UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A, Amendment No. 3
/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
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period:
SIDEWARE SYSTEMS INC.
---------------------------------------
(Exact name of Registrant as specified in its charter)
British Columbia
------------------- ----------------------
(State or jurisdiction (IRS Employer
of incorporation) Identification No.)
1810 Samuel Morse Drive, Reston, Virginia 20190-5316
------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number (703) 437-9002
Securities registered pursuant to section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Shares without par value
------------------------------------
(Title of Class)
Check whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes x No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-K contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. x
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates, computed by reference to the closing
price for trading of the issuer's stock on the OTC-Bulletin Board as at
January 31, 2001: $87,606,000.00.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 66,167,167 common
shares without par value, as at March 16, 2001.
EXPLANATORY NOTE
The purpose of this amendment is to amend the following items of
our Annual Report on Form 10-K for the period ended December 31,
2000: Item 8 - Financial Statements.
This report continues to speak as of March 22, 2001, the date of
our original Form 10-K for the year ended December 31, 2000. Any
items not changed in this amendment shall be as set forth in our
Original Form 10-K dated March 22, 2001.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Appended hereto are the following financial statements:
(1) Consolidated balance sheets as of December 31, 2000 and December
31, 1999;
(2) Consolidated statements of operations and comprehensive loss for
the fiscal years ended December 31, 2000 and 1999, the eight
month period ended December 31, 1998, and the fiscal year ended
April 30, 1998;
(3) Consolidated statement of stockholders equity for the fiscal
years ended December 31, 2000 and 1999, the eight month period
ended December 31, 1998, and the fiscal year ended April 30,
1998;
(4) Consolidated statements of cash flows for the fiscal years ended
December 31, 2000 and 1999, the eight month period ended December
31, 1998, and the fiscal year ended April 30, 1998; and
(5) the auditors' report of KPMG LLP thereon.
SIGNATURES
In accordance with Section 13 of the Securities Exchange Act of 1934,
the registrant caused this amended report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: August 8, 2001 Sideware Systems Inc.
"Grant Sutherland"
By:
W. Grant Sutherland
Director
Consolidated Financial Statements
(Expressed in U.S. dollars)
SIDEWARE SYSTEMS INC.
(Prepared in accordance with generally accepted
accounting principles in the United States)
Years ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
AUDITORS' REPORT TO THE STOCKHOLDERS
We have audited the consolidated balance sheets of Sideware Systems
Inc. as at December 31, 2000 and 1999 and the consolidated
statements of operations and comprehensive loss, stockholders'
equity and cash flows for the years ended December 31, 2000 and
1999, eight months ended December 31, 1998 and year ended April 30,
1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about 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. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as at December 31, 2000 and 1999 and the results of its
operations and comprehensive loss and its cash flows for the years
ended December 31, 2000 and 1999, eight months ended December 31,
1998 and year ended April 30, 1998 in accordance with generally
accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
note 1 to the financial statements, the Company has suffered
recurring losses from operations and has had negative cash flows
from operating activities for each of the periods presented which
raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
On January 26, 2001, except for note 10(b) and 13 which are as of
February 22, 2001, we reported separately to the stockholders of
the Company on consolidated financial statements for the same
period prepared in accordance with Canadian generally accepted
accounting statements.
(signed) "KPMG LLP"
Chartered Accountants
Vancouver, Canada
January 26, 2001, except for note 10(b) and note 13
which are as of February 22, 2001
SIDEWARE SYSTEMS INC.
Consolidated Balance Sheets
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
December 31, 2000 and 1999
============================================================================
2000 1999
- ----------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 949,999 $ 5,929,801
Short-term investments (note 7) 5,982,588 -
Accounts receivable (note 4):
Trade, less allowance for
doubtful accounts of $142,047
(1999 - nil) 467,783 -
Other 126,842 123,297
Due from related parties (note 5) 29,859 -
Current portion of long-term
receivables (note 8) 6,849 14,041
Inventory 46,829 73,895
Prepaid expenses 549,639 243,044
--------------------------------------------------------------------------
8,160,388 6,384,078
Deposit on lease 129,926 20,212
Long-term receivables (note 8) 105,587 108,655
Deferred finance charges (note 8) 95,583 100,763
Fixed assets (note 9) 1,967,818 923,536
- ----------------------------------------------------------------------------
$ 10,459,302 $ 7,537,244
============================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 1,246,683 $ 623,636
Due to related parties (note 5) - 39,340
Deferred revenue 168,661 -
--------------------------------------------------------------------------
1,415,344 662,976
Stockholders' equity:
Common stock (note 10):
Authorized: 199,949,375 common shares,
no par value
Issued and outstanding: 60,886,415
(1999 - 51,769,238) 40,660,382 21,414,477
Additional paid-in capital 12,146,732 315,500
Deferred stock-based compensation (460,895) -
Accumulated other comprehensive income (503,685) 148,479
Deficit (42,798,576) (15,004,188)
--------------------------------------------------------------------------
9,043,958 6,874,268
- ----------------------------------------------------------------------------
$ 10,459,302 $ 7,537,244
============================================================================
Future operations (note 1)
Commitments (note 12)
Subsequent events (notes 10(a), 10(b) and 14)
The accompanying notes are an integral part of these consolidated
financial statements.
SIDEWARE SYSTEMS INC.
Consolidated Statements of Operations and Comprehensive Loss
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
=================================================================================================
Eight
months ended Year ended
Year ended December 31, December 31, April 30,
-----------------------
2000 1999 1998 1998
- -------------------------------------------------------------------------------------------------
Revenue:
Licenses $ 461,962 $ - $ 19,458 $ 19,054
Services 96,217 - - -
Hardware and software resales 27,504 2,533 - -
Hardware resales to related
parties (note 5(a)) 81,945 30,856 85,524 -
------------------------------------------------------------------------------------------------
667,628 33,389 104,982 19,054
Cost of revenues:
Licenses 1,532 - 13,476 12,933
Services 28,843 - - -
Hardware and software resales 27,504 2,044 - -
Hardware resales to related
parties (note 5(a)) 81,945 30,856 79,510 -
------------------------------------------------------------------------------------------------
139,824 32,900 92,986 12,933
- --------------------------------------------------------------------------------------------------
Gross margin 527,804 489 11,996 6,121
Operating expenses:
Sales and marketing (including
stock-based compensation of
$5,767,155, $124,479, $13,231,
and nil) 16,807,001 2,281,827 491,287 392,367
Research and development (including
stock-based compensation of
$1,131,887, $55,508, $12,349,
and nil) 4,526,397 1,490,352 349,434 434,246
General and administrative (including
stock-based compensation of
$4,471,295, $91,921, $3,822,
and nil) 7,533,958 1,978,298 481,399 895,705
-------------------------------------------------------------------------------------------------
28,867,356 5,750,477 1,322,120 1,722,318
- ---------------------------------------------------------------------------------------------------
Operating loss (28,339,552) (5,749,988) (1,310,124) (1,716,197)
Non-operating:
Interest income 550,533 98,493 27,637 19,847
Write-off of fixed assets - (35,973) - -
Proceeds on settlement of legal
claim (note 6) 147,651 - - -
Value assigned to shares issued
in satisfaction of a legal
claim (note 6) (153,020) - - (17,786)
-------------------------------------------------------------------------------------------------
545,164 62,520 27,637 2,061
- ---------------------------------------------------------------------------------------------------
Net loss (27,794,388) (5,687,468) (1,282,487) (1,714,136)
Other comprehensive income (loss):
Net unrealized holding gain on
short-term investments (note 7) 136,550 - - -
Foreign currency translation
adjustments (788,714) 265,859 (100,935) (33,889)
-------------------------------------------------------------------------------------------------
(652,164) 265,859 (100,935) (33,889)
Comprehensive loss $ (28,446,552) $ (5,421,609) $ (1,383,422) $ (1,748,025)
====================================================================================================
Basic and diluted loss per share:
Net loss $ (0.48) $ (0.15) $ (0.05) $ (0.08)
Weighted average shares used in
computing net loss per share,
basic and diluted 58,078,005 37,391,211 25,878,357 20,400,346
====================================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
SIDEWARE SYSTEMS INC.
Consolidated Statements of Stockholders' Equity
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
================================================================================================================================
Accumulated
Additional Deferred other Total
Share capital Special warrants paid-in stock-based comprehensive stockholders
Number Assigned Number Assigned capital compensation loss Deficit equity
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, April
30, 1997 17,317,859 $6,064,036 3,450,000 $ 948,775 $ 14,190 $ - $ 17,444 $(6,320,097) $ 724,348
Shares issued
on exercise of
non-transferable
warrants 4,203,100 1,498,648 - - - - - - 1,498,648
Shares issued
on exercise of
options 699,000 250,442 - - - - - - 250,442
Shares issued in
satisfaction of
a royalty claim 100,000 17,786 - - - - - - 17,786
Special warrants
issued - - 1,500,000 853,728 - - - - 853,728
Special warrant
subscriptions - - - 53,358 - - - - 53,358
Shares issued
on exercise of
special warrants 4,450,000 1,489,577 (4,450,000) (1,489,577) - - - - -
Foreign currency
translation
adjustment - - - - - - (33,889) - (33,889)
Net loss - - - - - - - (1,714,136) (1,714,136)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, April
30, 1998 26,769,959 9,320,489 500,000 366,284 14,190 - (16,445) (8,034,233) 1,650,285
Special warrant
subscriptions - - 90,000 647,031 - - - - 647,031
Shares issued
on exercise of
special warrant
subscriptions 500,000 264,883 (500,000) (264,883) - - - - -
Deferred stock-
based
compensation - - - - 29,402 (29,402) - - -
Amortization
of deferred
stock-based
compensation - - - - - 29,402 - - 29,402
Foreign currency
translation
adjustment - - - - - - (100,935) - (100,935)
Net loss - - - - - - - (1,282,487) (1,282,487)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31,
1998 27,269,959 9,585,372 90,000 748,432 43,592 - (117,380) (9,316,720) 943,296
Shares issued
on exercise of
non-transferable
warrants 10,434,335 3,418,136 - - - - - - 3,418,136
Shares issued
on exercise of
options 1,343,500 806,508 - - - - - - 806,508
Special warrants
issued - - 9,326,332 2,084,911 - - - - 2,084,911
Shares issued
on exercise of
special warrants 9,724,611 2,833,343 (9,416,332) (2,833,343) - - - - -
Shares issued
for cash 2,746,833 4,514,656 - - - - - - 4,514,656
Shares issued
for services
rendered 250,000 107,686 - - - - - - 107,686
Deferred stock-
based
compensation - - - - 271,908 (271,908) - - -
Amortization of
deferred
stock-based
compensation - - - - - 271,908 - - 271,908
Share
subscriptions
receivable
(243,900 common
shares) - 396,619 - - - - - - 396,619
Share issue costs - (27,843) - - - - - - (247,843)
Foreign currency
translation
adjustment - - - - - - 265,859 - 265,859
Net loss - - - - - - - (5,687,468) (5,687,468)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December
31, 1999,
carried forward 51,769,238 21,414,477 - - 315,500 - 148,479 (15,004,188) 6,874,268
SIDEWARE SYSTEMS INC.
Consolidated Statements of Stockholders' Equity, continued
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
================================================================================================================================
Accumulated
Additional Deferred other Total
Share capital Special warrants paid-in stock-based comprehensive stockholders
Number Assigned Number Assigned capital compensation loss Deficit equity
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December
31, 1999,
brought forward 51,769,238 $21,414,477 - $ - $ 315,500 $ - $ 148,479 $(15,004,188) $6,874,268
Shares issued
on exercise of
non-transferable
warrants 3,919,702 3,803,797 - - - - - - 3,803,797
Shares issued
on exercise of
options 1,584,100 1,469,279 - - - - - - 1,469,279
Shares issued
for cash 3,340,100 14,557,888 - - - - - - 14,557,888
Shares issued
for
subscriptions
previously
received 243,900 - - - - - - - -
Shares issued
on settlement
of legal claim 80,000 153,020 - - - - - - 153,020
Share issue costs (738,079) - - - - - - - (738,079)
Cancelled shares (50,625) - - - - - - - -
Stock-based
compensation - - - - 247,758 - - - 247,758
Deferred stock-
based
compensation - - - - 11,583,474 (11,583,474) - - -
Amortization
of deferred
stock-based
compensation - - - - - 11,122,579 - - 11,122,579
Net unrealized
holding gain
on short-term
investments,
net of tax
effect of nil - - - - - - 136,550 - 136,550
Foreign currency
translation
adjustment - - - - - - (788,714) - (788,714)
Net loss - - - - - - - (27,794,388) (27,794,388)
- --------------------------------------------------------------------------------------------------------------------------------
Balance,
December 31,
2000 60,886,415 $40,660,382 - $ - $12,146,732 $ (460,895) $ (503,685) $(42,798,576) $ 9,043,958
The accompanying notes are an integral part of these consolidated
financial statements.
SIDEWARE SYSTEMS INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
=================================================================================================
Eight
months ended Year ended
Year ended December 31, December 31, April 30,
-----------------------
2000 1999 1998 1998
- -------------------------------------------------------------------------------------------------
Cash flows used in operating
activities:
Net loss $ (27,794,388) $ (5,687,468) $ (1,282,487) $ (1,714,136)
Items not involving cash:
Amortization 704,044 284,472 90,982 108,377
Stock-based compensation 11,370,337 271,908 29,402 -
Write off of fixed assets - 35,973 - -
Investment advisory services
settled by equity instruments - - - 53,358
Value assigned to shares
issued for financial
advisory services - 107,686 - -
Value assigned to shares
issued in satisfaction of
legal claim 153,020 - - 17,786
Changes in non-cash operating
working capital:
Accounts receivable (479,183) 38,514 (121,741) 57,965
Due (to) from related parties (68,166) 290,816 (247,055) 123,529
Inventory 24,435 (42,096) (29,207) 5,443
Prepaid expenses (317,901) (169,860) 22,976 (65,339)
Accounts payable and accrued
liabilities 650,961 418,197 37,234 (119,026)
Deferred revenue 169,793 - - -
- -------------------------------------------------------------------------------------------------
Net cash used in operating activities (15,587,048) (4,451,858) (1,499,896) (1,532,043)
Cash flows from financing activities:
Special warrants issued for cash - 2,084,911 647,032 853,728
Shares issued for cash, net of share
issue costs 19,092,885 8,494,337 - 1,749,146
Share subscriptions receivable - 396,619 - -
- -------------------------------------------------------------------------------------------------
Net cash provided by financing
activities 19,092,885 10,975,867 647,032 2,602,874
Cash flows from investing activities:
Purchase of short-term investments
available for sale (6,052,335) - - -
Long-term receivables and deferred
charges 7,040 (217,068) - -
Purchase of fixed assets (1,790,479) (782,425) (153,980) (239,615)
Deposit on lease, net (111,219) (14,106) - -
-----------------------------------------------------------------------------------------------
Net cash used in investing activities (7,946,993) (1,013,599) (153,980) (239,615)
- -------------------------------------------------------------------------------------------------
Effect of exchange rates on cash and
cash equivalents (538,646) 212,423 (70,450) (25,933)
- -------------------------------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents (4,979,802) 5,722,833 (1,077,294) 805,283
Cash and cash equivalents,
beginning of period 5,929,801 206,968 1,284,262 478,979
- -------------------------------------------------------------------------------------------------
Cash and cash equivalents,
end of period $ 949,999 $5,929,801 $ 206,968 $ 1,284,262
=================================================================================================
Supplemental information:
Non-cash financing and investing
activities:
Shares issued in satisfaction
of legal claim $ 153,020 $ - $ - $ 17,786
Shares issued for services
rendered - 107,686 - -
Shares issued on exercise
of special warrants - 657,613 - -
Shares issued for investment
advisory services - - - 53,358
Net unrealized holdings gain
on short-term investments 136,550 - - -
=================================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
1. DESCRIPTION OF BUSINESS AND FUTURE OPERATIONS:
Sideware Systems Inc. (the "Company") is a leading provider of
Electronic Customer Relationship Management ("eCRM") software.
The Company's collaborative solutions enable companies to better
manage their customer interactions by providing enhanced
Internet-based customer service. The Company operates in one segment
as the Company's sales are entirely made within the eCRM industry
and primarily within the United States of America.
These consolidated financial statements have been prepared on the
going concern basis under which an entity is considered to be
able to realize its assets and satisfy its liabilities in the
ordinary course of business. Through the date of these
consolidated financial statements the Company has not generated
significant revenues, has incurred operating losses and negative
cash flow from operating activities. Operations to date have
been primarily financed by equity transactions. The Company's
future operations and its continuation as a going concern are
dependent upon its ability to obtain market acceptance of its
product, to increase sales of its product by penetrating markets
within North America, generating positive cash flows from
operations and ultimately attaining profitability.
Depending on the Company's ability to develop sales and related
cash flows, the Company may need to raise additional capital
through public or private financings which may not be available
on reasonable terms. Subsequent to year-end, the Company secured
private financing with net proceeds of approximately $3,800,000
(note 14). The consolidated financial statements do not include
any adjustments relating to the recoverability of assets and
classification of assets and liabilities that might be necessary
should the Company be unable to continue as a going concern.
2. BASIS OF PRESENTATION:
These financial statements have been prepared using generally
accepted accounting principles in the United States of America.
They include the financial statements of Sideware Systems Inc.
and its subsidiaries, all of which are wholly-owned. All
material intercompany balances and transactions have been
eliminated in consolidation.
3. SIGNIFICANT ACCOUNTING POLICIES:
(a) 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 the 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.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 2
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(b) Cash equivalents:
Cash equivalents consists of highly liquid investments having
terms to maturity at the date of acquisition of not more than
three months.
(c) Short-term investments:
The Company classifies its investments in marketable
securities as "available-for-sale." Such investments are
recorded at fair value based on quoted market prices, with
unrealized gains and losses recorded as other comprehensive
income (loss) until realized.
(d) Fixed assets:
Fixed assets are carried at cost less accumulated
amortization. Amortization is calculated annually as follows:
===============================================================
Asset Basis Rate
- ---------------------------------------------------------------
Furniture and fixtures declining-balance 20%
Computer equipment straight-line 33 1/3%
Trade show assets straight-line 33 1/3%
Computer software straight-line 50%
Leasehold improvements straight-line lease term
===============================================================
During the year, the Company changed its amortization policy
for trade show assets and computer equipment to better
approximate the useful life of the assets. The adoption of
this policy did not have a material effect on the Company's
financial position or results of operations.
(e) Deferred charges:
Deferred charges represent the discount on notes receivable
and are being recognized by the yield method over the term of
the note.
(f) Impairment of long-lived assets:
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of",
the Company monitors the recoverability of long-lived assets,
which include property and equipment and other assets, based
on factors such as future asset utilization, business climate
and future undiscounted cash flows expected to result from the
use of the related assets. The Company's policy is to record
an impairment loss in the period when it is determined that
the carrying amount of the asset may not be recoverable, at
which time the asset is written down to fair market value.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 3
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(g) Income taxes:
The Company accounts for income taxes under the asset and
liability method in accordance with SFAS No. 109, "Accounting
for Income Taxes". Deferred tax assets and liabilities are
recognized for the estimated future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized in the statement of operations in the period that
includes the enactment date. A valuation allowance is recorded
to reduce deferred tax assets to an amount where realization
is not considered to be more likely than not.
(h) Stock-based compensation:
The Company accounts for its stock-based employee compensation
arrangements in accordance with the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees" and complies with the disclosure
provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation". Deferred stock-based compensation is recorded
on the measurement date, which is generally the date of grant,
when the market value of the underlying common stock exceeds
the exercise price for stock options or the purchase price for
the shares of common stock. Non-employee options are
accounted for under SFAS No. 123 and are recognized at the
fair value of the options as determined by an option pricing
model as the related services are provided.
As allowed by Issue 7 of EITF 00-23, stock-based compensation
resulting from employee option grants is recognized on an
accelerated basis over the vesting period of the individual
options consistent with FIN 28. Non-employee grants with future
service requirements are not recognized until the service is
performed and the options vest.
(i) Comprehensive income (loss):
In accordance with the provisions of SFAS No. 130, "Reporting
Comprehensive Income", the Company reports comprehensive
income, which includes net earnings as well as changes in
equity from other non-owner sources specifically the foreign
currency cumulative translation adjustments and unrealized
holding gain on short-term investments.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 4
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(j) Research and development:
In accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed",
software development costs are expensed as incurred until
technological feasibility of the underlying software product
is achieved, at which time any additional costs will be
capitalized and amortized prospectively over their estimated
economic life. To date, technological feasibility and general
availability of such software have occurred simultaneously and
software development costs qualifying for capitalization have
been insignificant. Accordingly, the Company has not
capitalized any software development costs.
(k) Advertising costs:
Advertising costs are expensed as incurred and totaled
$1,044,012, $68,941, nil and $45,185 during the years ended
December 31, 2000 and 1999, the eight months ended December
31, 1998 and the year ended April 30, 1998, respectively.
(l) Revenue recognition:
SOP 97-2, "Software Revenue Recognition", as amended,
generally requires revenue from software arrangements
involving multiple elements to be allocated to each element of
the arrangement based on the relative fair values of the
elements, such as software products, post contract customer
support, installation, or training and recognized as the
element is delivered and the Company has no significant
remaining performance obligations. For multiple element
contracts where maintenance is bundled with the software license,
the residual method in accordance with SOP 98-9 is used and
Vendor Specific Objective Evidence ("VSOE") established for
the undelivered element, being the maintenance support through
the sale of separate maintenance agreements, to determine the
value to be assigned to the software license. For contracts
where maintenance is not bundled with the software license, the
Company uses the sale value of the software license as its fair
value to record revenue.
For the year ended December 31, 2000, the Company entered into
revenue generating sales contracts with 24 customers. Of the 24
sales, 18 were multi-element contracts which included both
delivered elements and an undelivered maintenance support
element. In addition, the Company entered 4 separate maintenance
contracts that had the following characteristics:
- The maintenance contracts were entered into 30 days or more
after the initial sale of the software;
- The different elements of the maintenance and software
sales contracts were not closely interrelated or
interdependent in terms of design, technology, or function;
- The fees for the maintenance contracts and the software
sales contracts were not subject to refund or forfeiture or
other concession if the other contract was not completed
satisfactorily;
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 5
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(l) Revenue recognition (continued):
- None of the elements of the maintenance contracts were
essential to the functionality of any element of software
sales contracts; and
- Payment terms in the maintenance contracts did not coincide
with, and were not otherwise contingent upon, the
performance criteria of the software sales contract.
The Company recognized its first software sales revenue in the
second quarter of 2000. For the quarter ended June 30, 2000, the
Company entered into revenue generating sales with 8 customers, 7
of which were multi-element contracts and 1 of which included a
separate maintenance contract. For the quarter ended September
30, 2000, the Company entered into revenue generating sales with
10 customers, 8 of which were multi-element contracts and 2 of
which included separate maintenance contracts. For the quarter
ended December 31, 2000, the Company entered into revenue
generating sales with 6 customers, 3 of which were a multi-
element contract, 1 of which included a separate maintenance
contract and 2 of which that did not contain a maintenance
element.
The Company utilized prices charged in the 4 separate maintenance
contracts as VSOE establishing the fair value of the undelivered
maintenance support element in the 18 contracts, which included
both the undelivered element and delivered elements. The Company
considered the separate maintenance contracts signed to the end
of each quarter to constitute VSOE of the fair value of the
undelivered maintenance support element in the multi-element
contracts made to the end of that quarter. If a contract is
entered into prior to VSOE being established, but VSOE is
subsequently established, the Company allocates the then
unrecognized revenue among the various elements in accordance
with the residual value method described above.
If evidence of fair value for each element of the arrangement in
the situations described above does not exist, all revenue from
the arrangement is deferred until such time as evidence of fair
value does exist or until all elements of the arrangement are delivered.
In addition to the establishment of fair value, license revenue is
recognized when there is persuasive evidence of an arrangement and
delivery to the customer has occurred, provided the arrangement does
not require significant customization of the software, the fee is fixed
and determinable, and collectibility is considered probable.
Service revenue from maintenance contracts is recognized
ratably over the term of the maintenance contract, on a
straight-line basis. Other service revenue is recognized at the
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 6
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
3. SIGNIFICANT ACCOUNTIN POLICIES (CONTINUED):
(l) Revenue recognition (continued):
time the service is performed.
The Company recognizes sales of equipment to external and
related parties in revenues and the related costs of the sale
in cost of revenues. The Company takes title to and holds the
equipment, bearing all of the risks and rewards of ownership,
prior to sale.
As at December 31, 2000, the Company was not involved in any hosting
arrangements, however it plans to in the future and the guidance in
EITF 00-3 will be applied.
(m) Foreign currency translation:
Effective for the fiscal year ended December 31, 2000, the
Company adopted the U.S. dollar as its reporting currency.
Historical figures previously reported in Canadian dollars
have been translated into U.S. dollars as follows: assets and
liabilities are translated into U.S. dollars at the rate of
exchange in effect at each balance sheet date and revenue and
expense items are translated at the average rates for the
applicable period. Unrealized gains and losses resulting from
the translation to U.S. dollars are accumulated in a separate
component of stockholders' equity described as accumulated
other comprehensive income.
The Company's functional currency is the Canadian dollar. The
Company's financial statements are prepared in Canadian
dollars before translation to the U.S. dollar reporting
currency. Accordingly, foreign currency denominated balances
of the Company are remeasured in Canadian dollars. Under this
method, monetary assets and liabilities denominated in a
foreign currency are remeasured in Canadian dollars at the
rate of exchange in effect at the balance sheet date. Other
assets, revenue and expense items are measured using the rate
of exchange prevailing at their respective transaction dates.
Exchange gains and losses resulting from the remeasurement of
foreign denominated monetary assets and liabilities in
Canadian dollars are reflected in earnings for the period.
(n) Net loss per share:
Net loss per share is calculated in accordance with SFAS No.
128, "Earnings per Share". Under SFAS No. 128, basic net
loss per share is computed using the weighted-average number
of outstanding shares of common stock, excluding common stock
subject to repurchase. Diluted net loss per share is computed
using the weighted-average number of outstanding shares of
common stock and, when dilutive, potential common shares from
options and warrants to purchase common stock and common stock
subject to repurchase using the treasury stock method, and
from convertible securities using the as-if converted basis.
All potential common shares have been excluded from the
computation of diluted net loss per share for all periods
presented because the effect would have been anti-dilutive.
All performance escrow shares as disclosed in note 10(a) are
excluded from the calculation.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 7
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
(o) Recent accounting pronouncements:
The FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which established
standards relating to the recognition and disclosure of all
aspects of derivative instruments and hedging activities. To
date, the Company has not engaged in hedging activities.
Accordingly, the Company has evaluated the impact of adopting
SFAS 133 and determined that it will not have a material
effect on its financial position, results of operations or
cash flows. The Company will implement SFAS No. 133 in its
fiscal year ending December 31, 2001.
(p) Comparative figures:
Certain comparative figures have been reclassified to conform
to the financial statement presentation adopted in the current
year.
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The movements in the allowance for doubtful accounts for 2000 and 1999
are set out below:
=============================================================================
2000 1999
- -----------------------------------------------------------------------------
Balance as at January 1 $ - $ -
Expense for the year 142,047 -
- -----------------------------------------------------------------------------
Balance as at December 31 $ 142,047 $ -
=============================================================================
5. RELATED PARTY TRANSACTIONS:
(a) Transactions with related parties:
The following table summarizes the Company's related party
transactions with certain directors of the Company:
=============================================================================
Eight months
Year ended Year ended ended Year ended
December 31, December 31, December 31, April 30,
2000 1999 1998 1998
- -----------------------------------------------------------------------------
Services rendered $ 257,860 $ 445,296 $ 70,776 $ 152,672
Settlement of claims - - - 17,786
=============================================================================
Hardware resales to related parties are to companies with
certain common directors to the Company.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 8
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
5. RELATED PARTY TRANSACTIONS (CONTINUED):
(b) Due (to) from related parties:
At December 31, 2000, the Company was owed $29,859 with
respect to costs incurred by the Company on behalf of
BrainTech Inc. and TechWest Management Inc., companies with
directors in common.
At December 31, 1999, the Company owed $ 39,340 with respect
to costs incurred by TechWest Management Inc., a company with
directors in common, on behalf of the Company.
These amounts are unsecured, payable on demand and bear no
interest.
6. SETTLEMENT OF LEGAL CLAIM:
During the year ended December 31, 2000, the Company settled its
outstanding legal disputes with former management. The Company
made a cash payment of $20,135 and issued 80,000 shares to
opposing parties. The Company also received cash payments
totaling $167,786 from opposing parties.
7. SHORT-TERM INVESTMENTS:
The amortized cost, gross unrealized holding gain and fair value
of available-for-sale securities at December 31, 2000 is as
follows:
===============================================================================
Gross
unrealized
Amortized holding Fair
cost gain value
- -------------------------------------------------------------------------------
Available-for-sale commercial paper $ 5,846,038 $ 136,550 $ 5,982,588
===============================================================================
There were no short-term investments in 1999.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 9
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
8. LONG-TERM RECEIVABLES:
======================================================================
2000 1999
----------------------------------------------------------------------
Employee loan, maturing September 30, 2024,
bearing interest at 1% per annum,
repayable in bi-monthly blended
instalments of $376, except if employment
is terminated in which case it is
repayable immediately, real estate has
been pledged as security, net of
unamortized discount of $95,583 (1999 -
$100,763) $ 98,593 $ 104,111
Employee loans, maturing September 30,
2002, bearing interest at prime plus 1%
per annum. 13,843 18,585
-----------------------------------------------------------------------
112,436 122,696
Current portion 6,849 14,041
-----------------------------------------------------------------------
$ 105,587 $ 108,655
=======================================================================
The employee loan secured by real estate has been discounted to
fair market value calculated at prime plus 1%, which is the
prevailing rate of similar financial instruments, over 25 years.
9. Fixed assets:
===========================================================
2000 1999
- -----------------------------------------------------------
Furniture and fixtures $ 710,518 $ 336,234
Computer equipment 1,553,279 696,195
Trade show assets 150,193 85,928
Computer software 289,881 93,592
Leasehold improvements 843,452 626,319
- -----------------------------------------------------------
3,547,323 1,838,268
Less accumulated amortization (1,579,505) (914,732)
- -----------------------------------------------------------
Net book value $1,967,818 $ 923,536
===========================================================
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 10
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
10. STOCKHOLDERS' EQUITY:
(a) Performance shares and escrow securities:
Included in issued shares at December 31, 2000 are 750,000
performances and 220,378 escrow securities (December 31, 1999
and 1998 and April 30, 1998 - 750,000 and 280,378,
respectively) held in escrow to be released based on
achievement of a cash flow formula. If any of the 750,000
performance shares are not released by September 10, 2001,
they will be subject to cancellation. Subsequent to December
31, 2000, 220,378 escrow securities were subject to
cancellation on January 11, 2001 due to the conditions in the
escrow agreement not being fulfilled.
(b) Stock compensation plans:
Effective February 8, 2000, the Company adopted its 2000 Stock
Option Plan ("the 2000 Plan"), which reserved 7,000,000
shares for issuance pursuant to stock options to be granted to
directors, officers, employees, and consultants. The
Company's Board of Directors have discretion to set the price,
term, vesting schedules, and other terms and conditions for
options granted under the 2000 Plan, subject to the
requirements of any stock exchange on which the Company's
shares are listed. In January 2000, 2,000,000 options were
granted under individual agreements and 6,860,000 options were
granted under the 2000 plan as follows: effective April 20, 2000,
the Company granted 4,912,000 options at $5.10 per share and
effective August 30, 2000, the Company granted a further 1,948,000
options at $2.25 per share pursuant to the 2000 Plan.
Subsequent to year-end, effective January 18, 2001 and
February 9, 2001 the Company granted 150,000 and 308,000
options, respectively, at $1.00 per share pursuant to the 2000
plan. All options were for terms of five years and subject to
vesting schedules up to 24 months. The 2000 Plan was approved
by the Company's shareholders at the Company's June 28, 2000
general meeting.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 11
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
10. STOCKHOLDERS' EQUITY (CONTINUED):
(b) Stock compensation plans (continued):
Effective December 6, 2000, the Company adopted its 2001 Stock
Option Plan ("the 2001 Plan"), which reserved 6,000,000
shares for issuance pursuant to stock options to be granted to
directors, officers, employees, and consultants. On February
9, 2001, the Board of Directors approved an increase of the
reserved amount to 7,000,000 shares pursuant to the 2001 plan.
The Company's Board of Directors have discretion to set the
price, term, vesting schedules, and other terms and conditions
for options granted under the plan, subject to the
requirements of any stock exchange on which the Company's
shares are listed.
Subsequent to year-end, effective January 18, 2001, February
9, 2001 and February 22, 2001 the Company granted 5,680,500,
490,000 and 190,000 options, respectively, at $1.00 per share.
All options are exercisable for five years and subject to
vesting schedules of up to 18 months. The 2001 Plan, and all
options granted under it, are subject to approval by the
Company's shareholders. The Company intends to seek that
approval at its next general stockholders' meeting. For
accounting purposes, these options will not be deemed to have
been granted until approved by the stockholders and
compensation, if any, will be measured based on market values
at that date.
As at December 31, 2000, no options granted under either the
2000 or 2001 Plans have been exercised.
(i) A summary of the Company's stock option activity is as
follows:
================================================================
Weighted
Number average
of shares exercise price
- ----------------------------------------------------------------
Balance, April 30, 1997 2,065,000 $ 0.36
Options granted 800,000 0.50
Options exercised (699,000) 0.37
Options cancelled / expired (45,000) 0.48
- ----------------------------------------------------------------
Balance, April 30, 1998 2,121,000 0.41
Options granted 555,000 0.24
Options cancelled / expired (86,000) 0.40
- ----------------------------------------------------------------
Balance, December 31, 1998 2,590,000 0.37
Options granted 2,960,000 1.38
Options exercised (1,343,500) 0.61
Options cancelled / expired (100,000) 0.45
- ----------------------------------------------------------------
Balance, December 31, 1999 4,106,500 1.02
Options granted 8,860,000 5.55
Options exercised (1,584,100) 0.92
Options cancelled / expired (470,000) 4.60
- ----------------------------------------------------------------
Balance, December 31, 2000 10,912,400 $ 4.56
================================================================
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 12
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
10. STOCKHOLDERS' EQUITY (CONTINUED):
(b) Stock compensation plans (continued):
(ii) Additional information regarding options outstanding as
at December 31, 2000 is as follows:
==============================================================================
Outstanding Exercisable
- ------------------------------------------------------------------------------
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual exercise Number exercise
exercise prices of shares life (years) price of shares price
- ------------------------------------------------------------------------------
$ 0.24 - $ 0.90 1,171,500 2.06 $ 0.48 1,171,500 $ 0.48
$ 1.55 - $ 2.25 3,053,900 4.25 2.01 1,377,775 1.73
$ 5.10 4,794,500 4.30 5.10 1,946,000 5.10
$ 8.69 - $ 11.08 1,892,500 4.05 9.82 955,000 10.33
- ------------------------------------------------------------------------------
10,912,400 4.00 $ 4.56 5,450,275 $ 4.17
==============================================================================
(iii) Stock-based compensation:
With respect to the stock options granted from inception
through December 31, 2000, the Company recorded stock-based
compensation of $11,671,647.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 13
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
10. STOCKHOLDERS' EQUITY (CONTINUED):
(b) Stock compensation plans (continued):
(iii) Stock-based compensation (continued):
Pursuant to SFAS No. 123, the Company is required to
disclose the pro-forma effects on net loss and net loss per
share data as if the Company had elected to use the fair
value approach to account for its employee stock-based
compensation plans. If this approach had been applied, the
Company's net loss and net loss per share would have been as
indicated below:
=============================================================================
Eight months
Year ended Year ended ended Year ended
December 31, December 31, December 31, April 30,
2000 1999 1998 1998
- -----------------------------------------------------------------------------
Net loss:
As reported $27,794,388 $5,687,468 $1,282,487 $1,714,136
Proforma 43,301,838 7,680,247 1,342,505 1,891,150
=============================================================================
Basic and diluted net
loss per share:
As reported $ 0.48 $ 0.15 $ 0.05 $ 0.08
Proforma 0.75 0.21 0.05 0.09
=============================================================================
The fair value for the options was estimated using the
Black-Scholes option pricing model assuming no expected
dividends and the following weighted average assumptions:
======================================================================
Options
---------------
Interest
rate Term Volatility
- ----------------------------------------------------------------------
Year ended December 31, 2000 6.55% 3 yrs 70%
Year ended December 31, 1999 5.88% 3 yrs 70%
Eight months ended December 31, 1998 5.42% 3 yrs 70%
Year ended April 30, 1998 5.34% 3 yrs 70%
======================================================================
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 14
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
10. STOCKHOLDERS' EQUITY (CONTINUED):
(b) Stock compensation plans (continued):
(iii) Stock-based compensation (continued):
The weighted-average fair value of stock options granted for
the year ended December 31, 2000 and 1999, the eight months
ended December 31, 1998 and the year ended April 30, 1998,
are as follows:
==============================================================================================================
Weighted average Weighted average
exercise price fair value
------------------------------------------ ---------------------------------------
Eight Eight
Year ended months ended Year ended Year ended months ended Year ended
December 31, December 31, April 30, December 31, December 31, April 30,
-------------- --------------
2000 1999 1998 1998 2000 1999 1998 1998
================================================================================================================
Exercise price is
less than market
value on
grant date $ - $ 1.30 $ - $ 0.50 $ - $ 0.62 $ - $ 0.22
Exercise price
exceeds market
value on
grant date 5.55 1.40 0.24 - 4.12 0.79 0.16 -
- ----------------------------------------------------------------------------------------------------------------
Total options $ 5.55 $ 1.38 $ 0.24 $ 0.50 $ 4.12 $ 0.77 $ 0.16 $ 0.22
================================================================================================================
(c) Share purchase warrants:
A summary of the Company's warrant activity for the year ended
December 31, 2000 is as follows:
================================================================================================================
Outstanding Outstanding
Exercise December 31, December 31,
Expiry date price per share 1999 Granted Exercised Expired 2000
- ----------------------------------------------------------------------------------------------------------------
July 22, 2000 CDN 0.32 600,000 - (600,000) - -
December 23, 2000 CDN 0.40 286,000 - (110,000) (176,000) -
March 26, 2000/2001 U.S. 0.333/0.383 779,276 - (581,394) - 197,882
April 7, 2000/2001 CDN 0.55/0.63 2,700,000 - (700,000) - 2,000,000
September 14, 2000/2001 U.S. 1.64/1.89 2,746,833 - (1,329,579) - 1,417,254
December 14, 2000/2001 U.S. 1.64/1.89 - 2,500,000 - (598,729) 1,901,271
April 13, 2001/2002 U.S. 10.00/11.50 - 274,000 - - 274,000
April 13, 2001/2002 U.S. 2.82/3.24 - 810,000 - - 810,000
- ----------------------------------------------------------------------------------------------------------------
7,112,109 3,584,000 (3,919,702) (176,000) 6,600,407
================================================================================================================
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 15
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
10. STOCKHOLDERS' EQUITY (CONTINUED):
(c) Share purchase warrants (continued):
The share purchase warrants issued in consideration for
financing, outstanding at December 31, 2000 having an exercise
price of U.S.$2.82 in the first year and U.S.$3.24 in the
second year expiring April 13, 2001/2001 were repriced from
U.S.$10.00 in the first year and U.S.$11.50 in the second year
on September 7, 2000. The term of the re-priced warrants will
be reduced to 30 days if, for ten consecutive days, the
closing trading price of the company's shares exceeds either
U.S.$2.82 in the first year, or U.S.$3.24 in the second year.
The 30-day term commences seven days after the ten-day trading
threshold has been met.
11. Income taxes:
Deferred income taxes reflect the tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes, as well as net operating loss and tax credit
carryforwards.
The Company's deferred income tax assets are comprised of the
following at December 31:
==========================================================================================
2000 1999
- ------------------------------------------------------------------------------------------
Net deferred tax assets and liabilities:
Net operating loss carryforwards $ 10,553,386 $ 4,905,941
Share issue costs (186,442) (88,039)
Excess of amortization recorded for accounting over tax 695,703 391,321
- -------------------------------------------------------------------------------------------
Total deferred tax assets 11,062,647 5,209,223
Valuation allowances (11,062,647) (5,209,223)
- -------------------------------------------------------------------------------------------
Net deferred tax assets $ - $ -
===========================================================================================
The movement in the valuation allowance for deferred tax assets
in 2000 and 1999 are as follows:
=============================================================================
2000 1999
- -----------------------------------------------------------------------------
Balance as at January 1 $ 5,209,223 $ -
Increase in operating losses 5,647,445 4,905,941
Increase in share issue costs (98,403) (88,039)
Increase in amortization recorded in accounting
over tax 304,382 391,321
- -----------------------------------------------------------------------------
Balance as at December 31 $ 11,062,647 $ 5,209,223
=============================================================================
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 16
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
11. INCOME TAXES (CONTINUED):
Deferred income taxes reflect the tax effects of temporary
differences between the carrying amount of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes, as well as non-operating losses and tax credit
carryforwards.
At December 31, 2000, management believes that sufficient
uncertainty exists as to whether the deferred tax assets will be
realized, and accordingly, a valuation allowance is required.
As of December 31, 2000, the Company had net operating losses of
$13,468,489 available to offset taxable income earned in Canada
to 2007 and $10,193,813 available to offset taxable income earned
in the United States to 2015.
12. COMMITMENTS:
The Company has obligations under operating lease arrangements
which require the following minimum annual payments:
==================================================================
2001 $ 997,000
2002 947,000
2003 797,000
2004 531,000
2005 534,000
2006 and thereafter 2,850,000
- ------------------------------------------------------------------
$ 6,656,000
==================================================================
13. FINANCIAL INSTRUMENTS:
(a) Fair values of financial instruments:
The Company's short-term financial instruments consist of cash
and cash equivalents, short-term investments, accounts
receivable, due from related parties, accounts payable and
accrued liabilities. The fair value of these financial
instruments approximate their carrying values due to their
short term maturity.
The fair value of the long-term receivables, calculated using
the current market rate for such instruments of the same
remaining maturity term and credit risk, approximate their
carrying value.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 17
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
13. FINANCIAL INSTRUMENTS (CONTINUED):
(b) Foreign currency risk:
Foreign currency risk reflects the risk that the Company's net
assets or operations will be negatively impacted due to
fluctuations in exchange rates. Revenues and expenses of the
Company denominated in foreign currencies come due in the
short-term and accordingly, management of the Company believes
there is no significant exposure to foreign currency
fluctuations. The Company does not have foreign currency
hedges in place.
(c) Credit risk:
Financial instruments subjecting the Company to concentrations
of credit risk consist primarily of cash and cash equivalents,
short-term investments and trade accounts receivable. The
Company maintains cash and cash equivalents with high quality
financial institutions.
The Company's customers are currently concentrated in the
United States and Canada. The Company performs ongoing credit
evaluations, generally does not require collateral and
establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of customers, historical
trends and other information.
14. SUBSEQUENT EVENTS:
Subsequent to December 31, 2000, the Company issued, through a
private placement, 5,229,752 common shares, for net proceeds of
approximately $3,800,000. Additionally, the Company issued
5,229,752 share purchase warrants. The Company also issued
brokers' warrants, permitting the holders to acquire 526,316
units at a price of $0.76 per unit, with each unit consisting of
one share and one share purchase warrant. Each share purchase
warrant entitles the holder to purchase one additional common
share of the Company, for a period of three years, at a price of
$1.00 per share.
SIDEWARE SYSTEMS INC.
Consolidated Notes to Financial Statements, page 18
(Expressed in U.S. dollars)
(Prepared in accordance with generally accepted accounting
principles in the United States)
Year ended December 31, 2000 and 1999
Eight months ended December 31, 1998
Year ended April 30, 1998
15. UNAUDITED QUARTERLY FINANCIAL INFORMATION:
The following table sets forth selected unaudited quarterly
information for the Company's last eight fiscal quarters (in
thousands):
==========================================================================================
Fiscal 2000 Quarter End
--------------------------------------------------
December 31 September 30 June 30 March 31
------------------------------------------------------------------------------------------
Revenues 288 191 183 6
Gross margin 255 164 109 -
Net loss for the period (4,721) (7,473) (12,983) (2,617)
Net loss per share (0.08) (0.13) (0.22) (0.05)
==========================================================================================
Fiscal 1999 Quarter End
--------------------------------------------------
December 31 September 30 June 30 March 31
------------------------------------------------------------------------------------------
Revenues 9 - (21) 46
Gross margin - - (1) 1
Net loss for the period (2,737) (1,731) (1,091) (488)
Net loss per share (0.08) (0.03) (0.02) (0.02)
==========================================================================================