER (YEAR END)
Annual audited financial statements.
SCHEDULE B: SUPPLEMENTARY INFORMATION
The supplementary information set out below is to be provided when not included
in Schedule A.
1. FOR THE CURRENT FISCAL YEAR-TO-DATE:
Breakdown, by major category, of those expenditures and costs which are
included in the deferred costs, exploration and development expenses,
cost of sales or general and administrative expenses set out in
Schedule A. State the aggregate amount of expenditures made to parties
not at arm's length from the issuer.
2. FOR THE QUARTER UNDER REVIEW:
(a) Summary of securities issued during the period, including date of
issue, type of security (common shares, convertible debentures,
etc.), type of issue (private placement, public offering, exercise
of warrants, etc.), number, price, total proceeds, type of
consideration (cash, property, etc.,) and commission paid.
(b) Summary of options granted, including date, number, name of
optionee, exercise price and expiry date.
3. AS AT THE END OF THE QUARTER:
(a) Particulars of authorized capital and summary of shares issued and
outstanding.
(b) Summary of options, warrants and convertible securities
outstanding, including number or amount, exercise or conversion
price and expiry date.
(c) Total number of shares in escrow or subject to a pooling agreement.
(d) List of directors.
SCHEDULE C: MANAGEMENT DISCUSSION
Review of operations in the quarter under review and up to the date of this
report, including brief details of any significant event or transaction which
occurred during the period. The following list can be used as a guide but is not
exhaustive:
Acquisition or abandonment of resource properties, acquisition of fixed
assets, financing and use of proceeds, management changes, material
contracts, material expenditures, transactions with related parties, legal
proceedings, contingent liabilities, default under debt or other
contractual obligations, or special resolutions passed by shareholders.
Specifically, the management discussion must include:
(a) disclosure of and reasons for any material differences in the
ACTUAL use of proceeds from the previous disclosure by the issuer
regarding its INTENDED use of proceeds: and
(b) a brief summary of the investor relations activities undertaken by
or on behalf of the issuer during the quarter and disclosure of the
material terms of any investor relation arrangements or contracts
entered into by the issuer during the quarter.
--------------------------------------------------------------------------------
FREEDOM OF INFORMATION AND PROTECTION OF PRIVACY ACT
The personal information requested on this form is collected under the authority
of and used for the purpose of administering the Securities Act. Questions about
the collection or use of this information can be directed to the Supervisor,
Statutory Filings (604-660-4890), 200-865 Hornby Street, Vancouver, British
Columbia, V6Z 2H4. Toll Free in British Columbia 1-800-373-6393.
--------------------------------------------------------------------------------
<TABLE>
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<S> <C> <C>
DATE OF REPORT
ISSUER DETAILS FOR QUARTER ENDED
NAME OF ISSUER Y M D
SOFTCARE EC.COM INC. (formerly International Savannah Ventures Ltd.) 00/08/31 00 10 30
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ISSUER'S ADDRESS
107 - 980 West 1st Street
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CITYPROVINCE POSTAL CODE ISSUER FAX NO. ISSUER TELEPHONE NO.
NORTH VANCOUVER BC V7P 3N4 604-983-8056 604-983-8083
----------------------------------------------------------------------------------------------------------------------------
CONTACT PERSON CONTACT'S POSITION CONTACT TELEPHONE NO.
WAYNE ZIELKE CHIEF FINANCIAL OFFICER 604-983-8083
----------------------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------------------
DIRECTOR'S SIGNATURE PRINT FULL NAME DATE SIGNED
Y M D
"MARTYN ARMSTRONG" MARTYN ARMSTRONG 00 10 30
----------------------------------------------------------------------------------------------------------------------------
DIRECTOR'S SIGNATURE PRINT FULL NAME DATE SIGNED
Y M D
"WAYNE ZIELKE" WAYNE ZIELKE 00 10 30
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOFTCARE EC.COM INC.
(formerly International Savannah Ventures Ltd.)
QUARTERLY REPORT - FORM 61
AUGUST 31, 2000
================================================================================
SCHEDULE A: FINANCIAL INFORMATION
See attached consolidated financial statements for the three month period
ended August 31, 2000.
SCHEDULE B: SUPPLEMENTARY INFORMATION
See attached consolidated financial statements for the three month period ended
August 31, 2000.
1.
Selling expenses include:
-------------------------
Trade show expenses $ 745
Advertising and promotion 19,503
---------
$ 20,248
=========
General and administrative expenses include:
--------------------------------------------
Professional fees $ 161,929
Public relations fees 39,467
Interest and finance costs 10,962
Premises and equipment lease 41,923
Travel 101,453
Utilities, insurance, supplies and other 61,497
---------
$ 417,231
=========
The aggregate amount of expenditures included in general and administrative
expenses that were paid to parties not at arm's length was $118,053.
2. a) SUMMARY OF SECURITIES ISSUED DURING THE QUARTER UNDER REVIEW:
On June 13, 2000, the Company issued 113,600 common shares for gross
cash proceeds of $170,400, on the exercise of 113600 Agents Special
Warrants.
On August 18, 2000, the Company issued 25,000 common shares as
consideration for professional services rendered in connection with the
March 29, 2000 financing on the exercise of 25,000 Agents Special
Warrants.
b) SUMMARY OF OPTIONS GRANTED DURING THE QUARTER UNDER REVIEW:
On August 28, 2000, 200,000 stock options were granted to Michael
Sherry. Each option is exercisable for one common share for $1.75. The
options expire as follows:
40,000 August 28, 2001
40,000 August 28, 2002
40,000 August 28, 2003
40,000 August 28, 2004
40,000 August 28, 2005
<PAGE>
3. a) PARTICULARS OF THE AUTHORIZED CAPITAL AND SUMMARY OF SHARES ISSUED AND
OUTSTANDING.
See Notes 14 and 15 of the attached consolidated financial statements
for the period ended August 31, 2000.
b) SUMMARY OF OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES OUTSTANDING,
INCLUDING NUMBER OR AMOUNT, EXERCISE OR CONVERSION PRICE AND EXPIRY
DATE:
See Notes 14 and 15 of the attached consolidated financial statements
for the period ended August 31, 2000.
c) TOTAL NUMBER OF SHARES IN ESCROW OR SUBJECT TO A POOLING AGREEMENT:
Securities subject to pooling agreements with respect to Special
Warrants, which are exercisable into common shares and Share Purchase
Warrants, are discussed at Note 14 to the attached audited consolidated
financial statements for the period ended August 31, 2000.
d) LIST OF DIRECTORS: Martyn Armstrong
Wayne Zielke
Gregg Sedun
Randall Pierson
SCHEDULE C: MANAGEMENT DISCUSSION
RESULTS OF OPERATIONS FOR THE QUARTER UNDER REVIEW AND UP TO THE DATE OF THIS
REPORT:
--------------------------------------------------------------------------------
OVERVIEW
--------
The Company has continued to develop its OPEN E|C product set during the quarter
under review, and this has culminated in the signing on September 19, 2000 of a
letter of intent between the Company and SRI Strategic Resources (a division of
TELUS Services Inc.). Under this initiative Softcares OPEN E|C platform would be
combined with SRI's technology integration expertise to develop a
business-to-business (B2B) e-commerce portal for forest industry procurements.
On August 11, 2000, further to the Company's application for issuer status in
Ontario, issuer status was granted.
The Company has also been actively strengthening its management team, with the
appointment of Mr. Herb Williamson as Vice President Sales and Marketing on June
6, 2000, and the appointment of Mr. John Frostad to the Company's Advisory Board
on September 21, 2000. Both appointments bring significant expertise to the
Company in areas in which the company has determined markets exist for the
Company's products.
The Company has continued to review its position with regard to the purchase of
Financial Management Group LLC (FMG) on April 10, 2000. The Company became aware
in August and September of further material breaches of the purchase agreement
and SoftCare has determined to terminate the acquisition. The two principals
have retained counsel and have presented the company with a demand alleging
wrongful termination of their employment and other claims. SoftCare intends to
vigorously defend any action that might be brought against it relating to these
matters, and to pursue rights and remedies available to it for the various
breaches of the purchase agreement by FMG, its parent company and the two
principals.
Development and marketing of SoftCare's credit counselling software does not
depend on the technology of FMG. Management believes that the termination of the
purchase agreement and of the employment of the two FMG principals will not have
a material effect on a going-forward business opportunity for licensing of
SoftCare's credit counselling software.
Subsequent to the period end, on September 1, 2000, the Company granted to Mr.
John Frostad 40,000 stock options. Each option is exercisable for one common
share for $2.00. The options expire on August 31, 2005.
<PAGE>
On October 19, 2000 the Company announced that, subject to regulatory and
shareholder approval, the Board of Directors has adopted a share option plan
(the "Plan") designed as a consolidated company wide incentive compensation plan
for Softcare employees, directors, officers, consultants and service providers.
Consequent upon adoption of the Plan a total of 20% of the issued common shares
of Softcare are reserved to the Plan (subject to standard anti-dilution
adjustment). The total reserved will include 1,230,000 currently outstanding
options. Pursuant to the Share Option Plan the Board of Directors has determined
that 1,000,875 new options for common share options be granted to specified
employees at a price of $ 1.55 per share. The options will vest with individual
optionees over periods specified under the Plan. The options granted today shall
be exercisable for a term of 5 years. The effective date of the grant is October
19, 2000. Approval for the Plan will be discussed and voted upon by shareholders
on November 10, 2000.
RESULTS OF OPERATIONS
---------------------
The consolidated results of operations for the three months ended August 31,
2000 and 1999 include the accounts of the Company and its wholly-owned
subsidiaries, Financial Management Group LLC (a Nevada corporation), SoftCare (a
Canadian company) and Bus Holdings Corporation (an Anguilla corporation), and
SoftCare's wholly owned subsidiaries, SCC Holdings Ltd. (a Canadian company),
SCEC Holdings Ltd. (a Canadian company) and SoftCare Electronic Commerce
(U.S.A.) Inc. (a Washington corporation). Bus Holdings Corporation is inactive
and has no assets or liabilities. All significant intercompany balances and
transactions have been eliminated on consolidation.
REVENUE
Revenue in the quarter fell to 40% of the revenue of the comparative quarter
ended August 31, 1999. This was mainly due to the company concentrating its
sales efforts in its new OPEN E|C product set, rather than the company's
traditional TRADELINK EDI product. It is anticipated that further sales
initiatives will result in increased revenues in future periods as the Company's
profile is enhanced.
EXPENSES
SALARIES AND WAGES
Salaries and wages increased 280% from the corresponding period a year ago. This
increase is due to the Company increasing its development efforts to complete
OPEN E|C product set. The increase is in part due to the reversal of a valuation
allowance thereby reducing wages expense in the prior period by $124,000
relating to recoverable Investment Tax Credits that were received in the fiscal
year ended May 31, 2000. Allowing for the effect of this adjustment wages and
salaries increased 192% over the corresponding period a year ago. An increase of
this magnitude is consistent with a software company moving into new markets.
Salaries and wages are expected to grow in future periods as the OPEN E|C
business continues to grow.
OTHER COMPENSATION
Other compensation has arisen due to the company's policy of following US
reporting requirements in valuing stock options granted to third parties using
the Black Scholes model, and, of valuing stock allocated to employees from the
Employee Stock Bonus Plan at fair market value.
During the period to August 31, 2000, Michael Sherry was granted 200,000 stock
options, and 187,030 shares were allocated to employees for services received
from the Employee Stock Bonus.
SELLING EXPENSES
Selling expenses declined 65% from the corresponding period a year ago. This
decrease is due primarily to the Company reducing its sales efforts for its
older TRADELINK EDI product sets while completing the development of its initial
OPEN E|C product set.
It is anticipated with the appointment of the Mr. Herb Williamson that selling
expenses will increase as he develops an effective sales team promoting the
Company's OPEN E|C product set.
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 38%over the corresponding period a
year ago. The main areas where costs have increased are professional fees and
travel expenses. The professional fees have increased as a result of the
continued reporting requirements of a public company, together with the
applications for issuer status in Ontario, together with expenses incurred in
relation to the ongoing FMG litigation. Travel expenses have increased as a
result of the expansion of the Sales and Marketing team, and continued promotion
of the company, and its products. Other expenses are anticipated to increase as
the business continues to expand.
AMORTIZATION
Amortization increased by approximately 48% from the corresponding period a year
ago. This increase for the period was primarily due to the amortization of
capital assets purchased in the later part of the prior year.
RESEARCH AND DEVELOPMENT
The Company is committed to continued development and improvement of its
products. Expenditures are primarily comprised of wages and are not capitalized
but are expensed in accordance with generally accepted accounting principals
currently prevalent in the software industry. The Company's products are under
constant review and the Company expects that development expenditures will
continue to increase in future periods.
INTEREST INCOME
Interest income has arisen on the monies received from the financings entered
into on June 18, 1999,and March 29, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 2000, the Company had approximately $1.4 million in cash and
cash equivalents. The Company has a $150,000 revolving credit facility of which
$43,748 was utilized at August 31, 2000. The Company's working capital was
approximately $6.4 million at August 31, 2000. This is compared to working
capital of approximately $2.9 million at August 31, 1999.
The Company has the potential to raise future capital of approximately $5.7
million through the future exercise of the Company's special warrants, share
purchase warrants, agents special warrants, agents warrants and stock options.
However, there is no assurance that the anticipated future warrant financing
will be successful or that directors or agents will exercise their options or
that funds will be available from the company's subsidiaries to meet future
capital and operating requirements.
Payments, on long-term debt, capital leases and Redeemable Class A preference
shares, are expected to be met from the funds generated from operations.
(a) DISCLOSURE OF MATERIAL DIFFERENCES IN THE ACTUAL USE OF PROCEEDS FROM THE
PREVIOUS DISCLOSURE BY THE COMPANY REGARDING ITS INTENDED USE OF PROCEEDS:
There have been no material differences in the actual use of proceeds from
the previous disclosure by the Company regarding its intended use of
proceeds.
(b) INVESTOR RELATIONS ACTIVITY
The Company's investor relations activities consisted of responding to
shareholder inquiries, and mailing out news releases and financial
statements. Investor relations activities were carried out by Clive Massey.
The Company terminated the contract with The Equicom Group Inc. during July
2000.
<PAGE>
Interim Consolidated Financial Statements of
SOFTCARE EC.COM INC.
Three Months ended August 30, 2000 and 1999
<PAGE>
<TABLE>
SOFTCARE EC.COM INC.
Interim Consolidated Balance Sheet
August 31, 2000 and 1999
<CAPTION>
=============================================================================================
2000 1999
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,483,148 $ 120,583
Cash held in escrow (Note 5) 2,049,779 -
Accounts receivable (Note 6) 294,526 352,058
Short term investments (Note 7) 2,996,509 2,698,952
Prepaid expenses 97,758 10,080
Investment tax credits receivable - 174,607
Work in progress (Note 8) 50,018 -
---------------------------------------------------------------------------------------------
6,971,738 3,356,280
Capital assets (Note 9) 277,667 137,857
Goodwill (Note 3) 40,763 -
---------------------------------------------------------------------------------------------
$ 7,290,168 $ 3,494,137
---------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness (Note 10) $ 43,748 $ -
Accounts payable and accrued liabilities 256,697 269,704
Current portion of long-term debt (Note 11) 26,800 40,200
Current portion of capital lease obligations (Note 12) 43,526 36,557
Current portion of subsidiary redeemable Class A
preference shares (Note 13) 30,000 30,000
Deferred revenue 142,311 90,216
---------------------------------------------------------------------------------------------
542,812 466,677
Long-term debt (Note 11) 12,309 26,800
Obligations under capital leases (Note 12) 53,698 29,949
Subsidiary redeemable Class A preference shares (Note 13) 65,000 95,000
---------------------------------------------------------------------------------------------
673,819 618,426
---------------------------------------------------------------------------------------------
Shareholders' equity:
Common Stock (Note 15) 15,710,538 999,516
Additional paid in capital 315,369 -
Special warrants (Note 14) - 7,321,604
Unearned Employee Stock Bonus Plan (Note 15) (1,040,581) (1,279,975)
Deficit (8,368,977) (4,165,434)
---------------------------------------------------------------------------------------------
6,616,349 2,875,711
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$ 7,290,168 $ 3,494,137
=============================================================================================
</TABLE>
Approved by the Directors:
"Martyn Armstrong"
------------------------
Martyn Armstrong, Director
"Wayne Zielke"
------------------------
Wayne Zielke, Director
<PAGE>
SOFTCARE EC.COM INC.
Interim Consolidated Statement of Operations and Deficit
Three months ended August 31, 2000 and 1999
================================================================================
2000 1999
--------------------------------------------------------------------------------
Revenue $ 111,241 $ 265,342
Expenses:
Salaries and wages 764,251 272,895
Other compensation (Note 15) 554,763 861,533
Selling 20,248 57,086
General and administrative (Note 18) 417,231 293,896
Amortization 30,118 20,352
--------------------------------------------------------------------------------
1,786,611 1,505,762
--------------------------------------------------------------------------------
Operating loss for the period (1,675,370) (1,240,420)
Other income (expense)
Interest income 104,197 6,977
Interest expense (5,983) (7,631)
--------------------------------------------------------------------------------
Total other income (expense) 98,214 (654)
--------------------------------------------------------------------------------
Net income (loss) for the period (1,577,156) (1,241,074)
Deficit, beginning of period (6,791,821) (2,924,360)
--------------------------------------------------------------------------------
Deficit, end of period $(8,368,977) $(4,165,434)
================================================================================
<PAGE>
<TABLE>
SOFTCARE EC.COM INC.
Interim Consolidated Statement of Cash Flows
Three months ended August 31, 2000 and 1999
<CAPTION>
=====================================================================================
2000 1999
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<S> <C> <C>
Cash flow from operating activities:
Net loss $(1,577,156) $(1,241,074)
Items not involving cash:
Amortization 30,119 20,352
Other compensation 554,763 861,533
-------------------------------------------------------------------------------------
(992,274) (359,189)
Changes in non-cash operating working capital:
Accounts receivable (98,149) (99,682)
Prepaid expenses 54,827 -
Investment tax credits receivable - (124,376)
Work in progress 7,553 -
Accounts payable and accrued liabilities (80,297) (13,524)
Deferred revenue (15,831) (899)
-------------------------------------------------------------------------------------
Net cash used in operating activities (1,117,873) (597,670)
-------------------------------------------------------------------------------------
Cash flow from investing activities:
Purchase of capital assets (76,301) (28,717)
Puchase of short term investments - (2,698,952)
-------------------------------------------------------------------------------------
Net cash used in investing activities (76,301) (2,727,669)
-------------------------------------------------------------------------------------
Cash flow from financing activities:
Redemption of Class A preference shares (7,500) (7,500)
Repayment of long-term debt (11,252) (10,050)
Repayment of bank indebtedness - (155,000)
Advances of capital lease financing 48,094 7,072
Share purchase warrants exercised for cash 170,400 -
Common stock issued - 960,316
Common stock issued on exercise of stock options - 39,200
Special warrants issued for services pursuant to
exercise of options - 247
Special warrants issued in private placement - 2,720,000
Repayment of advance from proposed acquirer - (250,000)
-------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 186,402 3,304,285
-------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (1,007,772) (21,054)
Cash and cash equivalents, beginning of period 2,447,172 141,637
-------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,439,400 $ 120,583
-------------------------------------------------------------------------------------
Cash and cash equivalents comprise:
Cash and cash equivalents $ 1,483,148 $ 120,583
Bank indebtedness (43,748) -
-------------------------------------------------------------------------------------
1,439,400 120,583
-------------------------------------------------------------------------------------
SUPPLEMENTARY DISCLOSURE
Interest paid $ 100,983 $ 6,977
Interest received $ 9,197 $ 7,631
-------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
1. NATURE OF OPERATIONS
SoftCare EC.com Inc. (the "Company") was incorporated pursuant to the Company
Act of the Province of British Columbia on March 30, 1981. The Company changed
its name from International Savannah Ventures Ltd. to SoftCare EC.com Inc.
("EC.com") on June 10, 1999 prior to the reverse takeover as described in note
2.
The Company and its subsidiary companies develop and market Electronic Data
Interchange (EDI) software primarily to retailers, financial and public
institutions, utility companies, pharmaceutical companies and wholesalers across
Canada, the United States and Asia. The Company and its subsidiary companies
also develop and market e-commerce software, providing licenses, consulting and
support services to both domestic and international markets. Prior to the
reverse takeover, the Company had been involved in mining exploration.
The Company has experienced operating losses and negative cash flows from
operations and has had to rely primarily on debt and equity financing for cash
required for operations. The Company's ability to achieve profitability and
positive cash flows from operations will depend upon numerous factors. These
factors include its ability to attract strategic corporate partners for the
development, marketing, distribution, and sale of its software products, the
progress of its research and development programs and its ability to protect its
proprietary rights over product names and trademarks.
2. REVERSE TAKEOVER
On June 18, 1999, EC.com completed an agreement with the shareholders of
SoftCare Electronic Commerce Inc. ("SoftCare") pursuant to which EC.com issued
11,000,000 Special Warrants to acquire all of the issued and outstanding common
shares of SoftCare. At the date of acquisition, EC.com was substantially
inactive. As a result of the acquisition, the former shareholders of SoftCare
acquired 88.8 percent of the Company as a group. SoftCare is considered the
accounting acquirer for financial statement purposes. In conjunction with this
transaction, SoftCare changed its fiscal year-end from December 31 to May 31 and
EC.com changed its year-end from March 31 to May 31.
The acquisition has been accounted for as a reverse takeover using the purchase
method, and accordingly, for financial statement reporting purposes, the net
assets of SoftCare have been included in the consolidated balance sheet at book
values, and the net assets of EC.com have been recorded at fair market value at
the date of acquisition. The historical shareholders' equity gives effect to the
shares issuable to the shareholders of SoftCare upon exercise of the 11,000,000
Special Warrants.
The cost of the acquisition is the estimated fair market value of the net assets
of EC.com acquired on June 18, 1999 and consists of:
$
--------------------------------------------------------------------------------
Cash and cash equivalents 73,102
Shareholder receivable 448,517
Prepaid expenses and other 242,776
Cash advances to SoftCare 500,000
Accounts payable and accrued liabilities (104,479)
--------------------------------------------------------------------------------
Total acquisition cost 1,159,916
================================================================================
The reverse takeover was approved by the Vancouver Stock Exchange (now known as
the Canadian Venture Exchange) on June 18, 1999.
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
3. BUSINESS COMBINATION
Effective April 10, 2000, the Company acquired a 100% interest in the issued and
outstanding common shares of Financial Management Group LLC ("FMG"), a developer
of a credit counseling software program used by credit counseling agencies, for
cash consideration of $13,528 net of cash acquired. The acquisition has been
accounted for using the purchase method of accounting and the amount of the
acquisition cost in excess of the fair value of the identifiable assets and
liabilities has been recorded as goodwill, which will be amortized on a
straight-line basis over a seven year period. The results of operations of FMG
are included in the consolidated statement of operations from the date of
acquisition, April 10, 2000. The fair values of the identifiable assets and
liabilities acquired on April 10, 2000 are as follows:
$
--------------------------------------------------------------------------------
Cash and cash equivalents 6,855
Accounts receivable 23,491
Prepaid expenses and other 3,292
Capital assets 56,017
Bank indebtedness (14,073)
Accounts payable and accrued liabilities (98,269)
--------------------------------------------------------------------------------
Net (liabilities) acquired (22,687)
Goodwill and intangible assets 43,070
--------------------------------------------------------------------------------
Total acquisition cost 20,383
================================================================================
Under the original terms of the agreement, the Company was to issue 100,000
common shares in consideration for the acquisition of FMG that would have been
subject to a hold period of two years from the date of issuance. The Company was
required to issue an additional 95,000 common shares when portal design and
engineering was completed. The Company was required to issue 50,000 common
shares upon the portal generating revenues of U.S. $300,000 in any month
subsequent to the purchase, as described in the agreement. In addition, the
Company was required to issue 55,000 common shares upon the portal generating
revenues of U.S. $1,000,000 in any month, subsequent to the purchase, as
described in the agreement. Regulatory approval of this transaction is required
and has not yet been obtained.
The issuance of the above noted common shares is subject to final adjustment,
pending the resolution of various disputes between the sellers of FMG and the
Company. The outcome of this matter is currently not determinable. Accordingly,
the above shares have not been issued and no amounts with respect to the above
noted shares have been recorded in the consolidated financial statements, other
than the net cash consideration of $13,528. Management believes any adjustment
to the purchase price will not result in additional liability to the Company.
Accordingly, the cash purchase price has been disclosed on a preliminary basis
and may be adjusted upon the final resolution of these matters.
4. SIGNIFICANT ACCOUNTING POLICIES
These audited consolidated financial statements have been expressed in Canadian
dollars and in accordance with accounting principles generally accepted in
Canada. The following is a summary of the significant accounting policies used
in the preparation of these consolidated financial statements:
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Financial Management Group LLC (a Nevada
corporation), SoftCare (a Canadian company) and Bus Holdings Corporation (an
Anguilla corporation), and SoftCare's wholly owned subsidiaries, SCC Holdings
Ltd. (a Canadian company), SCEC Holdings Ltd. (a Canadian company) and SoftCare
Electronic Commerce (U.S.A.) Inc. (a Washington corporation). Bus Holdings
Corporation is inactive and has no assets or liabilities. All significant
intercompany balances and transactions have been eliminated on consolidation.
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
4. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
TRANSLATION OF FOREIGN CURRENCIES
The Company follows the temporal method of accounting for the translation of
integrated foreign subsidiary operations. Monetary assets and liabilities of
foreign subsidiaries denominated in foreign currencies are translated into
Canadian dollars at the exchange rate in effect at the balance sheet date. Other
balance sheet items are translated at exchange rates in effect when the assets
are acquired or obligations are incurred. Revenue and expense items are
translated at the average rate of exchange for the period. Foreign exchange
gains and losses resulting from these translations are reflected in the
consolidated statement of operations.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates market value.
SHORT-TERM INVESTMENTS
Short-term investments are typically held to maturity and are carried at
amortized cost. In the event there has been a decline in value that is other
than temporary, the investment will be written down to recognize the loss.
Short-term investments consist of investments in term deposits with an original
maturity of more than three months.
INVESTMENT TAX CREDITS
Investment tax credits resulting from eligible Scientific Research and
Experimental Development expenditures, pursuant to the Canadian Income Tax Act,
are recorded as a reduction of related wage costs in the period in which they
are received or in the period in which recoverability is certain.
LEASES
Leases are classified as either capital or operating leases. Leases which
transfer substantially all the benefits and risks of ownership of the property
to the Company are accounted for as capital leases. Capital lease obligations
reflect the present value of future lease payments, discounted at the
appropriate interest rate.
All other leases are accounted for as operating leases wherein rental payments
are expensed as incurred.
CAPITAL ASSETS
Capital assets are stated at cost less accumulated depreciation. Capital assets
are depreciated at rates sufficient to write off their cost over their estimated
useful lives on a declining balance method, after taking into account their
estimated residual values, at the following annual rates:
Computer and testing equipment 30%
Computer software 100%
Office equipment 20%
Office furniture 20%
Display booths 30%
Leasehold improvements Lesser of the term of the lease
or the remaining estimated
useful life of the asset
Computer equipment acquired under capital leases is depreciated on a
straight-line basis over the lesser of the term of the lease or the remaining
estimated economic life of approximately three years.
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
4. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
SOFTWARE DEVELOPMENT COSTS
Software development costs are charged to expense as incurred unless the
development project meets the criteria under generally accepted accounting
principles for deferral and amortization. The Company has not deferred any
software development costs to date.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company monitors the recoverability of long-lived assets, including capital
assets and goodwill, based upon estimates using factors such as future asset
utilization, business climate and future non-discounted cash flows expected to
result from the use of the related assets or to be realized on sale. The
Company's policy is to write down assets to their net recoverable amount using
undiscounted cash flows, in the period when it is likely that the carrying
amount of the asset will not be recovered.
REVENUE RECOGNITION
A software arrangement entered into by the Company may encompass multiple
elements, including software sales, consulting services, training services and
maintenance fees. The total fee for a multiple element arrangement is allocated
to each element based upon objective evidence of the fair value of each element.
Fair value is established through the Company's policy to charge to customers
the same price as when the element is sold separately. Revenue from sales made
to re-sellers is recognized after the third-party sale occurs and the revenue is
determinable. Consulting services offered by the Company are not considered
essential to the functionality of the software arrangement. As a result,
consulting and training services revenues are recognized as the work is
performed. Maintenance contract revenue is deferred and recognized over the
respective contract periods. Revenue from direct software sales is recognized
when the product has been delivered, as no significant obligations remain, fees
are fixed and determinable, collectibility is probable, and persuasive evidence
of an arrangement exists. If software sales are contingent upon successful
installation and subsequent customer acceptance, the revenue and work in
progress costs are deferred until customer acceptance is achieved.
ADVERTISING EXPENSE
Advertising costs are charged to expense as incurred.
INCOME TAXES
Effective June 1, 1999, the Company adopted the new recommendations of The
Canadian Institute of Chartered Accountants with respect to accounting for
income taxes. There was no effect of adopting the liability method of tax
allocation on the consolidated financial statements as at August 31, 2000 and
for the period then ended. Prior period financial statements have not been
restated as there was no cumulative effect on the opening deficit, as of June 1,
1999, of adopting the recommendations.
Under the new recommendations, the liability method of tax allocation is used in
accounting for income taxes. Under this method, future tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities, and measured using the substantially
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
4. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
STOCK BASED COMPENSATION
The Company has granted stock options which are described in note 15. The
Company accounts for employee stock-based compensation arrangements using the
intrinsic value method, whereby compensation expense is calculated based on the
difference, on the date of grant, between the fair market value of the Company's
stock and the exercise price and is recorded over the vesting period of the
options. Any consideration paid by the option holders on the exercise of stock
options is credited to common stock. The Company accounts for stock-based
compensation arrangements to non-employees using the Black Scholes fair value
method.
EMPLOYEE STOCK BONUS PLAN
Equity instruments contributed to the Employee Stock Bonus Plan ("Plan") by the
Company are recorded at their estimated fair value at the date of their
contribution and are recorded as a credit in shareholders' equity. A contra
equity account is recognized until allocations to participants are made and
compensation expense is recognized.
Compensation expense is measured using the intrinsic value method and is
recorded in the period when it is likely that performance criteria will be met
and/or the equity instruments allocated to participants will be released. Common
shares held by the Plan are considered to be issued and outstanding for the
purpose of calculating basic and fully diluted income (loss) per share.
INCOME (LOSS) PER SHARE
Generally accepted accounting principles applicable to reverse takeovers
requires the income (loss) per share figures to be calculated on the following
basis:
o the number of shares outstanding from the beginning of the fiscal period to
the date of the reverse takeover on June 18, 1999, are deemed to be the
number of shares issued by EC.com to the shareholders of SoftCare.
o the number of shares outstanding from the date of the reverse takeover to
the end of the fiscal period is deemed to be the actual number of shares of
EC.com outstanding in the period.
EC.com issued 11,000,000 Special Warrants, each of which was convertible into
one common share. However, no common shares were issued to effect this reverse
takeover. Accordingly, the deemed number of common shares of EC.com outstanding
prior to June 18, 1999 is nil.
PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
2000 1999
--------------------------------------------------------------------------------
Net income (loss) $(1,577,156) $(1,241,074)
Weighted average number of
common shares outstanding 15,957,425 1,144,207
--------------------------------------------------------------------------------
Basic (loss) per common share (0.09) (1.08)
--------------------------------------------------------------------------------
Diluted income (loss) per share reflects the potential dilution of securities
that could result from the exercise of dilutive options and warrants. Fully
diluted loss per share is not presented since the issue of shares upon the
exercise of stock options and warrants would be anti-dilutive.
================================================================================
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
4. SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, cash held in escrow, short term
investments, accounts receivable, investment tax credits receivable, bank
indebtedness, accounts payable and accrued liabilities approximate their fair
values due to the relatively short periods to maturity of the instruments. The
fair value of short-term investments has been determined based on quoted market
sources. The carrying value of long-term debt approximates fair value due to
variable market interest rates being charged on outstanding balances. The
carrying value of capital lease obligations approximates fair value as the
effective interest rate on this instrument approximates current market rates.
The carrying value of subsidiary redeemable Class A preference shares
approximates fair value based on discounted cash flows.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts recorded in the consolidated financial
statements. Actual results could differ from these estimates.
COMPARATIVE FIGURES
Certain comparative figures have been reclassified from statements previously
presented to conform to the presentation adopted in the current year.
5. CASH HELD IN ESCROW
Cash held in escrow includes funds held in trust by the Company's transfer agent
pending receipt of regulatory approval of either the Company's prospectus with
respect to the issuance of 1,495,000 Special Warrants or the approval of the
Annual Information Form ("AIF") [note 14]. The Company filed its AIF in June
2000 and received regulatory approval on August 4, 2000. On September 6, 2000
the funds were released from escrow to the Company. The cash held in escrow has
been recorded at cost which approximates market value and earns interest at
approximately 5% per annum.
6. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and cash equivalents which are held
with one financial institution, cash held in escrow which is held with one
financial institution, short-term investments which are held with one financial
institution, and accounts receivable.
The Company operates internationally, which gives rise to the risk that cash
flows may be adversely impacted by exchange rate fluctuations. The Company's
operations are in the field of supplying electronic commerce computer software
licenses and support services to domestic and international markets. Many of its
customers are outside of Canada and therefore a significant percentage of its
revenues are derived from, and are paid in, U.S. dollars. The Company has not
entered into contracts for foreign exchange hedges.
The Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses which, when realized, have been within
the range of management's expectations. To reduce credit risk, management
performs ongoing credit evaluations of its customers' financial condition. The
Company maintains reserves for potential credit losses.
At August 31, 2000 five customers represented 46% of the accounts receivable
balance.
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
7. SHORT-TERM INVESTMENTS
Short-term investments, which consist of Government of Canada Treasury Bills,
have a market value of $2,996,509 at August 31, 2000, (1999: $2,698,952) as
determined by quoted market sources, earn interest at a rate of 5.55% per annum
and mature in September 2000.
8. WORK IN PROGRESS
Included in work in progress are direct labour costs incurred by the Company in
connection with an agreement the Company entered into with a customer to provide
software and services for a period of three years for approximately $1,600,000
(August 1999 $nil). Revenue and related work in progress will be recognized in
the accompanying statement of operations once the revenue recognition criteria
for the agreement have been met.
<TABLE>
9. CAPITAL ASSETS
<CAPTION>
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
$ $ $
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUGUST 31, 2000
Computer and testing equipment 363,288 230,024 133,264
Computer software 137,295 99,872 37,423
Office equipment 71,222 15,717 55,505
Office furniture 46,861 20,616 26,245
Display booths 21,755 17,289 4,466
Leasehold improvements 26,023 5,259 20,764
-----------------------------------------------------------------------------------------
666,444 388,777 277,667
=========================================================================================
AUGUST 31, 1999
Computer and testing equipment 261,546 170,817 90,729
Computer software 54,164 50,387 3,777
Office equipment 20,418 10,691 9,727
Office furniture 36,560 15,686 20,874
Display booths 21,755 15,543 6,212
Leasehold improvements 9,122 2,584 6,538
-----------------------------------------------------------------------------------------
403,565 265,708 137,857
=========================================================================================
</TABLE>
At August 31, 2000 capital assets include assets acquired under capital lease
having a gross book value of $230,512 [1999 - $151,471] and accumulated
depreciation of $135,676 [1999 - $62,975].
10. BANK INDEBTEDNESS
The Company also has a revolving line of credit with a Canadian chartered bank
for a maximum of $150,000 based on the required margin calculations as noted in
the loan agreement. At August 31, 2000, the Company had $43,748 outstanding
under the line of credit. Amounts outstanding on the line of credit are payable
on demand and bear interest at the bank's prime lending rate plus 1.5%. The
bank's prime lending rate at August 31, 2000 was 9.5%. At August 31, 2000, the
Company had not pledged any of its assets as collateral for the line of credit,
however the bank has the right to request security at any time.
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
11. LONG-TERM DEBT
The Company has long-term debt outstanding at August 31, 2000 as follows:
2000 1999
$ $
--------------------------------------------------------------------------------
Bank loan with Wells Fargo Bank bearing interest at 7%
per annum, repayable in equal monthly installments of
approximately $500 through November 2003 12,309 --
Bank loan agreement with Business Development Bank
of Canada, bearing interest at bank prime rate plus 4%
and repayable in equal monthly principal installments of
$3,350 through April 2001. The Company also pays
interest on this loan at a rate of 0.0821% of the
Company's gross sales per month through April 2001,
based on annual sales goals that are defined in the loan
agreement. The bank prime rate was 9.5% at May 31,
2000. 26,800 67,000
--------------------------------------------------------------------------------
39,109 67,000
Less: current portion (26,800) (40,200)
--------------------------------------------------------------------------------
12,309 26,800
================================================================================
The loan with Business Development Bank of Canada is collateralized by a general
security agreement providing a first security interest in substantially all of
the Company's assets, personal guarantees from several of the Company's
executives and the assignment of a life insurance policy on the Company's
president. The loan agreement contains certain covenants that impose limitations
restricting the Company's dividend paying ability and changes in ownership.
12. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain of its computer and office equipment under capital
leases. The future minimum lease payments required under capital leases expiring
May 2004 are as follows:
<TABLE>
<CAPTION>
August 31, $
-------------------------------------------------------------------------------------
<S> <C>
2001 59,775
2002 46,579
2003 5,611
2004 3,846
-------------------------------------------------------------------------------------
115,811
Less amount representing interest (approximately 13% per annum) (18,587)
-------------------------------------------------------------------------------------
Present value of future minimum lease payments 97,224
Less: current portion (43,526)
-------------------------------------------------------------------------------------
Long term obligations under capital leases 53,258
=====================================================================================
</TABLE>
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
13. SUBSIDIARY REDEEMABLE CLASS A PREFERENCE SHARES
225,000 Subsidiary redeemable Class A preference non-voting shares, par value
$1.00 per share.
The Company's subsidiary, SoftCare, has outstanding redeemable Class A
preference shares as follows:
<TABLE>
<CAPTION>
SUBSIDIARY
REDEEMABLE CLASS A
PREFERENCE SHARES AMOUNT
# $
-----------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, MAY 31, 1999 132,500 132,500
Redemption of shares for cash (7,500) (7,500)
-----------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 1999 125,000 132,500
Redemption of shares for cash (7,500) (7,500)
-----------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1999 118,000 118,000
-----------------------------------------------------------------------------------------
Redemption of shares for cash (7,500) (7,500)
BALANCE, FEBRUARY 28, 2000 110,500 110,500
Redemption of shares for cash (7,500) (7,500)
-----------------------------------------------------------------------------------------
BALANCE, MAY 31, 2000 102,500 102,500
Redemption of shares for cash (7500) (7,500)
-----------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 2000 95,000 95,000
-----------------------------------------------------------------------------------------
Less: current portion (30,000) (30,000)
Subsidiary redeemable Class A preference shares 65,000 65,000
=========================================================================================
</TABLE>
Under an agreement between SoftCare and one of its shareholders, SoftCare agreed
to issue 225,000 Redeemable Class A preference shares to the shareholder in
exchange for 665 common shares in SoftCare. The subsidiary redeemable Class A
preference shares are mandatorily redeemable based upon the Company's gross
quarterly sales at a redemption price of $1 per share. The Company has the
option of accelerating the redemption of these shares at a redemption price of
$1 per share. In the event the Company is unable to redeem the shares for cash,
the Company is required to settle this obligation with common shares of its
subsidiary SoftCare. Common shares of the subsidiary are to be issued at a ratio
equal to the proportion of the capital of SoftCare that such preference shares
represented when they were created.
The holder of the subsidiary redeemable Class A preference shares receives a
cumulative dividend calculated at the bank prime rate. The bank prime rate at
August 31, 2000 was 9.5%. The cumulative dividends have been recorded as
interest expense in the consolidated statements of operations.
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
14. SPECIAL WARRANTS
The following table summarizes the Special Warrant transactions for the
following periods:
<TABLE>
<CAPTION>
SPECIAL
WARRANTS AMOUNT
# $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
SPECIAL WARRANTS OUTSTANDING, MAY 31, 1999 9,999,994 3,321,604
Deemed Special Warrants issued for services
pursuant to exercise of options [NOTE 15] 1,000,006 1,280,000
--------------------------------------------------------------------------------------------------
SPECIAL WARRANTS OUTSTANDING, JUNE 17, 1999 11,000,000 4,601,604
Special Warrants issued for services rendered [b] 51,666 --
Special Warrants issued in private placement,
net of costs [c] 2,000,000 2,720,000
--------------------------------------------------------------------------------------------------
SPECIAL WARRANTS OUTSTANDING, AUGUST 31, 1999 13,051,666 7,321,604
Special Warrants exercised for common
shares, net of costs (12,051,666) (7,240,315)
--------------------------------------------------------------------------------------------------
SPECIAL WARRANTS OUTSTANDING, NOVEMBER 30, 1999 1,000,000 81,289
Special Warrants exercised for common
shares, net of costs (1,000,000) (81,289)
--------------------------------------------------------------------------------------------------
SPECIAL WARRANTS OUTSTANDING, FEBRUARY 28, 1999 -- --
Special Warrants issued in private placement,
net of costs [d] 1,495,000 5,087,468
--------------------------------------------------------------------------------------------------
SPECIAL WARRANTS OUTSTANDING, MAY 31, 2000 1,495,000 5,087,468
Special Warrants exercised for common
shares, net of costs (1,495,000) (5,087,468)
--------------------------------------------------------------------------------------------------
SPECIAL WARRANTS OUTSTANDING, AUGUST 31, 2000 -- --
==================================================================================================
</TABLE>
[a] EC.com issued 11,000,000 Special Warrants in exchange for all of the
issued and outstanding common shares of SoftCare pursuant to a reverse
takeover agreement effective June 18, 1999 [note 2]. Each of the Special
Warrants is exercisable for one common share of the Company without any
additional consideration. In these financial statements, the Special
Warrants issued to the shareholders of SoftCare, the accounting acquiror,
have been presented as if they were outstanding prior to the reverse
takeover on the basis such deemed Special Warrants were exchanged for
common shares.
Of the 11,000,000 Special Warrants issued, 10,000,000 were issued to the
existing shareholders of SoftCare. These 10,000,000 Special Warrants were
exercised into common shares and are subject to a voluntary pooling
agreement which restricts the holders from trading the common shares on
any stock exchange until such time as they are released from the pool.
Pursuant to the terms of the voluntary pooling agreement, 8,350,386 of the
common shares will be released on the following basis: 10% were released
six months after completion of the acquisition on June 18, 1999; 30% will
be released twelve months after completion of the acquisition; 30% will be
released 24 months after completion of the acquisition; and 30% will be
released 36 months after completion of the acquisition. In addition,
1,649,614 common shares will be released on the following basis: 25% were
released six months after completion of the acquisition on June 18, 1999;
25% will be released twelve months after completion of the acquisition;
25% will be released 18 months after completion of the acquisition; and
25% will be released 24 months after completion of the acquisition.
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
14. SPECIAL WARRANTS (CONT'D)
The remaining 1,000,000 Special Warrants which were issued to the SoftCare
Employee Stock Bonus Plan Trust ("SESB Trust") to provide employee bonus
shares were exercised into 1,000,000 common shares. Two of the Directors
of the Company are also the Trustees of the SESB Trust and may only
release such shares from the Trust to employees in accordance with
regulatory approval and the achievement of certain performance criteria
[note 15].
[b] The Company issued 51,666 Special Warrants as a finder's fee and corporate
advisory fee upon completion of the reverse takeover. Each Special Warrant
is exercisable for one common share of the Company without any additional
consideration.
[c] On June 18, 1999, pursuant to an offering memorandum, the Company issued
2,000,000 Special Warrants for gross cash proceeds of $3,000,000 pursuant
to a broker-assisted private placement. Costs incurred to effect the
private placement include a commission and other cash costs totaling
$280,000. .
Each Special Warrant is exercisable, without any additional consideration,
into one common share and one Share Purchase Warrant ("Underlying
Warrant"), which is transferable upon regulatory approval. Each Underlying
Warrant entitles the holder to purchase one common share at a price of
$2.50 and was exercisable until June 18, 2000, at which time the
Underlying Warrant will expire.
Pursuant to this Special Warrant private placement, the Company issued
196,300 Agent's Special Warrants. Each Agent's Special Warrant was
exercisable, without any additional consideration, for one Agent's Warrant
for a period of one year from June 18, 1999. Each Agent's Warrant was
exercisable for one common share of the Company at $1.50 for a period of
one year from the closing date of the financing.
One half of the Agent's Warrants and/or common shares are subject to
resale restrictions which expire three months from the date the shares are
released from hold periods.
The net proceeds of the above-noted offering were $2,720,000.
On June 13, 2000 113,600 Agents Special Warrants were exercised for gross
proceeds of $170,400.
On June 18, 2000 1,203,000 Share purchase Warrants expired
[d] On March 29, 2000, the Company issued 1,495,000 Special Warrants for gross
cash proceeds of $5,606,250 pursuant to a broker-assisted private
placement. Costs incurred to effect the private placement include
commissions and other cash costs totaling $518,782.
Each Special Warrant is exercisable, without any additional consideration,
into one common share and one half of one Share Purchase Warrant. Each
Share Purchase Warrant entitles the holder to purchase one common share at
an exercise price of $4.25 and is exercisable one year from the closing
date of the financing on March 30, 2000, at which time the Share Purchase
Warrant will expire. Each common share issued is subject to a hold period
and may not be traded until July 30, 2000. During the period ended August
31, 2000 the 1,495,000 Special Warrants were released from their hold
period and exercised into common shares for no additional consideration.
Pursuant to this Special Warrant private placement, the Company issued
174,500 Agent's Special Warrants. Each Agent's Special Warrant is
exercisable for one common share at an exercise price of $3.75 and is
exercisable one year from the closing date of the financing on March 30,
2000, at which time the Agent's Special Warrants will expire.
The net proceeds of the above-noted offering were $5,087,468.
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
14. SPECIAL WARRANTS (CONT'D.)
[e] As at August 31, 2000, exercise of the Company's Special Warrants, Share
Purchase Warrants, Agent's Special Warrants and Agent's Warrants would
result in the issuance of the following common shares:
COMMON EXERCISE
SHARES ISSUABLE PRICE
# EXPIRY DATE $
--------------------------------------------------------------------------------
747,500 March 30, 2001 4.25
149,500 March 30, 2001 3.75
--------------------------------------------------------------------------------
897,000
================================================================================
15. COMMON STOCK
[a] AUTHORIZED
100,000,000 [1999 - 100,000,000] Common voting shares without par value.
On September 21, 1998, the authorized share capital of the Company was
consolidated on a basis of six shares of the Company for one new share of the
Company, resulting in the authorized share capital of the Company being reduced
to 16,666,667 common shares without par value after the consolidation. The
authorized share capital of the Company was subsequently increased from
16,666,667 common shares to 100,000,000 common shares without par value.
<TABLE>
<CAPTION>
[b] ISSUED AND OUTSTANDING COMMON STOCK
COMMON SHARES AMOUNT
# $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, MAY 31, 1999 -- --
Issued common stock of EC.com 1,391,428 960,316
Shares issued pursuant to exercise of stock options 23,334 39,200
--------------------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 1999 1,414,762 999,516
--------------------------------------------------------------------------------------------------
Shares issued on exercise of Special Warrants 12,051,666 7,234,303
BALANCE, NOVEMBER 30, 1999 13,466,428 8,233,819
Shares issued pursuant to exercise of stock options 10,000 15,000
Shares issued on exercise of Special Warrants 1,000,000 87,301
Shares issued on exercise of Agents'
Special Warrants 14,000 21,000
Shares issued on exercise of share purchase warrants 591,600 1,479,000
--------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 28, 2000 15,092,028 9,836,120
Shares issued on exercise of Agents'
Special Warrants 68,700 103,050
Shares issued on exercise of share purchase warrants 205,400 513,500
--------------------------------------------------------------------------------------------------
BALANCE, MAY 31, 2000 15,356,128 10,452,670
Shares issued on exercise of Special Warrants 1,495,000 5,087,468
Shares issued on exercise of Agents'
Special Warrants 138,600 170,400
--------------------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 2000 16,989,728 15,710,538
==================================================================================================
</TABLE>
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
15. COMMON STOCK (CONT'D.)
Prior to and in anticipation of the reverse takeover [note 2], options to
acquire 1,000,006 common shares of SoftCare, with a fair value of $1,280,000,
were granted to employees. The options were only exercisable concurrent with the
completion of any reverse takeover, sale or other disposition of the shares of
the Company that occurred on or before September 30, 1999, their expiry date.
The options were granted to employees in lieu of salaries and were given in
exchange for general financing services to be performed over a five month period
ended September 15, 1999. These options were exercised on June 18, 1999 for
nominal cash proceeds of $247. Accordingly, $861,533 of the excess value of
common shares over cash received has been recorded as compensation expense in
the consolidated financial statements in the year ended May 31, 1999. and
$418,220 was recorded as compensation expense in prior periods.
During the year ended May 31, 2000, 23,334 stock options held by a former
Director and a former officer were exercised into 23,334 common shares at an
exercise price of $1.68 per option, and 10,000 stock options held by a
consultant were exercised into 10,000 common shares at an exercise price of
$1.50 per option.
[c] STOCK OPTIONS
The following table summarizes stock option transactions:
<TABLE>
<CAPTION>
EXERCISE
STOCK OPTIONS PRICE
# $
--------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE, MAY 31, 1999 1,000,006 --
Deemed Special Warrants issued for services
pursuant to exercise of options [NOTE 14] (1,000,006) --
Options granted to directors 800,000 1.50
--------------------------------------------------------------------------------------------------
BALANCE, JUNE 17, 1999 800,000
Issued options of EC.com 33,334 1.68
Options granted to directors, employees
and consultants 350,000 1.50
Options exercised for common shares on June 18, 1999
pursuant to reverse takeover (250,000) (1.50)
Options exercised for common shares (23,334) (1.68)
--------------------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 1999
Options cancelled (100,000) (1.50)
Options granted to directors, employees
and consultants 100,000 1.50
--------------------------------------------------------------------------------------------------
BALANCE, NOVEMBER 30, 1999
Options granted to directors, employees
and consultants 100,000 3.90
Options exercised for common shares (10,000) (1.50)
--------------------------------------------------------------------------------------------------
BALANCE, FEBRUARY 28, 2000 AND
MAY 31, 2000 990,000
Options granted to directors, employees
and consultants 200,000 1.75
--------------------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 2000 1,190,000
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
15. COMMON STOCK (CONT'D.)
On June 18, 1999, 800,000 stock options, exercisable at $1.50, were granted to
Directors of the Company in exchange for 197,557 stock options of SoftCare as
part of the reverse takeover [note 2]. These stock options expire in April 2004.
On June 18, 1999, 250,000 stock options were granted to officers, directors, and
a consultant, at an exercise price of $1.50. These stock options expire in June
2004. These stock options were exercised on June 18, 1999 and were included in
the issued share capital of EC.com on the date of the reverse takeover, June 18,
1999.
On June 18, 1999, 100,000 stock options were granted to an individual pursuant
to a consulting agreement, at an exercise price of $1.50. These options were not
exercised and were canceled concurrent with the termination of the consulting
agreement in 1999.
In November 1999, 100,000 stock options were granted to a consultant at an
exercise price of $1.50. These stock options expire on November 2004 or on the
termination of the consulting contract. 10,000 of these options were exercised
on February 15, 2000.
In February 2000, 100,000 stock options were granted to a Director of the
Company, at an exercise price of $3.90. These stock options expire in February
2005.
In August 2000, 200,000 stock options were granted to a consultant at an
exercise price of $1.75. These stock options expire in blocks of 40,000 per year
on each successive anniversary of the grant up to August 2005.
At August 31, 2000, the Company has the following stock options outstanding:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE OPTIONS AVERAGE
EXERCISE PRICE OUTSTANDING REMAINING EXERCISE PRICE EXERCISABLE EXERCISE PRICE
$ # CONTRACTUAL $ # $
LIFE
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.50 890,000 4.0 1.50 890,000 1.50
$3.90 100,000 4.8 3.90 100,000 3.90
$1.75 200,000 2.5 1.75 200,000 1.75
----------------------------------------------------------------------------------------------
1,190,000 4.1 1.74 1,190,000 1.74
==============================================================================================
</TABLE>
In these financial statements, the options issued to shareholders of SoftCare,
the accounting acquirer, have been presented as if they were outstanding prior
to the reverse takeover on the basis such deemed options were exercised for
deemed special warrants or common shares.
[d] EMPLOYEE STOCK BONUS PLAN
SoftCare established a non-leveraged Employee Stock Bonus Plan which covers
directors, officers, consultants and employees who have completed six months or
more service with the Company and contributed 999,998 common shares of SoftCare
to the Plan. Upon the reverse takeover, the Plan exchanged its common shares in
SoftCare for 1,000,000 common shares of EC.com.
Under the terms of the Plan, common shares held by the Plan will be allocated to
participants when the annual revenue target is met or exceeded. However, the
Company's Board of Directors has the discretion to allocate shares even if the
milestones are not achieved if it is in the best interest of the Company. Common
shares allocated will vest irrevocably for participants in the Plan when sales
targets are achieved or the directors otherwise resolve that they are vested.
<PAGE>
SOFTCARE EC.COM INC.
Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
15. COMMON STOCK (CONT'D.)
Upon the termination of an employee, shares that are not vested will be returned
to the treasury of the Company. Any shares placed in escrow shall be subject to
mandatory repurchase by the Company at a price of US$0.01 per share should the
participant terminate. Five years after establishment of the Plan, there shall
be an exchange of unvested shares granted under the Plan and placed and
remaining in escrow for a new class of redeemable non-voting preferred shares.
Each common share will be exchanged for one new preferred share.
During the period ended August 31, 2000, 187,030 shares were allocated to
employees, and a compensation expense has been recognized in the statement of
operations for the period amounting to $ 392,763. Compensation expense will be
recorded at fair value once the shares have been committed to be released. At
August 31, 2000, the fair value of the remaining 812,970 unallocated common
shares based on quoted market sources was $1,625,940
16. COMMITMENTS
The Company leases its premises and certain automobiles under operating leases
expiring through 2003. The approximate future minimum lease commitments under
operating lease agreements for the next three years ending May 31, are as
follows:
$
--------------------------------------------------------------------------------
2001 174,000
2002 192,000
2003 154,000
--------------------------------------------------------------------------------
520,000
--------------------------------------------------------------------------------
17. INCOME TAXES
At May 31, 2000, for Canadian tax purposes, the Company has approximately
$1,715,000 of undeducted expenditures for tax purposes relating primarily to
share issue costs and approximately $3,298,000 of non-capital losses available
for income tax purposes to reduce taxable income of future years that expire as
follows:
NON-CAPITAL
LOSSES $
--------------------------------------------------------------------------------
May 31, 2001 81,000
May 31, 2003 328,000
May 31, 2005 829,000
May 31, 2006 412,000
May 31, 2007 1,648,000
--------------------------------------------------------------------------------
3,298,000
--------------------------------------------------------------------------------
The potential income tax benefits relating to these losses and tax balances have
not been recognized in the accounts.
18. RELATED PARTY TRANSACTIONS
Directors and officers of the Company provide legal, accounting and advisory
services to the Company. During the period ended August 31, 2000, the Company
paid $118,053 [period ended August 31, 1999, - $48,542] for these services that
were charged to general and administrative expenses.
<PAGE>
SOFTCARE EC.COM INC.
(Notes to the Consolidated Financial Statements
August 31, 2000 and 1999
19. SUBSEQUENT EVENTS
Subsequent to the period end the Company has continued to review its position
with regard to the purchase of Financial Management Group LLC (FMG) on April 10,
2000. In August and September the Company became aware of further material
breaches of the purchase agreement and SoftCare has determined to terminate the
acquisition. The two principals have retained counsel and have presented the
company with a demand alleging wrongful termination of their employment and
other claims. SoftCare intends to vigorously defend any action that might be
brought against it relating to these matters, and to pursue rights and remedies
available to it for the various breaches of the purchase agreement by FMG, its
parent company and the two principals.
Development and marketing of SoftCare's credit counselling software does not
depend on the technology of FMG. Management believes that the termination of the
purchase agreement and of the employment of the two FMG principals will not have
a material effect on a going-forward business opportunity for licensing of
SoftCare's credit counselling software.
On September 1, 2000, the Company granted to Mr. John Frostad 40,000 stock
options. Each option is exercisable for one common share for $2.00. The options
expire on August 31, 2005.
On October 19, 2000 the Company announced that, subject to regulatory and
shareholder approval, the Board of Directors has adopted a share option plan
(the "Plan") designed as a consolidated company wide incentive compensation plan
for Softcare employees, directors, officers, consultants and service providers.
Consequent upon adoption of the Plan a total of 20% of the issued common shares
of Softcare are reserved to the Plan (subject to standard anti-dilution
adjustment). The total reserved will include 1,230,000 currently outstanding
options. Pursuant to the Share Option Plan the Board of Directors has determined
that 1,000,875 new options for common share options be granted to specified
employees at a price of $ 1.55 per share. The options will vest with individual
optionees over periods specified under the Plan. The options granted today shall
be exercisable for a term of 5 years. The effective date of the grant is October
19, 2000. Approval for the Plan will be discussed and voted upon by shareholders
on November 10, 2000.
