UNITED STATES SECURITIES AND EXCHANGE COMMISSION PRIVATE
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): September 6,
2001
British Columbia
- ----------------------- -------------------- ---------------------
(State or other (Commission File No.) IRS Employer
jurisdiction Identification No. )
of incorporation)
1810 Samuel Morse Drive, Reston, Virginia 20190-5316
(Address of principal executive offices)
Registrant's telephone number, including area code: (703) 437-9002
ITEM 5. OTHER MATTERS
Sideware Systems Inc. ("Sideware") has acquired a majority
interest in Chalk.com Network (Holding) Corp., a private Delaware
Corporation. Chalk.com Network (Holding) Corp. is the parent
company of the Chalk Group of companies, which includes four
wholly owned subsidiaries.
ALL MONETARY FIGURES STATED IN THIS REPORT ARE IN UNITED STATES
DOLLARS. WHERE NECESSARY, CANADIAN DOLLAR AMOUNTS HAVE BEEN
CONVERTED TO UNITED STATES DOLLARS USING AN EXCHANGE RATE OF
C$1.00 = US$0.645.
TERMS OF ACQUISITION
Pursuant to a Share Subscription Agreement, Sideware invested
$1,000,000 in Chalk.com Network (Holding) Corp. to acquire
13,000,000 common shares from the company's treasury. In
addition, Sideware paid $1.00 to acquire 5,000,000 common shares
of Chalk.com Network (Holding) Corp., from David Chalk, the
founder of the Chalk Group. The 18,000,000 shares acquired by
Sideware represent 66% of the issued and outstanding shares of
Chalk.com Network Holding Corp., or 60% on a fully diluted basis,
after allowing for the exercise of outstanding share purchase
warrants and stock options previously issued by Chalk.com Network
(Holding) Corp.
BUSINESS OF THE CHALK GROUP
The Chalk Group began business in 1996 as the producer of "Dave
Chalk's Computer Show", a television show aimed at educating
consumers in new technologies. Since then, the Chalk Group has
expanded its business to include production of other types of
audio/visual educational and training content. The Chalk Group
currently has three principal lines of business.
INTERACTIVE E-LEARNING INTERNET CONTENT AND INFRASTRUCTURE
During the final quarter of 1999, the Chalk Group began seeking
contracts to produce specialized Internet video presentations,
which companies could use to advertise their products on portals,
e-tail websites, and corporate websites. During 2001, with
growing use of the Internet for training purposes, the Chalk
Group began seeking contracts to produce interactive Internet
training programs. In these fields, the Chalk Group has been
successful in winning contracts with major corporations.
Examples include the following:
(a) In January 2001, the Chalk Group secured a contract with
Sega to develop a website to educate retailers on new Sega
game products.
(b) In March 2001, the Chalk Group secured a contract with Canon
Corp. to develop a web-based training program on Canon
printers, for use by Canon sales representatives.
(c) In March 2001, the Chalk Group secured a contract with
Symantec to develop an audio/visual Internet presentation
explaining the use of Symatec products.
(d) In June 2001, the Chalk Group secured a contract with Telus
Mobility to develop a website to educate sales
representatives on new cell phone technologies.
The Chalk Group believes that additional contracts to develop
Internet e-Learning content are its most likely source of future
revenues.
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IN-FLIGHT MEDIA
Beginning in 1998, the Chalk Group began to produce video
presentations for broadcast during airline flights. The Chalk
Group arranged for broadcast of its productions on major
international carriers including Delta Airlines, KLM, SAS, and
Air France.
In some of its initial airline contracts, the Chalk Group agreed
to pay substantial fixed charges for broadcast time, expecting to
recover its costs through the sale of advertising time to
producers of computer products. The Chalk Group encountered
financial difficulty during 2000 and 2001 when expected
advertising revenue did not materialize. As a result, the Chalk
Group has restricted its sales of in-flight video presentations
to contracts which do not involve substantial fixed financial
commitments. Productions of the Chalk Group are currently shown
during flights of Air Canada, Cathay Pacific, Varig Airlines, and
other carriers in Central and South America.
DAVE CHALK COMPUTER LIFE
The television show "Dave Chalk Computer Life" (previously
"Dave Chalk's Computer Show") is currently shown in Canada on
the Globe and Mail's ROBtv and the Global Television Network.
The show is also shown on a syndicated basis in several countries
in Asia and the Middle East, and will commence broadcasting
shortly on Tech TV in Canada. The Chalk Group is currently
seeking to expand its broadcast distribution to the United
States.
FINANCIAL INFORMATION
The Chalk Group does not have audited financial statements for
the year ended December 31, 2000. Accordingly, it is
impracticable to include in this report either audited financial
statements for the Chalk Group or pro forma consolidated financial
statements for Sideware reflecting the Chalk acquisition. Sideware
expects to file any required audited and pro forma financial
statements within the time periods required by applicable rules of
the Securities and Exchange Commission.
The following information is of a summary nature only, and is
taken from the internal accounting records of the Chalk Group.
(a) For the year ended December 31, 2000, the Chalk Group
received gross consolidated revenues of approximately
$1,273,000. Gross consolidated revenues for the six month
period ended June 30, 2001 were approximately $730,000.
Revenues from the different lines of business of the Chalk
Group were approximately as follows:
Six months ended Year ended
June 30, 2001 December 31, 2000
($) ($)
(unaudited) (unaudited)
Revenues from the sale of
interactive e-Learning Internet
content 382,000 407,000
Revenues related to in-flight
airline video broadcasts 164,000 497,000
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Revenues related to television
and other video broadcasts 184,000 369,000
TOTAL $730,000 $1,273,000
(b) The Chalk Group incurred losses totaling approximately $5
million for the year ended December 31, 2000, and
approximately $2 million for the six month period ended June
30, 2001. The losses resulted principally from expenses
incurred in opening a United States office, which has since
been closed, and from costs incurred in contracts to
purchase broadcast time during airline flights.
(c) The Chalk Group estimates that its current monthly cash
expenditures (exclusive of payments to retire existing
accounts receivable) are approximately $260,000 per month.
Readers are cautioned that a substantial portion of the
costs incurred by the Chalk Group consists of variable
production costs, which vary from project to project.
Accordingly, future operating costs are dependent on sales
volume, and cannot be predicted accurately.
(d) As at June 30, 2001, the Chalk Group had a negative working
capital position of approximately $480,000. This figure
does not reflect the investment of $1 million by Sideware.
(e) As at June 30, 2001 the Chalk Group had total long term debt
of approximately $935,000.
Investors are cautioned that all of the figures stated above are
unaudited, and subject to change.
MANAGEMENT OF THE CHALK GROUP
David Chalk, Founder & President. Mr. Chalk has over 15 years of
experience in the computer industry. He was the founder and CEO
of Doppler Computer Superstores, a computer retail business. In
1995, Mr. Chalk created Dave Chalk's Computer Show, which became
one of the first television programs to be regularly broadcast on
the Internet. As CEO of the Chalk Group, Mr. Chalk is involved
in the strategic management of the Company. He is the key
creative force behind the company's video productions and the
leading screen performer. He was honored as the outstanding
retailer of the year in 1996 by the Retail Council of Canada.
Michael Agerbo, Co-Founder & Chief Operating Officer. From 1992
to 1996, Mr. Agerbo worked at Doppler Computer Superstores as
Director of Marketing. In 1996, Mr. Agerbo was recruited by
Axion Internet, a Vancouver based Internet service provider as
their Vice President of Business Development. During late 1996,
he played a key role in developing a spin off company, IGN,
focusing on Internet gaming. In 1997, Mr. Agerbo joined the Chalk
Group. In addition to his role as a Director and co-host of the
television series, he is responsible for production of
traditional and new media. He also spearheads new digital media
initiatives.
Douglas Mathews, Vice President Sales. Mr. Mathews' background
is in building and managing sales groups. From 1997 to 1999 he
worked with Larson Distributing, a Western Canadian distributor
of technology products, where he managed sales teams and large
retail accounts. Mr. Matthews heads the direct sales force of the
Chalk Group.
In addition, Stewart Walchli, Chief Financial Officer of Sideware
Systems Inc., has assumed the position of Chief Financial Officer
of the Chalk Group concurrently with Sideware's acquisition
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of the Chalk Group.
RISK FACTORS RELATING TO THE CHALK GROUP
Investors are cautioned that the investment by Sideware in the
Chalk Group is a speculative investment. There is no assurance
that the business of the Chalk Group will succeed, or that
Sideware's investment in the Chalk Group will produce profit for
Sideware. The principal risks relating to the business of the
Chalk Group include the following.
BECAUSE THE CHALK GROUP HAS NOT YET ACHIEVED POSITIVE CASH FLOW,
ITS BUSINESS MAY FAIL.
The Chalk Group has been successful in gaining contracts with
large corporations. However, the Chalk Group has not yet
achieved positive cash flow from operations. Accordingly, it
faces the risk that its business will fail.
We estimate that if the Chalk Group is able to continue the rate
of sales it has achieved thus far in 2001, and with the $1
million Sideware has invested in the Chalk Group, there is a
reasonable prospect of the Chalk Group achieving positive cash
flow from operations by end of the second quarter of 2002. However,
we have no assurance that Chalk will be able to continue its recent
rate of sales, or that positive cash flow will be achieved.
BECAUSE THE CHALK GROUP HAS A LIMITED SALES HISTORY, WE DO NOT
HAVE A RELIABLE BASIS FOR PREDICTING THAT THE CHALK GROUP WILL
CONTINUE TO GENERATE SALES REVENUE.
The Chalk Group's best prospect for generating future sales
revenue is through the sale of e-Learning Internet content. The
Chalk Group has been pursuing this market actively for less than
one year. Accordingly, the Chalk Group does not have a lengthy
history of past sales from which it can predict future revenues.
The Chalk Group's prospects for generating revenue are
speculative, and may change rapidly and without warning.
BECAUSE THE CHALK GROUP HAD A NEGATIVE WORKING CAPITAL BALANCE AT
JUNE 30, 2001, IT MAY REQUIRE ADDITIONAL CASH IN THE SHORT TERM
TO CONTINUE OPERATIONS.
As at June 30, 2001, the Chalk Group had a negative working
capital balance of approximately $480,000. We have invested
$1,000,000 in the Chalk Group, but a portion of that investment
will be used for costs relating to the acquisition transaction,
such as the preparation of audited financial statements for the
Chalk Group. We do not yet have an accurate estimate of the
costs relating to the acquisition transaction. Accordingly, the
Chalk Group may require additional short term working capital to
continue operation.
BECAUSE THE CHALK GROUP INCURS SUBSTANTIAL VARIABLE PRODUCTION
COSTS, WE CANNOT PREDICT ITS CASH REQUIREMENTS ACCURATELY.
A substantial portion of the costs incurred by the Chalk Group
consists of variable costs relating to the production of its e-
Learning presentations. These costs vary from project to
project. As a result, we cannot predict the cash requirements of
the Chalk Group accurately. Because we cannot predict its costs
accurately, we have no assurance that the Chalk Group will be
profitable even if it generates substantial sales revenue.
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BECAUSE THE CHALK GROUP LACKS PROVEN DISTRIBUTION CHANNELS, IT
MAY BE UNABLE TO REACH POTENTIAL CUSTOMERS FOR ITS PRODUCTS AND
SERVICES.
The Chalk Group presently relies principally on its direct sales
force, consisting of approximately 6 employees, to generate
sales. The Chalk Group has no other material distribution
channels. If the Chalk Group is unable to generate sales through
its direct sales force, it will not be able to generate the cash
required to continue its operations.
BECAUSE THE CHALK GROUP OFFERS ITS PRODUCTS AND SERVICES IN AN
EMERGING MARKET, THE POTENTIAL MARKET FOR THOSE PRODUCTS AND
SERVICES IS UNCERTAIN.
The Chalk Group's best prospect for generating future sales
revenue is through the sale of e-Learning Internet content. The
e-Learning market is new and changing rapidly. We have no
assurance that this market will continue to grow.
BECAUSE THE WORK FORCE OF THE CHALK GROUP IS SMALL, ITS BUSINESS
COULD BE DAMAGED BY THE DEPARTURE OF A SINGLE EMPLOYEE, OR A
SMALL NUMBER OF EMPLOYEES.
The Chalk Group has only 25 full time employees, and employs only
a small number of employees in specific fields important to its
business. The departure of a single employee or a small number
of employees could materially impair its business.
BECAUSE THE CHALK GROUP IS A SMALL BUSINESS, IT MAY NOT BE ABLE
TO COMPETE.
We believe that the e-Learning market will likely continue to
grow. If so, larger companies with substantially greater
financial, marketing, and other resources may enter the market.
We face the risk that markets we intend to pursue may become
dominated by larger or more powerful companies, making it
difficult or impossible for us to compete.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
SIDEWARE SYSTEMS INC.
"Grant Sutherland"
Date: September 6, 2001 Grant Sutherland, Director
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