Recommendation: Speculative Buy

A first mover in niche business-to-business (B2B) industry process and procurement portals and e-commerce management software, SoftCare EC Inc. (SoftCare) is addressing a marketplace overlooked by most of the larger, well-known B2B e-commerce companies. Recent broad-based market weakness presents a compelling investment entry point.

We are recommending the purchase of SoftCare for speculative accounts seeking long-term capital appreciation. The Company has over 10 years of experience in implementing traditional Electronic Data Interchange (EDI) solutions, and anticipates rapid acceptance of its new B2B e-commerce process management software in the burgeoning B2B vertical portal marketplace.

These portals lay the foundation for businesses to move Internet-supply chain management in-house in virtual supply chain integration (V-SCI). According to Cahners In-stat analyst Kirsten Cloninger, "V-SCI networks will eventually converge with today's e-marketplace structure resulting in an unprecedented level of interconnection among participants, optimizing established relationships by streamlining the flow of information. The potential of V-SCI networks lies in linking numerous disparate work environments critical to supply chain efficiency." In a report entitled, Today's Emarketplaces May Become Tomorrow's Virtual Supply Chains, Cahners forecasts $823 billion will flow through V-SCI networks by 2004, up from an estimated $43.4 million this year. Further, the number of businesses participating in virtual supply chains will grow 10-fold, from about 25,000 today to an estimated 280,000 by 2004. SoftCare EC intends to be a leading application services provider to this emerging virtual marketplace.

BASIS FOR RECOMMENDATION

Our recommendation is based upon the achievement of key corporate milestones in recent weeks, which support essential elements of the Company's strategic plan implemented earlier this year.

1. SoftCare announced the official launch of its first niche-specific industry B2B portal at the Private Label Manufacturers Association Trade Show in Chicago on November 12, 2000. The Company introduced and demonstrated its "PrivateLabelHome" business portal. The portal will provide process efficiencies and significant cost savings to the $75 billion annual private label goods market in the U.S. Primary customers of these private label manufactures are national and regional grocery chains. Portal deployment is expected to be completed in Q1 of 2001.

2. In September, SoftCare signed a letter of intent with the SRI Strategic Resources, a subsidiary of TELUS Services Inc. (TELUS), to develop and deploy another niche-specific B2B portal for forestry industry procurements. Although the portal will initially target the CA$2.6 billion annual British Columbia forestry sector purchases of goods and services, it will be designed for the rapid integration of forestry product companies throughout North America. TELUS is the second largest telecommunications firm in Canada, and the applications service provider for this portal.

3. "PrivateLabelHome" is the first portal to be hosted by SoftCare's Secure Application Service Provider partner, Global Network Privacy, Inc. Global (GNP) provides secure transaction processing, data storage and key infrastructure for B2B e-commerce vertical portals. Instrumental to the partnership's formation was the "pay as you go" transaction model afforded by SoftCare's OpenEC Platform, which allows mid-tier and smaller companies to participate in the e-commerce revolution by paying subscription fees for the service.

4. SoftCare is differentiated from other e-commerce/EDI software and applications providers by its strategic partnership with ACH Processing. ACH allows SoftCare's B2B clients direct access to the U.S. Federal Reserve's payment clearing and electronic funds transfer system. Accounts receivables can be created and settled at the same time, completely electronically.

5. SoftCare has added the key personnel necessary to bring its business plan to fruition. Mr. Herb Williamson was appointed Vice President of Sales and Marketing in June. Mr. Williamson brings over 30 years of international sales and marketing experience to SoftCare. Mr. Williamson has been charged with spear-heading the sales and marketing campaign for the Company's flagship product, OpenEC, as well as developing a renewed and energized sales plan for the Company's legacy product, TradeLink EDI. The Company also recently appointed Alex Dowding as Vice President of Sales, Canada. Prior to SoftCare, Mr. Dowding spent five years with Microsoft Canada in various sales positions and was instrumental in developing and expanding Microsoft's local business in both private and public sector accounts.

By aligning with credible partners and bringing in experienced and well-rounded personnel to key management posts, SoftCare has been gradually putting essential elements into place which strengthen the Company's ability to transform from a traditional EDI solutions provider to an integrated first mover in e-commerce portal deployment and management. The Company is focused on meeting the needs of mid-tier and smaller companies in highly fragmented industries. These industries are ripe for capturing the cost savings and efficiency improvements inherent in Internet-based supply chain and e-commerce management solutions. SoftCare's OpenEC Commerce Platform provides an affordable, scalable and technologically advanced means for middle- and small-tier companies to remain competitive and viable as we move into 21st century global commerce.

Valuation and Stock Price

SoftCare, like virtually every other small cap Internet-related company, has seen a collapse in its market value, while at the same time, the Company has made substantial strides in its business plan. After reaching a peak market value in March 2000 of nearly $90 million, SoftCare is now trading near a 14-month low of $.65/share and has a market capitalization of approximately $14 million.

THE COMPANY

SoftCare EC Inc. develops, markets and implements business-to-business (B2B) e-commerce solutions that help businesses conduct and manage e-commerce business processes such as procurement and supply chain management. The Company historically has generated revenue through software sales, but is now transforming to a transaction and user-fee based revenue model through the creation of niche-specific B2B e-commerce industry portals. The Company's suite of software products and services is designed on an open architecture platform, is scalable, and cost effective, thus allowing both EDI-compliant and non-EDI compliant organizations to leverage the power of the Internet for supply chain management and B2B transactions. Unlike many of its competitors, SoftCare's e-commerce focus has grown out of its 10-year history as an EDI implementation company.

OVERVIEW AND RECOMMENDATION

Managing the entire supply chain in an increasingly competitive global marketplace has become paramount to almost every company. While EDI serves to cut inventory management costs, improve manufacturing efficiency and cut product delivery times, the expense involved in establishing and maintaining a private network, on top of the cost of complying with EDI standards, has precluded all but the very largest of companies from participating. The EDI Group, Ltd. estimates that only 120,000 out of approximately 3 million U.S. companies with five or more employees employ EDI in their business. Forrester Research reports similar statistics. Only 100,000 companies out of the roughly 2 million businesses with 10 or more employees utilize EDI, leaving 1.9 million "in the dark." With the Internet now providing an inexpensive, ubiquitous telecommunications backbone, virtually any business can now benefit from the advantages brought about by EDI.

SoftCare's e-commerce platform products have a number of important advantages over pure EDI solutions and provide an important "value proposition" for companies of all sizes. Use of the Internet as the communications backbone replaces closed, value-added networks, which typically require significant "service" fees. SoftCare's platform is both compatible with and independent of EDI, so an EDI organization can preserve its investment in legacy EDI systems, while a non-EDI company can achieve EDI-like operating leverage without actual infrastructure investment. It is very costly for EDI companies to drop EDI and move solely to an Internet-based e-commerce business model. There are approximately 150 private EDI hubs in the U.S. SoftCare's e-commerce solutions give companies potential access to 100% of their prospective trading partners, thus converting EDI hubs, which are organization-centric, to true B2B e-commerce portals, which are relationship-centric.

We are initiating coverage with a Speculative Buy rating for risk-oriented accounts. The stock is trading near its 14 month low, thus reducing a substantial amount of market risk, yet the Company has made significant positive announcements in recent weeks.

Background

SoftCare was founded in 1989 as an EDI solution provider by Martyn Armstrong, the Company's current President and Chief Executive Officer. As the Company developed expertise in providing customized EDI software products and services from its consulting practice experience, it began to evolve into a value-added EDI software vendor. The Company's first proprietary EDI product, TradeLink, for electronic document transmission, was released in 1992 and quickly amassed a significant list of over 140 corporate customers in six countries, ranging from financial and government institutions to retail, pharmaceutical and utility companies. Representative TradeLink customers include Radio Shack (Canada), Konings Warehouse Sysco (U.S.), Deluxe Electronic Payment Systems, Inc. (U.S.), the Korean Development Bank (Korea), the Korean Trade Network (Korea), Credit Union Central of British Columbia (Canada) and the Province of Alberta (Canada).

In 1996, SoftCare developed and completed an Intranet and Internet electronic software product family known as OpenEC. OpenEC was developed in conjunction with TRW, Inc., and enabled communications, message switching, e-mail, fax EDI, and audit and service billing capabilities. TRW deployed OpenEC into ADFIAP Global Data Interchange Network (ANET), a Southeast Asian communications network of approximately 78 banks. OpenEC was fully deployed into ANET by mid-1998. The Company's current flagship product, OpenEC Platform, formed the foundation for an enhanced electronic commerce software. SoftCare began shipping the product in April 1999. It is currently installed in four sites.

The Company is headquartered in North Vancouver, British Columbia, with additional offices located in Tacoma, Washington; Garden Grove and Pleasanton, California; and Phoenix, Arizona. The Company currently has 45 employees, of which 23 are in engineering and operations, and 6 in sales and marketing. The Company anticipates adding employees in engineering and in sales and marketing to support its growth.

SoftCare, the Public Company

On June 18, 1999, SoftCare EC.com Inc., a successor to an existing public shell company, completed an agreement with the shareholders of SoftCare Electronic Commerce Inc., a private company. In this agreement, SoftCare EC.com issued 11 million special warrants to acquire all of the issued and outstanding common shares of SoftCare Electronic Commerce. At the date of the transaction, SoftCare EC.com, the shell company, was substantially inactive.

The transaction was ruled a reverse takeover and approved by Vancouver Stock Exchange (now the Canadian Venture Exchange) as a result of the former shareholders of SoftCare Electronic Commerce acquiring 88.8% of SoftCare EC.com. Concurrently with the reverse takeover, SoftCare Electronic Commerce changed its fiscal year-end from December 31 to May 31 and SoftCare EC.com changed its fiscal year-end from March 31 to May 31. In addition, SoftCare Electronic Commerce completed a $3 million private placement, bringing the Company's post-transaction capitalization to about $15 million. SoftCare Electronic Commerce completed a subsequent private placement in the spring of 2000, raising $5.6 million.

In early 2001, the company changed its name to SoftCare EC Inc. SoftCare conducts its business through four wholly owned subsidiaries: SoftCare Electronic Commerce Inc., SCEC Holdings Inc., and SCC Holdings Inc., all British Columbian corporations, and SoftCare Electronic Commerce (USA) Inc., a Washington State registered corporation.

Corporate Strategy and Business Model

SoftCare's corporate strategy is to become a leader in B2B e-commerce enabling software. The Company has established a comprehensive e-commerce management platform, which not only allows corporate customers to create and manage their own B2B e-commerce initiatives, but also provides the infrastructure and framework to enable vertical industry portals. These focused industry portals promise to streamline supply chain management across the continuum of business trading relationships, from the very largest players to the smallest. The power of the Internet and open systems architecture finally moves EDI from a buyer-centric paradigm to a trading centric paradigm, thus leveling the playing field and opening the way for lower operating costs and increased efficiencies across an entire industry. SoftCare intends to deploy its OpenEC Electronic Commerce Platform in a variety of industries and generate recurring revenue by capturing transaction and subscription-based user fees.

Alliances and Acquisitions

SoftCare's corporate strategy relies heavily on leveraging the Company's existing business relationships to build vertical e-commerce portal-based applications and partnering, where strategically appropriate, to provide key infrastructure components and marketing reach. Key partnering opportunities include security, transaction processing, marketing and the like. The Company has announced several such key partnership alliances over the past few months.

Early on, SoftCare formed a strategic alliance with ACH Processing Company of Savannah, Georgia. ACH provides direct access to the Federal Reserve's electronic funds transfer and payment clearing system. Though ACH, B2B e-transactions can have accounts receivables, invoices and payments made simultaneously and all electronically.

In March 2000, the Credit Union Central of British Columbia and SoftCare agreed to develop a vertical e-commerce portal for the British Columbian credit union industry. There are 1.4 million credit union members in British Columbia and the credit unions of the Province have assets exceeding $22 billion. The portal will extend the credit unions' home banking services, as well as facilitate member businesses' B2B procurement by establishing an intramember trading network and enabling members to create, maintain and manage their own web sites, eventually leading to B2C transactions like on-line shopping for consumers and corporate clients. The Credit Union Central of British Columbia exemplifies SoftCare's ability to leverage its existing EDI client base. SoftCare expects to receive product licensing fees and royalties from the agreement.

Following soon after the announcement of the Credit Union portal development agreement, SoftCare entered into an agreement with Global Network Privacy, Inc. in May 2000. A California-based application service provider, GNP is one of a new genre of ASPs that focus on providing highly secure Internet based networks for businesses to execute their e-commerce strategies. The companies intend to develop e-business/industry portal solutions, combining GNP's secure network infrastructure and operating systems with SoftCare's OpenEC platform; thus, SoftCare's position will be enhanced as a B2B vertical portal e-market player.

The agreement is composed of two parts, the first of which specifies that GNP will pay SoftCare license, maintenance and consulting fees aggregating to a minimum of CDN$1.6 million over the initial term. The second phase of the agreement delineates the terms by which GNP will host SoftCare's portal customers. SoftCare will receive transaction fees generated by users of the GNP ASP portal. Both parts of the agreement have an initial term of three years and are subject to volume minimums on the GNP site. GNP found that SoftCare's OpenEC was the only B2B portal management software platform that allowed for a seamless integration with its own ultra-secure Virtual Private Network services.

The recently announced "PrivateLabelHome" portal will be the first vertical industry portal hosted by GNP. The site is expected to be fully deployed and operational by the end of the first quarter of 2001. We are forecasting a significant revenue ramp from portal transactions during SoftCare's first and second fiscal 2002 quarters.

This fall, SoftCare also announced the signing of a letter of intent with SRI Strategic Resources, a subsidiary of TELUS, Canada's second largest telecommunications company and the major provider of telecommunications and systems integration services in British Columbia. SRI specializes in custom e-business solutions for municipal governments, finance, wholesale distribution and retail industries. Many of these solutions are based on integrating disparate databases and employ mixed multi-media access. Under the agreement, OpenEC would be combined with SRI's integration technology and expertise to develop a B2B e-commerce portal for forestry industry procurements. The initial market for the portal will be the British Columbia forestry industry. The portal should be deployed by late summer 2001.

Industry Overview: E-Commerce and EDI

SoftCare has broadened its EDI expertise and product marketplace through the development of a supply chain management platform, which exploits business-to-business (B2B) e-commerce. EDI is distinguished from e-commerce in a number of ways. EDI is a direct application-to-application exchange of information which utilizes a specific message and information format to exchange purchase, inventory and invoice information between disparate corporate systems. This structured information is primarily conveyed over an intermediary private network or Value Added Network (VAN). E-commerce, on the other hand, is the direct electronic interaction between disparate corporate applications, mediated by computer servers or a Web-based interface. E-commerce implies transaction processing across enterprise boundaries and typically involves an entire sales or business process.

B2B e-commerce has existed in many forms for the past several decades. Banks, credit card companies and other financial institutions have been sending trillions of dollars of transactions over secure networks such as the Federal Reserve's FedWire and the ACH networks. Wal-Mart and other leading top-tier retailers have employed electronic data interchange (EDI) to exploit just-in-time inventory management and tighter supply chain control. To date, most of these B2B implementations have been conducted over private networks, which are expensive to maintain and exclusionary by nature. Industry experts acknowledge that for these reasons, only about 10% of companies are able to participate in true EDI-based commerce.

For companies outside of EDI, the Internet removes a significant barrier to entry into e-commerce that is inherent in private networksubiquitous access. With the Internet, any company in the world can gain access cheaply and easily. This will revolutionize supply chain relationships and management. Companies such as Dell Computer and Cisco Systems have pioneered the Internet-based B2B model, and clearly demonstrated its advantages: lower cost of goods, higher levels of recurring revenue, more efficient utilization of assets. According to Giga Information Group projections, by 2002, U.S. businesses could save over $600 billion by adopting e-commerce solutions.

Leading industry sources such as Forrester and International Data Corporation have placed eye-popping forecasts on the size of the B2B market: by the year 2003, $1.7 trillion and $1.5 trillion, respectively, or nearly 10% of the $17 trillion worth of B2B transactions which occur annually in the U.S. Industry analysts are by no means in agreement as to how large the potential may be. Dataquest, a division of Gartner Group, is relatively conservative with an estimate of $380 billion in 2003, while The Boston Consulting Group has put out a forecast of $2.8 trillion, also by the year 2003. While these organizations have tended to put out rosy and attention-grabbing forecasts, no doubt exists that the potential of Internet-based B2B commerce is enormous and growing at an extraordinary rate. The Boston Consulting Group further points out that, while as recently as 1998, nearly 86% of all B2B transactions took place over private networks, intranets or extranets, by 2003 this percentage or higher will be Internet-based. The notable success of many first movers within B2B market niches has proven that early domination is a key element to achieving long-term revenues and earnings. SoftCare intends to be a leader of the B2B e-commerce revolution within its niche.

Current Products

SoftCare's Flagship Product, the OpenEC Commerce Platform and Management Center

The OpenEC Commerce Platform is the successor to an Intranet and Internet electronic commerce software product developed jointly with TRW, Inc. The product was deployed in the ADFIAP Global Data Interchange Network (ANET), a communications consortium of approximately 78 Southeast Asian banks and their customers in 1998. Following deployment, SoftCare upgraded and redesigned the product as a complete end-to-end e-commerce platform. OpenEC Commerce Platform was launched in April 1999.

Drawing upon its EDI product experience, SoftCare designed the OpenEC Commerce Platform and its OpenEC Business Relationship Management Center around open systems, modular architecture and process orientation. OpenEC supports a variety of system configurations (intranet, extranet, Internet) and delivery channels (e-mail, fax) and languages (Java, COBA, OBI, XML, X12, UNIX, Windows and NT). OpenEC is compatible with traditional legacy resource and supply chain management technologies such as EDI, yet can easily be integrated with the latest in Internet technologies and tools. Its open systems architecture, flexibility and affordability enable the development of true "net markets," whereby B2B industry communities can manage an entire supply chain, from the biggest customer to the smallest supplier, under one management platform, regardless of industry type. Further, OpenEC manages and audits all EC transactions and automates payments from customers to vendors through the Federal Reserve's EFT payment processing.

The OpenEC Commerce Platform consists of an integrated software suite that spans the breadth of supply chain management transactions, from Web-based procurement to Transaction Management to Supply Chain Execution. Five distinct electronic commerce products form the basis of the software suite:

EC Applications. There are four turnkey e-business applications that can be run out of the box, or as a base for customization for Web-based procurement or supply chain execution. These are marketed as vertical applications and include OpenEC Retail Orders, OpenEC Warehouse Orders and OpenEC Buying Group Orders.

EC Clearing. The EC Clearing Layer is marketed as OpenEC Electronic Commerce Management Center and addresses order management, credit authorization and payment processing.

EC Technologies. EC Technologies supports Web servers, tools, security, payment systems, EDI, fax, etc.

EC Integration. These two layers provide the physical and technical infrastructure to the Management Center and Applications layer and exploits open systems architecture.

Development Tools. This layer comprises the OpenEC development layer. It is based upon Object Oriented language, and is compatible with Java, C++, SQL, Corba, and a wide variety of databases. It is designed for rapid integration of best-of-breed and leading technologies for IDE, Web development, SKD and building Object Libraries.

SoftCare OpenEC Commerce Platform
(Technologies, Tools, Integration)

Key System Features Include:

• Integrates all EC Technologies systems and functions within an existing EDI system
• Common security and access control for all EC Applications
• Custom routing selection: EDI to EDI, EDI to fax, and EDI to Web
• Validates trading partner and acts upon trading relationship
• EDI-destined transactions auto-switched to use the Internet or EDI VAN
• Web forms allow non-EDI protocol transactions to be transparent to EDI system
• Data archive and warehousing for expert reports.

Investrend Research Div., Investrend Communications, Inc. John M. Dutton, President and Supervisory Analyst, 801 S. Figueroa, Suite 1120, Los Angeles, CA 90017 Phone (213) 929-2616, Fax (213) 896-0457, e-mail: jmdutton@investrend.com Web site: www.investrend.com

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