SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
November 9, 2000
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Date of Report
(Date of Earliest Event Reported)
TECE, INC.
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(Exact Name of Registrant as Specified in its Charter)
Nevada 0-30170 88-0390657
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(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
740 St-Maurice, Suite 410
Montreal, Quebec, Canada
H3C 1L5
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(Address of Principal Executive Office)
(514) 954-3665
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(Registrant's telephone number,
including area code)
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(Former Name and Former Address)
TECE, Inc. (the "Company") hereby amends Item 7 of its Current Report
on Form 8-K filed with the Securities and Exchange Commission on November 27,
2000, to include the financial statements and pro forma financial statements
listed below in Item 7.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) Financial Statements of TEC TechnololgyEvaluation.com Corporation
Independent Auditors' Report.
Consolidated Balance Sheets as at December 31, 1999 and
1998. Consolidated Statements of Operations for the years
ended December 31, 1999 and 1998.
Consolidated Statement of Shareholders' Equity (Deficiency)
for the years ended December 31, 1999 and 1998.
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998.
Notes to Consolidated Financial Statements.
Interim Consolidated Balance Sheets as at September 30, 2000
and December 31, 1999 (unaudited).
Interim Consolidated Statements of Operations and
Deficit for the nine-month periods ended September
30, 2000 and 1999
(unaudited).
Interim Consolidated Statements of Shareholders' Equity
(Deficiency) for the nine-month period ended September 30,
2000 (unaudited).
Interim Consolidated Statements of Cash Flows for the
nine-month periods ended September 30, 2000 and 1999
(unaudited).
Notes to Interim Consolidated Financial Statements.
(b) Pro Forma Financial Information of TECE, Inc.
Pro Forma Consolidated Balance Sheet as at September 30, 2000.
Pro Forma Consolidated Statement of Operations and Deficit for
the nine-month period ended September 30, 2000.
Pro Forma Consolidated Statement of Operations and Deficit for
the nine-month period ended December 31, 1999.
Notes to Pro Forma Consolidated Financial Statements.
(c) Exhibits.
*4.1 Share Exchange Agreement made as of October 10, 2000 between
the Registrant, 3786137 Canada Inc., Tec
TechnologyEvaluation.com, Manitex Capital Inc., Intasys
Corporation Inc. and Mr. Don Lobley.
*4.2 Support Agreement made October 10, 2000, between the
Registrant, 3786137 Canada Inc. and Tec
TechnologyEvaluation.com.
*4.3 Voting Agreement made October 10, 2000, between the
Registrant, 3786137 Canada Inc. and Tec
TechnologyEvaluation.com.
- ----------------------------
* Previously filed.
-2-
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 hereunto duly authorized.
TECE, INC.
February 2, 2001 By: /s/ Michael Clayton
--------------------------
Name: Michael Clayton
Title: Chief Financial Officer
-3-
TECE, INC.
INDEX TO FINANCIAL STATEMENTS
Page
TEC TECHNOLOGYEVALUATION.COM CORPORATION (FORMERLY ARLINGSOFT
CORPORATION)
Independent Auditors' Report................................................F-3
Consolidated Balance Sheets as at December 31, 1999 and 1998................F-4
Consolidated Statements of Operations for the years ended December 31, 1999
and 1998...............................................................F-5
Consolidated Statements of Shareholders' Equity (Deficiency) for the years
ended December 31, 1999 and 1998.......................................F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1999
and 1998...............................................................F-8
Notes to Consolidated Financial Statements..................................F-9
Interim Consolidated Balance Sheets as at September 30, 2000 and
December 31, 1999 (unaudited).........................................F-28
Interim Consolidated Statements of Operations and Deficit for the nine-month
periods ended September 30, 2000 and 1999 (unaudited)..................F-29
Interim Consolidated Statements of Shareholders' Equity (Deficiency) for the
nine-month period ended September 30, 2000 (unaudited).................F-30
Interim Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 2000 and 1999 (unaudited)..................F-31
Notes to Interim Consolidated Financial Statements..........................F-32
TECE, INC.
Pro Forma Consolidated Balance Sheet as at September 30, 2000...............F-37
Pro Forma Consolidated Statement of Operations and Deficit for the
nine-month period ended September 30, 2000.............................F-38
F-1
Pro Forma Consolidated Statement of Operations and Deficit for the
nine-month period ended December 31, 1999..............................F-39
Notes to Pro Forma Consolidated Financial Statements........................F-40
F-2
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF
TEC TECHNOLOGYEVALUATION.COM CORPORATION
We have audited the consolidated balance sheets of TEC TECHNOLOGYEVALUATION.COM
CORPORATION (formerly Arlingsoft Corporation) as at December 31, 1999 and 1998
and the consolidated statements of operations, shareholders' equity (deficiency)
and cash flows for each of the years in the two-year period ended December 31,
1999. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the years in the two-year period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
These financial statements have been prepared on a going concern basis, which
assumes the realization of assets and liquidation of liabilities in the normal
course of business. As discussed in note 1 to the consolidated financial
statements, the Corporation has suffered recurring losses which raise
substantial doubt about its ability to continue as a going concern. The
Corporation's future is dependent on obtaining the necessary financing to
complete its projects, to market its technology and upon future profitable
operations and steps taken by its shareholders, and on the ability of the
Corporation to generate cash flow from operations and other measures to
eliminate the deficit. In its business plan, the Corporation anticipates the
need to raise additional capital. These financial statements do not give effect
to any adjustments which could be necessary should the Corporation be unable to
continue as a going concern and, therefore, be required to realize its assets
and discharge its liabilities in other than the normal course of business, and
at amounts different from those reflected in the accompanying financial
statements.
/s/ PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Montreal, Quebec, Canada
December 22, 2000
F-3
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Consolidated Balance Sheets
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(expressed in U.S. dollars)
AS AT AS AT
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 143,543 424,140
Accounts receivable (note 5) 107,891 27,163
Tax credits receivable 163,991 213,346
Prepaid expenses 64,407 5,544
-----------------------------------------
479,832 670,193
FIXED ASSETS (note 6) 198,209 28,039
OTHER ASSETS 9,017 6,856
-----------------------------------------
687,058 705,088
-----------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (note 7) 432,085 337,044
Notes payable (note 8) 1,007,451 -
Current portion of long-term debt (note 9) 16,108 101,333
-----------------------------------------
1,455,644 438,377
-----------------------------------------
LONG-TERM DEBT (note 9) 175,429 113,600
ADVANCES FROM MANITEX CAPITAL INC. (note 10) 1,034,093 358,532
CONVERTIBLE DEBENTURES (note 11) 1,738,057 524,297
-----------------------------------------
2,947,579 996,429
-----------------------------------------
COMMITMENTS (note 14)
REDEEMABLE PREFERRED SHARES (4,000,000 Class A preferred shares issued and
outstanding;
December 31, 1998 - 4,000,000) (note 12) 2,046,508 2,046,508
-----------------------------------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
EXCESS OF DEFICIT OVER SHARE CAPITAL
Capital stock (note 13)
17,806,588 (December 31, 1998 - 19,500,000) common shares issued
and outstanding 3,813,000 4,652,357
Deferred stock-based compensation (165,500) (3,500,000)
Additional paid-in capital 248,250 -
Accumulated other comprehensive income (loss) (89,045) 27,811
Accumulated deficit (9,569,378) (3,956,394)
-----------------------------------------
(5,762,673) (2,776,226)
-----------------------------------------
687,058 705,088
-----------------------------------------
The accompanying notes are an integral part of these financial statements.
F-4
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Consolidated Statements of Operations
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(expressed in U.S. dollars)
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
REVENUES
Consulting revenue 357,845 33,322
Licencing revenue from software sales 13,424 75,842
-----------------------------------------
371,269 109,164
-----------------------------------------
EXPENSES
Selling and administrative (including stock-based compensation expense of
$2,533,040;
1998 - $1,151,752) 5,786,624 1,817,254
Research and development, net of tax credits 29,004 44
Amortization of other assets 9,899 5,132
Depreciation of fixed assets 19,361 13,680
-----------------------------------------
5,844,888 1,836,110
-----------------------------------------
OPERATING LOSS (5,473,619) (1,726,946)
-----------------------------------------
OTHER INCOME (EXPENSES)
Interest income 40,367 391
Finance fee expense (96,011) (39,357)
Interest expense (220,650) (67,331)
Foreign exchange gain 60,387 15
-----------------------------------------
(215,907) (106,282)
-----------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (5,689,526) (1,833,228)
INCOME TAX RECOVERY 61,381 753,000
-----------------------------------------
NET LOSS FOR THE YEAR FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY GAIN (5,628,145) (1,080,228)
DISCONTINUED OPERATIONS
Loss from discontinued operations - (223,215)
Gain on disposal of UTTC United Tri-Tech Corporation ("UTTC") - net of tax of
$753,000 (note 4) - 1,479,273
-----------------------------------------
NET LOSS FOR THE YEAR BEFORE EXTRAORDINARY GAIN (5,628,145) 175,830
EXTRAORDINARY GAIN ON SETTLEMENT OF DEBT, net of tax of $7,811 15,161 -
-----------------------------------------
NET INCOME (LOSS) FOR THE YEAR (5,612,984) 175,830
-----------------------------------------
INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED FROM:
Continuing operations before extraordinary gain (0.30) (0.09)
Discontinued operations - 0.11
-----------------------------------------
Net income (loss) before extraordinary gain (0.30) 0.02
Extraordinary gain - -
-----------------------------------------
NET INCOME (LOSS) PER COMMON SHARE (0.30) 0.02
-----------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 18,485,762 11,747,079
-----------------------------------------
The accompanying notes are an integral part of these financial statements.
F-5
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Consolidated Statements of Shareholders' Equity (Deficiency)
for the years ended December 31, 1999 and 1998
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(expressed in U.S. dollars)
CLASS A COMMON CLASS A-1
-------------------------------------------------------------------------------
NUMBER OF VALUE OF NUMBER OF VALUE OF
SHARES SHARES SHARES SHARES
ISSUED $ ISSUED $
NUMBER OF VALUE OF
SHARES SHARES
ISSUED $
BALANCE AT DECEMBER 31, 1997 1,468,500 919,988
Issuance of Class E shares on acquisition of UTTC
Redemption of Class E shares for Class A-1 shares 866,667 1,816,560
Redemption of Class A-1 shares for Class B-1 and
B-2 shares (866,667) (1,816,560)
Redemption of Class B-1 shares for cash
Conversion of obligation into Class A shares 19,100 36,948
Issuance of Class A shares for cash 100 260
Conversion of Class B-2 shares into Class A shares 436,167 915,482
Redemption of Class C shares
Acquisition of Class A preferred shares (1,923,867) (1,872,678) 10,196,495 1
Acquisition of Class D shares
Acquisition of Class B-1 shares
Common shares issued for cash 9,303,505 4,652,356
Stock-based compensation expense
Excess of consideration issued to parent company
on acquisition of UTTC over carrying amount
recorded in accounts of parent company (note 4)
Foreign currency translation adjustment
Net income for the period
Other comprehensive income
Comprehensive income
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 - - 19,500,000 4,652,357 - -
Issuance of stock options
Common shares issued for cash 406,010 210,420
Common shares repurchased for cash (2,099,422) (1,049,777)
Stock-based compensation expense
Foreign currency translation adjustment
Net loss for the period
Other comprehensive loss
Comprehensive loss
--------------------------------------------------------------------------------
F-6
BALANCE AT DECEMBER 31, 1999 - - 17,806,588 3,813,000 - -
--------------------------------------------------------------------------------
ACCUMULATED TOTAL
OTHER SHAREHOLDERS'
DEFERRED ADDITIONAL COMPREHENSIVE ACCUMULATED EQUITY
STOCK-BASED PAID-IN INCOME DEFICIT (DEFICIENCY)
COMPENSATION CAPITAL (LOSS) $ $
BALANCE AT DECEMBER 31, 1997 7,997 (1,789,148) (861,163)
Issuance of Class E shares on acquisition of UTTC
Redemption of Class E shares for Class A-1 shares 1,816,560
Redemption of Class A-1 shares for Class B-1 and
B-2 shares (1,816,560)
Redemption of Class B-1 shares for cash
Conversion of obligation into Class A shares 36,948
Issuance of Class A shares for cash 260
Conversion of Class B-2 shares into Class A shares 915,482
Redemption of Class C shares
Acquisition of Class A preferred shares (1,872,677)
Acquisition of Class D shares
Acquisition of Class B-1 shares
Common shares issued for cash (4,651,752) 604
Stock-based compensation expense 1,151,752 1,151,752
Excess of consideration issued to parent company
on acquisition of UTTC over carrying amount
recorded in accounts of parent company (note 4) (2,343,076) (2,343,076)
Foreign currency translation adjustment 19,814 19,814
Net income for the period 175,830 175,830
Other comprehensive income 19,814
--------------
Comprehensive income 195,644
----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 (3,500,000) 27,811 (3,956,394) (2,776,226)
Issuance of stock options (248,250) 248,250
Common shares issued for cash 210,420
Common shares repurchased for cash 1,049,710 (67)
Stock-based compensation expense 2,533,040 2,533,040
Foreign currency translation adjustment (116,856) (116,856)
Net loss for the period (5,612,984) (5,612,984)
Other comprehensive loss (116,856)
-------------
Comprehensive loss (5,729,840)
----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 (165,500) 248,250 (89,045) (9,569,378) (5,762,673)
----------------------------------------------------------------------
REDEEMABLE PREFERRED
SHARES (NOTE 13)
-------------------------
NUMBER OF
SHARES VALUE OF
ISSUED SHARES
$
BALANCE AT DECEMBER 31, 1997 6,478,092 110,253
Issuance of Class E shares on acquisition of UTTC 2,600,000 1,816,560
Redemption of Class E shares for Class A-1 shares (2,600,000) (1,816,560)
Redemption of Class A-1 shares for Class B-1 and
B-2 shares 2,600,000 1,816,560
Redemption of Class B-1 shares for cash (1,200,000) (837,404)
Conversion of obligation into Class A shares
Issuance of Class A shares for cash
Conversion of Class B-2 shares into Class A shares (1,308,500) (915,162)
Redemption of Class C shares (6,462,992) (417)
Acquisition of Class A preferred shares 4,000,000 2,046,508
Acquisition of Class D shares (15,100) (109,836)
Acquisition of Class B-1 shares (91,500) (63,994)
Common shares issued for cash
Stock-based compensation expense
Excess of consideration issued to parent company
on acquisition of UTTC over carrying amount
recorded in accounts of parent company (note 4)
Foreign currency translation adjustment
Net income for the period
Other comprehensive income
Comprehensive income
----------------------------
BALANCE AT DECEMBER 31, 1998 ( 4,000,000 2,046,508
Issuance of stock options
Common shares issued for cash
Common shares repurchased for cash
Stock-based compensation expense
Foreign currency translation adjustment
Net loss for the period
Other comprehensive loss
Comprehensive loss
----------------------------
BALANCE AT DECEMBER 31, 1999 4,000,000 2,046,508
----------------------------
The accompanying notes are an integral part of these financial statements.
F-7
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Consolidated Statements of Cash Flows
- ----------------------------------------------------------------------------
(expressed in U.S. dollars)
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income (loss) for the year (5,612,984) 175,830
Adjustments for
Loss from discontinued operations - 223,215
Gain on disposal of UTTC - (1,479,273)
Gain on settlement of debt (22,972) -
Depreciation of fixed assets 19,361 13,680
Amortization of other assets 9,899 5,132
Accrued interest on convertible debentures 160,153 2,022
Stock-based compensation expense 2,533,040 1,151,752
Deferred income taxes on gain on disposal of UTTC - (753,000)
Change in non-cash operating working capital items
Accounts and other receivables (76,824) 29,816
Tax credits receivable 60,465 9,115
Prepaid expenses (56,854) 16,581
Accounts payable and accrued liabilities 72,253 34,714
-----------------------------------------
(2,914,463) (570,416)
-----------------------------------------
FINANCING ACTIVITIES
Settlement of debt (13,460) -
Proceeds from issuance of convertible debentures 985,982 542,513
Proceeds from long-term debt 58,639 70,138
Repayment of long-term debt (57,549) (85,737)
Proceeds from issuance of common shares 210,353 604
Proceeds from issuance of notes payable (Intasys) 980,566 -
Proceeds (repayments) of advances from Manitex Capital Inc. 635,863 (541,366)
Issuance of Class A shares - 260
Repayment of note payable - (978,148)
Redemption of Class B-1 shares - (837,404)
Redemption of Class C shares - (417)
-----------------------------------------
2,800,394 (1,829,557)
-----------------------------------------
INVESTING ACTIVITIES
Additions to patents (11,599) (2,438)
Additions to fixed assets, net of investment tax credits of $127,282 (1998 -
$6,395) (182,738) (6,395)
Decrease in due from Arlington 1993 and Company Limited Partnership - 101,128
Proceeds on disposal of UTTC - 2,794,708
-----------------------------------------
(194,337) 2,887,003
-----------------------------------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 27,809 (65,818)
-----------------------------------------
INCREASE (DECREASE) IN CASH (280,597) 421,212
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 424,140 2,928
-----------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR 143,543 424,140
-----------------------------------------
Cash and cash equivalents comprise:
Cash 143,543 424,140
SUPPLEMENTARY INFORMATION (note 17)
The accompanying notes are an integral part of these financial statements.
F-8
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1 INCORPORATION AND NATURE OF OPERATIONS
TEC TechnologyEvaluation.Com Corporation (formerly Arlingsoft Corporation)
(the "Corporation") was incorporated on November 13, 1998 under the Canada
Business Corporations Act. The Corporation is a provider of Web-based
research and analysis on computer hardware, software, communications and
related information technology ("IT") industries. On November 18, 1998,
the Corporation acquired all of the issued and outstanding shares of
Arlington Software Corporation and Technology Evaluation Center,
Incorporated (formerly Arlington Software Inc.). Because these
transactions involved companies under common control, they were accounted
for in a manner similar to pooling of interests (note 3).
These financial statements have been prepared on a going concern basis
which assumes the realization of assets and the liquidation of liabilities
in the normal course of business. The Corporation's ability to continue as
a going concern is dependent upon obtaining the necessary financing to
complete its projects, to market its technology and upon future profitable
operations. The Corporation's future is dependent on the steps taken by
its shareholders, and on the ability of the Corporation to generate cash
flow from operations and other measures to eliminate the deficit. In its
business plan, the Corporation anticipates the need to raise additional
capital. These financial statements do not give effect to any adjustments
which could be necessary should the Corporation be unable to continue as a
going concern and, therefore, be required to realize its assets and
discharge its liabilities in other than the normal course of business, and
at amounts different from those reflected in these financial statements.
The Corporation is planning to complete a private placement as discussed
in note 21.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and include
the following significant accounting policies.
a) Principles of consolidation
The consolidated financial statements include the accounts of the
Corporation and its wholly owned subsidiaries, Arlington Software
Corporation and Technology Evaluation Center, Incorporated. All
intercompany balances and transactions have been eliminated on
consolidation.
b) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances with
banks.
F-9
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
c) Fixed assets
Fixed assets are recorded at cost less applicable tax credits.
Depreciation is provided on a straight-line basis over the estimated
useful lives of the assets at the following annual rates:
Computer equipment 20%
Furniture and fixtures 20%
Office equipment 33 1/3%
Leasehold improvements Term of lease
d) Other assets
Intangible assets are recorded at cost. Amortization is provided on a
straight-line basis over the estimated useful lives of the assets at
the following annual rates:
Patents 33 1/3%
The capitalized amount with respect to patents relates to direct
costs incurred in connection with securing the patents.
e) Revenue recognition
The Corporation derives revenue from the licence of its software and
related services, which include implementation and integration
services, technical services and training. Revenue is recognized for
the various contract elements based on vendor-specific objective
evidence of the fair value for each element.
Revenue from licence fees is recognized in income upon receipt of an
unconditional order under a licence agreement and delivery of the
software provided there are no significant remaining vendor
obligations, the fee is fixed or determinable, and collection of the
sale proceeds is probable.
As well, the Corporation derives revenue from providing consulting
services. Consulting services which are typically performed under
separate service agreements are recognized as the services are
performed.
f) Research and development expenses
Research and development costs are charged to expense as incurred.
Statement of Financial Accounting Standards No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed", requires capitalization of certain computer software
development costs incurred after technological feasibility is
established. The Corporation's software development costs through
December 31, 1999 have been incurred principally prior to the
establishment of technological feasibility and subsequent to the
general release of the product in conjunction with the development of
maintenance upgrades. Consequently, software development costs
qualifying for capitalization have been insignificant.
F-10
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
g) Stock-based compensation costs
The Corporation maintains a stock-based compensation plan whereby
stock options are issued to employees. The plan is described in note
13. The Corporation accounts for stock-based compensation using the
intrinsic value method as set out in APB 25, "Accounting for Stock
Options Issued to Employees", and related interpretations. Intrinsic
value is measured as being the excess of the fair value of the stock
at date of grant over the exercise price. In accordance with SFAS No.
123 "Accounting for Stock-based Compensation", the Corporation
provides pro forma disclosures of net income (loss) and net income
(loss) per common share as if the fair value base method of
accounting has been used.
h) Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
i) Foreign currency translation
The Corporation's financial statements are presented in U.S. dollars;
however, the functional currency is the Canadian dollar. Accordingly,
the financial statements of the Corporation are translated from the
functional currency into the reporting currency using the current
rate method. Under this method, assets and liabilities are translated
at the exchange rate in effect at the balance sheet date, capital
stock transactions are translated at the exchange rates in effect on
the dates of the respective transactions, and revenue and expenses
are translated using the weighted average exchange rate for the
reporting period. All gains and losses arising from translation of
the financial statements into the reporting currency are included in
accumulated other comprehensive income (loss). Accumulated other
comprehensive income (loss), and changes therein, arise solely from
the application of this transaction method.
j) Foreign currency transactions
Transactions denominated in currencies other than the functional
currency are measured and recorded in the functional currency at the
exchange rate in effect on the date of the respective transactions.
At each balance sheet date, monetary items denominated in currencies
other than the functional currency are revalued using the exchange
rate in effect at the date of the balance sheet. Any gains and losses
arising on revaluation are included in the statement of operations
for the period.
F-11
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
k) Net income (loss) per common share
Net income (loss) per common share is computed under SFAS No. 128,
"Earnings Per Share". Basic net income (loss) per share is computed
using the weighted average number of shares of common stock
outstanding, excluding common shares of common stock subject to
repurchase. Diluted net income (loss) per share does not differ from
basic net income (loss) per common share since potential common
shares from conversion of preferred stock, stock options and warrants
and outstanding shares of common stock subject to repurchase are
anti-dilutive for all periods presented.
l) Impairment of long-lived assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed of", the
Corporation reviews the carrying value of its long-lived assets,
including goodwill associated with assets acquired in a purchase
business combination, when events or changes in circumstances
indicate that the carrying value may not be recoverable. If this
review indicates that the carrying amounts of the assets and
goodwill, where applicable, will not be recoverable, as determined
based on estimated undiscounted cash flows, an impairment loss is
recorded. Impairment losses, if any, are measured as the excess of
the carrying values over the fair values of the related assets.
m) Income taxes
The Corporation provides for income taxes using the liability method
of tax allocation. Under this method, deferred income tax assets and
liabilities are determined based on deductible or taxable temporary
differences between financial statement values and tax values of
assets and liabilities using enacted income tax rates expected to be
in effect for the year in which the differences are expected to
reverse.
The Corporation establishes a valuation allowance against deferred
income tax assets if, based on available information, it is more
likely than not that some or all of the deferred income tax assets
will not be realized.
n) Tax credits
As December 31, 1999 the Corporation is entitled to scientific
research and experimental development ("SR&ED") tax credits granted
by the Canadian Federal government ("Federal") and the government of
the Province of Quebec ("Provincial"). Federal SR&ED tax credits,
which are refundable within certain limits, are earned on qualified
Canadian SR&ED expenditures at a rate of 35%. Provincial SR&ED tax
credits, which are also refundable within certain limits, are earned
on qualified SR&ED salaries in the Province of Quebec at a rate of
40%.
SR&ED and other tax credits are accounted for as a reduction of the
related assets or costs. As a result of the exchange of shares, as
described in note 21 e), the Corporation will no longer be considered
a Canadian controlled private corporation ("CCPC"), as that term is
defined in the Canadian Income Tax Act, and consequently will lose
the refundable nature of the Federal credits and will only be able to
apply these to offset Federal income taxes otherwise payable.
Furthermore the tax credits, both Federal and Provincial, will be
reduced to 20% of eligible expenditures.
F-12
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
3 REORGANIZATION
On November 18, 1998, the Corporation acquired all of the issued and
outstanding share capital of Arlington Software Corporation in exchange
for common shares and Class A preferred shares (see notes 12 and 13). In
addition, the Corporation also acquired all of the issued and outstanding
shares of Technology Evaluation Center, Incorporated (formerly Arlington
Software Inc.), a Delaware company held by Arlington Software Corporation,
for US$100. Because these transactions involved companies under common
control, they were accounted for in a manner similar to a pooling of
interests. Accordingly, the consolidated financial statements of the
Corporation reflect the assets and liabilities of Arlington Software
Corporation and Technology Evaluation Center, Incorporated at their net
book value and include, for all periods presented, the combined results of
operations of the Corporation, Arlington Software Corporation and
Technology Evaluation Center, Incorporated.
The combined companies' net assets as at November 17, 1998 are as follows:
TECHNOLOGY
ARLINGTON EVALUATION
SOFTWARE CENTER,
CORPORATION INCORPORATED ELIMINATIONS TOTAL
$ $ $ $
Total assets 296,507 100 - 296,607
Total liabilities 829,551 - - 829,551
---------------------------------------------------------------------------------------
Net assets (533,044) 100 - (532,944)
---------------------------------------------------------------------------------------
4 ACQUISITION AND DISPOSITION OF UTTC UNITED TRI-TECH CORPORATION
a) In 1998, the Corporation acquired a 55% share interest in UTTC
United Tri-Tech Corporation ("UTTC") from its then parent company,
Manitex Capital Inc., for a total consideration of $2,794,708. The
Corporation issued a promissory note of $978,148 and 2,600,000
newly issued Class E shares with a fair market value of $1,816,560
as consideration for the acquisition. Because the transaction
involved companies under common control, it was accounted for in a
manner similar to a pooling. The amount of $2,343,076 representing
the difference between the net investment of $451,632 and the
consideration paid of $2,794,708 was charged to accumulated
deficit.
For income tax purposes, the parties elected to apply the rollover
provisions available under the relevant income tax legislation to
the transaction.
b) Also in 1998, all of the Corporation's share interest in UTTC was
sold for a cash consideration of $2,794,708. The gain on disposal
of $2,232,273 (net of tax of $753,000) as well as the results of
operations of UTTC have been reclassified as discontinued
operations.
F-13
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
5 ACCOUNTS RECEIVABLE
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
Trade (allowance for doubtful accounts - nil; 1998 - nil) 71,201 9,292
Sales tax receivable 34,607 11,987
Other 2,083 5,884
-----------------------------------------
107,891 27,163
-----------------------------------------
6 FIXED ASSETS
DECEMBER 31, 1999
----------------------------------------------------------------
ACCUMULATED
COST DEPRECIATION NET
$ $ $
Computer equipment 66,971 54,007 12,964
Furniture and fixtures 93,012 7,589 85,423
Office equipment 61,078 5,767 55,311
Leasehold improvements 45,783 1,272 44,511
----------------------------------------------------------------
266,844 68,635 198,209
----------------------------------------------------------------
DECEMBER 31, 1998
----------------------------------------------------------------
ACCUMULATED
COST DEPRECIATION NET
$ $ $
Computer equipment 61,037 39,221 21,816
Furniture and fixtures 9,255 4,130 5,125
Office equipment 3,948 2,850 1,098
Leasehold improvements - - -
----------------------------------------------------------------
74,240 46,201 28,039
----------------------------------------------------------------
F-14
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
7 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
DECEMBER 31, 1999 DECEMBER 31, 1998
$ $
Accounts payable 291,567 121,877
Accrued salaries 84,293 135,723
Accrued liabilities 56,225 79,444
-----------------------------------------
432,085 337,044
-----------------------------------------
8 NOTES PAYABLE
The notes payable bear interest at 6% and are repayable on demand. The
notes are secured by a lien on substantially all of the Corporation's
property. Subsequent to December 31, 1999, these notes were exchanged for
secured debentures in the same amount (see note 21).
F-15
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
9 LONG-TERM DEBT
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
Loan from a Canadian provincial government agency (1999 - CA$85,244, 1998
- CA$93,061), bearing interest at its weekly term rate, secured by a
lien providing a first ranking charge on all present and future
assets, repayable in 44 monthly instalments of $1,342 59,061 60,804
Repayable contribution from a Canadian federal government agency (1999 -
CA$191,200, 1998 - $104,049), non-interest bearing, repayable in four
annual instalments beginning 24 months after completion of the
project. The debt is unsecured 132,476 67,984
Small business loan (CA$35,180), bearing interest at the bank's prime
rate plus 3% per annum, secured by a lien covering the universality
of present and future equipment, repayable in monthly capital
instalments of $792 plus interest. This loan was repaid during the
period - 22,986
Small business loan (CA$42,534), bearing interest at the bank's prime
rate plus 3% per annum, secured by a lien covering the universality
of present and future equipment, repayable in monthly capital
instalments of $838 plus interest. This loan was repaid during the
period - 27,790
Debt (CA$54,132) originally due on April 30, 1999, bearing interest at
10% per annum, with interest payable semi-annually, convertible at
the option of the holder into 18,044 Class A shares at a price of
CA$3.00 per share(i). The debt is unsecured - 35,369
-----------------------------------------
191,537 214,933
Less: Current portion 16,108 101,333
-----------------------------------------
175,429 113,600
-----------------------------------------
(i) During the year, the debt was settled in its entirety for an amount
of $13,460. The difference between the settlement amount and the
carrying value was recorded as a gain on settlement of debt.
F-16
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Principal repayments on long-term debt are as follows:
$
2000 16,108
2001 49,226
2002 49,226
2003 43,857
2004 33,120
-----------
191,537
-----------
10 ADVANCES FROM MANITEX CAPITAL INC.
The advances from Manitex Capital Inc., a shareholder, bear interest at a
rate of 12% per annum and have no specified terms of repayment. The
advances have been classified as long-term because Manitex Capital Inc.
has agreed not to demand repayment prior to January 1, 2001. The advances
are unsecured. Subsequent to December 31, 1999, a portion of these
advances was exchanged for secured debentures (see note 21).
11 CONVERTIBLE DEBENTURES
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
Principal
Denominated in Canadian dollars (CA$1,257,500;
December 31, 1998 - CA$325,000) 871,267 212,349
Denominated in U.S. dollars 700,000 310,000
-----------------------------------------
1,571,267 522,349
Accrued interest 166,790 1,948
-----------------------------------------
1,738,057 524,297
-----------------------------------------
The convertible debentures bear interest at a rate of 12% per annum and
are repayable in full on December 31, 2003. In the event that in any
fiscal year consolidated earnings before income taxes, depreciation and
amortization (EBITDA) are below US$1,000,000, then interest payable on the
outstanding principal is accrued and capitalized. If EBITDA is in excess
of US$1,000,000 or more, 20% of EBITDA shall be used to pay the interest
on the outstanding principal. At December 31, 1999, the total interest due
on the convertible debentures in the amount of $166,790 (December 31, 1998
- $1,948) was accrued and capitalized.
F-17
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
The convertible debentures are convertible at the option of the holder at
any time prior to maturity into common shares of the Corporation at a
conversion price of US$0.50 (CA$0.77) per share in the event that (i) the
Corporation attains net revenues of US$25,000,000 in any given fiscal
year, (ii) completes a private placement for an aggregate amount of
US$2,000,000 and at a price per common share in excess of US$1.50, or
(iii) the Corporation proceeds with a public offering. Subsequent to
year-end, a $48,701 convertible debenture was converted at US$0.50 per
share into 97,403 shares.
12 REDEEMABLE PREFERRED SHARES
Authorized - Unlimited number of
ClassA preferred shares, non-voting, entitled to a fixed, annual,
non-cumulative dividend of 3%, redeemable at the option of the
Corporation or the holder at any time for the fair equivalent of
money that the Corporation would have received if such shares
had been issued for money upon the occurrence of the following
events:
o a public offering of the securities of the Corporation; and
o a sale or liquidation of all or substantially all of the
assets of the Corporation or its subsidiaries
Class B preferred shares, voting, redeemable at the option of the
Corporation or the holder for the amount paid thereon beginning
five years subsequent to the date of issuance of such Class B
preferred shares, convertible into common shares on a
share-for-share basis
Voting Class B shares, redeemable at the fair market value of
the consideration received
Non-voting Class B-1 shares, entitled to monthly non-cumulative
dividends of 1/4 of 1%, redeemable at the option of the
Corporation or the holder at the consideration paid thereon
Non-voting Class B-2 shares, entitled to monthly non-cumulative
dividends of 1/4 of 1%, convertible into Class A shares on the
basis of one Class A share for every three Class B-2 shares so
converted, redeemable at the option of the Corporation or the
holder at the consideration paid thereon
Voting Class C shares, 10% non-cumulative, redeemable at the option
of the Corporation at the fair market value of the consideration
received
Non-voting Class D shares, 10% non-cumulative, redeemable and
retractable at the option of the Corporation or holder at the
fair market value of the consideration received
Voting Class E shares, 10% non-cumulative, redeemable and retractable
at the option of the Corporation or holder at the fair market
value of the consideration received
Non-voting Class F shares, 10% non-cumulative and redeemable at the
option of the Corporation at the fair market value of the
consideration received
13 CAPITAL STOCK
a) Authorized - Unlimited number of
Common shares, voting
Voting Class A shares
Voting Class A-1 shares
F-18
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Arlington Software Corporation (Arlington) had the following share
capital transactions during fiscal 1998:
i) 2,600,000 Class E shares with a fair value of $1,816,560
were issued to Arlington's then parent company (Manitex
Capital Inc.) as partial consideration for the acquisition
of UTTC;
ii) Arlington repurchased the 2,600,000 Class E shares held by
its then parent company in consideration for 866,667 Class
A-1 shares with a value of $1,816,560;
iii) The 866,667 Class A-1 shares were redeemed for 1,291,500
Class B-1 shares with a value of $901,398 and 1,308,500
Class B-2 shares with a value of $915,162;
iv) Arlington redeemed 1,200,000 Class B-1 shares held by its
then parent company for a cash consideration of $837,404;
v) The Corporation's Class B-2 shares were converted into
436,167 Class A shares (one Class A share for every three
Class B-2 shares);
vi) Arlington issued 19,100 Class A shares as settlement for
obligations with a fair value of $36,948;
vii) Arlington issued 100 Class A shares for a cash consideration
of $260;
viii) The Corporation redeemed 6,462,999 Class C shares for a cash
consideration of $417.
The following share transactions occurred following the
reorganization at November 18, 1998 (note 3):
ix) The Corporation acquired 1,923,867 Class A shares of
Arlington Software Corporation (being all of the issued and
outstanding Class A shares) for a consideration consisting
of 10,196,495 and 3,841,750 of the Corporation's common
shares and Class A preferred shares, respectively. Because
this transaction involved companies under common control,
the value attributed to the preferred shares issued by the
Corporation was the carrying amount recorded in the accounts
of Arlington Software Corporation. The common shares were
attributed a nominal value;
x) The Corporation acquired 15,100 Class D shares and 91,500
Class B-1 shares of Arlington Software Corporation (being
all of the issued and outstanding Class D and Class B-1
shares) for a consideration consisting of 98,250 and 60,000
of the Corporation's Class A preferred shares. Because this
transaction involved companies under common control, the
value attributed to the preferred shares issued by the
Corporation was the carrying amount recorded in the accounts
of Arlington Software Corporation;
xi) The Corporation issued 9,303,505 common shares for a cash
consideration of $604. The fair value of these shares was
$0.50 each. Of these shares issued, 8,000,000 were
restricted for one year, which resulted in $500,000 recorded
at December 31, 1998 as a stock-based compensation expense
and deferred stock-based compensation amounted to
$3,500,000.
1,303,505 shares were issued to employees at a nominal
value; therefore a stock-based compensation expense of
$651,752 was recorded at December 31, 1998.
F-19
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Year ended December 31, 1999:
xii) The Corporation issued 406,010 common shares for a cash
consideration of $210,420;
xiii) The Corporation repurchased 2,099,422 common shares (under
an employee stock purchase plan) for a cash consideration of
$2. The excess of the book value of the common shares ($69)
over the purchase price has been credited to paid-in
capital. In addition, stock-based compensation was credited
in the amount of $131,213 to reverse the related stock-based
compensation originally recorded in 1998.
b) Share option plan
Under a share option plan, the Corporation may grant options to
purchase common shares to key employees and directors. The terms,
number of common shares covered by each option as well as the permitted
frequency of the exercise of such options will be determined by the
Board of Directors. The plan contemplates a maximum of 1,700,000 common
shares which may be optioned under the share option plan. Options
expire ten years from the date of grant or on date of employee's
termination. Options outstanding at December 31, 1999 vest over three
years.
F-20
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Changes in outstanding options during the year were as follows:
WEIGHTED
AVERAGE
EXERCISE PRICE EXERCISE PRICE
US$ NUMBER US$
Options outstanding, January 1, 1999 - - -
Granted 0.20 827,500 0.20
Exercised - - -
Cancelled - - -
----------------------------------------------------------------
Options outstanding,
December 31, 1999 0.20 827,500 0.20
----------------------------------------------------------------
Options exercisable,
December 31, 1999 0.20 231,652 0.20
----------------------------------------------------------------
Weighted average remaining contractual
life (years) 9.6
-------------------
Weighted average fair value of options
granted in 1999 0.50
-------------------
Compensation expense has been recognized for the Corporation's stock
incentive plan under APB 25 in the amount of $82,750 (1998 - nil).
Deferred stock-based compensation amounted to $165,500. For purposes
of the SFAS No. 123 pro forma disclosure below, the estimated fair
value of the options is amortized to expense over the options'
vesting period. Had compensation cost for the Corporation's stock
options been recognized based on the fair value at the grant date for
awards during fiscal 1998 and 1999 consistent with the provisions of
SFAS No. 123, the Corporation's net income would have been reduced to
the pro forma amounts indicated below.
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
Net income (loss) - as reported (5,612,984) 175,830
Net income (loss) - pro forma (5,662,609) 175,830
Net loss per common share (basic and diluted) - as reported (0.31) (0.02)
Net loss per common share (basic and diluted) - pro forma (0.31) n/a
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes options pricing model with the following
weighted average assumptions used for grants in fiscal 1999: dividend
yield of 0%; volatility - nil; risk-free interest rate of 6%; and
expected lives of approximately 7.5 years.
F-21
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
14 COMMITMENTS
The Corporation is committed to minimum payments under operating leases
for its premises and computer equipment approximately as follows:
$
2000 213,399
2001 198,847
2002 117,093
2003 692
------------------
530,031
------------------
15 INCOME TAXES
The Corporation and its Canadian subsidiary have accumulated operating
losses and scientific research and development expenditures available to
reduce future years' taxable income and accumulated investment tax credits
available to reduce future years' income taxes payable.
These income tax benefits expire as follows:
SCIENTIFIC RESEARCH AND
INVESTMENT EXPERIMENTAL DEVELOPMENT
OPERATING TAX CREDIT EXPENDITURES
------------------------------------ ----------------- -----------------------------------
FEDERAL QUEBEC FEDERAL FEDERAL QUEBEC
$ $ $ $ $
2002 - - 2,633 - -
2003 310,746 - 3,118 - -
2004 - - 416 - -
2005 588,928 - 3,464 - -
2006 359,593 355,743 3,949 - -
2008 - - 624 - -
2009 - - 1,386 - -
Indefinitely - - - 355,435 65,129
-------------------------------------------------------------------------------------------
1,259,267 355,743 15,590 355,435 65,129
-------------------------------------------------------------------------------------------
In addition, the Corporation's U.S. subsidiary has operating losses for
income tax purposes available to reduce future years' taxable income in
the amount of approximately US$2,400,000. These losses expire in 2020.
F-22
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
Deferred income tax assets
Accumulated research and development expenses 106,035 306,264
Operating losses carryforward in Canada 388,039 387,810
Operating losses carryforward in the United States 600,000 -
Tax credits 5,928 15,000
-----------------------------------------
Total deferred tax assets 1,100,002 709,074
Valuation allowance (1,100,002) (709,074)
-----------------------------------------
Net deferred tax assets - -
Deferred tax liabilities - -
-----------------------------------------
Net deferred tax assets - -
-----------------------------------------
The reconciliation of the income tax provision calculated using the
Canadian federal and provincial statutory income tax rates to the recovery
for income taxes per the financial statements is as follows:
DECEMBER 31, DECEMBER 31,
1999 1998
% %
Income taxes at combined Canadian federal and provincial
statutory tax rate (on continuing operations) (38) (38)
Difference in statutory tax rate of U.S. subsidiary 6 -
Effect of non-deductible expenses (stock-based compensation) 17 24
Change in valuation allowance 15 (27)
Recovery on Quebec credit for losses (1) -
---------------------------------------------
Effective tax rate (1) (41)
---------------------------------------------
The recovery for 1999 consists of an accelerated recovery of operating
losses for provincial tax purposes.
F-23
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
16 RELATED PARTY TRANSACTIONS
Included in the statement of operations are the following related party
transactions:
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
Interest charged by Manitex Capital Inc. 45,830 35,207
Management fees charged by Manitex Capital Inc. 52,313 75,593
Interest charged by Intasys Corporation (notes payable) 7,379 -
These transactions occurred in the normal course of operations and were
measured at the exchange amount, which is the amount of consideration
established and agreed to by the related parties.
17 SUPPLEMENTAL DISCLOSURE TO CASH FLOW STATEMENT
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
Cash paid for:
Interest 7,882 112,164
Income taxes - -
18 FINANCIAL INSTRUMENTS
a) Fair values
The Corporation has determined that the carrying values of its
short-term financial assets and liabilities approximate their fair
values due to the short-term maturity of those instruments. The
carrying values of the long-term debt, the advances from Manitex
Capital Inc. and the notes payable are not materially different from
their fair values based on the current market rates of interest
available to the Corporation for the same or similar instruments.
b) Credit risk
Credit risk results from the possibility that a loss may occur from
the failure of another party to perform according to the terms of a
contract. Financial instruments that potentially subject the
Corporation to credit risk consist principally of accounts
receivable. There have been no significant credit losses.
F-24
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
c) Interest rate risk
As at December 31, 1999, the Corporation's exposure to interest rate
risk is as follows:
Cash and cash equivalents Variable rate
Accounts and other receivables Non-interest bearing
Income and tax credits receivable Non-interest bearing
Accounts payable and accrued liabilities Non-interest bearing
Notes payable As described in note 8
Long-term debt As described in note 9
Advances from Manitex Capital Inc. As described in note 10
Convertible debentures As described in note 11
19 NEW ACCOUNTING STANDARDS
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition". SAB 101 and its
related amendments and interpretations are effective commencing in the
first fiscal quarter of the first fiscal year beginning after December 15,
1999. The adoption of this standard is not expected to have a significant
impact on the Corporation's financial statements.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The standard, which must be applied
prospectively, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not
expected to have any material impact on the Corporation's financial
statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation ("FIN") No. 44, "Accounting for Certain Transactions
Involving Stock Compensation - an Interpretation of APB 25". This FIN,
which is effective July 1, 2000, clarifies the application of APB 25 with
respect to certain issues. The adoption of this standard is not expected
to have a significant impact on the Corporation's financial statements.
F-25
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
20 SEGMENT INFORMATION
Management has organized the Corporation under one reportable segment,
that being the development and marketing of software and related services.
Substantially all of the Corporation's long-lived assets are located in
Canada and the United States.
The summary of revenue by geographic location in which the Corporation's
customers are located is as follows:
DECEMBER 31, DECEMBER 31,
1999 1998
$ $
United States 207,173 65,355
Canada 159,155 32,171
Other 4,941 11,638
--------------------------------------------
371,269 109,164
--------------------------------------------
During the year ended December 31, 1999, there were three customers from
which 10% or more of the Corporation's total revenues were derived,
accounting for 16%, 32%, 20% of total revenue. During the year ended
December 31, 1998, there were no customers from which 10% or more of the
Corporation's total revenues were derived.
21 SUBSEQUENT EVENTS
a) The Corporation repurchased 2,040,000 common shares (under an
employee stock purchase plan) from shareholders for a total cash
consideration of $487 (CA$711).
b) The Corporation issued 1,027,406 common shares for a total
consideration of $272,293 (CA$411,686).
c) The Corporation granted an additional 215,000 options to purchase
common shares at an exercise price of US$0.20 per share and 55,000
options to purchase common shares at an exercise price of US$0.50 per
share.
Employees forfeited a total of 517,500 issued and outstanding options
with an exercise price of US$0.20 each.
F-26
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Consolidated Financial Statements
For the years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
d) Effective March 30, 2000, the Corporation raised $3,000,000 through a
private placement of 6% secured debentures, convertible at a price of
US$0.21 per share. This transaction with related parties was
completed on realization of the following:
An exchange of notes payable due to Intasys Corporation $ 1,000,000
An exchange of advances due to Manitex Capital Inc. 375,000
-------------------
Total consideration on exchange of existing debt 1,375,000
Cash from Intasys Corporation 1,625,000
-------------------
Convertible debentures issued $ 3,000,000
-------------------
Subsequently, the $3,000,000 convertible debentures were converted at
US$0.21 per share into 14,285,714 shares. This transaction forms part
of the 23,826,280 common shares that were transferred to 3786137
Canada Inc. as described in note 21 e).
e) As of October 10, 2000, a Share Exchange Agreement (the "Exchange
Agreement") was entered into among TECE Inc., a Nevada corporation
listed on the OTC BB in the United States under the symbol TENC and
formerly called Internet Food Co. Inc. ("TECE"), its wholly owned
subsidiary, 3786137 Canada Inc. ("3786137"), TEC Technology
Evaluation.Com Corporation ("TEC.com") Manitex Capital Inc.
("Manitex"), Intasys Corporation ("Intasys") and Mr. Don Lobley
("Lobley"), (Manitex, Lobley and Intasys are collectively referred to
as the "Majority TEC.com Shareholders"). Effective November 9, 2000,
pursuant to this Exchange Agreement, TECE, through its wholly owned
subsidiary, 3786137, has taken a majority controlling interest in
TEC.com.
On closing of the transactions contemplated by the Exchange Agreement,
the Majority TEC.com Shareholders transferred to 3786137, on a
two-for-one basis, all of the shares and convertible debentures of
TEC.com held by them, equivalent to a total of 23,826,280 common
shares of TEC.com, for an aggregate of 11,913,140 exchangeable
preferred shares of 3786137 (the "Exchangeable Shares"). The
Exchangeable Shares are exchangeable on a share-for-share basis at the
option of their holder into an aggregate of 11,913,140 shares of
common stock, US$0.001 par value, of TECE.
As part of the transactions, TECE and 3786137 have agreed to present
this offer to the eligible minority shareholders and the convertible
debenture holders of TEC.com to exchange their common shares and
convertible debentures of TEC.com for Exchangeable Shares on the same
terms and conditions as those offered to and accepted by the Majority
Shareholders.
Furthermore, concurrent with the closing of the transactions
contemplated by the Exchange Agreement, TECE completed a private
placement yielding gross proceeds of US$4,000,000 in which it issued
an aggregate of 1,000,000 units. Each unit includes one share of TECE
common stock and one warrant. Each warrant entitles its holder to
acquire one share of TECE common stock at a price of US$5.00 on or
before September 30, 2002.
F-27
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Interim Consolidated Balance Sheet
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
AS AT AS AT
SEPTEMBER 30, DECEMBER 31,
2000 1999
$ $
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 38,788 143,543
Accounts receivable 281,775 107,891
Tax credits receivable 207,004 163,991
Prepaid expenses 69,086 64,407
---------------------------------------
596,653 479,832
FIXED ASSETS 165,319 198,209
OTHER ASSETS 8,087 9,017
---------------------------------------
770,059 687,058
---------------------------------------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 507,203 -
Accounts payable and accrued liabilities 877,899 432,085
Notes payable 630,000 1,007,451
Deferred revenue 141,167 -
Current portion of long-term debt 15,427 16,108
---------------------------------------
2,171,696 1,455,644
---------------------------------------
LONG-TERM DEBT 156,443 175,429
ADVANCES FROM MANITEX CAPITAL INC. 910,165 1,034,093
CONVERTIBLE DEBENTURES 4,985,263 1,738,057
---------------------------------------
6,051,871 2,947,579
---------------------------------------
REDEEMABLE PREFERRED SHARES (4,000,000 Class "A" preferred shares,
December 31, 1999 - 4,000,000) issued and outstanding 2,046,508 2,046,508
---------------------------------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
EXCESS OF DEFICIT OVER SHARE CAPITAL
Capital stock
15,993,994 (December 31, 1999 - 17,806,588) common shares issued
and outstanding 2,865,293 3,813,000
Deferred stock-based compensation (103,437) (165,500)
Additional paid-in capital 2,819,679 248,250
Accumulated other comprehensive income (loss) 145,245 (89,045)
Accumulated deficit (15,226,796) (9,569,378)
---------------------------------------
(9,500,016) (5,762,673)
---------------------------------------
770,059 687,058
---------------------------------------
F-28
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Interim Consolidated Statements of Operations and Deficit
For the nine-month periods ended September 30, 2000 and 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999
$ $
(unaudited) (unaudited)
REVENUE
Consulting fees 421,045 260,058
Licensing revenue from software sales - 13,004
Web advertising revenue 170,384 -
-----------------------------------------
591,429 273,062
-----------------------------------------
EXPENSES
Selling and administrative (including stock-based compensation expense
(reversal of) $(957,450); September 30, 1999 - $2,137,352) 3,087,142 3,983,408
Research and development, net of tax credits 50,913 75,900
Amortization of other assets 7,682 7,346
Depreciation of fixed assets 51,055 11,291
-----------------------------------------
3,196,792 4,077,945
-----------------------------------------
OPERATING LOSS (2,605,363) (3,804,883)
-----------------------------------------
OTHER INCOME (EXPENSES)
Interest income 2,750 12,620
Finance fee expense (1,852) (95,469)
Interest expense (including accretion on convertible debentures of
$2,571,429 (note 4)) (2,897,585) (160,961)
Foreign exchange gain (loss) (155,368) 15,853
-----------------------------------------
(3,052,055) (227,957)
-----------------------------------------
NET LOSS FOR THE PERIOD (5,657,418) (4,032,840)
-----------------------------------------
NET LOSS PER COMMON SHARE, BASIC AND DILUTED (0.33) (0.22)
-----------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 16,926,470 18,485,762
-----------------------------------------
F-29
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Interim Consolidated Statements of Shareholders' Equity (Deficiency)
(Unaudited)
For the nine-month period ended September 30, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
NUMBER OF DEFERRED ADDITIONAL
COMMON VALUE OF STOCK-BASED PAID-IN
SHARES SHARES COMPENSATION CAPITAL
ISSUED $ $ $
BALANCE AT DECEMBER 31, 1999 17,806,588 3,813,000 (165,500) 248,250
Common shares issued for cash 227,406 72,293
Common shares repurchased for cash (2,040,000) (1,020,000) 1,019,513
Stock-based compensation costs (957,450)
Accretion with respect to beneficial
conversion feature on conversion of
convertible debentures 2,571,429
Foreign currency translation adjustment
Comprehensive loss
Net loss for the period
Other comprehensive income
----------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000 15,993,994 2,865,293 (103,437) 2,819,679
----------------------------------------------------------------------
ACCUMULATED TOTAL
OTHER SHAREHOLDERS'
COMPREHENSIVE ACCUMULATED EQUITY
INCOME (LOSS) DEFICIT (DEFICIENCY)
$ $ $
BALANCE AT DECEMBER 31, 1999 (89,045) (9,569,378) (5,762,673)
Common shares issued for cash 72,293
Common shares repurchased for cash (487)
Stock-based compensation costs (957,450)
Accretion with respect to beneficial
conversion feature on conversion of
convertible debentures 2,571,429
Foreign currency translation adjustment 234,290 234,290
Comprehensive loss
Net loss for the period (5,657,418) (5,657,418)
Other comprehensive income 234,290
----------------
(5,423,128)
--------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000 145,245 (15,226,796) (9,500,016)
--------------------------------------------------------
F-30
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Interim Consolidated Statement of Cash Flows
For the nine-month periods ended September 30, 2000 and 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999
$ $
(unaudited) (unaudited)
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the period (5,657,418) (4,465,805)
Adjustments for
Gain on settlement of debt (22,972)
Depreciation of fixed assets 51,055 11,291
Depreciation of other assets 7,682 7,346
Accrued interest on convertible debentures 297,041 115,534
Stock-based compensation (957,450) 2,570,317
Accretion on convertible debentures 2,571,429 -
Change in non-cash operating working capital items
Accounts and other receivables (182,688) (158,187)
Tax credits receivable (51,133) (8,254)
Prepaid expenses (7,577) (50,866)
Accounts payable, accrued liabilities and deferred revenue 619,635 (15,388)
-----------------------------------------
(3,309,424) (2,016,984)
-----------------------------------------
FINANCING ACTIVITIES
Settlement of debt - (13,460)
Proceeds from issuance of convertible debentures 1,625,000 1,015,503
Proceeds from long-term debt - 58,491
Repayment of long-term debt (11,846) (53,499)
Proceeds from issuance of common shares 72,223 206,460
Repurchase of common shares (417) -
Proceeds on advances from Manitex Capital Inc. 437,988 374,764
Repayment of advance from Manitex Capital Inc. (150,000) -
Proceeds on issuance of notes payable 630,000 -
Bank indebtedness 507,203 -
-----------------------------------------
3,110,151 1,588,259
-----------------------------------------
INVESTING ACTIVITIES
Additions to other assets (7,265) (8,909)
Disposals of (additions to) fixed assets (28,956) 3,516
-----------------------------------------
(36,221) (5,393)
-----------------------------------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 130,739 272
-----------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (104,755) (433,846)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 143,543 424,140
-----------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD 38,788 (9,706)
-----------------------------------------
Cash and cash equivalents comprise:
Cash 38,788 143,543
F-31
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Interim Consolidated Financial Statements
September 30, 2000 and 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1 BASIS OF PRESENTATION
The consolidated financial statements and related notes included herein
have been prepared by TEC TechnologyEvaluation.Com Corporation without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, the accompanying
unaudited consolidated financial statements contain all adjustments,
consisting of only normal recurring adjustments, necessary to present
fairly the financial position of TEC TechnologyEvaluation.Com Corporation
as of September 30, 2000 and the results of its operations and its cash
flows for the nine months ended September 30, 2000 and 1999. All
significant intercompany accounts and transactions have been eliminated on
consolidation. The results of operations for the nine months ended
September 30, 2000 are not necessarily indicative of the results that can
be expected for the entire fiscal year ending December 31, 2000.
2 INCORPORATION AND NATURE OF OPERATIONS
TEC TechnologyEvaluation.Com Corporation (formerly Arlingsoft Corporation)
(the "Company") was incorporated on November 13, 1998 under the Canada
Business Corporations Act. The Company is a provider of web-based research
and analysis on computer hardware, software, communications and related
information technology ("IT") industries. On November 18, 1998, the
Company acquired all of the issued and outstanding shares of Arlington
Software Corporation and Technology Evaluation Center, Incorporated
(formerly Arlington Software Inc.).
These financial statements have been prepared on a going concern basis
which assumes the realization of assets and the liquidation of liabilities
in the normal course of business. The Company's ability to continue as a
going concern is dependent upon obtaining the necessary financing to
complete its projects, to market its technology and upon future profitable
operations. The Company's future is dependent on the steps taken by its
shareholders, and on the ability of the Company to generate cash flow from
operations and other measures to eliminate the deficit. In its business
plan, the Company anticipates the need to raise additional capital. These
financial statements do not give effect to any adjustments which could be
necessary should the Company be unable to continue as a going concern and,
therefore, be required to realize its assets and discharge its liabilities
in other than the normal course of business, and at amounts different from
those reflected in these financial statements.
The Company is planning to complete a private placement as discussed in
note 9.
3. WEB ADVERTISING REVENUE
In the nine months ended September 30, 2000, the Company began selling
advertising space on its web site to both advertising agencies and
corporate customers. This represented a new source of revenue that was not
available in prior fiscal years.
Web advertising revenues are recognized from advertising delivered on the
Company's web site at an agreed rate per thousand impressions delivered,
or based on user clicks which trigger the display of advertising banners.
Revenues from advertising arrangements are recognized as the impressions
required by the advertising contracts are delivered or as clicks resulting
in the display of advertising banners occur.
F-32
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Interim Consolidated Financial Statements
September 30, 2000 and 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
ISSUANCE OF CONVERTIBLE DEBENTURES
Effective March 30, 2000, the Company raised $3,000,000 through a private
placement of 6% secured debentures, convertible at a price of US$0.21 per
share into common shares of the Company. This transaction with related
parties was completed on realization of the following:
An exchange of notes payable due to Intasys Corporation $ 1,000,000
An exchange of advances due to Manitex Capital Inc. 375,000
------------------
Total consideration on exchange of existing debt 1,375,000
Cash received from Intasys Corporation 1,625,000
------------------
Convertible debentures issued $ 3,000,000
------------------
Based on the terms for conversion, there was an intrinsic value associated
with the beneficial conversion feature of $2,571,429. This amount has been
recorded as interest expense in the period.
Subsequent to September 30, 2000, the debentures were converted at US$0.21
per share into 14,285,714 common shares. This transaction forms part of
the 23,826,280 common shares that were transferred to 3786137 Canada Inc.
as described in note 9 c).
5. ISSUANCE OF NOTES PAYABLE
During the period, the Company raised $630,000 by the issuance of notes
payable to the following related parties:
Intasys Corporation $ 250,000
Consultants Alconsultex, Inc. 380,000
------------------
$ 630,000
------------------
The notes are non-interest bearing and have no specific terms of
repayment. Subsequent to September 30, 2000, the $380,000 note payable was
repaid to Groupe Alconsultex Ltee.
F-33
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Interim Consolidated Financial Statements
September 30, 2000 and 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
6. CAPITAL STOCK
Changes in outstanding options during the nine-month period ended
September 30, 2000 were as follows:
WEIGHTED
AVERAGE
EXERCISE PRICE EXERCISE PRICE
US$ NUMBER US$
Options outstanding - December 31, 1999 0.20 827,500 0.20
Granted at $0.20 0.20 215,000 0.20
Granted at $0.50 0.50 55,000 0.50
Exercised at $0.20 0.20 (130,004) 0.20
Cancelled 0.20 (47,500) 0.20
-------------------------------------------------------------
Total options outstanding - September 30, 2000: 919,996 0.22
-------------------------------------------------------------
0.20 864,996
0.50 55,000
-------------------------------------------------------------
919,996
-------------------------------------------------------------
Options exercisable - September 30, 2000 0.20 284,996 0.20
-------------------------------------------------------------
Weighted average remaining contractual life 0.20 864,996 9.0 years
0.50 55,000 9.6 years
-------------------------------------------------------------
7. NEW ACCOUNTING STANDARDS
On December 3, 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition". SAB 101 and its
related amendments are effective commencing in the first fiscal quarter of
the first fiscal year beginning after December 15, 1999. The
implementation of this SAB does not have any material effect on the
Company's financial statements or revenue recognition policy in future
periods.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The standard, which must be applied
prospectively, is effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The adoption of SFAS No. 133 is not
expected to have any material impact on the Company's financial
statements.
F-34
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Interim Consolidated Financial Statements
September 30, 2000 and 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
8. SEGMENT INFORMATION
Management has organized the Company under one reportable segment, being
the development and marketing of software and related services.
Substantially all of the Company's long-lived assets are located in Canada
and the United States.
The summary of revenue by geographic location in which the Company's
customers are located is as follows:
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
United States $ 544,264 $ 122,308
Canada 47,164 145,813
Other - 4,941
-------------------------------------------
$ 591,428 $ 273,062
-------------------------------------------
During the nine months ended September 30, 2000, there were three
customers from which 10% or more of the Company's total revenues were
derived, accounting for 22%, 27% and 11% of total revenue. During the nine
months ended September 30, 1999, there were three customers from which 10%
or more of the Company's total revenues were derived, accounting for 21%,
22% and 13% of total revenue.
9. SUBSEQUENT EVENTS
a) The Company issued 800,000 common shares for a total consideration of
$200,000 (CA$305,420).
b) Subsequent to September 30, 2000, the Company's employees forfeited a
total of 470,000 issued and outstanding options with an exercise
price of US$0.20 each, of which 181,667 were exercisable.
c) As of October 10, 2000, a Share Exchange Agreement (the "Exchange
Agreement") was entered into among TECE Inc., a Nevada corporation
listed on the OTC BB in the United States under the symbol TENC and
formerly called Internet Food Company. Inc. ("TECE"), its wholly
owned subsidiary, 3786137 Canada Inc. ("3786137") TEC Technology
Evaluation.Com Corporation ("TEC.com"), Manitex Capital Inc.
("Manitex"), Intasys Corporation ("Intasys") and Mr. Don Lobley
("Lobley"), (Manitex, Lobley and Intasys are collectively referred to
as the "Majority TEC.com Shareholders"). Effective November 9, 2000,
pursuant to this Exchange Agreement, TECE, through its wholly owned
subsidiary, 3786137, has taken a majority controlling interest in
TEC.com.
On closing of the transactions contemplated by the Exchange
Agreement, the Majority TEC.com Shareholders transferred to 3786137,
on a two-for-one basis, all of the shares and convertible debentures
of TEC.com held by them, equivalent to a total of 23,826,280 common
shares of TEC.com, for an aggregate of 11,913,140 exchangeable
preferred shares of 3786137 (the "Exchangeable Shares"). The
Exchangeable Shares are exchangeable on a share-for-share basis at
the option of their holder into an aggregate of 11,913,140 shares of
common stock, US$0.001 par value, of TECE.
F-35
TEC TECHNOLOGYEVALUATION.COM CORPORATION
Notes to Interim Consolidated Financial Statements
September 30, 2000 and 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
As part of the transactions, TECE and 3786137 have agreed to present
this offer to the eligible minority shareholders and the convertible
debenture holders of TEC.com to exchange their common shares and
convertible debentures of TEC.com for Exchangeable Shares on the same
terms and conditions as those offered to and accepted by the Majority
Shareholders.
Furthermore, concurrent with the closing of the transactions
contemplated by the Exchange Agreement, TECE completed a private
placement yielding gross proceeds of US$4,000,000 in which it issued
an aggregate of 1,000,000 units. Each unit includes one share of TECE
common stock and one warrant. Each warrant entitles its holder to
acquire one share of TECE common stock at a price of US$5.00 on or
before September 30, 2002.
d) A $48,701 convertible debenture was converted at US$0.50 per share
into 97,403 shares.
F-36
TECE, INC.
Pro Forma Consolidated Balance Sheet
As at September 30, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
TECE, INC.
(FORMERLY
TEC.COM INTERNET FOOD
CONSOLIDATED COMPANY, INC.) ADJUSTMENTS PRO FORMA
$ $ $ $
(unaudited) (unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 38,788 1,353 3,491,444 2 f) 3,531,585
Accounts receivable 281,775 1,418 (1,418)2 g) 281,775
Tax credits receivable 207,004 - - 207,004
Prepaid expenses 69,086 - - 69,086
---------------------------------------------------------------------------------
596,653 2,771 3,490,026 4,089,450
FIXED ASSETS 165,319 475 (475)2 g) 165,319
OTHER ASSETS 8,087 6,050 (6,050)2 g) 8,087
---------------------------------------------------------------------------------
770,059 9,296 3,483,501 4,262,856
---------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 507,203 - (507,203)2 f) -
Accounts payable and accrued liabilities 877,899 - - 877,899
Notes payable 630,000 34,221 (34,221)2 g) 630,000
Deferred revenue 141,167 - - 141,167
Current portion of long-term debt 15,427 - - 15,427
---------------------------------------------------------------------------------
2,171,696 34,221 (541,424) 1,664,493
---------------------------------------------------------------------------------
LONG-TERM DEBT 156,443 - - 156,443
ADVANCES FROM MANITEX CAPITAL INC. 910,165 - - 910,165
CONVERTIBLE DEBENTURES 4,985,263 - - 4,985,263
---------------------------------------------------------------------------------
6,051,871 - - 6,051,871
---------------------------------------------------------------------------------
REDEEMABLE PREFERRED SHARES 2,046,508 - - 2,046,508
---------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
EXCESS OF DEFICIT OVER SHARE CAPITAL
Capital stock (31,184,346 common shares
issued and outstanding) 2,906,703 126,250 4,112,000 2 f) h) 7,144,953
Deferred stock-based compensation (103,437) - - (103,437)
Additional paid-in capital 2,819,679 - 2,819,679
Accumulated other comprehensive income 145,245 - - 145,245
Accumulated deficit (15,268,206) (151,175) (87,075)2 g) h) (15,506,456)
---------------------------------------------------------------------------------
(9,500,016) (24,925) 4,024,925 (5,500,016)
---------------------------------------------------------------------------------
770,059 9,296 3,483,501 4,262,856
---------------------------------------------------------------------------------
F-37
TECE, INC.
Pro Forma Consolidated Statement of Operations and Deficit
For the nine-month period ended September 30, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
TECE, INC.
(FORMERLY
TEC.COM INTERNET FOOD
CONSOLIDATED COMPANY, INC.) ADJUSTMENTS PRO FORMA
$ $ $ $
(unaudited) (unaudited)
REVENUE
Consulting fees 421,045 - - 421,045
Licensing revenue from software sales - - - -
Web advertising revenue 170,384 - - 170,384
Product sales - 3,194 - 3,194
-----------------------------------------------------------------------------------
591,429 3,194 - 594,623
-----------------------------------------------------------------------------------
EXPENSES
Selling and administrative (including
recovery of stock-based
compensation expense of $957,450) 3,087,142 14,418 87,075 2 g) h) 3,188,635
Research and development, net of tax
credit 50,913 - - 50,913
Amortization of other assets 7,682 - - 7,682
Depreciation of fixed assets 51,055 75 - 51,130
-----------------------------------------------------------------------------------
3,196,792 14,493 (87,075) 3,298,360
-----------------------------------------------------------------------------------
OPERATING LOSS (2,605,363) (11,299) (87,075) (2,703,737)
-----------------------------------------------------------------------------------
OTHER INCOME (EXPENSES)
Interest income 2,750 - - 2,750
Finance fee expense (1,852) - - (1,852)
Interest expense (including accretion on
convertible debentures of
$2,571,429 (note 2 b)) (2,897,585) - - (2,897,585)
Foreign exchange gain (loss) (155,368) - - (155,368)
-----------------------------------------------------------------------------------
(3,052,055) - - (3,052,055)
-----------------------------------------------------------------------------------
NET LOSS BEFORE INCOME TAXES (5,657,418) (11,299) (87,075) (5,755,792)
INCOME TAX EXPENSE - (800) - (800)
-----------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD (5,657,418) (12,099) (87,075) (5,756,592)
-----------------------------------------------------------------------------------
NET LOSS PER COMMON SHARE, BASIC AND
DILUTED (0.33) - - (0.18)
-----------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 16,926,470 31,184,346
-----------------------------------------------------------------------------------
F-38
TECE, INC.
Pro Forma Consolidated Statement of Operations and Deficit
For the year ended December 31, 1999
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
TECE, INC.
(FORMERLY
TEC.COM INTERNET FOOD
CONSOLIDATED COMPANY, INC.) ADJUSTMENTS PRO FORMA
$ $ $ $
REVENUE
Consulting fees 357,845 - - 357,845
Licencing revenue from software sales 13,424 - - 13,424
Product sales - 16,991 - 16,991
---------------------------------------------------------------------------------
371,269 16,991 - 388,260
---------------------------------------------------------------------------------
EXPENSES
Selling and administrative (including
stock-based compensation expense of
$2,533,040) 5,786,624 77,076 121,338 2 g) h) 5,985,038
Research and development, net of tax credits 29,004 - - 29,004
Amortization of other assets 9,899 - - 9,899
Depreciation of fixed assets 19,361 150 - 19,511
---------------------------------------------------------------------------------
5,844,888 77,226 121,338 6,043,452
---------------------------------------------------------------------------------
OPERATING LOSS (5,473,619) (60,235) (121,338) (5,655,192)
---------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 40,367 - - 40,367
Finance fee expense (96,011) - - (96,011)
Interest expense (220,650) (1,829) (2,571,429)2 b) (2,793,908)
Foreign exchange gain 60,387 - - 60,387
---------------------------------------------------------------------------------
(215,907) (1,829) (2,571,429) (2,789,165)
---------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES (5,689,526) (62,064) (2,692,767) (8,444,357)
INCOME TAX RECOVERY (EXPENSE) 61,381 (800) - 60,581
---------------------------------------------------------------------------------
NET LOSS FOR THE YEAR FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY GAIN (5,628,145) (62,864) (2,692,767) (8,383,776)
EXTRAORDINARY GAIN ON SETTLEMENT OF DEBT,
net of tax of $7,811 15,161 - - 15,161
---------------------------------------------------------------------------------
NET LOSS FOR THE YEAR (5,612,984) (62,864) (2,692,767) (8,368,615)
---------------------------------------------------------------------------------
LOSS PER COMMON SHARE, BASIC AND
DILUTED FROM
Continuing operations and extraordinary gain (0.30) - (0.09) (0.27)
---------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 18,485,762 31,184,346
---------------------------------------------------------------------------------
F-39
TECE, INC.
Notes to Pro Forma Consolidated Financial Statements
September 30, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1. BASIS OF PRESENTATION
As of October 10, 2000, a Share Exchange Agreement (the "Exchange
Agreement") was entered into among TECE, Inc., a Nevada corporation listed
on the OTC BB in the United States under the symbol TENC and formerly
called Internet Food Company, Inc. ("TECE"), its wholly owned subsidiary,
3786137 Canada Inc. ("3786137"), TEC Technology Evaluation.Com Corporation
("TEC.com") Manitex Capital Inc. ("Manitex"), Intasys Corporation
("Intasys") and Mr. Don Lobley ("Lobley"), (Manitex, Lobley and Intasys
are collectively referred to as the "Majority TEC.com Shareholders").
Effective November 9, 2000, pursuant to this Exchange Agreement, TECE,
through its wholly owned subsidiary, 3786137, has taken a majority
controlling interest in TEC.com.
This transaction was accounted for in accordance with the guidelines
established by the Securities and Exchange Commission (SEC), as more fully
explained in note 2, for reverse takeovers since after the transaction the
shareholders of TEC.com exercise effective control of the combined entity.
The unaudited pro forma consolidated financial statements should be read
in conjunction with the historical financial statements of the various
companies involved in the transactions described in note 2.
The accompanying unaudited pro forma consolidated financial statements as
at September 30, 2000 and December 31, 1999 of TECE have been prepared by
management to reflect the transactions described in note 2 as if they had
all occurred as of September 30, 2000 with respect to the unaudited
consolidated pro forma balance sheet, and as of January 1, 1999 with
respect to the unaudited consolidated pro forma statement of operations
and deficit. These transactions are described in detail in the 8K filed by
TECE on November 9, 2000.
These accompanying unaudited pro forma consolidated financial statements
of TECE have been prepared by management in accordance with accounting
principles generally accepted in the United States and the pro forma
assumptions described in note 2.
The unaudited pro forma consolidated financial statements have been
prepared from the following:
a) the audited consolidated statement of operations of TEC.com for the
year ended December 31, 1999 and the unaudited consolidated interim
financial statements of TEC.com for the nine months ended September
30, 2000 prepared under United States generally accepted accounting
principles (U.S. GAAP);
b) the audited financial statements of Internet Food Company, Inc. for
the year ended December 31, 1999 and the unaudited interim financial
statements of Internet Food Company, Inc. for the nine months ended
September 30, 2000.
F-40
TECE, INC.
Notes to Pro Forma Consolidated Financial Statements
September 30, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
The unaudited pro forma consolidated statement of earnings is not
necessarily indicative of the results of operations that would have
occurred in the periods referred to above had the transaction described in
note 2 been effected at the beginning of the year, nor is necessarily
indicative of future results. In preparation of the unaudited pro forma
consolidated financial statements, management has made certain estimates
and assumptions that affect the amounts reported in the unaudited pro
forma consolidated financial statements. Actual amounts recorded upon
consummation of the transactions may differ from these estimates.
The accounting policies used in the preparation of the unaudited pro forma
consolidated financial statements are in accordance with those disclosed
in the TEC.com audited consolidated financial statements for the year
ended December 31, 1999.
2 PRO FORMA ASSUMPTIONS AND ADJUSTMENTS
The unaudited pro forma consolidated balance sheet as at September 30,
2000 gives effect to the November 9, 2000 transaction as if it had taken
place as at September 30, 2000. The unaudited pro forma consolidated
statement of operations and deficit for the year ended December 31, 1999
and the nine months ended September 30, 2000 give effect to the
transaction as if it had taken place as at January 1, 1999.
The acquisition of TEC.com by TECE is considered, in substance, to be a
recapitalization of TEC.com rather than a business combination. The
significance of this is that the shares of common stock held by TECE's
shareholders are treated as an issuance of new equity by TEC.com,
accompanied by a recapitalization, and therefore, is accounted for as a
change in capital structure.
The basic structure and terms of the reverse acquisition and related
events are accounted for in the unaudited pro forma consolidated financial
statements as follows:
c) On March 30, 2000, TEC.com raised $3,000,000 through a private
placement of 6% secured debentures, convertible at a price of
US$0.21 per share into common shares of TEC.com. This transaction
with related parties was completed on realization of the following:
An exchange of notes payable due to Intasys Corporation $ 1,000,000
An exchange of advances due to Manitex Capital Inc. 375,000
-------------------
Total consideration on exchange of existing debt 1,375,000
Cash from Intasys Corporation 1,625,000
-------------------
Convertible debentures issued $ 3,000,000
-------------------
Subsequently, the $3,000,000 convertible debentures were converted at
US$0.21 per share into 14,285,714 common shares of TEC.com.
F-41
TECE, INC.
Notes to Pro Forma Consolidated Financial Statements
September 30, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
b) The conversion of the $3,000,000 convertible debentures resulted in
a beneficial conversion feature and $2,571,429 of interest expense
being recorded.
c) A $48,701 convertible debenture was converted at US$0.50 per share
into 97,403 shares of TEC.com.
d) Pro forma adjustment to record the acquisition of TECE by TEC.com.
In accordance with the Exchange Agreement, the Majority TEC.com
Shareholders transferred to 3786137, on a two-for-one basis, all of
the shares and convertible debentures of TEC.com held by them,
equivalent to a total of 23,826,280 common shares of TEC.com, for an
aggregate of 11,913,140 exchangeable preferred shares of 3786137
(the "Exchangeable Shares"). The Exchangeable Shares are
exchangeable on a share-for-share basis at the option of their
holder into an aggregate of 11,913,140 shares of common stock,
US$0.001 par value, of TECE.
e) In accordance with the Exchange Agreement dated October 10, 2000,
the 11,913,140 Exchangeable Shares in 3786137 are considered in
substance to be equal to TECE common shares and consequently, are
included in the calculation of the total issued and outstanding
shares of TECE, as that number is used for earnings per share and
shareholders' equity presentation.
f) Pro forma adjustment to record a private placement completed by TECE
subsequent to the reverse acquisition yielding gross proceeds of
$4,000,000 in which it issued an aggregate of 1,000,000 units each
consisting of one share of TECE common stock and one warrant. Each
warrant entitles its holder to acquire one share of TECE common
stock at a price of US$5.00 on or before September 30, 2002. The pro
forma adjustment assumes the repayment of bank indebtedness with the
proceeds of this private placement.
g) Pro forma adjustment to write off the net assets of Internet Food
Company, Inc. as management considers them to have no value to
TECE's future operations. The adjustment also eliminates TECE's
accumulated deficit.
h) Subsequent to September 30, 2000, TEC.com issued 800,000 common
shares for cash consideration of $200,000. The fair value of these
shares was US$0.39 each. As a result, the pro forma adjustment
records a stock-based compensation expense of $112,000.
F-42