SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to _________
Commission file number 0-30170
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TECE, Inc.
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(Name of Small Business Issuer in its Charter)
Nevada 88-0390657
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
740 St. Maurice, Suite 410
Montreal, Quebec, Canada H3C 1L5
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(Address of Principal (Zip Code)
Executive Office)
(514) 954-3665
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(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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(Title of Class)
Check if the issuer (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes
|X| No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|
State issuer's revenues for its most recent fiscal year: $ 978,571.
Based upon the closing price of the issuer's Common Stock on March 30, 2001 the
aggregate market value of the 25,388,803 outstanding shares of Common Stock held
by non-affiliates of the issuer was $12,440,513. Solely for the purposes of this
calculation, shares held by directors and officers of the issuer have been
excluded. (The foregoing calculation does not include ownership of securities
that are exchangeable for shares of the issuer's Common Stock.) Such exclusion
should not be deemed a determination or an admission by the issuer that such
individuals are, in fact, affiliates of the issuer.
As of March 30, 2001, 25,608,472 shares of the issuer's Common Stock, $.001 par
value (the "Common Stock"), were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
Transitional Small Business Disclosure Format (check one):
|_| Yes |X| No
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
We have had limited revenues to date. Our future operations are dependent upon
financing necessary to develop and market our products and services. We
currently anticipate that our available cash and the cash flows from operations
will only suffice to finance our activities until the end of the second quarter
of fiscal 2001. There can be no assurance that we will be able to complete the
development of our products and services, or that they can be successfully
marketed. Furthermore, there is no assurance that even if the products and
services are completed and marketed, revenues will be sufficient to fund our
future operations or to fund additional research, development and marketing.
The following Business section contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors.
See "Risk Factors" relating to forward-looking statements. The consolidated
financial statements included in this Annual Report on Form 10-KSB are the
continuation of the financial statements of Tec TechnologyEvaluation.com
Corporation, ("TEC.com"), which is treated for accounting purposes as the
acquirer of Tece, Inc. (For the purposes of the Annual Report on Form 10-KSB,
Tece, Inc. is sometimes referred to herein as "TECE" and, together with 3786137
Canada Inc. ("3786137"), its subsidiary and TEC.com are also referred to as
"we," "us" or the "Company"). TEC.com had a fiscal year-end of December 31 and
accordingly December 31 will continue to be used as our year-end. See "History
of the Company" for a description of the transactions involving TEC.com. Our
functional currency is the Canadian dollar. All amounts presented in this annual
report in Canadian currency are identified as such. Other amounts are expressed
in United States dollars. See "Currency Exchange Rates" for the exchange rates
for the Canadian dollar.
PRODUCTS AND SERVICES
We develop and market a proprietary combination of decision support systems,
knowledge bases and consulting services to assist with the evaluation and
selection of information technology solutions. We believe that we deliver
substantial value to information technology professionals by helping them make
complex business decisions, while reducing the risk, time, and cost associated
with the acquisition of product and service solutions. Our decision support
systems help users determine the best match between their specific product and
service requirements and vendors' solutions.
We believe technology is increasingly central to business strategy. In our
opinion, few decisions have a greater impact on an organization's future than
the selection, integration and implementation of the right information
technology products and services. A significant proportion of information
technology professionals conducts its primary product, vendor and trend research
on the Internet. We feel that the volume and potential bias of the information
available on the Internet presents a difficult challenge. Additionally, the
complexity and the fast pace of technology change increase the potential
for decisions that fail to meet requirements and expectations. Wrong decisions
can cost companies millions of dollars. Our products and services are designed
to help overcome the risks and challenges created by these factors.
Our proprietary decision-making systems provide an unbiased and comprehensive
evaluation of selected information technology products and service, based on the
criteria and priorities determined by the user. This ensures that each
organization's unique requirements and circumstances are taken into
consideration.
Our decision-making system helps users significantly reduce:
o Time and cost in making their technology decision.
o Risk in making poor or wrong business decisions.
o Corporate inefficiencies and political infighting.
o Time needed to collect and validate data for the selection process.
o Unrealistic expectations of vendor product capabilities.
Software Products
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We market TESS(TM), a comprehensive multi-user decision support software
application, and ERGO(R), a single-user desktop version, to businesses of all
sizes.
TESS(TM)
TESS(TM) stands for Technology Evaluation Support System. It is a
multi-user or groupwaRe information technology evaluation system. It is
designed to conduct primary research and analysis using data gathered
by information technology professionals. We believe TESS(TM) is moRe
than just a decision support system. It is a comprehensive
decision-making environment that lets users share information in a
collaborative evaluation environment. It contains an array of graphical
and text-based reporting features. From very simple problems to highly
sophisticated group decisions, TESS(TM) helps users make reasoned,
well-informed, and more easily justifiabLe technology acquisition
decisions.
The core of TESS(TM) is supported by patented decision support
methodologies. The first examinEs the strengths and weaknesses of each
option under consideration. The risk caused by these strengths and
weaknesses is traded off against each option's overall weighted average
to give a better indication of each option's real value to the user.
Another accounts for bias caused by the way criteria are organized in a
decision model. The organization of decision model criteria can
seriously affect the outcome of the decision. Our patented algorithms
help to reduce this structural bias. Using patented technology and our
three-step decision process, known as ADEPT(TM), information technology
professionals can make use of complete custom models and templates that
guide them systematically through a decision. This simple and flexible
process allows users to build both hard facts and soft judgements into
their decisions.
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ERGO(R)
ERGO(R) is a single-user software application designed to help an
information technologY professional evaluate vendor products and
services. It has the core features of TESS(TM) and can Be used from
very simple problems to highly sophisticated corporate decisions.
ERGO(R) helpS individuals make reasoned, well-informed, and more easily
justifiable decisions. The patented decision support methodologies
found in TESS(TM) are also incorporated into ERGO(R). Web Services
Web Services
Through our Web site (www.technologyevaluation.com), we publish
articles and opinions and offer a Web-based version of our technology
(WebTESS(TM)) for information technology professionals. UsiNg our
TESS(TM) decision support system, WebTESS(TM) combines detailed vendor
and product informAtion with a Web-based decision support environment.
Users can evaluate the relative strengths and weaknesses of vendor
products and services in the areas of e-commerce, business
applications, e-services, enterprise networking, security and
groupware. By combining detailed vendor and product information with a
Web-based decision support environment, WebTESS(TM) helps informatiOn
technology professionals throughout the technology evaluation process.
The objective of this free service is to increase awareness among our
targeted prospect markets in order to develop credibility and create
leads for our consulting services. We also intend to offer
subscriptions for a service that provides regular updates on new
information technology solutions or changes to existing solutions and
technology trends. The cost of developing and maintaining our Web site
is partially offset by advertising revenue from information technology
vendors. This revenue is generated from banner ads hosted on our Web
site and sponsorship of our daily newsletter.
Knowledge Bases
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We have the capacity to provide customers with more than the systems and
knowledge bases that help them make technology acquisition decisions. We
continue to enhance our knowledge bases and provide consulting services to our
targeted markets.
Our knowledge bases contain information about technology vendor products and
services gathered by our analysts, who have, combined with marketplace
knowledge, a deep and current understanding of product performance and
functionality. They closely follow industry trends and we believe they are
experts in their fields, with extensive technology and business process
knowledge. Our analysts are able to provide a valuable assessment of technology
vendors, markets and trends, especially with the comprehensive and sometimes
complex solutions implemented in key areas such as customer relationship
management (CRM), enterprise resource planning (ERP), enterprise application
integration (EAI), and supply chain management (SCM). While our core technology
and knowledge bases are viable products for our target markets, we continue to
improve our decision support systems, as well as build on our knowledge bases
with our analysts' continued research into the business processes in the key
areas on which we focus.
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Consulting Services
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Through our technology, knowledge bases and services, we can provide support to
global and regional consulting firms that are retained by Fortune 1000 companies
for major information technology acquisition projects. We are currently
deploying resources to sell services to consulting firms that will help them
document what they know and learn about information technology solutions so that
they can more effectively use the knowledge to better serve their clients. We
also can help individual Fortune 1000 companies in their information technology
selection process. We also sell training and support to both consulting firms
and large corporations that want to use our software and/or our knowledge bases.
MARKETS
Our primary markets are Fortune 1000 companies, the regional and national
consulting firms that provide services to Fortune 1000 companies and vendors of
information technology products and services. We also sell TESS(TM) and ERGO(R)
to businesses of all sizes. We sell TESS(TM) and knowledge bases to consulting
firms to help them provide advisory services to their clients on the right
technology solution they should use. We help large corporations select complex
information technology solutions by selling them TESS(TM) aNd product
information required to make the selections themselves. We also can sell our
knowledge bases to vendors to help them increase their visibility with customers
and prospects as well as provide competitive comparison information. We continue
to research alternative uses for our software products. For example, we believe
that TESS(TM) and the knowledge bases that we have developed can be used as a
training and/or reference tool by the Fortune 1000 companies, advising them as
product features, capabilities, strengths and weaknesses, in essence, a
reference manual about system capabilities.
DISTRIBUTION METHODS
We provide our products and services using a direct sales approach. Most of our
services require several face-to-face meetings and the sales cycle is long. The
exceptions are advertising sales and sponsorship revenues on our Web site, some
of which may be sold over the telephone.
COMPETITION
Our competitors are numerous, operate in many sectors and include organizations
that offer software systems, consulting services, and/or Web-based solutions.
They may operate in one or more of the markets that we intend to serve. Many of
our competitors have proven business models and generate revenues from selling
software, professional services, and/or Web-based advertising/sponsorships. Some
of our competitors that provide services to our markets have greater
capabilities than we do.
We believe that the combination of our products, knowledge base content,
consulting services capabilities and the expertise of our personnel positions us
to:
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o Leverage revenues through partnerships that have a global reach
(international in scope);
o Offer and maintain content-based services that are complete and up-to-date
and build significant traffic to our Web site and help us attract
advertisers;
o Structure information in relation to practical experience;
o Maintain our objectivity and independence from vendors;
o Sign significant contracts with world-class companies; and
o Support our services with proven technology.
We believe that we can compete favourably when our impartiality, knowledge and
focus can be combined in an effort to penetrate large-scale organizations that
will use our technology and knowledge to leverage their own client
relationships.
We believe our decision support systems have a competitive edge for the
following reasons:
o There is an intuitive interface that makes it easy to create large,
multiple criteria decision models that can contain virtually an
unlimited number of criteria and options.
o The decision weighing and scoring functions let users quickly and
easily create a benchmark pattern of priorities. Users can score their
options or specific criteria against this benchmark.
o "Threshold" and "Must Have" requirements let users eliminate options
that don't meet performance expectations.
o Our patented methodology helps users analyze their decision. Results
can be based on their model alone, or be included in a detailed cost
analysis.
o Graphical analysis features give users a clear visual representation of
their decision to help them see the "big picture". Users can simply
click-and-drag the graphs to perform scenario analysis and answer all
of their "What If" questions.
o The detailed, yet customisable, reports let users print, present, and
justify their decisions.
o Powerful data import and export features make it easy to build decision
models from Excel spreadsheets or text files. It is also easy for a
user to output its model to those same formats.
RESEARCH AND DEVELOPMENT
Research and development initiatives are underway to enhance our decision
support systems. We are adding a risk analysis capability that randomly
generates values for uncertain variables over and over to simulate a model.
Incorporating the risk analysis feature into our systems will provide users with
a level of certainty related to the recommendations of our system. For example,
if a user is uncertain as to the weighted factor to be applied to their decision
criteria, they can indicate a range, such as 25 to 30 percent for one of the
criteria. The evaluation of the vendor solutions takes into consideration the
five percent difference and recalculates the level of certainty that each vendor
solution meets their criteria based on the range of outcomes.
To improve user friendliness, the graphical user interface of the systems will
be enhanced. As well, the systems will be converted to Web-based products so
that information can be accessed through any browser.
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EMPLOYEES
We currently have 27 employees, of whom 25 are full-time and two are part-time
staff. Eleven of our full-time employees are located in our U.S. subsidiary and
14 full-time and two part-time staff are employed by our Canadian subsidiary.
The staff distribution is as follows: three executive officers, eight in
software development, ten contributing both research content and performing
consulting services, four in finance and administration and two in sales.
INTELLECTUAL PROPERTY - PATENTS AND TRADEMARKS
We try to protect our proprietary position by filing patent applications for our
proprietary technology, inventions and product improvements that are important
to our business development. Patents, however, cannot be protected with
certainty. Once issued, patents may be challenged, invalidated or circumvented,
and may fail to provide any protection against competitors. Patent protection
can involve complex legal and factual questions.
Patents may not be issued for applications pending, filed in the future, or
licensed from third parties. Patents issued may not provide proprietary
protection or competitive advantages against competitors with similar
technology. Other companies may develop similar technologies or technology that
duplicates what we have developed. The laws of some foreign countries do not
protect our intellectual property rights to the same extent as do patent and
trademark laws in the United States and Canada.
We must also rely on trade secrets, know-how and technology that we try to
protect with confidentiality agreements with third parties, collaborators,
employees and consultants. Any of these parties can breach their agreement and
disclose confidential information. Our competitors may also learn about
information through other means that we failed to consider in the
above-mentioned agreements.
Our success is dependent upon our ability to obtain patent protection for our
products. We have a proprietary portfolio of patent rights and applications
filed in the United States and international patent applications related to our
current U.S. patents that expire in 2012. TESS(TM) is our suppoRt platform. It
provides our system's unique decision support and knowledge management
capabilities. Our decision algorithms and methods may be improved upon by our
competitors, or the academic community, where public knowledge represents a
zero-access-cost to competitors. As well, no decision algorithm to date has
proven effective in satisfying all human decision makers in all situations. Our
decision algorithms may be defective on occasion and lead to loss of faith with
some of our customers under certain conditions. There are many decision-making
methods, but few have managed to achieve high levels of popular use, except for
simple methods related to the use of determining weighted averages. It is
possible that one or more of these methods may become an accepted standard and
displace the multi-attribute utility theory methodology on which our products
are based.
U.S., CANADIAN AND INTERNATIONAL PATENTS
o IMPROVED DECISION SUPPORT SYSTEM, METHOD AND ARTICLE OF MANUFACTURE:
(U.S. Patent Granted).
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The patent describes how a quality variance is measured by functions
called matching indices, which meet certain mathematical properties. It
describes the components of the equation in current use.
o SYSTEM AND METHOD FOR REDUCING BIAS IN DECISION SUPPORT SYSTEM: (U.S.
Patent Granted).
Whenever complex hierarchical trees of criteria are constructed, they
inevitably create structures that are highly asymmetric: i.e., some
tree branches have thousands of criteria while others may have just a
few. The unique balancing mechanisms we use are described in this
patent.
o IMPROVED SYSTEM AND METHOD AND ARTICLES OF MANUFACTURE FOR AUTOMATED
ADVISORY DECISION AND CONTROL SERVICES USING IMPROVED DECISION SUPPORT
SYSTEMS WITH MODEL LICENSE PROTECTION: (U.S. and International Patents
pending).
This patent is intended to protect intellectual rights to a number of
processes related to the customization, use and control of our
knowledge bases, particularly in network environments. Under this
patent, a number of operational features of our products are protected.
U.S. AND CANADIAN TRADEMARKS
We have submitted trademark applications to both the Registrar of Trademarks in
Canada and the United States Patent and Trademark Office that are currently at
various stages of registration for the following: "Technology Ev@luation
Center," "Which & Why" and "TEC & Design."
HISTORY
Under a series of agreements (the "Exchange Agreements") including a Share
Exchange Agreement among TECE, Inc., our subsidiary, 3786137, TEC.com, and
shareholders of TEC.com, 3786137 acquired on November 9, 2000 common shares and
convertible debentures representing 67.6% of the issued and outstanding TEC.com
common shares. As consideration, 3786137 issued exchangeable non-voting shares
of its Class A preferred stock (the "Exchangeable Shares"). The Exchangeable
Shares are exchangeable on a one-for-one basis at the option of their holders
into an aggregate of 11,913,140 shares of our common stock, which were issued in
trust to Pierre Barnard, as trustee. Each holder of Exchangeable Shares can give
directions to the trustee as to the manner in which the shares held in trust for
his benefit are to be voted.
In connection with these transactions, we completed a private placement of
$4,000,000, in which we issued 1,000,000 units. Each unit consists of one share
of our common stock and one warrant. Each warrant entitles its holder to acquire
one share of our common stock at a price of $5.00 on or before September 30,
2002.
On February 15, 2001, we acquired from two former officers and employees of
TEC.com a total of 4,000,000 TEC.com common shares for a total consideration of
$114,000.
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As of March 7, 2001, 3786137 had acquired the totality of the remaining TEC.com
common shares and convertible debentures, with the exception of 543,252 common
shares and debentures having a face value of $125,000, which are convertible
into 294,120 shares of TEC.com.
As of March 31, 2001, we hold directly and indirectly approximately 98% of
TEC.com's common shares, on a fully diluted basis.
After giving effect to these transactions, there are 25,608,472 shares of our
common stock outstanding, taking into account a stock split which became
effective October 5, 2000, and the cancellation of certain outstanding shares.
In addition, there are reserved for issuance (i) 3,262,500 shares of common
stock upon exercise of options under the employee stock option plan(s) and (ii)
1,000,000 shares upon exercise of warrants.
We were incorporated under the laws of the State of Nevada on April 14, 1998. We
had been formed to sell retail gourmet and specialty cheese on the Internet and
at a retail location. On October 31, 2000, we transferred all of our assets and
liabilities to Janice M. Demainew and Diane Button in consideration of the
cancellation of certain of our shares of common stock held by them. Immediately
prior to the acquisition of common shares and convertible debentures
representing 67.6% of the issued and outstanding common shares of TEC.com, we
had no material operations, revenues, assets or liabilities. We changed our name
to "TECE, Inc.", in October 2000.
Copies of the Exchange Agreements were filed as exhibits to our Current Report
on Form 8-K dated November 9, 2000 and are incorporated by reference in the
exhibits to the Annual Report on Form 10-KSB. The description of the Exchange
Agreements contained in this report is modified by such reference.
RISK FACTORS
We operate in a rapidly changing environment that involves a number of risks,
some of which are beyond our control. The following discussion highlights the
most material of the risks.
WE WILL NEED ADDITIONAL FINANCING TO CONTINUE OUR OPERATIONS AS PLANNED.
We currently anticipate that our available cash and the cash flows from
operations will only suffice to finance our activities until the end of the
second quarter of fiscal 2001.
If we issue equity securities, our present stockholders will suffer dilution. If
we issue debt securities, we will face the risks associated with debt, including
rises in interest rates and insufficient cash flow to pay the principal of and
interest on our debt securities. We are unable to predict whether additional
equity or debt financing will be available to us, on favourable terms or at all.
Our future liquidity and capital requirements will depend upon numerous factors,
some, but not all, of which are listed below:
o Our ability to sell our advertising inventory at current market rates;
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o Our ability to deliver on our consulting mandates, which will be
influenced by our ability to find and retain adequately qualified staff
for our consulting practice;
o The pace of expansion of our operations;
o The need to fund acquisitions of complementary products, technologies
or businesses.
WE EXPECT THAT WE WILL INCUR LOSSES FOR THE FORESEEABLE FUTURE.
We have had net operating losses since being founded and currently have an
accumulated deficit. These losses result from selling, general and
administrative expenses. We expect to have substantial additional expenses over
the next several years as part of the process of marketing and selling our
products and services. We expect that such expenses will result in additional
losses.
Our future profitability depends, in part, on:
o Entering into agreements to develop and commercialize products;
o Developing the capacity to market products or entering into agreements
with others to do so;
o Market acceptance of our products;
o The ability to obtain additional funding; and |X| The ability to
achieve certain product development milestones.
We may not achieve any or all of these goals and, thus, are unable to predict
whether we will ever achieve significant revenues or profits. Even if we receive
funding of one or more of our products, we may not achieve significant
commercial success.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR PRODUCTS OBSOLETE OR
NON-COMPETITIVE.
Major technological changes can occur quickly. The development by competitors of
technologically improved or different products may make our product candidates
obsolete or non-competitive.
PROPRIETARY PROTECTION FOR OUR PRODUCTS IS IMPORTANT AND UNCERTAIN.
The following factors are important to our success:
o Receiving patent protection for our products;
o Maintaining our trade secrets;
o Not infringing on the proprietary rights of others; and
o Preventing others from infringing our proprietary rights.
We can protect our proprietary rights from unauthorized use by third parties
only if these rights are covered by valid and enforceable patents or are
effectively maintained as trade secrets.
We try to protect our proprietary position by filing United States, Canadian,
and foreign patent applications related to our proprietary technology,
inventions and improvements that are important to the development of our
business. Enforceability of patents cannot be projected with certainty. Patents,
if issued, may be challenged, invalidated or circumvented. Any patents that we
own or license from others may provide no protection against competitors. Our
pending patent applications, those we may file in the future, or those we may
license from third parties, may not result in patents being issued. If patents
do issue, they may not provide us with proprietary protection or competitive
advantages against competitors with similar technology. Furthermore, others may
independently develop similar technologies or duplicate any technology that we
have developed. The laws of certain foreign countries do not protect our
intellectual property rights to the same extent as the laws of the United States
and Canada.
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We also rely on trade secrets, know-how and technology, which we try to protect
by entering into confidentiality agreements with parties that have access to it,
such as our corporate partners, collaborators, employees and consultants. Any of
these parties can breach the agreement and disclose our confidential information
or our competitors might learn of the information in some other way.
WE MAY BE UNABLE TO RETAIN OUR KEY EXECUTIVES AND RESEARCH AND DEVELOPMENT
PERSONNEL.
Our success depends on the services of key employees in executive and research
and development positions, notably our Chairman of the Board of Directors,
President and Chief Executive Officer. The loss of the services of one or more
of our key employees could have a material adverse effect on our operations.
OUR OPERATING RESULTS MAY BE AFFECTED BY FOREIGN EXCHANGE FLUCTUATIONS.
We expect a substantial portion of our revenues to be based on sales and
services rendered to come from the United States, while a significant amount of
our operating expenses will be incurred in Canada. As a result, our financial
performance will be affected by fluctuations in the value of the U.S. dollar to
the Canadian dollar. At the present time, we have no plan or policy to utilize
forward contracts or currency options to minimize this exposure, and even if
these measures are implemented, we are unsure whether these arrangements will be
available, be cost effective or be able to fully offset such future currency
risks.
FUTURE ISSUANCE OF SHARES OF COMMON STOCK MAY DILUTE PRESENT STOCKHOLDERS.
Our Articles of Incorporation authorize the issuance of a maximum of 50,000,000
shares of Common Stock. Our stockholders may experience a substantial dilution
in the percentage of the Common Stock they hold if we issue all or part of the
remaining authorized Common Stock in the future. Moreover, we may value any
Common Stock issued in the future on a basis other than the current market price
of the Common Stock. Dilution could also occur if we issue our Common Stock for
future services or acquisitions or other corporate actions. These actions could
depress the market price of our Common Stock.
OUR COMMON STOCK IS REGULATED AS A "PENNY STOCK."
Under United States securities regulations, "penny stocks" generally are equity
securities with a price of less than $5.00 per share other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
Stock Market. Our Common Stock is subject to "penny stock rules" that impose
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered by
these rules, the broker-dealer must make a special suitability determination for
the purchase of such securities and have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the "penny stock rules"
require the delivery, prior to the transaction, of a disclosure schedule
prescribed by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer must also disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. Consequently, the "penny
stock rules" may restrict the ability of broker-dealers to sell our Common
Stock. The "penny stock rules" will not apply if the market price of our Common
Stock is $5.00 or greater. There can be no assurance that the price of our
Common Stock will attain such a level.
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WE CAN GIVE NO ASSURANCES THAT OUR FORWARD-LOOKING STATEMENTS WILL BE CORRECT.
Certain forward-looking statements, including statements regarding our business
and financing plans, are contained in this Annual Report on Form 10-KSB. These
forward-looking statements reflect our views with respect to future events and
financial performance. The words, "believe," "expect," "plans" and "anticipate"
and similar expressions identify forward-looking statements. Although we believe
that the expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to be
correct. Important factors that could cause actual results to differ materially
from such expectations are disclosed in this Annual Report on Form 10-KSB. All
subsequent written and oral forward-looking statements attributable to us are
expressly qualified in their entirety by the cautionary statements. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of their dates. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
CURRENCY EXCHANGE RATES
All dollar amounts stated in this form are in U.S. dollars, except where
otherwise specifically indicated. The following table sets forth, for the dates
indicated, the rates at the specific date for the Canadian dollar per one U.S.
dollar, each expressed in Canadian dollars and based on the noon buying rate in
New York City for cable transfers in Canadian dollars as certified for customs
purposes by the Bank of Canada:
1999 2000
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Rate at end of period 1.4730 1.4995
Period High for the period Low for the period
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February 2001 1.5392 1.4936
January 2001 1.5160 1.4936
December 2000 1.5458 1.5002
November 2000 1.5593 1.5298
October 2000 1.5310 1.4954
September 2000 1.5070 1.4735
August 2000 1.4888 1.4722
Period Average for the period
- ------ ----------------------
Fiscal year ended December 31, 1999 1.4858
Three months ended March 31, 2000 1.4683
Three months ended June 30, 2000 1.4861
Three months ended September 30, 2000 1.4888
Three months ended December 31, 2000 1.5210
-12-
On March 29, 2001, the noon buying rate in the New York City for cable transfers
in Canadian dollars as certified for customs purposes by the Federal Reserve
Bank of New York was CDN$1. 5725 = US$1.00
ITEM 2. PROPERTY
The Company's management operates from its administrative and commercial offices
at 740 St-Maurice, Suite 410, in Montreal, Quebec H3C 1L5, a 3,282 square-foot
leased facility in Montreal. The Company's annual rent for this building is CDN$
55,794.
The Company also leases 4,614 square-feet of office space at 500 Unicorn Park in
Woburn, Massachusetts, at an annual cost of $124,578, from where it conducts
both its consulting and research activities.
ITEM 3. LEGAL PROCEEDINGS
There is no action, suit, proceeding, or investigation pending or, to our
knowledge, threatened against us, including any investigation of any
governmental authority or body.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our Common Stock has been eligible for trading on the Nasdaq Over The Counter
Bulletin Board since the fourth quarter of the fiscal year ended December 31,
1999. The following table sets out the high and low bid prices of our Common
Stock during the periods indicated. Such prices reflect inter-dealer prices,
without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
Fiscal Year Quarter High ($) Low ($)
----------- -------- -------
2000 3rd quarter $0.125 $.0625
4th quarter $1.50 $.0625
According to information furnished by the transfer agent for our common stock,
as of March 30, 2001, there were 110 holders of record of our common stock and
52 holders of record of 3786137 exchangeable preferred shares (which are
exchangeable for shares of our common stock).
We have never declared or paid any cash dividends on our common stock and we
presently anticipate that any future earnings will be retained for the
development of our business. The payment of future dividends will be at the
discretion of our Board of Directors and will depend upon, among other things,
future earnings, capital requirements, our financial condition and general
business conditions.
In October 2000, we completed a private placement with 3699854 Canada Inc., a
private Canadian corporation, that yielded proceeds of US $4,000,000. We issued
1,000,000 shares of common stock and warrants to purchase an additional
1,000,000 shares of common stock at a price of US $5.00 on or before September
30, 2002. We relied upon the exemption provided in Regulation S under the
Securities Act. No underwriter was involved in the private placement.
-13-
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The discussion in this Annual Report on Form 10-KSB contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the
section entitled "Risk Factors" of this report, as well as those risks discussed
in this section and elsewhere in this report.
BACKGROUND AND FINANCIAL OVERVIEW
TEC.com was incorporated under the laws of Canada in November 1998. It was
founded by the combination of several former senior managers of a leading IT
research firm and Arlington Software Corporation, a Montreal-based developer of
industry-leading decision analysis software. At that time, we changed the focus
of our business from being primarily a manufacturer and distributor of the
decision support software, developed by our Canadian subsidiary company and sold
under the then trade name Which and Why, to a multi-disciplined company with a
mission of reducing the risks associated with larger information technology
procurement decisions. Concurrent with the adoption of this new mission
statement, we changed the name of both the Canadian parent company to TEC
Technology Evaluation.com Corporation and the US subsidiary company to
Technology Evaluation Center, Inc. Our business model developed over the next
twelve to eighteen months into one where we attempted to generate revenue from:
o Advertising based on banner ads served on our web site
o Consulting revenue from the provision of both alignment consulting and
selection services
o The sale or lease of our decision support software and knowledge bases
We launched our web site, www.technologyevaluation.com, in December 1999 and
signed our first significant advertising contracts in February 2000. During June
and July 2000 our consulting practice began to grow based on leads generated
from our web site, continued referrals from past customers and engagements
conducted with alliance partners. To date our web site has achieved some limited
market acceptance from corporate advertisers. Our losses for the years ended
December 31, 2000 and 1999 were $ 6,938,315 and $ 5,612,984 respectively.
Our limited operating history and the uncertain nature of the markets we
address, or intend to address, make prediction of our future results of
operations difficult. Our operations may never generate significant revenues and
we may never achieve profitable operations.
The last two years have been a turning point for the development of our business
as we continually refined our business model and sought new opportunities for
growth. This is particularly noticeable in the growth of our consulting
practice, the opportunities created by the development of our web site and the
advertising revenue that this has generated. During this period we have
developed our consulting practice to the point where in fiscal 2000, this
accounted for approximately 76% ($739,109) of total revenue compared to
-14-
approximately 31% ($33,322) of fiscal 1998 total revenue. Revenue has increased
by 163% in fiscal 2000 and 240% in 1999.
While our total revenues have grown to approximately $978,000 in fiscal 2000
from $109,000 in 1998, an increase of nearly 800% over the two-year period, our
total operating costs over the same period have increased to approximately
$4,360,000 in fiscal 2000 from $1,836,000 in 1998, an increase of approximately
$2,524,000 or 137%. This increase in operating costs was the result of the
changes in our business focus from being primarily a software manufacturer and
distributor to a multi-disciplined company with a mission of reducing the costs
and risks associated with larger information technology procurement decisions.
Throughout 1999 we hired employees in order to provide marketing and sales
support, write research content to be hosted on our web site and provide
expertise required for our consulting practice. The above costs reflect both the
salary paid to these people and the significant effect of stock based
compensation. The following table demonstrates the impact of stock based
compensation on our operating expenses for each of the twelve-month periods
ended:
- ---------------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
OPERATING EXPENSES 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------
Before stock based compensation $5,379,623 $3,311,848 $684,358
Stock based compensation
expense (recovery) ($1,019,250) $2,533,040 $1,151,752
TOTAL OPERATING EXPENSES $4,360,373 $5,844,888 $1,836,110
- ---------------------------------------------------------------------------------------------------------
As a result of the significant increases in our operating costs, we have
operating losses in the years ended December 31, 2000, 1999 and 1998 of
$3,381,802, $5,473,619 and $1,726,946 respectively. In addition, the company
incurred financing and interest costs that contributed to the generation of
losses from continuing operations in each of the years ended December 31, 2000,
1999 and 1998 of $6,938,315, $5,689,526 and $1,833,228 respectively.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR
ENDED DECEMBER 31, 1999.
The launch of our web site in December 1999 and the subsequent impact this had
on our consulting practice substantially changed the nature of our operations.
As explained above in the financial overview, our operating costs increased
substantially throughout 1999 as a result of the change in our business focus.
Consequently, we believe comparisons between the fiscal years ended December 31,
1998 and 1999 have limited meaning. In the fiscal year ended December 31, 2000,
we began to see the results of plans and efforts developed over the prior twelve
to eighteen months and comparisons between the fiscal years ended December 31,
1999 and 2000 are therefore more meaningful and are analysed in the following
paragraphs.
-15-
REVENUE
Our total revenue for the year ended December 31, 2000 increased by $607,302, or
163%, over the reported revenue in the prior fiscal year. The continued
development of our consulting practice accounted for $381,264 of this increase,
while the revenue generated from advertising placed on our web site accounted
for $238,241 of this increase. This was slightly offset by licensing revenue
from software sales that dropped to $1,221 from the $13,242 reported in the
twelve months ended December 31, 1999.
We believe that our web site will be more attractive to advertisers as more
information technology professionals use it as their primary research tool. A
significant component of our fiscal 2000 expenses consisted of costs incurred to
attract these IT professionals to our site. To date, we have primarily attracted
information technology professionals through both on-line and off-line
marketing. We expect to continue using these sources, though to a much lesser
extent, as we further develop this portal since it provides both advertising
revenue and client leads for our consulting practice. One of the factors that
will influence our success is our ability to reduce the acquisition costs of our
consulting clients and this may be achieved through either an alliance strategy
or decreasing the net costs of hosting our Web site.
SELLING AND ADMINISTRATIVE EXPENSES
Our selling and administrative costs continue to represent a significant
percentage of our total operating costs as indicated in the following table:
- --------------------------------------------------------------------------------------------------------------
December 31, 2000 % December 31, 1999 %
- --------------------------------------------------------------------------------------------------------------
Salaries and wages 3,092,358 74% 2,004,590 35%
Stock based compensation
expense (recovery) (1,019,250) (24%) 2,533,040 44%
Advertising 684,159 16% 186,638 3%
Consulting fees 394,423 9% 134,659 2%
Rent 130,507 3% 67,752 1%
Other 911,786 22% 859,945 15%
- --------------------------------------------------------------------------------------------------------------
TOTAL SELLING AND
ADMINISTRATIVE EXPENSES 4,193,983 100% 5,786,624 100%
- --------------------------------------------------------------------------------------------------------------
-16-
Salaries and Wages
Salaries and wages increased as we opened our Woburn office in November 1999 and
started to hire staff to increase the research content being displayed on our
web site. By June 2000, we had reached a combined total staff of 42 employees
for both our Montreal and Woburn facility. Subsequent to June 2000, our staff
levels decreased largely through attrition and some limited restructuring in
order to reduce our costs of providing research content since advertising
revenue was not providing the anticipated offset to these costs.
Stock based compensation expense
The largest component of stock-based compensation expense arises due to an issue
in November 1998, of TEC.com common shares to senior executives at no cost. The
impact of this in fiscal 1999 was an expense of $2,500,000. In fiscal 2000,
there was a repurchase of 2,000,000 of the above-mentioned shares that resulted
in a recovery of previously recorded expenses of $1,000,000. At December 31,
2000 there were 4,000,000 of these shares outstanding.
Advertising expenses
Advertising expenses increased to $684,159 in the twelve months ended December
31, 2000, from $186,638 in fiscal 1999, an increase of 267%. Concurrent with the
launch of our web site in December 1999, we advertised both on the World Wide
Web and in more traditional media for a period of four to five months. In
subsequent months, because we were unable to assess the impact or the return on
investment of these advertising campaigns, we decided to discontinue all paid
advertising until more reliable methods of assessment become available.
INTEREST CHARGES
Interest charges for the twelve months ended December 31, 2000 represent both
interest on convertible debentures for the nine months ended September 30, 2000
and interest on other debt, as well as a beneficial conversion feature on the
$3,000,000 of convertible debentures that were exchanged for the Exchangeable
Shares on November 9, 2000.
In fiscal 2000, interest expense increased $2,681,849 versus 1999, largely
because of the $2,571,429 of beneficial conversion feature charges attributable
to the $3,000,000 of convertible debentures exchanged for the Exchangeable
Shares. This beneficial conversion feature arose because in March 2000 we issued
the debentures with a conversion price that was lower than the market price of
the TEC.com shares and consequently, the debenture holders had an intrinsic
benefit if they converted their debentures into shares. In recognition of this
benefit, we recorded an expense, which was non-cash in nature, which represented
the difference between the conversion price and the market price of these
debentures.
-17-
RE-CAPITALIZATION EXPENSE
Re-capitalization expenses are the unusually large and non-recurring legal,
professional and consulting costs incurred in completing the November 9, 2000
transaction between TECE, Inc and TEC.com.
LIQUIDITY AND CAPITAL RESOURCES
We have historically satisfied our cash requirements primarily through private
placements of equity or debenture securities. In fiscal 2000, our net cash
position improved by $1,777,940 for the reasons explained in the following
paragraphs.
Cash used in operating activities
Net cash used in operating activities totaled $4,722,096 for the year ended
December 31, 2000 compared to $2,914,463 for the year ended December 31, 1999.
The increase in net cash used in fiscal 2000 of $1,820,633 was primarily
attributable to cash used to pay the salaries required to support the creation
of content on our web site and the initial costs of promoting this portal. This
increase in our net cash used in operations, would have been approximately
$600,000 greater, had our total revenue for the year not increased by a similar
amount.
Cash provided by financing activities
Cash provided by financing activities in 2000 totaled $6,302,946 compared to
$2,800,394 in 1999. The major activities in 2000 consisted of the raising of
$1,625,000 through the issuance of convertible debentures that were convertible
at a price of $0.21 into TEC.com common shares and the $4,000,000 private
placement in which we issued an aggregate of 1,000,000 units. Each unit entitles
its holder to one common share and one warrant that is exercisable at a price of
$5 on or before September 30, 2002.
Cash used in investing activities
Net cash used in investing activities totaled approximately $45,295 for the year
ended December 31, 2000 compared to $194,337 in the year ended December 31,
1999. In both fiscal years the funds were primarily used for capital
expenditures on our Woburn facility.
We currently anticipate that the net proceeds from our private placements,
together with cash flows from operations will only be sufficient to meet the
anticipated liquidity needs for working capital and capital expenditures over
the next three months. We are currently actively looking for additional capital
through the issuance of debt or equity, depending upon results of operations,
market conditions or unforeseen opportunities. Our future liquidity and capital
requirements will depend upon numerous factors, some, but not all, of which are
listed below:
o Our ability to sell our advertising inventory at current market rates;
o Our ability to deliver on our consulting mandates which will be
influenced by our ability to find and retain adequately qualified staff
for our consulting practice;
o The pace of expansion of our operations
-18-
o We may need additional capital to fund acquisitions of complementary
products, technologies or businesses.
Our forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties and actual results could vary materially as a result of
the factors described above. We are currently looking to sell additional equity
or debt securities or obtain a bank line of credit. The sale of additional
equity or convertible debt securities could result in additional dilution to
existing stockholders. There can be no assurance that any financing arrangements
will be available in amounts or on terms acceptable to us, if at all.
There are currently Class A preferred shares of TEC.com outstanding that are
redeemable at a price of $1.00 per share upon the occurrence of either a public
offering of the securities of TEC.com or a sale or liquidation of all or
substantially all of the assets of TEC.com. Such redemption would result in a
cost to the Company of approximately $2 million.
ITEM 7. FINANCIAL STATEMENTS
SEE INDEX TO FINANCIAL STATEMENTS BELOW.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PricewaterhouseCoopers, LLP were the independent accountants for TEC.com and its
subsidiaries prior to the transactions with the Company. Under applicable
accounting rules and policies, TEC.com is deemed to be the acquirer of the
Company as a result of those transactions. Since then, PricewaterhouseCoopers,
LLP has served as our independent accountants.
Hawkins Accounting of Salinas, California, was our independent accountant prior
to the November 9, 2000 transaction as described in Item 1.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following sets forth the name, business address, present principal
occupation, employment and material occupations, positions, offices or
employments for the past five years and ages as of March 31, 2001 for our
executive officers and directors. Members of the board of directors shall be
elected at the next annual meeting of stockholders to hold office until the next
annual meeting of stockholders and until their respective successors shall have
been duly elected and qualify.
Name Age Title
- ---- --- -----
Claude E. Forget 64 Chairman of the Board
Andre Telmosse 41 Chief Executive Officer and Director
Michael Clayton 46 Chief Financial Officer and Treasurer
David Perez 34 Secretary
Steve Saviuk 42 Director
-19-
Guy Faure 43 Director
Louis Lu 42 Director
Philip W. Roizin 42 Director
Yves Payette 48 Chief Technology Officer
CLAUDE E. FORGET, an Officer of the Order of Canada, is an independent
consultant with experience and interest in the areas of regulatory affairs,
public policy analysis and business strategies in the financial and
telecommunications sectors. He holds bachelor's degrees in law from the
Universite de Montreal, in economics from the London School of Economics and
Political Science, a master's degree in public finance and studied towards a
doctoral degree in economics and operations research from Johns Hopkins
University. He currently serves as a director of Intasys Corporation, an Ontario
corporation ("Intasys"), and is Chairman and CEO of its subsidiary, Noha Systems
Inc.
ANDRE TELMOSSE is an engineering graduate of Ecole Polytechnique,
Montreal. In 1993 he was admitted as a partner of Andersen Consulting in
Montreal where he was actively involved in large-scale technology initiatives,
such as CRM and eCommerce. During these years he has successfully implemented IT
projects in several industries, including telecommunications and aerospace. He
became the Company's Chief Executive Officer on November 16, 2000.
MICHAEL CLAYTON holds a Bachelor of Commerce, in accounting, from
Concordia University and a Graduate Diploma in public accounting from McGill
University. From 1996 to 2000 he was Chief Financial Officer at Almec Leisure
Group. Prior to that, from 1989 to 1996, he was the Chief Financial Officer of
Syprotec Inc where as part of the executive management team he was active in the
restructuring of this company before its sale in 1999 to General Electric. Prior
to that, he was with Ernst & Young for four years.
DAVID PEREZ has been employed as general counsel to Intasys since
February 2000. Prior to that date, he held positions as an associate lawyer in
the corporate and commercial law departments of Heenan Blaikie, Montreal
(1999-2000) and Lafleur Brown, Montreal (1995-1999). Mr. Perez, a member of the
Quebec Bar, holds, from McGill University, Bachelor's degrees in Civil Law,
Common Law and Science (Biology).
STEVE SAVIUK, C.A., is a chartered accountant with extensive experience
in the telecommunications, investment and software industries. He has worked
closely with technology companies throughout his career in strategic planning,
financing and management. Since 1995, as President of Manitex Capital Inc., a
diversified technology investment company ("Manitex"), he has played significant
roles with companies active in satellite transmission, the development of fiber
optic components and the provision of technology to the cellular telephone
industry. He serves on several boards and is currently Chairman of the Board and
Chief Executive Officer of Intasys, a global provider of wireless,
Internet-compatible billing and customer information systems and a strategic
investor in the technology industry with a concentration in the wireless and
e-commerce sectors.
-20-
GUY FAURE has several years of experience in corporate management,
sales and marketing and strategic planning. As a co-founder, from 1988 to 1993,
of Immedia Informatic Inc. (now BCE Emergis) he has pioneering knowledge of the
e-commerce sector. Since 1998 he has been an independent consultant focusing on
the Internet and e-commerce sectors. Prior to that, from 1997 to 1998 he was
Vice President Operations at Quebecor Multimedia, a leading integrator of
Internet based applications of Fortune 1000 companies. From 1994 to 1997 he was
General Manager of the Internet services and applications division of Le Groupe
Videotron Ltee. He has a Bachelor of Commerce degree in marketing and accounting
from Concordia University.
LOUIS LU is a chartered accountant and since 1990 the executive
vice-president of Alpha Capital Inc., an investment bank focusing on the
technology, and telecommunications sectors. He holds a bachelors degree from the
University of Hautes Etudes Commerciales in Montreal. He currently is a director
of Manitex.
PHILIP W. ROIZIN holds an MBA in Finance from Wharton and a Bachelor of
Commerce from McGill University and is currently Brookstone Inc.'s Executive
Vice President of Finance and Administration, a position he has held since
December 1996. From May 1995 to December 1996, Mr. Roizin served as Chief
Financial Officer of the Franklin Mint. From June 1989 to May 1995, he held
various senior positions with Dole Food Company, including Vice
President/General Manager of Dole Beverages and Vice President of Strategic
Services.
YVES PAYETTE is an engineering graduate of Ecole Polytechnique,
Montreal. In 1990, he co-founded Systeme M3I Inc. a software company selling
distribution management systems to the utility market. From 1996 until 1998 he
was CEO of TUNE1000 Corp., a software company in the entertainment industry.
From 1998 until 2000 he was President of Solutions QYP Inc., a consulting
company in the information technology industry. On December 15, 2000, he joined
us as our Chief Technology Officer.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth, for the periods indicated, all compensation
awarded to, earned by or paid to our Chief Executive Officer and all other
executive officers of the company with annual compensation in excess of $100,000
during the periods indicated.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation:
Annual Compensation Award
------------------- -----
Fiscal Year
Name and Position (1) Salary Bonus (2) # of Options
- ----------------- ------------ ------ --------- ------------
Andre Telmosse 2000 31,557(1) $- 400,000 (3)
-21-
- ----------------
(1) Mr. Telmosse joined TEC.com on November 16, 2000. His salary has been
set at $250,000 per year.
(2) Certain of our executive officers routinely receive other benefits from
the Company, the amounts of which are customary in our industry. We
have concluded, after reasonable inquiry, that the aggregate amounts of
such benefits during each of the periods reflected in the table above
did not exceed the lesser of $50,000 or 10% of the compensation set
forth above for any named individual in respect of the period.
(3) Represents an option to acquire 800,000 shares of TEC.com, which was
granted to Mr. Telmosse and exercised by him prior to the transaction
between TEC.com and the Company. These 800,000 shares of TEC.com were
exchanged on a two for one basis into 400,000 exchangeable shares of
3786137 in March 2001.
OPTION GRANTS
The option to acquire 800,000 shares of TEC.com was granted to Mr. Telmosse in
the fiscal year ended December 31, 2000. The Company has never granted any stock
appreciation rights.
AGGREGATED FISCAL YEAR-END OPTION EXERCISES AND OPTION VALUES
Mr. Telmosse held no unexercised stock options as of December 31, 2000.
OTHER COMPENSATION PLANS
The Company has no pension plan or other compensation plans for its executive
officers or directors.
COMPENSATION OF DIRECTORS
No fees or other remuneration were paid to our directors during the fiscal year
ended December 31, 2000 with the exception of reimbursement of expenses. The
Board will determine the remuneration of our directors and officers during the
current and subsequent fiscal years.
EMPLOYMENT OF OUR CHIEF EXECUTIVE OFFICER
Andre Telmosse, the President and Chief Executive Officer of the Company,
entered the Company's employ on November 16, 2000. He receives a base salary of
$250,000, which amount is to be annually reviewed and may be increased by the
board of directors, and a minimum guaranteed annual bonus of $25,000 per year.
Mr. Telmosse will also receive short term incentive compensation for each fiscal
year during the term of his employment equal to 75% of his base salary upon
obtaining a predetermined "target" level of performance with a minimum
compensation of 50% of his base salary guaranteed in the first year, and up to
125% of his base salary for performance above the "target" level. Mr. Telmosse
also received long term incentives in the form of options to purchase (i)
1,000,000 shares of TECE, Inc. common stock granted upon the date of his
employment at an exercise price of $.75 per share, with the option as to one
eighth of such shares
-22-
vesting every quarter beginning on the date of the employment agreement, and
(ii) 240,000 shares of TECE, Inc. common stock granted upon the date of the
employment agreement at an exercise price of $.75 per share, with the option
vesting as to all of such shares on the date of the employment agreement.
Mr. Telmosse's employment is for an indefinite term. If he is terminated other
than for "cause" (as defined), within 18 months of the date of employment, and
he executes a prescribed form of confidentiality agreement, he is to continue to
receive the base salary, the annual bonus and the short term incentive
compensation to which he is presently entitled for a period of two years (the
"Severance Period"). If Mr. Telmosse is terminated other than for "cause" more
than 18 months after the date of his employment, and he executes such
confidentiality agreement, the Severance Period will be 1 1/2 years and the same
compensation terms will apply. If he is terminated other than for "cause" either
within or after 18 months of the date of employment, relocation expenses of up
to $15,000 could be reimbursed by the Company, and all shares subject to
previously granted options that would have vested during the Severance Period
vest upon termination and will be exercisable by Mr. Telmosse within one year
after such termination.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information as of March 30, 2001 regarding the
beneficial ownership of shares of Common Stock by the Company's current
directors and executive officers and those persons or entities who, to the
Company's knowledge, beneficially own more than 5% of the Common Stock:
-23-
Shares of Common Percentage of Common
Name and Address of Stock Beneficially Stock Beneficially
Beneficial Owner Owned (1) (2) Owned (3)
- ---------------- ------------- ---------
Intasys Corporation Inc. 6,522,710 25%
1 Place Ville-Marie, Suite 2001
Montreal (Quebec), Canada H3B 2C4
Andre Telmosse, director and CEO (4) 590,000 (4) 2%
c/o TECE, Inc.
740 St-Maurice, Suite 410
Montreal (Quebec) Canada H3C 1L5
Manitex Capital Inc. 4,284,441 17%
1 Place Ville-Marie, Suite 2001
Montreal (Quebec) Canada H3B 2C4
Claude E. Forget, chairman (6) 100,000 (7) Less than 1%
c/o Intasys Corporation Inc.
1 Place Ville-Marie, Suite 2001
Montreal (Quebec), Canada H3B 2C4
Steve Saviuk, director (5) - -
c/o Manitex Capital Inc.
1 Place Ville-Marie, Suite 2001
Montreal (Quebec) Canada H3B 2C4
Louis Lu, director (7) - -
c/o Alpha Capital Inc.
1, Place Ville-Marie, Suite 2022
Montreal (Quebec) Canada H3B 2C4
Michael Clayton, chief financial officer 3,333 (8) Less than 1%
c/o TECE, Inc.
740 St-Maurice, Suite 410
Montreal (Quebec) Canada H3C 1L5
Guy Faure, director - -
86 Chemin Beakie
Ste Anne des Lacs, (Quebec)
Canada J0R 1B0
Philip W. Roizin, director - -
c/o Brookstone Inc.
17 Riverside Street
Nashua, NH 03062
Yves Payette - -
chief technology officer and
-24-
V.P. corporate development
c/o TECE, Inc.
740 St-Maurice, Suite 410
Montreal (Quebec) Canada H3C 1L5
All Officers and Directors as a group
(6 persons)
- -------------------
(1) Includes rights to acquire Company Shares through the exchange of
Exchangeable Shares.
(2) A person is deemed to be the beneficial owner of voting securities of
the Company that can be acquired by such person within 60 days after
March 30, 2001 upon the exercise or conversion of options, warrants or
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants and convertible
securities that are held by such person (but not those held by any
other person) and that are exercisable or convertible within 60 days
after March 30, 2001 have been exercised or converted.
(3) Based upon 25,608,472 outstanding shares of Common Stock.
(4) Includes an option to acquire 490,000 shares of Common Stock at a price
of $0.75 granted to Mr. Telmosse on February 22, 2001.
(5) Mr. Saviuk is the President of Manitex, which owns 4,284,441
Exchangeable Shares and Chairman and Chief Executive Officer of
Intasys, which owns 6,522,710 Exchangeable Shares. Mr. Saviuk disclaims
beneficial ownership of the Exchangeable Shares owned by Manitex and
Intasys.
(6) Represents an option to acquire 100,000 shares at a price of $0.75
granted to Mr. Forget on February 22, 2001. Mr. Forget is a director of
Intasys, which owns 6,522,710 Exchangeable Shares. Mr. Forget disclaims
beneficial ownership of the Exchangeable Shares owned by Intasys.
(7) Mr. Lu is a director of Manitex, which owns 4,284,441 Exchangeable
shares. Mr. Lu disclaims beneficial ownership of the Exchangeable
Shares owned by Manitex.
(8) Represents 3,333 shares of Common Stock that would be beneficially
owned by Mr. Clayton upon exchange of 3,333 Exchangeable Shares
issuable upon exercise of an option granted to Mr. Clayton by TEC.com.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in "Item 1. Description of Business/History of the
Company" is incorporated herein by reference.
During fiscal 2000, the Company expensed a total of $233,052 in interest on
convertible debentures and advances, and management fees to both Intasys and
-25-
Manitex. Advances from these companies at December 31, 2000 totalled $1,145,570.
Included in accounts payable is $91,152 owed to Intasys.
The Company paid a fee of $200,000 to Consultants Alconsultex Inc. to provide
bridge financing and backstopping to the Company's financing activities.
Consultants Alconsultex Inc. is 100% owned by a family member of Mr. Lu.
The Company incurred $92,400 in expenses for Internet services provided by
Mamma.com Inc. ("Mamma.com"), an affiliated company due to the mutual ownership
interest held by Intasys. At December 31, 2000, the Company has a recorded
liability to Mamma.com $28,600 for these services and is currently contesting
this payable.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 3.1 Articles of Incorporation - Incorporated by reference
to Exhibit 3.1 to Form 10-SB dated August 2, 1999.
Exhibit 3.2* Restated and Amended By-laws.
Exhibit 4.1 Share Exchange Agreement made October 10, 2000 among
the Company, TEC.com., 3786137 Canada Inc., Manitex,
Intasys and Don Lobley - Incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K dated
November 9, 2000.
Exhibit 4.2 Support Agreement made October 10, 2000 among the
Company, 3786137 Canada Inc. and TEC.com. -
Incorporated by reference to Exhibit 4.2 to Current
Report on Form 8-K dated November 9, 2000.
Exhibit 4.3 Voting Agreement made October 10, 2000 among the
Company, TEC.com. and 3786137 Canada Inc. -
Incorporated by reference to Exhibit 4.3 to Current
Report on Form 8-K dated November 9, 2000.
Exhibit 10.2* Stock Option Incentive Plan of the Company.
Exhibit 21* List of Subsidiaries of the Company.
- ----------------------------------
* Filed herewith.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated November 9, 2000 (the
"November 9, 2000 Current Report"), reporting under Item 1. Change in Control of
Company and Item 2. Acquisition or Disposition of Assets - the Transactions. The
-26-
Company amended the November 9, 2000 Current Report and filed a Form 8-K/A dated
February 2, 2001, to provide the financial statements of Tec
TechnologyEvaluation.com Inc. as of December 31, 2000.
[The remainder of this page was intentionally left blank.]
-27-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Tece, Inc.
April 11, 2001 By: /s/ Andre Telmosse
-----------------------------------
Andre Telmosse
Director and Chief Executive Officer
POWER OF ATTORNEY
TECE, Inc. and each of the undersigned do hereby appoint Mr. Andre Telmosse, its
or his true and lawful attorney to execute on behalf of TECE, Inc. and the
undersigned any and all amendments to the Annual Report on Form 10-KSB and to
file the same with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Amendment has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Title Date
/s/ Andre Telmosse Chief Executive Officer April 11, 2001
- ------------------------
Andre Telmosse
/s/ Michael Clayton Chief Financial Officer April 11, 2001
- ------------------------ and Chief Accounting Officer
Michael Clayton
/s/ Claude Forget Chairman April 11, 2001
- ------------------------
Claude Forget
/s/ Steve Saviuk Director April 11, 2001
- ------------------------
Steve Saviuk
/s/ Guy Faure Director April 11, 2001
- ------------------------
Guy Faure
/s/ Louis Lu Director April 11, 2001
- ------------------------
Louis Lu
Director
- ------------------------
Philip W. Roizin
-28-
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Consolidated Financial Statements
DECEMBER 31, 2000 AND 1999
(expressed in U.S. dollars)
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS OF
TECE, INC.
We have audited the consolidated balance sheets of TECE, INC. (formerly TEC
TechnologyEvaluation.Com Corporation) as at December 31, 2000 and 1999 and the
consolidated statements of operations, shareholders' equity (deficiency) and
cash flows for each of the years in the three-year period ended December 31,
2000. 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 United States 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,
2000 and 1999 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2000 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 the 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
March 2, 2001
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Consolidated Balance Sheets
AS AT DECEMBER 31
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999
$ $
ASSETS
CURRENT ASSETS
Cash ..................................................................... 1,921,483 143,543
Accounts receivable (note 7) ............................................. 545,436 107,891
Tax credits receivable ................................................... 232,749 163,991
Prepaid expenses ......................................................... 122,253 64,407
-------------------------
2,821,921 479,832
FIXED ASSETS (note 8) .................................................... 146,990 198,209
OTHER ASSETS ............................................................. 7,600 9,017
-------------------------
2,976,511 687,058
-------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (note 9) ........................ 1,056,062 432,085
Notes payable (note 10) .................................................. -- 1,007,451
Deferred revenue ......................................................... 131,463 --
Current portion of long-term debt (note 11) .............................. 47,381 16,108
-------------------------
1,234,906 1,455,644
-------------------------
LONG-TERM DEBT (note 11) ................................................. 121,472 175,429
ADVANCES FROM MANITEX CAPITAL INC. (note 12) ............................. 800,629 1,034,093
ADVANCES FROM INTASYS CORPORATION (note 13) .............................. 344,941
CONVERTIBLE DEBENTURES (note 14) ......................................... 1,792,835 1,738,057
-------------------------
3,059,877 2,947,579
-------------------------
COMMITMENTS (note 17)
REDEEMABLE PREFERRED SHARES (4,000,000 Class A preferred shares issued and
outstanding; December 31, 1999 - 4,000,000) (note 15) .............. 2,046,508 2,046,508
-------------------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
EXCESS OF DEFICIT OVER SHARE CAPITAL
Capital stock (note 16)
22,363,140 (December 31, 1999 - 17,806,588) common shares issued
and outstanding ............................................... 5,084,859 3,813,000
Deferred stock-based compensation ........................................ (74,487) (165,500)
Additional paid-in capital ............................................... 6,718,478 248,250
Accumulated other comprehensive income (loss) ............................ 227,324 (89,045)
Accumulated deficit ...................................................... (15,320,954) (9,569,378)
-------------------------
(3,364,780) (5,762,673)
-------------------------
2,976,511 687,058
=========================
The accompanying notes are an integral part of these financial statements.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Consolidated Statements
FOR THE YEARS ENDED DECEMBER 31
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999 1998
$ $ $
REVENUES
Consulting revenue 739,109 357,845 33,322
Web advertising revenue 238,241 - -
Licencing revenue from software sales 1,221 13,424 75,842
---------------------------------------------------------
978,571 371,269 109,164
---------------------------------------------------------
EXPENSES
Selling and administrative (including stock-based compensation expense
(recovery) of $(1,019,250); 1999 - $2,533,040; 1998 -
$1,151,752) 4,193,983 5,786,624 1,817,254
Research and development, net of tax credits 91,062 29,004 44
Amortization of other assets 8,145 9,899 5,132
Depreciation of fixed assets 67,183 19,361 13,680
---------------------------------------------------------
4,360,373 5,844,888 1,836,110
---------------------------------------------------------
OPERATING LOSS (3,381,802) (5,473,619) (1,726,946)
---------------------------------------------------------
OTHER INCOME (EXPENSES)
Interest income 2,776 40,367 391
Finance fee expense (1,836) (96,011) (39,357)
Interest expense (including beneficial conversion feature on
convertible debentures of $2,571,429 (note 14)) (2,902,499) (220,650) (67,331)
Recapitalization expense (407,659) - -
Foreign exchange gain (loss) (247,295) 60,387 15
---------------------------------------------------------
(3,556,513) (215,907) (106,282)
---------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (6,938,315) (5,689,526) (1,833,228)
INCOME TAX RECOVERY - 61,381 753,000
---------------------------------------------------------
NET LOSS FOR THE YEAR FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY GAIN (6,938,315) (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 5) - - 1,479,273
---------------------------------------------------------
NET LOSS FOR THE YEAR BEFORE EXTRAORDINARY GAIN (6,938,315) (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 (6,938,315) (5,612,984) 175,830
---------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,996,809 3,788,107 4,719,398
---------------------------------------------------------
INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED FROM:
Continuing operations before extraordinary gain (0.99) (1.48) (0.23)
Discontinued operations - - 0.27
---------------------------------------------------------
Net income (loss) before extraordinary gain (0.99) (1.48) 0.04
Extraordinary gain - - -
---------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE (0.99) (1.48) 0.04
=========================================================
The accompanying notes are an integral part of these financial statements.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Consolidated Statements of Shareholders' Equity (Deficiency)
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
3786137 Canada Inc.
(exchangeable
TEC.com Class A/Class A-1 TEC.com common - note 16)(1)
------------------------- -------------------------- ----------------------
Number
Number of Value of Number of Value of of shares Value of
shares issued shares shares issued shares issued shares
$ $ $
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)
Net income for the period
Other comprehensive income
Foreign currency translation
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
Net loss for the period
Other comprehensive loss
Foreign currency translation
Comprehensive loss
--------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 - - 17,806,588 3,813,000 - -
--------------------------------------------------------------------------------------
TECE, Inc. common
------------------------
Accumulated
Number Additional Deferred other
of shares Value of paid-in stock-based comprehensive
issued Shares capital compensation income (loss)
$ $ $ $
BALANCE AT DECEMBER 31, 1997 7,997
Issuance of Class E shares on acquisition of
UTTC
Redemption of Class E shares for Class A-1
shares
Redemption of Class A-1 shares for Class B-1
and B-2 shares
Redemption of Class B-1 shares for cash
Conversion of obligation into Class A shares
Issuance of Class A shares for cash
Conversion of Class B-2 shares into Class A
shares
Redemption of Class C shares
Acquisition of Class A preferred shares
Acquisition of Class D shares
Acquisition of Class B-1 shares
Common shares issued for cash (4,651,752)
Stock-based compensation expense 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)
Net income for the period
Other comprehensive income
Foreign currency translation 19,814
Comprehensive income
--------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 - - (3,500,000) 27,811
Issuance of stock options 248,250 (248,250)
Common shares issued for cash
Common shares repurchased for cash 1,049,710
Stock-based compensation expense 2,533,040
Net loss for the period
Other comprehensive loss
Foreign currency translation (116,856)
Comprehensive loss
--------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 - - 248,250 (165,500) (89,045)
--------------------------------------------------------------------------------------
Redeemable preferred
shares (note 15)
----------------------------
Total
shareholders'
Accumulated equity Number of Value of
deficit (deficiency) shares issued shares
$ $ $
BALANCE AT DECEMBER 31, 1997 (1,789,148) (861,163) 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 1,816,560 (2,600,000) (1,816,560)
Redemption of Class A-1 shares for Class B-1
and B-2 shares (1,816,560) 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 36,948
Issuance of Class A shares for cash 260
Conversion of Class B-2 shares into Class A
shares 915,482 (1,308,500) (915,162)
Redemption of Class C shares (6,462,992) (417)
Acquisition of Class A preferred shares (1,872,677) 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 604
Stock-based compensation expense 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)
Net income for the period 175,830 175,830
Other comprehensive income
Foreign currency translation 19,814
-----------
Comprehensive income 195,644
---------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 - (3,956,394) (2,776,226) 4,000,000 2,046,508
Issuance of stock options
Common shares issued for cash 210,420
Common shares repurchased for cash (67)
Stock-based compensation expense 2,533,040
Net loss for the period (5,612,984) (5,612,984)
Other comprehensive loss
Foreign currency translation (116,856)
--------------
Comprehensive loss (5,729,840)
---------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 - (9,569,378) (5,762,673) 4,000,000 2,046,508
---------------------------------------------------------------------------
(1) As explained in note 16, these shares are considered as common shares and
are therefore included in the calculation of earnings per share.
3786137 Canada Inc.
(exchangeable
TEC.com Class A/Class A-1 TEC.com common - note 16)(1)
------------------------- -------------------------- ----------------------
Number
Number of Value of Number of Value of of shares Value of
shares issued shares shares issued shares issued shares
$ $ $
BALANCE AT DECEMBER 31, 1999 - -
17,806,588 3,813,000 - -
Issuance of stock options
Forfeited stock options
Common shares issued upon exercise of
stock options 130,004 20,934
Common shares issued for cash 897,402 251,360
Common shares repurchased for cash (2,040,000) (1,020,000)
US$ debentures with accrued interest 7,467,053 3,136,162
transferred to 3786137 Canada Inc. (see
note 16xvii) for further details)
Shares held by Majority TEC.com Shareholders
converted into exchangeable
Shares of 3786137 (8,772,790) (1,878,555) 4,386,395 1,878,555
CA$ convertible debenture with accrued
interest transferred to 3786137 Canada
Inc. (see note 16xvii) for further
details) 59,692 59,692
Minority interest resulting from reverse
take-over (8,021,204) (1,186,739)
Stock-based compensation costs
Beneficial conversion feature on convertible
debentures
Net loss for the period
Other comprehensive income
Foreign currency translation
Comprehensive income
--------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 - - - - 11,913,140 5,074,409
--------------------------------------------------------------------------------------
TECE, Inc. common
------------------------
Accumulated
Number Additional Deferred other
of shares Value of paid-in stock-based comprehensive
issued Shares capital compensation income (loss)
$ $ $ $
BALANCE AT DECEMBER 31, 1999
- - 248,250 (165,500) (89,045)
Issuance of stock options 64,500 (12,000)
Forfeited stock options (155,250) 103,500
Common shares issued upon exercise of
stock options
Common shares issued for cash 10,450,000 10,450 3,989,549
Common shares repurchased for cash 1,019,513
US$ debentures with accrued interest
transferred to 3786137 Canada Inc. (see
note 16xvii) for further details)
Shares held by Majority TEC.com Shareholders
converted into exchangeable
Shares in 3786137
CA$ convertible debenture with accrued
interest transferred to 3786137 Canada
Inc. (see note 16xvii) for further
details)
Minority interest resulting from reverse
take-over 1,186,739
Stock-based compensation costs (1,020,000)
Beneficial conversion feature on convertible
debentures 2,571,429
Net loss for the period (6,938,315)
Other comprehensive income
Foreign currency translation 316,369
Comprehensive income
--------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 10,450 6,718,478 (74,487) 227,324 (15,320,954)
--------------------------------------------------------------------------------------
Redeemable preferred
shares (note 15)
----------------------------
Total
shareholders'
Accumulated equity Number of Value of
deficit (deficiency) shares issued shares
$ $ $
BALANCE AT DECEMBER 31, 1999
(9,569,378) (5,762,673) 4,000,000 2,046,508
Issuance of stock options 52,500
Forfeited stock options (51,750)
Common shares issued upon exercise of
stock options 20,934
Common shares issued for cash 4,251,359
Common shares repurchased for cash (487)
US$ debentures with accrued interest 3,136,162
transferred to 3786137 Canada Inc. (see
note 16xvii) for further details)
Shares held by Majority TEC.com Shareholders
converted into exchangeable
Shares in 3786137
CA$ convertible debenture with accrued
interest transferred to 3786137 Canada
Inc. (see note 16xvii) for further
details) 59,692
Minority interest resulting from reverse
take-over
Stock-based compensation costs (1,020,000)
Beneficial conversion feature on convertible
debentures 2,571,429
Net loss for the period (6,938,315)
Other comprehensive income
Foreign currency translation 316,369
-----------
Comprehensive income (6,621,946)
-----------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 (3,364,780) 4,000,000 2,046,508
-----------------------------------------------------------------------
(1) As explained in note 16, these shares are considered as common shares and
are therefore included in the calculations of earnings per share.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Consolidated Statements of Cash Flows
For the years ended December 31
- -------------------------------------------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999 1998
$ $ $
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income (loss) for the year .................................... (6,938,315) (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 ................................ 67,183 19,361 13,680
Amortization of other assets ................................ 8,145 9,899 5,132
Accrued interest on convertible debentures .................. 297,041 160,153 2,022
Stock-based compensation expense ............................ (1,019,250) 2,533,040 1,151,752
Beneficial conversion feature on convertible debentures ..... 2,571,429
Deferred income taxes on gain on disposal of UTTC ........... -- -- (753,000)
Increase in advances from Intasys Corporation ............... 94,941 -- --
Change in non-cash operating working capital items
Accounts and other receivables .............................. (445,780) (76,824) 29,816
Tax credits receivable ...................................... (75,616) 60,465 9,115
Prepaid expenses ............................................ (60,831) (56,854) 16,581
Accounts payable and accrued liabilities .................... 778,957 72,253 34,714
----------------------------------------
(4,722,096) (2,914,463) (570,416)
----------------------------------------
FINANCING ACTIVITIES
Settlement of debt ................................................ -- (13,460) --
Proceeds from issuance of convertible debentures .................. 1,625,000 985,982 542,513
Proceeds from long-term debt ...................................... -- 58,639 70,138
Repayment of long-term debt ....................................... (15,651) (57,549) (85,737)
Net proceeds from issuance of common shares ....................... 4,251,359 210,353 604
Proceeds from issuance of common shares upon exercise of stock
options ..................................................... 20,934
Proceeds from issuance of notes payable (Intasys) ................. 250,000 980,566 --
Proceeds from (repayments of) advances from Manitex Capital Inc. .. 171,791 635,863 (541,366)
Repurchase of common shares ....................................... (487)
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)
----------------------------------------
6,302,946 2,800,394 (1,829,557)
----------------------------------------
INVESTING ACTIVITIES
Additions to patents .............................................. (1,089) (11,599) (2,438)
Additions to fixed assets, net of investment tax credits of nil
(1999 - $127,282; 1998 - $6,395) ............................ (44,206) (182,738) (6,395)
Decrease in due from Arlington 1993 and Company Limited Partnership -- -- 101,128
Proceeds on disposal of UTTC ...................................... -- -- 2,794,708
----------------------------------------
(45,295) (194,337) 2,887,003
----------------------------------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH ................... 242,385 27,809 (65,818)
----------------------------------------
INCREASE (DECREASE) IN CASH ....................................... 1,777,940 (280,597) 421,212
CASH - BEGINNING OF YEAR .......................................... 143,543 424,140 2,928
----------------------------------------
CASH - END OF YEAR ................................................ 1,921,483 143,543 424,140
----------------------------------------
SUPPLEMENTARY INFORMATION (note 20)
The accompanying notes are an integral part of these financial statements.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1 RECAPITALIZATION AND GOING CONCERN
a) On November 9, 2000, TECE, Inc. (formerly Internet Food Company,
Inc.), a Nevada corporation, acquired through its wholly owned
subsidiary, 3786137 Canada Inc. ("3786137"), 8,772,790 common
shares of TEC TechnologyEvaluation.Com Corporation ("TEC.com)
representing 52.2% of the outstanding common shares of TEC.com. In
addition, 3786137 acquired U.S. dollar debentures and Canadian
dollar debentures of TEC.com from their holders. The common shares
and debentures were exchanged for 11,913,140 Class A Preferred
Shares of 3786137 (the "Exchangeable Shares") that are
exchangeable into TECE, Inc. ("TECE") common shares (see note 14).
The common shares and debentures of TEC.com were acquired from
Manitex Capital Inc. ("Manitex"), Intasys Corporation ("Intasys")
and Mr. Don Lobley ("Lobley"), collectively referred to as the
"Majority TEC.com Shareholders."
For accounting purposes, the acquistion has been treated as a
recapitalization of TEC.com with TECE and the issuance of shares
to the shareholders of TECE for an amount equivalent to the par
value of TECE shares. The historical financial statements prior to
November 9, 2000 are those of TEC.com. Pro forma financial
information has not been presented since the combination is not a
business combination. The transaction costs have been charged to
the statement of loss since the cash held by TECE was minimal.
The 11,913,140 Exchangeable Shares 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.
TEC.com (formerly Arlingsoft Corporation) was incorporated on
November 13, 1998 to acquire all of the issued and outstanding
shares of Arlington Software Corporation and Technology Evaluation
Center, Incorporated (formerly Arlington Software Inc.) TEC.com,
Arlington Software Corporation and Technology Evaluation Centre,
Incorporated were entities under common control and consequently
this combination was accounted for in a manner similar to a
pooling of interests (note 4).
On January 24, 2001, TECE and 3786137 made an offer to the other
Canadian shareholders and debenture holders of TEC.com to exchange
their common shares and debentures for Exchangeable Shares on the
same terms and conditions as offered to the Majority TEC.com
Shareholders. Subsequent to December 31, 2000, the Corporation
successfully concluded its secondary offering to the Canadian
minority security holders for the exchange of their interest in
TEC.com for Exchangeable Shares on the same terms and conditions
as those offered to and accepted by the Majority TEC.com
Shareholders as identified above. As at December 31, 2000, the
common shares of TEC.com held by the minority shareholders have
been classified as minority interest at a value of nil
representing the minority's interest in the equity of TEC.com and
the debentures of TEC.com have been classified as liabilities.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
b) The accompanying financial statements have been prepared using
United States generally accepted accounting principles applicable
to a going concern. The use of such principles may not be
appropriate because, as of December 31, 2000, there was
significant doubt that the Corporation would be able to continue
as a going concern.
For the year ended December 31, 2000, the Corporation had a loss
of $6.9 million and an acccumulated deficit of $15.3 million.
Management has undertaken to significantly reduce costs through a
series of actions including but not limited to: the reduction in
U.S. operating expenses by way of lowering headcount, entering
into negotiations to sublet its U.S. facility and move into
smaller premises and eliminating all web promotional costs.
Although there is no assurance that the Corporation will be
successful in these actions, management is confident that it will
be able improve the cash generated from operations and secure the
necessary financing to enable it to continue as a going concern.
Accordingly, these financial statements do not reflect adjustments
to the carrying value of assets and liabilities, the reported
revenues and expenses and balance sheet classifications used that
would be necessary if the going concern assumption were not
appropriate. Such adjustments could be material.
2 NATURE OF OPERATIONS
The Corporation's mission is to improve the process of reaching
procurement decisions in the information technology (IT) industry.
Management believes that this objective can be achieved through the
provision of consulting and selection services using the Corporation's
patented technology, the publication of research on IT issues and the
sale or licencing of the Corporation's software. The Corporation
generates revenue from its consulting practice, advertising banners
placed on its web site on behalf of vendors in the IT industry, and the
licencing and sale of its decision support software.
3 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, 3786137 Canada
Inc., TEC TechnologyEvaluation.Com Corporation, Arlington Software
Corporation and Technology Evaluation Center, Incorporated. All
intercompany balances and transactions have been eliminated on
consolidation.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
b) 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
c) Other assets
Intangible assets consist of patents which are recorded at cost.
Amortization is provided on a straight-line basis over the
estimated useful lives of the assets at an annual rate of
33-1/3%. The capitalized amount with respect to patents relates
to direct costs incurred in connection with securing the
patents.
d) Revenue recognition
The Corporation derives revenue from providing consulting
services. Consulting services which are performed under separate
service agreements are recognized as the services are performed.
Amounts received in advance of performance of the services are
included in deferred revenue and recognized as revenue when the
services are performed.
In addition, during the year, the Corporation 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 in accordance with
Statement of Position ("SOP") 99-17. These revenues are
recognized from advertising delivered on the Corporation'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. Revenues are received in cash.
The Corporation also derives revenue from the licencing of its
software and related services, which include implementation and
integration services, technical services and training. Revenue
from licence fees are recognized in accordance with SOP 97-02.
These revenues are 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 reasonably assured.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
e) 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, 2000 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.
f) 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 16. 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.
g) 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.
h) 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.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
i) 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.
j) 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 by dividing the net income (loss) by the weighted
average number of shares of common shares outstanding. The
weighted average number of common shares outstanding reflects
the exchange of shares and convertible debentures held by the
Majority TEC.com Shareholders as described in note 16 (xvii).
Diluted net income (loss) per share does not differ from basic
net income (loss) per common share since potential common shares
from conversion of convertible debentures, stock options and
warrants and outstanding shares of common stock subject to
repurchase, are anti-dilutive for all periods presented.
k) 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.
l) 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.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
m) Tax credits
Until November 9, 2000, the Corporation was 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 were refundable within certain
limits, were earned on qualified Canadian SR&ED expenditures at
a rate of 35%. Provincial SR&ED tax credits, which were also
refundable within certain limits, were 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 1, as at November 9, 2000 the
Corporation is no longer considered a Canadian controlled
private corporation ("CCPC"), as that term is defined in the
Canadian Income Tax Act, and consequently has lost 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.
n) Web site development costs
The Corporation accounts for costs incurred for the development
of its web site in accordance with Emerging Issues Task Force
Issue No. 00-2, "Accounting for Web Site Development Costs". All
costs incurred during the planning stage of the development are
expensed. All substantial costs related to application and
infrastructure development were incurred prior to June 30, 2000
and were expensed. All such costs incurred subsequent to June
30, 2000 are capitalized. Costs to operate the web site are
generally expensed as incurred.
4 COMBINATION OF ENTITIES UNDER COMMON CONTROL
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 15 and 16). 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.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
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)
---------------------------------------------------------------------------------------
5 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 of interests. 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.
6 EXTRAORDINARY GAIN ON SETTLEMENT OF DEBT
In 1999, a debt of $35,369 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.
7 ACCOUNTS RECEIVABLE
DECEMBER 31, DECEMBER 31,
2000 19992000
$ $
Trade (allowance for doubtful accounts: December 31, 2000 -
$15,000; 1999 - nil) 477,430 71,201
Sales tax receivable 68,006 34,607
Other - 2,083
-----------------------------------------
545,436 107,891
-----------------------------------------
8 FIXED ASSETS
DECEMBER 31, 2000
----------------------------------------------------------------
ACCUMULATED
COST DEPRECIATION NET
$ $ $
Computer equipment 76,143 66,043 10,100
Furniture and fixtures 103,625 26,891 76,734
Office equipment 50,354 22,710 27,644
Leasehold improvements 49,598 17,086 32,512
----------------------------------------------------------------
279,720 132,730 146,990
----------------------------------------------------------------
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
----------------------------------------------------------------
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
9 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
DECEMBER 31, 2000 DECEMBER 31, 19992000
$ $
Accounts payable 489,050 291,567
Accrued salaries 206,483 84,293
Accrued liabilities 231,777 56,225
Accounts payable to a related party (refer to note 19) 128,752 -
-----------------------------------------
1,056,062 432,085
-----------------------------------------
10 NOTES PAYABLE
The notes payable as at December 31, 1999 bore interest at 6%. On March
30, 2000, these notes were exchanged for secured debentures in the same
amount (see note 14).
11 LONG-TERM DEBT
DECEMBER 31, DECEMBER 31,
2000 1999
$ $
Loan from a Canadian provincial government agency (2000 - CA$61,995; 1999
- CA$85,244), bearing interest at its weekly term rate, with a lien
providing a first ranking charge on all present and future assets,
repayable in 32 monthly instalments of $1,292 41,344 59,061
Repayable contribution from a Canadian federal government agency (2000 -
CA$191,200; 1999 - CA$191,200), non-interest bearing, repayable in
four annual instalments beginning 24 months after completion of the
project.
The debt is unsecured 127,509 132,476
-----------------------------------------
168,853 191,537
Less: Current portion 47,381 16,108
-----------------------------------------
121,472 175,429
-----------------------------------------
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Principal repayments on long-term debt for the next five years are as
follows:
$
2001 47,381
2002 47,381
2003 42,213
2004 31,877
2005 -
-------
168,852
-------
12 ADVANCES FROM MANITEX CAPITAL INC.
The advances from Manitex Capital Inc., a shareholder, include a CA$200,000
promissory note that bears interest at a rate of 12% per annum The
remaining advances are non-interest bearing, whereas in 1999, all advances
bore interest at 12%. The advances have been classified as long-term as
Manitex Capital Inc. has agreed not to demand repayment of the CA$200,000
note prior to January 1, 2002 and furthermore has signed an agreement in
principle to convert the remaining advances into a convertible debenture.
13 ADVANCES FROM INTASYS CORPORATION
The advances from Intasys Corporation, a shareholder, are non-interest
bearing. The advances have been classified as long-term because Intasys
Corporation has agreed not to demand repayment prior to January 1, 2002 and
has signed an agreement in principle to convert a portion into convertible
debentures.
14 CONVERTIBLE DEBENTURES
DECEMBER 31, DECEMBER 31,
2000 1999
$ $
Principal
Denominated in Canadian dollars (CA$1,182,500;
December 31, 1999 - CA$1,257,500) 788,596 871,267
Denominated in U.S. dollars 700,000 700,000
------------------------------------
1,488,596 1,571,267
Accrued interest 304,239 166,790
------------------------------------
1,792,835 1,738,057
------------------------------------
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
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, 20% of EBITDA shall be used to pay the interest on the
outstanding principal. At December 31, 2000, the total interest due on the
convertible debentures in the amount of $304,239 (December 31, 1999 -
$166,790) was accrued and capitalized.
The convertible debentures are convertible at the option of the holder at
any time prior to maturity into common shares of TEC.com 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 December 31, 2000, with the
exception of $125,000, these convertible debentures were transferred to
3786137 in exchange for Exchangeable Shares.
During the year, a total of $3,000,000 convertible debentures (convertible
at US$0.21 per share into common shares of TEC.com) were issued through an
exchange of notes payable and advances, and contribution of cash as
explained in note 16(xvi). Based on the terms for the conversion, there
was an intrinsic value associated with the beneficial conversion feature
of $2,571,429 which was recorded as an interest expense in the year 2000.
As a result of the November 9, 2000 transaction, as described in note 1,
these convertible debentures were transferred to 3786137 in exchange for
Exchangeable Shares.
15 REDEEMABLE PREFERRED SHARES
Authorized - Unlimited number of
Class A 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 TEC.com; and
o a sale or liquidation of all or substantially all of the
assets of the Corporation or its subsidiaries.
Since redemption is not anticipated, there has been no accretion on
these shares.
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
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
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
16 CAPITAL STOCK
a) Authorized
50,000,000 Common shares
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.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
The following share transactions occurred following the
reorganization at November 18, 1998 (note 4):
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. 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 (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;
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;
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.
Year ended December 31, 2000:
xiv) 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). Stock-based
compensation in the amount of $1,020,000 was credited to
reverse the related stock-based compensation originally
recorded in 1998 and 1999.
xv) The Corporation issued 1,027,406 common shares for a total
consideration of $272,293 (CA$411,686).
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
xvi) 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:
Total consideration on exchange of existing debt 1,375,000
Cash from Intasys Corporation 1,625,000
----------
Convertible debentures issued 3,000,000
----------
Accrued interest 136,162
==========
Convertible debentures with capitalized interest $3,136,162
===========
There was an intrinsic value associated with a beneficial
conversion feature of $2,571,429 which was recorded as an
interest expense in the year 2000.
xvii) On November 9, 2000, the $3,136,162 convertible debentures
were transferred to 3786137 in exchange for 7,467,052
Exchangeable Shares. Additionally, the $59,692 Canadian
dollar convertible debenture was transferred to 3786137 in
exchange for 59,692 Exchangeable Shares.
Furthermore, the 8,772,790 shares held by the Majority
TEC.com Shareholders were exchanged for 4,386,395
Exchangeable Shares.
In accordance with the Support Agreement, the Share Exchange
Agreement and the Exchange and Voting Agreement, these
Exchangeable Shares contain all the same rights and
privileges as TECE common shares in as much as their holders
are entitled to vote, receive dividends and have the same
liquidation privileges. Accordingly, the Exchangeable Shares
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. Furthermore, the Corporation has placed
a sufficient number of these shares with the Trustee, as
defined in the above agreements, to meet its obligation to
exchange the Exchangeable Shares for TECE common shares.
The Corporation, concurrent with the closing of the
transactions as itemized in note 1, 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$5.00 on or before
September 30, 2002 and the value ascribed to these warrants
is nominal.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
b) Share option plan
Under an existing share option plan, the Corporation may grant
options to purchase TEC.com common shares to key employees and
directors. The terms, number of common shares covered by each option
as well as the permitted frequency of the exercise of such options
will be determined by the Board of Directors. As a result of the
November 9, 2000 transaction, as described in note 1, the Board of
Directors agreed to limit the maximum number of TEC.com shares
available under this plan to 525,000, this being the options
outstanding at that date. Options expire on the earlier of ten years
from the date of grant or on the date of the employee's termination.
All future options will be issued under a new plan developed
subsequent to year-end as described in note 24(a).
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Changes in outstanding options during the year were as follows:
WEIGHTED AVERAGE
EXERCISE PRICE NUMBER OF EXERCISE PRICE
US$ OPTIONS 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
------------------------------------------------------------------
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
Forfeited 0.20 (517,500) 0.20
------------------------------------------------------------------
Options outstanding,
December 31, 2000 449,996 0.24
------------------------------------------------------------------
0.20 394,996
0.50 55,000
------------------------------------------------------------------
449,996
------------------------------------------------------------------
Options exercisable,
December 31, 2000 0.20 109,996 0.20
------------------------------------------------------------------
Options exercisable, December 31, 1999 0.20 231,652 0.20
==================================================================
Weighted average remaining contractual
life (years) as at December 31, 2000 0.20 394,996 8.5
0.50 55,000 9.5
Weighted average fair value of options
granted in 2000 0.50
=====================
Compensation expense has been recognized for the Corporation's stock
incentive plan under APB 25 in the amount of $750 (1999 - $82,750).
Deferred stock-based compensation amounted to $74,487. 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 2000 and 1999 consistent with the provisions of
SFAS No. 123, the Corporation's net loss would have been increased to
the pro forma amounts indicated below.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
DECEMBER 31, DECEMBER 31,
2000 19992000
$ $
Net income (loss) - as reported (6,938,315) (5,612,984)
Net income (loss) - pro forma (6,989,872) (5,662,609)
Net loss per common share (basic and diluted) - as reported (0.99) (1.48)
Net loss per common share (basic and diluted) - pro forma (1.00) (1.49)
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 2000: dividend
yield of 0%; volatility - 100% (1999 - nil); risk-free interest rate
of 6%; and expected lives of approximately 3.5 years.
17 COMMITMENTS
The Corporation is committed to minimum payments under operating leases
for its premises approximately as follows:
$
2001 237,424
2002 156,899
2003 37,208
2004 37,208
2005 37,208
-------
505,947
=======
18 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.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
These income tax benefits expire as follows:
SCIENTIFIC RESEARCH AND
INVESTMENT EXPERIMENTAL DEVELOPMENT
OPERATING TAX CREDIT EXPENDITURES
------------------------------------ ----------------- -----------------------------------
FEDERAL QUEBEC FEDERAL FEDERAL QUEBEC
$ $ $ $ $
2002 278,000 - 2,500 - -
2003 - - 3,000 - -
2004 - - 400 - -
2005 568,000 - 3,000 - -
2006 139,000 135,000 3,800 - -
2007 516,000 516,000 - - -
2008 - - 600 - -
2009 1,300
2010
Indefinitely - - - 466,000 293,000
-------------------------------------------------------------------------------------------
1,501,000 651,000 14,600 466,000 293,000
===========================================================================================
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$6,000,000. These losses expire in 2021.
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 19992000 19982000
$ $ $
Deferred income tax assets
Accumulated research and development expenses 157,000 106,035 306,264
Operating loss carryforwards in Canada 478,000 388,039 387,810
Operating loss carryforwards in the United States 1,500,000 600,000 -
Tax credits 4,000 5,928 15,000
---------------------------------------------------------
Total deferred tax assets 2,139,000 1,100,002 709,074
Valuation allowance (2,139,000) (1,100,002) (709,074)
---------------------------------------------------------
Net deferred tax assets - - -
Deferred tax liabilities - - -
---------------------------------------------------------
Net deferred tax assets - - -
=========================================================
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
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, DECEMBER 31,
2000 19992000 19982000
% % %
Income taxes at combined Canadian federal and
provincial statutory tax rate (on continuing
operations) (38) (38) (38)
Difference in statutory tax rate of U.S. subsidiary 9 6 -
Effect of non-deductible expenses (stock-based
compensation and accretion on convertible
debentures) 9 17 24
Change in valuation allowance 20 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.
19 RELATED PARTY TRANSACTIONS
Included in the statement of operations, balance sheet and statement of
shareholders' equity are the following related party transactions:
DECEMBER 31,
2000
----------------------------------------------------------------------------------------------
RECAPITALI-
INTEREST MANAGE- INTERNET ZATION EXPENSES ACCOUNTS ADVANCES
EXPENSE MENT FEE SERVICES EXPENSE INCURRED PAYABLE FROM
$ $ $ $ $ $ $
Intasys Corporation 107,087 55,464 - - 61,326 91,152 344,941
Manitex Capital
Inc. 43,572 26,929 - - 627 - 800,629
Mamma.com (1) - - 92,400 - - 28,600 -
Consultants
Alconsultex (2) - - - 200,000 - - -
------------------------------------------------------------------------------------------------
150,659 82,393 92,400 200,000 61,953 119,752 1,145,570
================================================================================================
(1) Mamma.com is affliated with TECE because Intasys Corporation is a
significant investor in the company.
(2) Consultants Alconsultex is 100% owned by a family member of a
director of TECE.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
DECEMBER 31,
1999
----------------------------------------
INTEREST EXPENSE MANAGEMENT FEE
$ $
Intasys Corporation 7,379 -
Manitex Capital Inc. 45,830 52,313
----------------------------------------
53,209 52,313
----------------------------------------
DECEMBER 31,
1998
-----------------------------------------
INTEREST EXPENSE MANAGEMENT FEE
$ $
Intasys Corporation - -
Manitex Capital Inc. 35,207 75,593
-----------------------------------------
35,207 75,593
=========================================
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.
20 SUPPLEMENTAL DISCLOSURE TO CASH FLOW STATEMENT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
$ $ $
Cash paid for:
Interest 26,130 7,882 112,164
Income taxes - - -
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
21 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 value of the long-term debt is not materially different from
its fair value based on the current market rates of interest available
to the Corporation for the same or similar instrument. Due to the fact
that the advances from Manitex Capital Inc. and the advances from
Intasys Corporation have no specified terms of repayment and are
payable to related parties, the fair values of such advances cannot be
determined.
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.
c) Interest rate risk
As at December 31, 2000, the Corporation's exposure to interest rate
risk is as follows:
Cash 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 10
Long-term debt As described in note 11
Advances from Manitex Capital Inc. As described in note 12
Advances from Intasys Corporation As described in note 13
Convertible debentures As described in note 14
22 NEW ACCOUNTING STANDARDS
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 September 2000, FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities".
SFAS No. 140, which replaces SFAS No. 125, revises the accounting
standards for securitizations and other transfers of financial assets
and collateral and requires certain additional disclosures. SFAS No.
140 is effective for securitizations and other transfers occurring
after March 31, 2001. The Corporation expects the impacts of this new
standard to be insignificant.
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
23 SEGMENT INFORMATION
Management has organized the Corporation under one reportable segment,
that being the consulting, research, licence revenue 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, DECEMBER 31,
2000 1999 1998
$ $ $
United States 936,086 207,173 65,355
Canada 42,485 159,155 32,171
Other - 4,941 11,638
-----------------------------------------------------------
978,571 371,269 109,164
-----------------------------------------------------------
During the year ended December 31, 2000, there were three customers
from which 10% or more of the Corporation's total revenues were
derived; A, B and C, accounting for 18%, 14% and 13% of total revenue,
respectively. During the year ended December 31, 1999, there were also
three customers from which 10% or more of the Corporation's total
revenues were derived; D, E and F, accounting for 15%, 32% and 20% of
total revenue, respectively. During the year ended December 31, 1998,
there were no customers from which 10% or more of the Corporation's
total revenues were derived.
The summary of long-lived assets by geographic location is as follows:
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 1998
$ $ $
United States 140,220 181,773 -
Canada 6,770 16,436 28,039
-----------------------------------------------------------
146,990 198,209 28,039
===========================================================
TECE, INC.
(FORMERLY TEC TECHNOLOGYEVALUATION.COM CORPORATION)
Notes to Consolidated Financial Statements
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999 AND 1998
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
24 SUBSEQUENT EVENTS
a) The Board of Directors approved the creation of an additional stock
option plan whereby 3,000,000 shares would be set aside for issuance to
key employees, directors and consultants. Subsequent to the creation of
this plan, the Corporation has granted 2,005,000 stock options at a
price of US$0.75. These options vest over two- and three-year periods
for directors and employees respectively.
b) Effective February 15, 2001, the Corporation repurchased 4 million
common shares of TEC.com for $114,000. The repurchase of these shares,
had it happened at December 31, 2000, would have no impact on the
issued and outstanding common shares used in the calculation of both
the basic and fully diluted earnings (loss) per share as presented in
these financial statements.
c) As at February 28, 2001, the Corporation successfully concluded its
secondary offering to the Canadian minority security holders for the
exchange of their interest in TEC.com for Exchangeable Shares on the
same terms and conditions as those offered to and accepted by the
Majority TEC.com Shareholders.