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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X Annual report pursuant to Section 13 or 15(d) of the
- --- Securities Exchange Act of 1934
For the fiscal year ended December 31, 1999
Or
Transition report pursuant to section 13 or 15 (d) of the
- --- Securities Exchange Act of 1934
Commission file number: 333-89561
E-xact Transactions Ltd.
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(Exact name of Registrant as specified in its charter)
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Delaware 98-0212722
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(State or other jurisdiction of I.R.S. Employer I. D. Number
incorporation or organization)
143 Union Blvd, Suite 850, Lakewood, Colorado 80228
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(Address of principal executive offices) (zip code)
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Registrant's telephone number, including area code: (303) 716-7090
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Securities registered pursuant to Section 12(b) of the Act: None.
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
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Indicate by check mark 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 preceding 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be included herein,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-KSB or any
amendment to this Form 10-KSB: X .
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State issuer's revenues for its most recent fiscal year: Cdn $ 139,171
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Shares of common stock, $.001 par value, outstanding as of March 27, 2000:
8,447,000 shares. Aggregate market value of voting stock held by non-affiliates
of the registrant on March 27, 2000, US $46,449,813.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (check one): Yes No X
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E-xact Transactions Ltd.
FORM 10-KSB
TABLE OF CONTENTS
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Page
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Part I
Item 1. Description of Business..................................................................3
Item 2. Description of Property.................................................................12
Item 3. Legal Proceedings.......................................................................12
Item 4. Submission of Matters to a Vote of Security Holders.....................................12
Part II
Item 5. Market for Common Equity and Related Stockholder Matters................................13
Item 6. Management's Discussion and Analysis or Plan of Operation...............................15
Item 7. Financial Statements....................................................................19
Item 8. Changes in and Disagreements with Accountants on Accounting.............................20
and Financial Disclosure
Part III
Item 9. Directors and Executive Officers; Compliance with Section 16(a).........................20
of the Exchange Act
Item 10. Executive Compensation..................................................................22
Item 11. Security Ownership of Certain Beneficial Owners and Management..........................23
Item 12. Certain Relationships and Related Transactions..........................................25
Part IV
Item 13. Exhibits and Reports on Form 8-K........................................................28
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E-xact Transactions Ltd.
FORM 10-KSB
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-KSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the, Securities Act of 1993 ("The Act") and Section
21E of the Securities Exchange Act of 1934. These statement often can be
identified by the use of terms such as "may," "will," "expect," "believes,"
"anticipate," "estimate," or "continue," or the negative thereof. The Company
intends that such forward-looking statements be subject to the safe harbors for
such statements. The Company wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. Any forward-looking statements represent management's best judgment as to
what may occur in the future. However, forward-looking statements are subject to
risks, uncertainties and important factors beyond the control of the Company
that could cause actual results and events to differ materially from historical
results of operations and events and those presently anticipated or projected.
These factors include adverse economic conditions, entry of new and stronger
competitors, inadequate capital, unexpected costs, failure to gain product
approval in United States or foreign countries and failure to capitalize upon
access to new markets. Additional risks and uncertainties that may affect
forward-looking statements about the Company's business and prospects include
the possibility that a competitor will develop a more comprehensive solution,
delays in market awareness of its products, possible delays in marketing
strategy, which could have an immediate and material adverse effect by placing
the Company behind its competitors. The Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statement or to reflect the occurrence of
anticipated or unanticipated events.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
CORPORATE HISTORY
The Company was incorporated under the laws of the Province of British
Columbia on August 13, 1998. On July 29, 1999 the Company filed a certificate of
domestication and certificate of incorporation with the secretary of state of
the State of Delaware, thereby "domesticating" or transitioning from a Canadian
company to one organized under the laws of the State of Delaware.
The Company's principal office is located at 143 Union Blvd. Suite 850,
Lakewood, CO with processing support offices located at 2410 - 555 West Hastings
Street, Vancouver, British Columbia, V6H 4N6 Canada. The Company's registered
agent in the U.S. is located at 1209 Orange Street, Wilmington, Delaware 19801
USA. The Company has no subsidiaries.
The Company offers an electronic commerce, known as "e-commerce,"
software solution for real- time transaction processing which allows PC based
cash registers, PCs, point-of-sale terminals, computer systems and proprietary
product platforms to accept credit card payments and submit those payments to
various payment processing companies for authorization and settlement/deposit.
The Company has acquired and developed software and a network system to act as a
third party payment processor to conduct transaction processing with major banks
in North America. The Company is currently approved to conduct transaction
processing with major banks and credit unions in Canada and has recently opened
a gateway with Vital Processing Services, a U.S.-based credit card processing
network, allowing the Company to process financial transactions with many of the
major banks in the U.S.
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The Company was founded in 1998, by the Sutton Group Financial Services
Ltd. and DataDirect Holdings Inc. On September 1, 1998, each of Sutton Group and
DataDirect transferred to the Company their respective interests in certain
computer software designed by DataDirect, known as the Transaction Software and
Processing System, in exchange for ninety-nine shares of common stock of the
Company each. The software system offered has real time credit card transaction
processing capabilities for other e-commerce providers.
Version 2.0 provided the ability to move transactional data between the
Company's system and the Royal Bank of Canada, the largest bank in Canada in
terms of assets and the only financial institution with which it was certified
to process financial transactions at the time. Throughout the autumn of 1998,
the Company focused on further testing of its system and enhancing its
scaleablity. Testing was undertaken with six clients, each focused on a
different type of application, including an internet based storefront, a
physical point-of-sale location, a telephone based voice response system and a
billing system. In January 1999, the Company received certification from Shared
Network Systems, a firm that processes financial transactions for most other
banks and credit unions in Canada.
Version 3.0 of the Company's transaction processing component was
released in January 1999. The software allowed other computers to speak to the
Company's computers. Following this release, the Company introduced versions for
various computer operating systems including LINUX, UNIX and JAVA. In June 1999,
the Company released version 4.0 of its software system and it also established
its internet web site. Version 4.0 focused on providing transaction processing,
reporting and support services for e-commerce merchants. Since that time, the
Company has gained some two hundred additional clients and has begun to develop
its marketing plan. The Company is currently seeking additional staff qualified
to design and build specific technologies to create additional sales
opportunities in the North American transaction processing arena.
NARRATIVE DESCRIPTION OF BUSINESS
Due to the exponential growth of the internet and e-commerce during the
past few years, the initial target of the Company's marketing will be focused
primarily towards companies conducting business over the internet. The Company
can process transactions in U.S. and Canadian dollars through credit card
merchant accounts for Visa, MasterCard, American Express, Discover, Diners Club,
and JCB. The system is secured by sophisticated encryption technology in
addition to the existing industry standard electronic security such as
firewalls. In addition to the web-based transaction processing, the Company also
offers transaction processing via other networks, such as interactive voice
response systems. Interactive voice response makes it possible for people to
communicate with a computer using their touch tone phone. Such a system not only
"listens" to a request, it is also capable of responding without human
intervention.
As of today's date, the Company has released multiple versions of the
software to run on various operating systems. The software does not require a
lengthy installation or integration process; users need only enable the software
within their computer operating environment. Once activated, merchants are ready
to start accepting customer credit cards, provided they have established a
merchant account with a bank for funds settlement.
The Company also provides merchants a variety of reports with the
transaction processing system, such as a full suite of accounting tools that
help customers manage their e-commerce activities such as detailed billing
statements, transaction search engine, web point of sale terminals and reporting
services.
In order to leverage its marketing efforts, the Company offers its
e-commerce transaction processing solution to partners, which can offer it in
turn to their clients, as well as to merchants directly. The Company's partners
may receive a percentage of every transaction fee processed by shared customers
and may use the Company's comprehensive web tools and services for the benefit
of such partner's clients or e-merchants. The Company is in the process of
developing a marketing strategy to complement its technical development plan.
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A key advantage of the Company's transaction processing software is
that it is small and can be easily integrated with most existing systems.
Additionally, the Company provides the interface to match a customer's existing
operations rather than requiring them to meet and design their systems to the
Company's pre-defined protocols, something most major competitors require.
PRODUCTS AND SERVICES
The Company's product/service is a combination of an online service and
a suite of software that act as a real-time payment mechanism for e-commerce,
either over the internet or via a wide range of other electronic networks.
How the system works utilizing the internet
When a customer makes a purchase using a credit card on the web site
of a merchant whose e-commerce system incorporates the Company's
transaction component, the payment information is first sent securely
in encrypted format to a secure computer server. A firewall exists
between the internet and web servers/transaction servers to safeguard
against any unauthorized intruders.
The encrypted payment information is then sent through another, much
more extensive firewall to the Company's Gateway Server, from which
it is sent onward to the banking network to be approved or declined.
Once approved or declined, the information is returned back securely
to the web site where only the customer can see the results. The
information regarding each transaction is also forwarded from the
Company's Gateway Server to a database to be logged as part of an
audit trail. The entire process takes place almost instantaneously,
typically in two to five seconds.
The Company's transaction software and processing system
The current processing system, released in June 1999, version 4.0, is
a combination of custom software applications and processes that run
on the Windows NT Server 4.0 operating system. The primary function
of these applications/processes is to perform real-time credit card
transaction processing through certified links with the Royal Bank of
Canada and Shared Network Systems in Canada an Vital Processing
Service in the United States.
The Company's system has five components:
Gateway Server
Transaction Server
Remote Transaction Component
Audit Database
Secure Web-based Merchant Tools
THE GATEWAY SERVER facilitates real-time credit card processing with
any of the major chartered banks and credit unions in Canada. It currently
participates directly with the Royal Bank Merchant Host Network, and also
communicates electronically with the Shared Network Systems network. Through the
Company's certified connection with Shared Network Systems, the Gateway Server
can process transactions to account holders from any of the major banks in
Canada. The Vital Processing System enables the Gateway Server to process
transactions with many of the banks in the United States.
THE TRANSACTION SERVER communicates with the Gateway Server and also
provides communications to the Remote Transaction Component. The Transaction
Server resides within the Company's network and is accessible on the internet
via the Remote Transaction Component.
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THE REMOTE TRANSACTION COMPONENT is a custom software component that
can be installed/ integrated in various computer environments to enable credit
card transaction processing on The Company's network. Merchants can download
this component from The Company's web site at www.e-xact.com in any of four
formats, depending upon which operating system the merchant uses.
Once installed on the user's system, the Remote Transaction Component
will connect via the internet to the Company's Transaction Server and
subsequently the Gateway Server and the financial networks. The Company requires
that merchants have a specific electronic security system known as Secure Socket
Layer protocol operational on their site to provide the security necessary to
conduct transactions securely via the internet. Encryption is also part of the
component, ensuring that all transmissions between itself and the Transaction
Server are safe from other users on the internet. The current version of the
Remote Transaction Component processes transactions to all the major Canadian
banks and many of the banks in the United States.
THE AUDIT DATABASE incorporates the added functionality of processing
with the additional Canadian Chartered banks. Every transaction is processed by
the Gateway and logged to the Audit Database to create an audit trail.
THE SECURE WEB-BASED MERCHANT TOOLS are a group of reporting, auditing,
searching and processing functions available to merchants who have the proper
access credentials for the Company's system. The system can be accessed through
any popular web browser and data is delivered almost instantly. Added
functionality is available through specific tools such as the web based
point-of-sale terminal where merchants can process credit card transactions
directly to their merchant account from anywhere on the internet. Through the
Company's member services on the web site, merchants can track every sale for up
to three years, check statements for totals, deposits made and customer
spending, among other functions. Security systems limit access to this
information to the merchant authorized for each account.
Dedicated transaction servers
For merchants that require a transaction server that is only used by
them, the Company can provide a dedicated server to centralize all
financially based transactions within a single organization. The
servers allow for local auditing and reporting of all transactions
conducted through the specific server. Using the internet (or other
communications medium), the merchant can interact directly with the
Company's Gateway Server for a comprehensive electronic transaction
processing solution, including complete maintenance and audit
capabilities.
Non-web based transactions
The Company also works with clients to integrate transaction
processing services with telephone-based electronic funds transfer
and billing services that do not utilize the internet. Typically,
these systems are closed networks that do not require the level of
additional firewall security as is required for internet transactions
which can be accessed by anyone in the world. The systems The Company
has developed can be applied to virtually any type of electronic
network.
Financial transaction processing certification
Certification with transaction processing networks that handle the
financial transactions that the Company's product/service is designed
for is an integral and necessary part of the Company being able to
offer its services. Banking and other financial networks operate
under stringent regulation which requires that their computer
networks be highly secured in order to protect privacy and to ensure
the integrity of the network. Accordingly, any company that wants to
offer a service that would access an existing banking or financial
network must undergo a comprehensive process of review and testing
prior to being approved to access to the network. Before an applicant
company is permitted to go through this review, the bank or
processing system must be satisfied that the company is capable of
handling mission critical processes meeting its requirements, and
that its system will operate correctly and securely.
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STAGE OF DEVELOPMENT AND COSTS
The Company's current Transaction Software and Processing System has
been in full operation since June of 1999. The system is fully operational and
approximately 5,000 transactions were processed per day through the Company's
systems for the six months ending December 31, 1999. Since the software
deployment in September, 1998, the Company has processed approximately 1.5
million transactions.
On September 1, 1998, each of Sutton Group and DataDirect transferred
to the Company their respective interests in certain assets designed by
DataDirect, known as the Transaction Software and Processing System, in exchange
for ninety-nine shares of the Company's common stock each. The consideration
paid to Sutton Group for its interest in the assets, representing costs incurred
by Sutton Group in the development of the assets, consisted of ninety-nine
common shares issued at a deemed aggregate value of Cdn. $32,515 representing
the costs incurred in the development of the assets. The consideration paid to
DataDirect for its interest in the Software System consisted of ninety-nine
common shares, issued at a deemed aggregate value of Cdn. $32,000 representing
the costs incurred in the development of the assets.
DEVELOPMENT PLANS
The Company intends to continue to upgrade and enhance its combined
systems and software focusing on the following key areas.
Further development of the fraud protection and risk assessment aspects
of the system enabling merchants to more securely process online credit cards
with the aid of automated tools to lower the merchant's risk in accepting credit
cards online. Although the Company's system contains a basic fraud engine, these
additional tools would address issues such as:
excessive frequency of credit card use;
over-purchasing limits;
purchasing from unauthorized locations; and
fake credit card number generators.
In addition, the Company is assessing and analyzing the inbound sign-up
process and plans to develop a more streamlined and automated procedure to help
merchants sign-up and engage its services. Specific design of a fully automated
online sign-up site allowing first time merchants to download all needed
components, information, and automatically pay for the Company's services is
intended to be deployed to dramatically reduce the cost and time of acquiring
new customers.
Furthermore, the Company intends to focus development on all mission
critical aspects of the system and address issues pertaining to the growth or
"scale" and the redundancy or "fault tolerant" capabilities of the system as a
whole. Additional components and connections to the system will provide greater
stability and availability of the system to all customers. Microsoft Consulting
Services has been engaged to assist in designing and deploying architecture
capable of processing a significant volume of simultaneous transactions in the
most efficient manner.
The Company plans to continue to extend the connectivity capabilities
of its system and software in order that transactions can be processed anywhere
in the world. The next targeted gateway certification is with First Data
Corporation, a large transaction processing network in the U.S. Management
believes that this would expand the Company's position in the U.S. marketplace
by providing broader processing capabilities and allow service with over 95%
coverage of the U.S. banks.
The Company plans to enhance the merchant account tools including
additional levels of password protection so that access would be restricted to
individuals granted appropriate authorizations, and development of new reporting
capabilities.
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CONCENTRATION OF SALES
For the year ended December 31, 1999 approximately 62% of the Company's
revenues were obtained from one customer. In 1998 one customer represented 51%
of the revenue for the year. One customer accounted for 40% and 29% of the
Company's total accounts receivables at December 31, 1999 and 1998 respectively.
All revenues were derived from Canadian sources in 1999 and 1998.
THE MARKET FOR THE PRODUCT
E-commerce
The term "E-commerce" encompasses the use of the internet for
marketing, advertising, trading, and selling goods and services. The
ability to use the internet for marketing and advertising results
from the power to communicate information through the internet to a
large number of individuals, businesses as well as consumers. The
ability to use the internet to consummate sales and other commercial
transactions results from the power to conduct two-way communication
from merchant to buyer and from buyer to merchant through the
internet.
Business and the internet
In order to conduct business over the internet and accept payment by
credit card, a merchant needs a merchant account. A merchant account
is an identification number that identifies a business that is
authorized to process credit card payments. A merchant account for
online sales is different from a merchant account used in a
traditional store.
Transaction processing
The internet has opened up new possibilities for processing financial
transactions. While most commerce is still conducted in the physical
world, the exchange of goods and services for payment over the
internet is growing rapidly. Continued growth of internet commerce
will depend in part on: (1) the ability of buyers and sellers to use
familiar forms of payment online, such as credit and debit cards and
checks, in a simple and secure manner; and (2) the availability of
payment software and services that:
securely transmit and store payment information with minimal
interruption of a consumer's online experience;
are convenient for merchants to install and maintain; connect
merchants to major payment processors and financial
institutions;
facilitate familiar types of transactions from the physical
world - (such as bill payment) on the internet; and
provide common payment platforms for merchants selling goods
and services both at physical points-of-sale and electronic
storefronts.
MARKETING PLAN
The Company is currently in the process of developing and executing a
comprehensive marketing strategy, which will serve to launch its product/service
on a wider scale. The Company is considering participation in industry trade
shows to expand its exposure, conducting press tours, and generally achieving
greater visibility in the marketplace.
The Company's management has determined that the most effective means
by which to market its transaction processing product/service is to leverage its
direct sales efforts through a number of marketing channels rather than pursue a
mass marketing effort directly to merchants. These channels have been identified
as the primary sources which merchants contact and through which they typically
work in order
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to establish their internet e-commerce systems. Firms within these channels
become the Company's partners.
Partners in these market channels provide the Transaction Processing
Component to the merchant--typically, as if it is part of their own
product/service. For example, a financial institution or internet service
provider can provide the Transaction Processing Component to companies it works
with as part of its e-commerce services.
Where it is necessary, as with financial institutions that become
partners, the Company establishes dedicated network connections in order to
ensure the integrity of the system and to maximize security. Non-internet based
applications may also require dedicated network connections.
Application developers integrate the Company's payment capabilities
into their products, seamlessly providing merchants setting up their own
e-commerce web site with the ability to accept secure payments by credit card
over the internet.
Pricing - The Company partners can share in the revenue generated by
processing customer transactions at each of their client merchant's web sites.
Partners also may choose whether they would like to administer the service to
their customers or have the Company bill them directly. The Company has two
pricing structures, wholesale and retail. Wholesale prices apply to channel
distributors such as internet service providers, web developers, application
developers and financial institutions. Retail rates apply to businesses selling
products or services directly to consumers.
The Company charges an activation fee for each merchant credit card
account the customer would like to enable with the Company (i.e., one for Visa,
one for MasterCard U.S. etc). This fee is charged only once per account. The
monthly service charge is to maintain the merchant account(s) with the Company's
servers. Included in this charge is access to the Company's member services that
feature tools such as internet point of sale terminals, transactional searching,
and reporting tools.
TARGET MARKET CHANNELS
The Company considers internet service providers, web developers and
application developers as technical market channels since they understand
software, servers, connectivity and other aspects necessary for integrating the
Company's Transaction Processing Component. A key aspect of the Company's
marketing to these technical channels is the fact that its software is easy to
integrate. The Company provides an interface to communicate with the most common
operating systems such as JAVA, LINUX, UNIX and Windows. This reduces the
technical barrier and makes it easier for these companies to incorporate the
Company's transaction processing component with their existing software and
systems.
A second key aspect of the Company's marketing to these channels is
that its Transaction Processing Component can be virtually transparent to end
users of products and services provided by the companies in these channels. The
Company can be identified only by a company logo. Internet service providers
present a dual market by providing the Company Transaction Processing Component
as part of e-commerce solutions that they sell to their customers and by using
the Company's system to handle their own transaction processing (accepting
payment for their internet access programs and other services).
Web developers can provide the Company's Transaction Processing
Component as an integrated part of e-commerce solutions that they develop and
manage for clients. For each transaction processed through those e-commerce
solutions, the web developer can receive a portion of the transaction processing
revenue.
Application developers include both those that are developing software
designed for internet e- commerce and developers of other transaction processing
applications. An example of another transaction processing application would be
a computerized point-of-sale terminal, as where a customer visits a business,
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makes a purchase, pays by credit card and the credit card information is entered
into the terminal or a personal computer by a cashier or sales agent. The
transaction is then sent via the internet through the Company to the bank for
approval. Although the approval process travels over the internet, the actual
point of sale may not have been conducted via the internet.
Financial Institutions
The Company has been able to take advantage of having first established
a relationship with the Royal Bank to secure additional other clients and to
develop relationships with other financial institutions, such as Shared Network
Services and, more recently, Canadian Imperial Bank of Commerce. Typically,
these relationships can provide many referrals of other direct clients.
Direct Marketing to Merchants
Direct marketing does not currently comprise a major portion of the
Company's marketing strategy, however, it is taking place via the Company's web
site and through word-of-mouth. For over three months, it has been possible to
download the Company's transaction processing component from its web site at
www.e-xact.com. Management reports that an estimated 1,000 downloads of the
component have taken place to date. These are primarily companies with which the
Company has had no direct prior contact. Not all of these are processing
transactions through the Company at this time--frequently the ability to begin
processing is delayed by merchants not yet establishing their credit card
merchant accounts.
In addition, most of the Company's current client base has made first
contact with the Company by way of word-of-mouth referrals. Among the Company's
approximately 225 current clients are the BC Children's Hospital, Lowrider
Records, Internet Direct and the Telelink Paging Network.
OPERATIONS
The Company has operations located in Lakewood, Colorado USA and
Vancouver B.C., Canada. The Company has its primary marketing and software
development center located at its U.S. facility.
The processing center for the Company is located in Vancouver B.C. This
facility houses the Company's computer center for processing all truncations
over the Internet. Network servers providing connectivity to processing systems
and the Internet are securely maintained in two, physically separated locations.
One of these locations is within an underground bank vault.
INTELLECTUAL PROPERTY
Generally speaking, the Company relies on general trademark and
copyright law to protect its products. The Company has formally registered its
primary trademark, E-xact Transaction but has not yet been granted the trademark
protection and has not obtained any patent protection for any of its products.
COMPETITION
The market for internet commerce software and services is relatively
new, intensely competitive, quickly evolving, and subject to rapid technological
change. Numerous companies are developing e-commerce and online financial
transaction technologies and systems. Key competitors include:
CyberSource Corporation of San Jose, California - CyberSource provides
e-commerce transaction processing and other back-end applications and support to
businesses that sell over the internet. Its software and services include tax
calculation, fulfillment management, and fraud prevention. CyberSource enables
secure, reliable, real-time multi-currency payment processing in local
currencies worldwide.
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CyberCash, Inc. of Reston, Virginia - CyberCash offers secure payment
transaction services that encrypt credit card information. Other offerings
include electronic cash payment software and electronic billing and payment
software. CyberCash's complete payment solutions, which span the traditional
retail market to the internet, provide electronic commerce solutions for
merchants, as well as hardware and software providers and internet service
providers.
Authorize.Net Corporation of Provo, UT - Authorize.Net Corporation
develops, markets, and sells Authorize.Net, a line of products and services that
provide solutions for authorizing, processing, and managing credit card and
electronic check transactions over the internet. Authorize.Net's transaction
processing system sends them on to the financial institutions for processing.
Internet Secure Inc. of Oakville, Ontario - Internet Secure is a
Canadian corporation which provides a secure, on-line, real-time credit card
processing system for internet merchants. Internet Secure demonstrated a secure,
on-line, real-time credit card processing system that has been approved by two
of the top six banks in Canada. Currently the company offers Canadian dollar
merchant status for Visa, MasterCard and AMEX and US dollar merchant status for
Visa and MasterCard approved and supported by Canadian and American Banks.
Eliance Corporation of Minneapolis, Minnesota - Eliance focuses on
providing its customers with e-commerce solutions including merchant accounts,
POS software and transaction processing as well as order tracking and
fulfillment services.
E-Commerce Exchange of Irvine, California - E-Commerce Exchange is a
nationwide credit card processing company, specializing in merchant account,
credit card and electronic check transaction solutions for non-traditional
merchants within the internet, home-based, phone order/mail order industries. E-
Commerce Exchange focuses on serving traditionally hard-to-place businesses,
such as home-based or new merchants, business owners with credit problems, high
risk businesses, and others which are considered non-conventional by banks and
other credit card processors.
RESEARCH AND DEVELOPMENT EXPENDITURES
The Company conducts research and development through internal research
projects. Costs are incurred from time to time, in specific projects that employ
existing technologies for which feasibility has previously been established to
develop applications. Production costs for the development of the software used
for which technological feasibility has been established but before the product
is ready for sale, are capitalized when broad applications are identified within
its existing product lines. Costs for which technological feasibility had been
established, which were capitalized in 1999 totaled nil. The Company incurred
Cdn. $281,513 of expenses relating to research and development costs in 1999,
compared to Cdn. $20,365 in 1998.
EMPLOYEES
As of December 31, 1999, the Company had 10 full-time employees. That
number includes two technical support, four programmers, one marketing, and
three senior management personnel.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains leased facilities in the locations listed below.
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Current
Square Term of Annual
Function Location Feet Lease Lease Costs
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Corporate Headquarters 143 Union Boulevard, Suite 850, 4,500 12/30/00 US $ 81,600
Lakewood, Colorado
Canadian Branch Office 555 West Hastings Street, Suite 1,300 10/31/02 Cdn. $ 40,534
2410 Vancouver, B.C.
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The Company has subleased office space in the U.S. located in Lakewood,
CO and the sublease expires September 30, 2000. The Lakewood, Colorado office
serves as the Company's corporate headquarters and software development center.
The facility in Vancouver British Columbia, Canada serves as the Company's
processing center with the lease expiring October 31, 2002.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company is
a party, or to which the property of the Company is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-12-
<PAGE> 13
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On March 22, 2000 the Company completed a public offering of it common
stock in Canada on the facilities of the Canadian Venture Exchange ("CDNX"). The
price to the public in the initial public offering was US $1.00 per share.
The Company was a private company for all of 1999 and thus a public
quote for the Company's stock does not exist.
There are approximately 500 holders of Common Stock of the Company as
of March 23, 2000.
The Company has never declared a dividend on its common stock and
intends for the foreseeable future, to retain all earnings, if any, for the
development of its business opportunities. The payment of future dividends will
be at the discretion of the Company's board of directors and will depend upon,
among other things, future earnings, capital requirements, financial condition
and general business conditions.
The transfer agent for the Company's common stock is Pacific Corporate
Trust Company, 625 Howe Street, Suite 830 Vancouver, BC V6C3B8.
Recent Sales of Unregistered Securities
During the period from the Company's incorporation through to the date
of this prospectus, the Company has issued the following shares, after giving
effect to the September 2, 1999 stock split of 21,000 to 1: The Company issued
99 shares of common stock to each of DataDirect Holdings, Inc. and Sutton Group
Financial Services, Ltd. on September 1, 1998 in consideration of the transfer
of certain software assets to the Company. Effective September 2, 1999, these
shares were subject to a 21,000:1 share split in connection with the
domestication of the Company as a Delaware corporation. These shares have been
assigned a deemed price of Cdn. $0.25 per share to reflect the estimated value
of the assets transferred as consideration for the shares as of June 15, 1999.
The issuance of the shares by the Delaware domesticated corporation was made in
reliance upon Regulation S under the Securities Act of 1933 as the shares were
issued in a transaction outside the U.S. to two non-U.S. persons and the
certificates II-1 representing the shares will bear a legend calling attention
to the restrictions on transfer of the shares in the U.S. or to a U.S. person.
Between August 5, 1999 and October 14, 1999, the Company sold and
issued 670,000 shares of common stock to nine U.S. persons at a price of US
$0.50 per share (for gross proceeds of US $335,000) in transactions that were
exempt from registration pursuant to Regulation D under the Securities Act of
1933. All purchasers were accredited investors, all shares were taken for
investment and with no view to distribution except pursuant to an effective
registration statement or exemption from registration under the Securities Act
of 1933, and all certificates evidencing the shares will be legended to the
reflect the restrictions upon their transfer.
Between June 1, 1999 and December 22, 1999, the Company sold and issued
1,027,000 shares of common stock to 46 non-U.S. persons in jurisdictions outside
of the United States at a price per share of US $0.50 (for gross proceeds of US
$513,500) in the reliance upon Regulation S under the Securities Act of 1933.
All certificates representing the shares will be legended to reflect the
restrictions upon transfer of the shares in the U.S. or to a U.S. person.
During 1999, the board of directors authorized the grant of options to
purchase up to an aggregate
-13-
<PAGE> 14
of 650,000 shares of the Company common stock to individuals who are directors,
officers, or employees of the Company. Subsequent to December 31, 1999 the
Company's board of directors approved the granting of 763,300 options to
purchase shares of the Company's common stock. The number of options granted to
any one person ranges from 100 shares to 500,000 shares (in the case of the
chief executive officer). All of these options are exercisable at US $1.00 per
share and vest over a 24-month or 36-month period. None of the options have
been exercised. The options were granted in reliance upon the exemption from
registration under the Securities Act of 1933 provided for in Rule 701 under the
Securities Act of 1933.
Pursuant to a consulting agreement dated July 28, 1999 (amended
February 15, 2000), the Company granted Bolder Venture Partners a warrant to
purchase up to 1,236,136 shares of the Company common stock for a period of five
years from the date the milestone is achieved; 225,000 of the warrants were
exercised at US $0.25 per share on January 18, 2000. The remaining warrants
became exercisable or will become exercisable as follows:
- 557,136 at US $1.00 per share as of October 14, 1999.
- 225,000 at US $1.00 per share upon completion of the initial public
offering of the Company.
- 225,000 at a price per share equal to the price per share under a
future private placement of not less than US $3,000,000, if such a
private placement is made.
The warrants were issued in reliance upon an exemption from
registration under the Securities Act of 1933 pursuant to Section 4(2) of the
Securities Act of 1933. The warrant was granted pursuant to a consulting
agreement in a transaction not involving a public offering to a fully informed
investor that had agreed to hold the shares for investment with no view to a
distribution except pursuant to an effective registration statement or an
exemption from registration under the Securities Act of 1933.
-14-
<PAGE> 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion should be read together with the Company's
financial statements and accompanying notes included elsewhere.
Exchange Rates
All dollar amounts herein are stated in U.S. dollars except where
otherwise indicated. The following table reflects the rate of exchange for
Canadian dollars per U.S. $1.00 in effect at the end of the following periods
and the average rate of exchange during such periods, based on the Bank of
Canada average noon spot rate of exchange:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31
1997 1998 1999
<S> <C> <C> <C>
Rate at end of period: Cdn. $1.4305 Cdn. $1.5333 Cdn. $1.4433
Average rate for Cdn. $1.4267 Cdn. $1.4831 Cdn. $1.4858
period:
- --------------------------------------------------------------------------------------------------
On February 17, 2000, the Bank of Canada noon spot rate of exchange was U.S. $1.00 = Cdn. $1.4522.
</TABLE>
INTRODUCTION
The Company was incorporated under the Company Act of British Columbia,
Canada on August 13, 1998. On July 29, 1999 the Company was reincorporated in
the state of Delaware, USA. The Company earns its revenue by charging its
customers a setup fee, a monthly membership fee and a transaction fee.
Transaction fees are based on the number of transactions processed for a
particular merchant in a month.
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO
FISCAL YEAR ENDED DECEMBER 31, 1998
(ALL AMOUNTS ARE EXPRESSED IN CANADIAN DOLLARS)
REVENUES - In 1999 revenues increased $96,125, or 223% from $43,046 in
1998 to $139,171 in 1999. The Company in 1999 continued to expanded its Internet
services after beginning operations in August 1998. The Company for fiscal 1999
was in the later stages of completing the development of its software and was
attempting to expand its operations after deploying Version 4.0 of its software
and began to grow revenues. In the last three months of the fiscal year revenues
grew $58,859 or 73% from $80,312 for the first nine months of fiscal 1999. The
growth in revenue were mainly from transaction and setup fees which grew at a
rate of 479% or $106,645 over fiscal 1998. The Company's Web Development
revenues decreased by $10,520 or 51% over fiscal 1998 due to the Company
discontinuing these services in October 1999. This permitted the Company to
focus on its core business of transaction processing.
GROSS MARGINS - The Company's gross profit margins in 1999 were
approximately 69% compared to 58% in 1998. The 1999 margins increased due to
expanding revenues without associated increases in costs of sales.
SELLING AND GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) - - Increased
from $57,002 in fiscal 1998, to $762,693 in 1999. This resulted in a 1,238%
increase in SG&A expenditures over the previous fiscal period with operations
beginning in August 1998. The increased expenditures were attributed to
activities in 1999 of building the Company's emerging Internet transaction
processing software and center in the market place. These expenditures were
targeted at building the organization in both the US and Canada by hiring
professional management and personnel. The Company had 4 consultants in 1998
versus 10 employees ending December 1999. General and Administrative (G&A)
expenses increased from $39,283 in 1998 to $679,618 in 1999, or a 1,630%
increase. The increases over the 1998 expenditures arose in
-15-
<PAGE> 16
support of the Company's continued expansion of building the infrastructure
associated with positioning the Company for aggressive growth. In 1999 general
and administrative salaries and employee benefits increased by $85,000;
accounting, consulting and legal expenses increased by $444,093; rents and
telephone expense increased by $33,000 and amortization increased by $35,000.
Selling and Marketing expenditures increased from $17,719 in 1998 to $83,075 in
1999; subcontracting associated with software marketing activities increased by
$53,000, travel expenses increased by $17,000, and advertising and promotions
increased by $11,000. These expenditures increased in the support of building an
organization that can continue to expand the growth of its Internet transaction
processing business both in Canada and the US.
RESEARCH AND DEVELOPMENT EXPENSES - The Company conducts research and
development through internal research projects. Costs are incurred from time to
time, in specific projects that employ existing technologies for which
feasibility has previously been established to develop new applications.
Production costs for the development of the software used, for which
technological feasibility has been established but before the product is ready
for sale, are expensed. Research and development expenditures increased from
$20,365 in 1998 to $281,513 in 1999. Programing increased by $85,000, consulting
fees increase by $32,000, equipment lease increase by $9,000 and other
development related fees increased by $150,000.
OTHER INCOME (EXPENSES) -Interest income totaled $1,411, versus no
interest income in 1998. The increase was associated with the fund raising
activities which occurred in 1999 and the investment income from those funds.
Unrealized and realized exchange gain and losses totaled $20,226. This is the
results of recognizing the revenues and expenses translation using average
exchange rates prevailing during the period.
INCOME TAXES - The Company incurred a Canadian tax expense attributed
to its re-domicile out of Canada of $149,000 in 1999. See note 12 in the notes
to the financial statements on page F-17
NET LOSS - The Company incurred a loss of $1,115,630 in 1999, compared
to a loss of $52,208 in 1998. The increased losses are the results of the
Company aggressive expansion of its Internet transaction processing, marketing
efforts, and the hiring of a professional management team to grow the Company in
an emerging market.
Management believes that higher levels of operating expenditures will
continue through 2000 in order to continue the expansion of the Company's
Internet transaction processing into an emerging market. The Company anticipates
to continue to generate operating losses to attain market penetration. The
Company anticipates that an aggressive marketing strategy will help establish
the Company as a leader in the market segment.
LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 1999
CAPITAL AND DEBT FINANCING
During 1999, the Company completed a private placement of 1,697,000
shares of the Company's common stock, at a price of US $0.50 per share. The
Company received $1,223,394 from the offering net of offering costs of $30,265.
Subsequent to its fiscal year end the Company in March 2000, completed
its initial public offering in Canada of 2,250,000 shares of the Company's
common stock at an offering price of US $1.00 per share on the Canadian Venture
Exchange. Additionally, the Agent was issued 75,000 shares of the Company's
common stock in the Canadian offering along with warrants to purchase 225,000
shares of the Company's common stock at a price of US $1.00 for the first 12
months and at a price of US $1.15 for the next 12 months. The estimated net cash
proceeds to the Company from the initial public offering is approximately US
$1,700,000 after payment of expenses.
-16-
<PAGE> 17
The equity financing that occurred in 1999 was utilized to build out
the G&A infrastructure and continue the development of the Company's transaction
processing software and for working capital purposes.
A working capital deficiency existed at December 31, 1999. The Company
had deficit working capital of approximately $120,000 versus a deficit of
$14,018 at December 31, 1998. The decrease in working capital is associated with
the utilization of working capital to support the losses, the expansion of the
operations, and expenditures incurred relating to the initial public offering in
2000.
CASH FLOW
During the year ended December 31, 1999, the Company used cash from
operations in the amount of $626,363 compared to a source of cash of $6,587 in
the prior year. This is a result of working capital which was utilized to fund
the increases in accounts receivables and operating losses.
Cash provided by financing activities was $1,157,032 for the year ended
December 31, 1999 compared to $1 in the previous year. The Company received net
proceeds in the amounts of $1,223,394 from the sale of equity securities during
the year.
Cash used in investing activities, totaled $92,532 during the year
ended December 31, 1999 compared to $2,086 in the prior year. The increase is
primarily attributed to the purchase of capital equipment for new personnel and
to expand processing capabilities.
The Company's negative cash flow from operations has primarily resulted
from an increase in the losses of the Company resulting from increased business
activity the expenditures to build an Internet transaction processing business
and expenditures incurred relating to the costs relating to the public offering.
Management believes this negative cash flow will continue during 2000, due to
the Company's intention to continue rapid expansion of sales and marketing,
general and administrative and research and development expenditures in order to
develop a North American network. These actions are anticipated to result in
significantly increased selling, general and administrative expenses and capital
expenditures to meet this rapid expansion.
CAPITAL RESOURCES
The Company's working capital decreased over the last 12 months,
primarily due to the Company supporting its operating losses. The Company had a
deficiency in working capital of $120,000 of current assets over current
liabilities as of the 1999 fiscal year end compared to a deficiency of $14,000
in 1998. Further, the Company completed in March 2000 its Initial Public
Offering of 2,250,000 shares at US $1.00 per share. Management anticipates the
Company will continue to invest significant resources in its infrastructure in
2000. At present management believes the Company has resources which will be
sufficient to fund planned operations until the second quarter of the year 2001.
The Company anticipates continuing to aggressively hire sales and key management
to meet its desired growth of the Company's Internet transaction processing
activities in the US and Canada. As staff is expanded, the Company will need to
invest in new equipment, and fund the expenses associated with these additions.
Management believes the Company will be able to raise additional equity funding
and secure working capital financing of its receivables as the Company continues
to aggressively expand in the emerging market.
Management believes that the Company will continue to incur losses
until through of 2000. Further, management believes that it has access to
capital in the form of additional, short and/or long term credit facilities, and
additional equity financing. Management anticipates it will continue to have
access to additional capital through these sources in amounts necessary to
support its growth plans. In the event that cash flow from operations, if any,
together with the proceeds of any future financings, are insufficient to meet
-17-
<PAGE> 18
these expenses, the Company will be required to re-evaluate its planned
expenditures and allocate its total resources in such manner as the board of
directors and management deems to be in the Company's best interest.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued Statements
of Financial Accounting Standards that may affect the Company's financial
statements as follows:
In June 1998 FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair market value. Gains
or losses resulting from changes in the values of those derivatives are
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes in fair
value or cash flows. SFAS No. 133 is effective for fiscal years beginning after
June 15, 1999. Management believes that the adoption of SFAS No. 133 will have
no material effect on its financial statements.
Also in June 1999, FASB issued SFAS No. 137, which essentially defers
the effective date of SFAS No. 133 (see above) to all quarters and fiscal years
beginning after June 15, 2000.
YEAR 2000 COMPUTER SYSTEMS ISSUES UPDATE
To date our systems and software have not experienced any material
disruption due to the onset of the Year 2000, and we have completed our Year
2000 preparedness activities. To the best of knowledge all of our systems are
operating normally, as are those of our customers and suppliers and we do not
expect any material issues to arise regarding Year 2000 issues. Our expenditures
on the year 2000 issue were immaterial.
-18-
<PAGE> 19
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Deloitte & Touche LLP Chartered Accountants F-1
Balance Sheet - December 31, 1999 and December 31, 1998 F-2
Statements of Operations - For the Periods
Ended December 31, 1999 and 1998 F-3
Statements of Cash Flows - For the Periods
Ended December 31, 1999 and 1998 F-4
Statements of Stockholders' Equity - For the Periods Ended
December 31, 1999 and 1998 F-5
Significant of Accounting Polices F-6
Notes to Financial Statements F-9
</TABLE>
-19-
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Directors of
E-xact Transactions Ltd.
We have audited the balance sheets of E-xact Transactions Ltd. as at December
31, 1999 and 1998 and the statements of operations, shareholders' equity and
cash flows for the year ended December 31, 1999 and period from inception on
August 13, 1998 to December 31, 1998. These 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 Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1999 and 1998
and the results of its operations and its cash flows for the year ended December
31, 1999 and period from inception on August 13, 1998 to December 31, 1998 in
accordance with accounting principles generally accepted in the United States of
America.
/S/ DELOITTE & TOUCHE LLP
Chartered Accountants
Vancouver, British Columbia
February 18, 2000 (except to Note 14 which is as of March 24, 2000)
F-1
<PAGE> 21
E-XACT TRANSACTIONS LTD.
BALANCE SHEETS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 442,639 $ 4,502
Accounts receivable (Note 3) 118,897 18,520
Prepaid expenses and deposits 6,296 6,296
------------ ------------
TOTAL CURRENT ASSETS 567,832 29,318
DEFERRED SHARE ISSUE COSTS 257,964 --
ACQUIRED SOFTWARE AND INTANGIBLES (Note 4) -- 24,258
CAPITAL ASSETS (Note 5) 66,665 2,069
------------ ------------
TOTAL ASSETS $ 892,461 $ 55,645
============ ============
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (Note 7) $ 538,658 $ 32,731
Income taxes payable 149,000 --
Due to shareholders (Note 6) -- 10,605
------------ ------------
TOTAL CURRENT LIABILITIES 687,658 43,336
============ ============
COMMITMENTS (Note 11)
SHAREHOLDERS' EQUITY
Common stock, common shares issued and outstanding (Note 8)
5,897,000 at December 31, 1999 and
4,200,000 at December 31, 1998 5,897 64,517
Additional paid in capital 1,366,744 --
Accumulated deficit (1,167,838) (52,208)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 204,803 12,309
------------ ------------
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES $ 892,461 $ 55,645
============ ============
</TABLE>
F-2
<PAGE> 22
E-XACT TRANSACTIONS LTD.
STATEMENTS OF OPERATIONS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
<TABLE>
<CAPTION>
From inception
August 13,
Year ended 1998
December 31, to December 31,
1999 1998
------------ ------------
<S> <C> <C>
REVENUES
Online transactions $ 128,899 $ 22,254
Web development 10,272 20,792
------------ ------------
139,171 43,046
------------ ------------
COST OF SALES
Cost of online transactions 38,155 7,835
Cost of web development 4,625 10,052
------------ ------------
42,780 17,887
------------ ------------
EXPENSES
General and administrative expenses 679,618 39,283
Sales and marketing 83,075 17,719
Research and development 281,513 20,365
------------ ------------
1,044,206 77,367
------------ ------------
OPERATING LOSS (947,815) (52,208)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 1,411 --
Foreign exchange (20,226) --
------------ ------------
(18,815) --
------------ ------------
NET LOSS BEFORE INCOME TAX (966,630) (52,208)
INCOME TAXES (Note 12) (149,000) --
------------ ------------
NET LOSS $ (1,115,630) $ (52,208)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.25) $ (0.01)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES USED
TO CALCULATE LOSS PER SHARE 4,553,542 3,820,832
============ ============
</TABLE>
F-3
<PAGE> 23
E-XACT TRANSACTIONS LTD.
STATEMENTS OF CASH FLOWS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
<TABLE>
<CAPTION>
From inception
August 13,
Year ended 1998
December 31, to December 31,
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,115,630) $ (52,208)
Item not affecting cash
Amortization of capital assets, acquired software and
other intangible assets 52,194 40,275
Warrants issued for financing fees 84,730 --
Net change in operating assets and liabilities
Accounts receivable (100,377) (18,520)
Prepaid expenses and deposits -- (6,296)
Accounts payable and accrued liabilities 314,325 32,731
Income taxes payable 149,000 --
Advances from shareholders (10,605) 10,605
------------ ------------
(626,363) 6,587
------------ ------------
FINANCING ACTIVITIES
Proceeds on issuance of capital stock, net of offering costs 1,223,394 1
Deferred share issue costs, net of related accounts payable (66,362) --
------------ ------------
1,157,032 1
------------ ------------
INVESTING ACTIVITY
Purchase of capital assets (92,532) (2,086)
------------ ------------
NET CASH INFLOW 438,137 4,502
CASH, BEGINNING OF PERIOD 4,502 --
------------ ------------
CASH, END OF PERIOD $ 442,639 $ 4,502
============ ============
SUPPLEMENTAL NON-CASH INVESTING AND
FINANCING CASH FLOW DISCLOSURES
Common shares issued for acquired software and intangibles $ -- $ 64,517
------------ ------------
Warrants issued for financing services $ 206,484 $ --
------------ ------------
</TABLE>
F-4
<PAGE> 24
E-XACT TRANSACTIONS LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
<TABLE>
<CAPTION>
Additional Total
Common Stock paid in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common stock for cash 42,000 $ 2 $ -- $ -- $ 2
Issuance of common stock for acquired
software and intangibles (Note 4) 4,158,000 64,515 -- -- 64,515
Net loss -- -- -- (52,208) (52,208)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998
4,200,000 64,517 -- (52,208) 12,309
Reclassification on reincorporation
(Note 8) -- (60,317) 60,317 -- --
Warrants issued for consulting fees
(Note 8(d)) -- -- 84,730 -- 84,730
Issuance of common stock on private
placement, net of offering costs
of $30,265 and warrants issued
for financing services of $206,484
(Note 8(d)) 1,697,000 1,697 1,221,697 -- 1,223,394
Net loss -- -- -- (1,115,630) (1,115,630)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 5,897,000 $ 5,897 $ 1,366,744 $(1,167,838) $ 204,803
=========== =========== =========== =========== ===========
</TABLE>
F-5
<PAGE> 25
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
1. DESCRIPTION OF THE BUSINESS
The Company specializes in online financial transaction processing
supporting customers' e-commerce activities.
The Company was initially incorporated on August 13, 1998 under the
laws of British Columbia, Canada. On July 28, 1999 the Company was
reincorporated in the State of Delaware.
The Company was formed through the acquisition of certain software and
other intangible assets from Sutton Group Financial Services ("Sutton")
and Data Direct Holdings Ltd. ("DataDirect"). In consideration for the
acquisition of these assets Sutton and Data Direct, two unrelated
companies, at the time of the acquisition, each received 2,100,000
common shares (see Note 4).
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with the
following significant accounting polices.
(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, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities at the date of
the financial statements and for the periods presented.
Estimates are used for, but not limited to, accounting for
doubtful accounts, amortization, income taxes, and
contingencies. Actual results may differ from those estimates.
(b) Foreign currency translation
The Company is a Delaware corporation and considers the
Canadian dollar to be the appropriate functional currency for
the Company's operations because the majority of the Company's
business is in Canada, denominated in Canadian dollars.
Monetary assets and liabilities that are not denominated in
Canadian dollars are translated at the exchange rate on the
balance sheet date. Revenues and expenses are translated using
average exchange rates prevailing during the period. Gains and
losses on foreign currency transactions and translation are
recorded in the statements of operations.
The Company periodically conducts a review in accordance with
SFAS 52 to establish its functional currency.
(c) Research and development costs
All research and development costs are expensed when incurred.
F-6
<PAGE> 26
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) Deferred share issue costs
Share issue costs incurred prior to the issuance of share
capital are deferred and netted against the proceeds when the
related shares are issued.
(e) Acquired software and intangibles
Costs related to acquired software for internal use are
capitalized and are amortized on a straight-line basis over
one year, the estimated period of benefit. Costs related to
the acquisition of other rights are capitalized and are
amortized on a straight-line basis in 1998, the estimated
period of benefit. The Company evaluates the recoverability of
its acquired software and intangible assets whenever events or
changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. An impairment loss would be
recognized when estimates of future cash flows expected to
result from the use of an asset and its eventual disposition
are less than its carrying amount. No impairment in assets has
been identified by the Company in the periods ended December
31, 1999 and 1998.
(f) Capital assets and amortization
Capital assets are recorded at cost and amortized over the
estimated useful lives of the assets on the following basis:
Computer software 100% per annum declining balance
Computer equipment 30% per annum declining balance
The Company periodically evaluates the recoverability of its
capital assets whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. An impairment loss would be recognized when
estimates of future cash flows expected to result from the use
of an asset and its eventual disposition are less than its
carrying amount. No impairment in assets had been identified
by the Company in the periods ended December 31, 1999 and
1998.
(g) Revenue recognition
The Company's revenue is derived from the following sources:
(i) Online transactions
Revenue from the setup, maintenance, and processing
of online transactions is recognized when the
services are performed, the amount of revenue is
determinable and collectibility is reasonably
assured.
F-7
<PAGE> 27
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Revenue recognition (continued)
(ii) Web development
Revenue from services related to web development are
recognized when the services are performed, the
amount of revenue is determinable and collectibility
is reasonably assured. Provision for estimated losses
on contracts is recorded when identified.
(h) Stock-based compensation plans
As permitted under SFAS No. 123, Accounting for Stock-Based
Compensation, the Company has accounted for employee and
directors stock options in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and has made the pro forma disclosures
required by SFAS No. 123 in Note 8.
SFAS No. 123, "Accounting for Stock-Based Compensation",
requires the use of the fair value based method of accounting
for stock options. Under this method, compensation cost is
measured at the grant date as the fair value of the options
granted and is recognized over the vesting period. Where the
Company issues options to individuals other than employees and
directors deferred share-based compensation is recorded. These
amounts are amortized as charges to operations, over the
vesting period of the individual stock options.
(i) Income taxes
The Company accounts for income taxes under the provisions of
SFAS No. 109, Accounting for Income taxes. This statement
provides for a liability approach under which deferred income
taxes are provided based upon enacted tax laws and rates
applicable to the periods in which the taxes become payable.
Deferred tax assets, if any, are recognized only to the extent
that, in the opinion of management, it is more likely than not
that the income tax assets will be realized.
(j) Basic and diluted loss per share
Basic loss per share is computed by dividing net loss
available to common shareholders by the weighted average
number of common shares outstanding for the period.
F-8
<PAGE> 28
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Comprehensive income
SFAS No. 130, Reporting Comprehensive Income, establishes
standards for the reporting and display of comprehensive
income and its components (revenue, expenses, gains and
losses) in a full set of general-purpose financial statements.
The company has no comprehensive income items, other than the
net loss, in any of the periods presented.
(l) Business segments
SFAS No. 131, Disclosures about Segments of an Enterprises and
Related Information, establishes standards for reporting,
information about operating segments in annual financial
statements. It also establishes standards for disclosures
about products and services, geographic areas and major
customers. Information related to SFAS No. 131 is contained in
Note 13.
(m) Recent accounting pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, which
establishes accounting and reporting standards for derivative
instruments and hedging activities SFAS 133 is effective for
all fiscal quarters of all fiscal years beginning after June
15, 1999. The Financial Accounting Standards Board have
subsequently delayed implementation of the standard for the
financial years beginning after June 15, 2000. The impact on
the company's financial statements is not expected to be
material.
3. ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of a $5,000 allowance for doubtful
accounts at December 31, 1999 (1998 - Nil).
4. ACQUIRED SOFTWARE AND INTANGIBLES
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Acquired software and intangible $ 64,515 $ 64,515
Accumulated amortization (64,515) (40,257)
------------ ------------
$ -- $ 24,258
============ ============
</TABLE>
F-9
<PAGE> 29
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
4. ACQUIRED SOFTWARE AND INTANGIBLES (CONTINUED)
Effective September 1, 1998, the Company entered into an agreement with
Sutton Group Financial Services Ltd. ("Sutton"), a shareholder, under
which the Company purchased all rights, title and interest in and to
Version 2 of the E-xact Gateway software. The consideration paid for
this asset, representing the costs incurred by Sutton in the
development of this asset, consisted of 2,100,000 common shares at a
deemed value of $32,515 (Note 8).
At the same time, the Company entered into an agreement with DataDirect
Holdings Inc. ("DataDirect"), a shareholder, under which the Company
acquired intangible assets consisting of the development rights in and
to Version 2 of E-xact Gateway software as well as certain rights and
customer lists. The consideration for these intangibles, representing
the costs incurred by DataDirect in the development of these assets of
$16,000 for the software rights and $16,000 of other intangible assets,
consisted of 2,100,000 common shares at a deemed value of $32,000 (Note
8).
The acquisition of the software and other intangible has been recorded
at the carrying value in the accounts of the related party.
5. CAPITAL ASSETS
<TABLE>
<CAPTION>
December 31,
December 31, 1999 1998
------------------------------------------ ------------
Accumulated Net Book Net Book
Cost Amortization Value Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computer software $ 38,387 $ 19,194 $ 19,193 $ --
Computer equipment 56,369 8,897 47,472 2,069
------------ ------------ ------------ ------------
$ 94,756 $ 28,091 $ 66,665 $ 2,069
============ ============ ============ ============
</TABLE>
6. DUE TO SHAREHOLDERS
The amounts due to shareholders are unsecured, non-interest bearing and
are repayable under the Company's normal trade terms.
F-10
<PAGE> 30
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The principal components of accounts payable and accrued liabilities
were as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Trade payables $ 297,975 $ 17,446
Financing costs payable
191,602 --
Other accrued liabilities
49,081 15,285
------------ ------------
$ 538,658 $ 32,731
============ ============
</TABLE>
8. SHAREHOLDERS' EQUITY
(a) Authorized stock
The Company was initially incorporated on August 13, 1998
under the laws of British Columbia, Canada with 50,000,000
authorized common stock with no par value. On July 28, 1999
the Company was reincorporated in the State of Delaware.
The Company has authorized 50,000,000 common stock with a par
value of $0.001 per share. As a result of the reincorporation
and change to par value shares, $60,317 was reclassified from
common stock to additional paid in capital.
(b) On September 2, 1999 the Company's common stock were split,
twenty-one thousand-for-one. All per share amounts of prior
periods have been adjusted to reflect the split.
(c) Stock-based compensation plans
The Company has established a Share Option Plan (the "option
plan") which provides for options to be granted by the Company
to its directors, officers, employees and consultants of the
Company and affiliated companies. The Company has reserved a
maximum of 1,510,000 common shares for issuance under the
plan. At the date options are granted, the exercise price for
an option shall not be less than the then market price of the
common shares of the Company. Options granted are subject to
certain vesting requirements.
F-11
<PAGE> 31
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
8. SHAREHOLDERS' EQUITY (CONTINUED)
(c) Stock-based compensation plans (continued)
A summary of the status of the Company's stock option plan as
of December 31, 1999 and 1998 and changes during the periods
ending on those dates is presented below:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- ---------------------------------------
Weighted- Weighted-
average average
exercise exercise
Common price Common price
Options shares (U.S. dollars) shares (U.S. dollars)
- ---------------------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period -- $ -- -- $ --
Granted 650,000 1.00 -- --
Exercised -- -- -- --
Cancelled -- -- -- --
- ---------------------------------- ------------------ ------------------ ------------------ ------------------
Outstanding at end of period 650,000 $ 1.00 -- $ --
- ---------------------------------- ------------------ ------------------ ------------------ ------------------
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
- ---------------------------------------------------------------------------------------------------
Number Number
Outstanding Weighted-Average Exercisable
Exercise at December 31, Remaining at December 31,
Price 1999 Contractual Life 1999
- ----------------- ---------------------- ------------------------- ---------------------
<S> <C> <C> <C>
$1.00 650,000 5.0 years 4,167
</TABLE>
Under APB No. 25, because the exercise price of the Company's
employee stock options generally equals the fair value of the
underlying stock on the date of grant, no compensation expense
is recognized.
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", issued in October
1995, requires the use of the fair value based method of
accounting for stock options. Under this method, compensation
cost is measured at the grant date as the fair value of the
options granted and is recognized over the exercise period.
During the periods ended December 31, 1999 and 1998, the
Company issued no options to individuals other than employees
and directors. SFAS 123, allows the Company to continue to
measure the compensation cost of employee related stock
options in accordance with APB 25. The Company has therefore
adopted the disclosure-only provision of SFAS 123.
F-12
<PAGE> 32
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
8. SHAREHOLDERS' EQUITY (CONTINUED)
(c) Stock-based compensation plans (continued)
Had compensation cost for the Company's share options granted
to employees and directors been determined based on the
Black-Scholes value at the grant dates for awards as
prescribed by SFAS No. 123, pro forma net loss and net loss
per share would have been as follows:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Net loss
As reported $ (1,115,630)
SFAS No. 123 pro forma (13,469)
------------
Pro forma net loss (1,129,099)
------------
Loss per share
As reported (0.25)
SFAS No. 123 pro forma --
------------
Pro forma loss per share $ (0.25)
============
</TABLE>
The weighted average Black-Scholes option pricing model value
of options granted under the share option plan during the
periods ended December 31, 1999 and 1998 were $0.26 and Nil
per share, respectively. The fair value for these options was
estimated at the date of grant using the following weighted
average assumptions:
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Assumption
Volatility factor of expected market price
of the Company's shares 5.3%
Dividend yield 0.0%
Weighted average expected life of stock options 3 years
Risk free interest rate 6.55%
</TABLE>
F-13
<PAGE> 33
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
8. SHAREHOLDERS' EQUITY (CONTINUED)
(d) Warrants
On July 28, 1999, and amended January 18, 2000 and February
15, 2000, the Company entered into an agreement with Bolder
Venture Partners ("BVP") to have BVP complete a financing plan
which will include an initial private placement (b), an
Initial Public Offering ("IPO") (c), and a Follow-On
Placement. In partial consideration of BVP's services, the
Company will issue BVP warrants to purchase 1,232,136 shares
exercisable for a five year term from July 28, 1999. 225,000
of the Warrants were exercised at U.S. $0.25 per share on
January 18, 2000. As these Warrants became exercisable on
August 28, 1999, the Company has recorded the fair value of
these warrants of $84,730 as a corporate finance fee in the
year ended December 31, 1999. The remaining Warrants became
exercisable or will be exercisable as follows:
(i) 557,136 of the Warrants became exercisable as of
October 14, 1999 at a price of U.S. $1.00 per share;
(ii) 225,000 of the Warrants will be exercisable upon
completion of the IPO at a price per share equal to
the IPO price (estimated to be U.S. $1.00 per share);
and
(iii) 225,000 of the Warrants will be exercisable
immediately upon completion of the Follow-On
Placement of not less than U.S. $3,000,000, at a
price equal to the Follow-On private placement price.
The exercise price of all warrants increase by 15% in each of
the second, third, fourth and fifth years of the term of the
Warrants.
The 225,000 Warrants exercised January 18, 2000 were not
contingent on obtaining financing and therefore have been
accounted for as a compensatory finance fee equal to the fair
market value of the shares on August 28, 1999 less the option
price which amounted to $84,730. The remaining tranches will
be accounted for in a similar manner except any difference
between the fair value and the option price will be offset
against share capital as receiving the warrants is contingent
on raising the applicable capital. On October 14, 1999,
557,136 Warrants became exercisable on completion of a private
placement. These warrants had a fair value of $206,484 and
were recorded as an additional cost of raising the applicable
capital. Under the agreement, BVP agreed to serve as corporate
and financial advisors to the Company for a period of twelve
months, commencing July 1, 1999 at a rate of U.S. $10,000 per
month.
F-14
<PAGE> 34
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
9. FINANCIAL INSTRUMENTS
(a) Fair value
The carrying values of cash, accounts receivable, deposits,
accounts payable and accrued liabilities and amounts due to
shareholders, as reflected in the balance sheet, approximate
their respective fair values as at December 31, 1999 and 1998
because of the demand or short-term maturity of these
instruments.
(b) Credit risk and economic dependence
Financial instruments which potentially subject the Company to
credit risk consist of bank deposits and accounts receivable.
Cash is deposited with high credit quality financial
institutions. Accounts receivable consist of amounts
receivable from trade and other receivables. The Company does
not require collateral or other security to support accounts
receivable and bad debt experience has not been significant.
The Company is subject to credit risk as it earns revenue from
a limited number of customers. During the year ended December
31, 1999 - $86,797 (period from inception August 13, 1998 to
December 31, 1998 - $22,135) of revenue was derived from a
single customer. As at December 31, 1999 accounts receivable
included $48,130 (December 31, 1998 - $5,408) due from a
single customer.
(c) Foreign exchange risk
The Company undertakes certain transactions in US dollars and
as such is subject to risk due to fluctuations in exchange
rates. The Company does not use derivative instruments to
reduce exposure to foreign exchange risk.
10. RELATED PARTY TRANSACTIONS
Related party transactions not otherwise disclosed in these financial
statements include:
(a) During the year ended December 31, 1999 the Company paid
consulting fees of $181,784 (period from inception August 13,
1998 to December 31, 1998 - Nil) to a corporate shareholder
for research, development and computer services.
(b) As at December 31, 1999 accounts payable and accrued
liabilities include $62,846 (December 31, 1998 - $6,499) due
to a corporate shareholder for operating costs paid on its
behalf.
F-15
<PAGE> 35
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
11. COMMITMENTS
Future minimum operating lease payment for premises and equipment
leases for the years ending December 31 are due as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---------- ----------
<S> <C> <C>
2000 $ 130,957 $ 36,366
2001 43,141 28,047
2002 36,827 -
2003 5,259 -
2004 1,315 -
---------- ----------
$ 217,499 $ 64,413
========== ==========
</TABLE>
12. INCOME TAXES
Income tax expense for the periods ended December 31, 1999 and 1998 was
as follows:
<TABLE>
<CAPTION>
From Inception on
Year Ended August 13, 1998
December 31, to December 31,
1999 1998
-------------- --------------
<S> <C> <C>
Current $ 149,000 $ --
Deferred (recovery) -- --
-------------- --------------
$ 149,000 $ --
============== ==============
</TABLE>
F-16
<PAGE> 36
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
12. INCOME TAXES (CONTINUED)
The reported income tax provision differs from the amount computed by
applying the Canadian basis statutory rate to the loss before income
taxes. The reasons for this difference and the related tax effects are
as follows:
<TABLE>
<CAPTION>
From Inception on
Year Ended August 13, 1998
December 31, to December 31,
1999 1998
------------ ------------
<S> <C> <C>
Statutory tax rate (1999:United States; 1998: Canada) 35% 45%
Expected income tax (recovery) $ (338,320) $ (23,494)
Foreign tax rate differences (70,006) --
Losses producing no current tax benefit 215,100 23,494
Benefit of prior year losses (recognized) (23,494) --
Foreign taxes on redomocile of Company 365,720 --
------------ ------------
$ 149,000 $ --
============ ============
</TABLE>
On July 28, 1999, the Company was reincorporated in the State of
Delaware. This event resulted in a deemed tax year end and a taxable
gain for Canadian tax purposes, based on the excess of the fair market
value of the Company's assets over their related tax cost. Accordingly,
a provision for the Canadian taxes on the estimated taxable gain has
been recorded, which has been partially eliminated by the use of
available current tax losses in Canada.
Deferred income taxes result principally from temporary differences in
the recognition of certain revenue and expense items for financial and
income tax reporting purposes. Significant components of the company's
deferred tax assets and liabilities as of December 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred income tax assets
Book tax base difference in assets $ 100,880 $ --
Net operating tax loss carry forwards 215,100 23,494
Valuation allowance for deferred income tax asset (315,980) (23,494)
------------ ------------
Net deferred income tax assets -- --
------------ ------------
Deferred income tax liabilities $ -- $ --
============ ============
</TABLE>
Due to the uncertainty surrounding realization of the deferred income
tax assets, the Company has 100% valuation allowance against its future
income tax assets. The net change in the total valuation allowance for
the periods ended December 31, 1999 and 1998 was a provision of
$242,486 and $23,494, respectively.
F-17
<PAGE> 37
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
================================================================================
12. INCOME TAXES (CONTINUED)
As of December 31, 1999, the Company has tax loss carry forwards of
approximately $614,000 in U.S. tax losses available to reduce future
years' income for tax purposes. The U.S. tax loss carry forwards expire
in 2019.
13. SEGMENTED INFORMATION
The Company operates in one segment - electronic commerce services.
The Company attributes revenue among geographical areas based on the
location of the customers. All revenues are derived in Canada.
Long-lived assets include capital assets and are located in Canada.
The Company's customer sales concentration is discussed in Note 9(b).
14. SUBSEQUENT EVENTS
Subsequent to December 31, 1999, the Company:
(a) amended its agreement with Bolder Venture Partners (Note 8(d));
(b) approved and issued options to purchase 763,300 shares of
common stock at US$1.00 per share, expiring five years from
the effective date of the Company's prospectus (Note 14(c));
(c) received a US$250,000 loan from Canaccord with interest at
prime plus 5% repayable on demand, secured by the proceeds of
an offering (Note 14(d)); and
(d) completed an initial public offering on March 22, 2000
covering the sale of 2,250,000 common shares for gross
proceeds of U.S. $2,250,000.
In conjunction with this filing, the Company entered into a
Sponsorship Agreement with Canaccord Capital Corporation
("Canaccord"). Under the Sponsorship Agreement, the Company
has agreed to pay Canaccord a sponsorship fee of U.S. $10,000,
an administrative fee of Cdn $4,000 and an agent's commission
of 7.5% of the gross proceeds. In addition, Canaccord has been
granted a warrant to acquire up to 225,000 shares at a price
of U.S. $1.00 per share, plus 75,000 common shares as a
corporate finance fee.
F-18
<PAGE> 38
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
The directors and executive officers of the Company are listed below.
Directors are elected to hold office until the next annual meeting of
shareholders and until their respective successors have been elected and
qualified. Executive officers are elected by the Board of Directors and hold
office until their successors are elected and qualified. The Board of Directors
have established a compensation(a) and an audit (b) committee and the following
are members of the respective committees.
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Ted Henderson(b) 38 President, Chief Executive Officer, and
Director
Peter Fahlman 35 Vice President Business Development and
Director
Edmund Shung 45 Chief Financial Officer
Lance Tracey(a)(b) 53 Director
Dieter Heidrich(a) 60 Director
Cliff Mah(a) 34 Director
Paul MacNeill(b) 45 Director
</TABLE>
BIOGRAPHICAL INFORMATION
Ted Henderson - Mr. Henderson, is the Company's President, Chief
Executive Officer and Director of the Company since October 4, 1999. Prior to
that he was Vice President of Business Development from February 1999 to
September 1999; General Manager from October 1997 to February 1998, and a
director of Corporate Development from October, 1996 to October, 1997 at
Centrobe (an EDS company), a provider of end-to-end electronic business
solutions. Prior to that he was Director of Business Operations at Echostar
Communications Corporation from April, 1995 to September, 1996, a publicly held
digital broadcast satellite communications manufacturing, distribution, and
service provider. Prior to that he was Senior Vice President and Chief Financial
Officer at Key Investments, Inc.(a Key Corp company), from September, 1992 to
March, 1995, a financial services company.
Peter Fahlman - Mr. Fahlman, has been Vice President Business
Development and a Director of the Company since September 1998. Mr Fahlman was a
partner in Data Direct Consulting Services, an internet software development
company, since November, 1997; prior to that he was President of Prophase
Development Corp., an online print services company, from May 1996 to December
1997; prior to that he was a consultant to Cybernet Technologies, from September
1995 to April 1996; prior to that he was a partner in Hyper Sound Recording, a
high-tech music retail operation located in Vernon, British Columbia from May
1989 to January 1996.
-20-
<PAGE> 39
Lance Tracey - Secretary and a director of the Company since September
1, 1998; President of Code Marketing Ltd. since January 1990; President and
Director of Sutton Group Realty Services Inc. from January 1986 to present.
President of I.D. Internet Direct Ltd. from January 1993 to January 1999.
Dieter Heidrich - Managing Director of Opus Capital, LLP, a Boulder,
Colorado venture capital company, since October 1993 and a Director of the
Company since September 1, 1998. Prior to that he was a general partner with
Weiss, Peck, and Greer Venture Partners from October 1986 to October 1993
Cliff Mah - Director of the Company since September 1, 1999. Partner
with Bolder Venture Partners, LLC, a venture capital company, since June 1999.
Prior to joining Bolder Venture Partners, he was an investment banker at
Canaccord from November 1998 to May 1999 and at C.M. Oliver and Company from
October 1996 to November 1998. Prior to that he became, through two leverage
buy-outs, the President and controlling shareholder of Canadian Neon Ltd., a
Vancouver based manufacturing company, in 1992 and Northwest Signs Ltd., a
Seattle, Washington based manufacturing company, in 1993.
Paul C. MacNeill - Partner with Campney & Murphy, Barristers and West
Vancouver, B.C. Solicitors, since 1981 and a Director of the Company since
September 1, 1999.
Edmund Shung - Chief Financial Officer of the Company since November,
1998. Mr. Shung is currently a part-time independent contractor to the Company.
Mr. Shung devotes 25% of his time to the Company and has served the Company in
this capacity since November 1998. Mr. Shung has been the Chief Financial
Officer and Controller of Sutton Group Financial Services Ltd., a technology
based real estate franchise company, since December 1995. Prior to that he was
President of Totemcolor Film Labs Ltd., a photo processing facility, from
October, 1991 to November, 1995.
Other Associations
During the past five years, the principals of the Company have served
as principals of the following reporting issuers during the periods and in the
capacities noted below:
<TABLE>
<CAPTION>
PRINCIPAL REPORTING ISSUER CAPACITY PERIOD
- ------------------- ----------------------------------------------- ------------------------ -------------------
<S> <C> <C> <C>
Lance Tracey Sutton Group Financial Services Ltd. Director 01/87 - present
ID Internet Direct Ltd. Director and Officer 01/93 - present
dba Telecom Corp. Director 07/92 - 01/96
Paul C. America Mineral Fields Inc. Director 03/98 - present
MacNeill Anaconda Uranium Corp. Director 12/97 - present
Axion Communications Inc. Director 08/96 - present
Consolidated Firstfund Capital Corp. Secretary 09/92 - 06/95
Diagem International Resource Corp. Director 12/97 - present
Jordex Resources Inc. Secretary 04/98 - present
Minefinders Corporation Inc. Director 05/95 - present
Minefinders Corporation Inc. Secretary 07/95 - present
Prospex Mining Inc. Director 10/93 - 06/99
Unique Broadband Systems Inc. Director 07/97 - present
Unique Broadband Systems Inc. Secretary 07/97 - 08/97
</TABLE>
-21-
<PAGE> 40
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information regarding compensation paid
during the past three fiscal years to the Company's Chief Executive Officer:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Awards Compensation Payouts
--------------------------- -------------------------------------- -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Securities
Other Restricted Underyling
Name and Principal Annual Stock Option/SAR's LTIP All Other
Position Year Salary($) Bonus ($) Comp ($) Awards ($) (#) Payouts Compensation
- -------- ---- --------- --------- -------- ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ted Henderson(1) 1999 US $27,699 $0 $0 $0 $0 $0 $0
President and CEO 1998 $0 $0 $0 $0 $0 $0 $0
1997 $0 $0 $0 $0 $0 $0 $0
Peter Fahlman(2) 1999 Cdn.$7,500 $0 $0 $0 $0 $0 $0
Interim President a 1998 $0 $0 $0 $0 $0 $0 $0
CEO 1997 $0 $0 $0 $0 $0 $0 $0
</TABLE>
- -------
(1) Mr. Henderson joined the Company on October 4, 1999.
(2) Mr. Fahlman has served as the acting Chief Executive Officer while the
Company conducted a search for permanent chief executive officer. Mr.
Fahlman served in this capacity from August 13, 1998 to October 4,
1999, at which time he was replaced by Mr. Henderson. Mr. Fahlman did
not receive any compensation for his service as CEO.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Prior to the adoption of the Stock Option Plan described below, no
stock options were ever granted to or exercised by executive officers of the
Company.
On October 14, 1999, the Board of Directors adopted a stock option plan
(the "Plan"), which provides for incentive stock options and non-statutory
options to be granted to officers, employees, directors and consultants to the
Company. The exercise price of each stock option granted shall not be less than
the average closing price of the common stock of the Company listed on the CDNX
for the ten trading days preceding the date the stock options are granted. The
options granted pursuant to the Plan shall vest according to the terms set forth
in each particular grant. A period of at least two years of continuous service
by the optionee to the Company is required before the stock option shall be 100%
vested. The term of the options cannot exceed five years. Options to purchase up
to 1,510,000 shares of the Company's common stock may be granted under the Plan.
As of March 18, 2000, options to purchase 1,413,300 shares of the Company's
common stock had been granted under the Plan.
-22-
<PAGE> 41
In the fiscal year ending December 31, 1999, stock options were granted
as follows:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Shares Options Granted
Underlying to Employees in Exercise Expiration
Name Options Granted Fiscal Year Price Date
---- --------------- ----------- ----- ----
<S> <C> <C> <C> <C>
Ted Henderson 500,000(1) 45% US $1.00/share 1/12/03
Peter Fahlman 75,000(2) 7% US $1.00/share 1/12/03
</TABLE>
- ---------------
(1) Includes options granted in consideration of Mr. Henderson services as a
director of the Company. 25,000 options vested for the fiscal year ended
December 31, 1999 in consideration for his board services. The remaining
475,000 options held vest as follows:7/36 vest on April 1, 2000 and 1/36 a
month vest thereafter until fully vested.
(2) Includes options granted in consideration of Mr. Fahlma s services as a
director of the Company. 25,000 options vested for the fiscal year ended
December 31, 1999 in consideration for his board services. The remaining
50,000 options held vest as follows: 1/36 a month vest in April 2000 and
thereafter until fully vested.
AGGREGATED OPTION/SAR EXERCISES FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Value of Unexercised
Shares Number of Securities Underlying In-the Money Options/
Acquired on Value Unexercised Options/SARs at FY-End(#) SARs at FY-End (#)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable (1)
- ---- -------- -------- ------------------------- -----------------------------
<S> <C> <C> <C> <C>
Ted Henderson
President & CEO -0- -0-
Unexercisable 369,444(1) $0
Exercisable 130,556 $0
Peter Fahlman
Interim President & CEO -0- -0-
Unexercisable
Exercisable 43,056(1) $0
31,944 $0
</TABLE>
- -------
(1) The year-end value represents the difference between the option exercise
prices US $1.00 and the current private value of US $1.00 resulting in no
value being assigned to the options. No public market exists for the
Company's common stock on December 31, 1999.
Compensation of Directors. The directors of the Company are not currently
compensated for serving as directors, each director has been granted an
option to purchase 75,000 shares of Common Stock at US $1.00 per share.
25,000 shares vested on January 12, 2000 and 25,000 will on each
anniversary date through 2002. Outside director's travel expenses are
reimbursed by the Company. Mr. Henderson and Mr. Fahlman receive
compensation as officers.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 29, 2000 the number of
shares of the Company's Common Stock beneficially owned by (a) owners of more
than five percent of the Company's outstanding Common Stock who are known to the
Company and (b) the Directors of the Company, individually, and the Executive
Officers and Directors of the Company as a group, and (c) the percentage of
ownership of the outstanding Common Stock represented by such shares. The
security holders listed below are deemed to be the beneficial owners of shares
of Common Stock underlying options and warrants which are exercisable within 60
days from the above date.
-23-
<PAGE> 42
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
<S> <C> <C>
Ted Henderson, President and Chief Executive 180,556(1) 2.10%
Officer, and a Director
143 Union Blvd, Ste 850
P.O. Box 38
Lakewood, CO 8465
Peter Fahlman, Vice President of Business
Development and a Director.................................. 771,944(2) 9.10%
Cliff Mah, Director......................................... 265,714(3) 3.14%
1450 Creekside Dr, Suite 800
Vancouver, BC V6J 5B3
Paul MacNeill, Director..................................... 57,000(4) .67%
1111 West Georgia Street, Suite 2100
Vancouver, BC V6J 5B3
Lance Tracey, Director...................................... 614,713(5) 7.26%
555 West Hastings Street, Suite 1610
Vancouver, BC V6H 4N6
Dieter Heidrich, Director................................... 265,000(6) 3.13%
230 Green Rock Drive
Boulder, CO 80302
Robert Roker ............................................... 706,944(7) 8.36%
555 West Hastings Street, Suite 1610
Vancouver, BC V6H 4N6
Brian Archer ............................................... 356,944(8) 4.22%
555 West Hastings Street, Suite 1610
Vancouver, BC V6H 4N6
Scott Shaw ................................................. 555,363(9) 6.57%
555 West Hastings St, Suite 1628
Vancouver, BC V6B 4N6
Daryl Yurek ................................................ 724,282(10) 8.57%
1327 Spruce Street, Suite 300
Boulder, CO 80302
Acacia Management Services ................................. 700,000(11) 8.29%
All Directors and Executive Officers as a group............. 2,172,621(12) 24.7%
</TABLE>
- ------------------------
(1) Includes 130,556 options exercisable presently or within 60 days.
(2) Includes 31,944 options exercisable presently or within 60 days. 40,000 of
these shares are held in the name of Michelle Fahlman, Mr. Fahlman's wife.
The remaining shares are beneficially owned through a 40% ownership by Mr.
Fahlman of DataDirect Holdings, Inc. which owns 1,750,000 shares of the
Company.
(3) Includes 25,000 options exercisable presently or within 60 days and 22,500
shares and 78,214
-24-
<PAGE> 43
warrants held by Bolder Venture Partners, LLC of which Mr. Mah is a 10%
partner
(4) Includes 25,000 options exercisable presently or within 60 days and 32,000
shares held in the name of Mr. MacNiell's wife.
(5) Includes 25,000 options exercisable presently or within 60 days, 20,000
shares held in the name of Mr. Tracey's wife and 210,613 shares represented
by a 12.035% ownership interest of Sutton Group Financial Services
controlled by his wife. The remaining shares are beneficially owned through
Mr. Tracey's ownership of 20.52% of Sutton Group Financial Services Ltd.,
which owns 1,750,000 shares of the Company.
(6) Includes 25,000 options exercisable presently or within 60 days, 80,000 of
the shares are held jointly by Mr. Heidrich and his wife. 160,000 shares
are owned by Opus Capital Fund, LLC of which Mr. Heidrich is a general
partner and manager of the fund giving beneficial ownership to Mr.
Heidrich.
(7) Includes 6,944 options exercisable presently or within 60 days. The
remaining shares are beneficially owned through a 40% ownership by Mr.
Roker of DataDirect Holdings, Inc. which owns 1,750,000 shares of the
Company.
(8) Includes 6,944 options exercisable presently or within 60 days. The
remaining shares are beneficially owned through a 20% ownership by Mr.
Archer of DataDirect Holdings, Inc. which owns 1,750,000 shares of the
Company.
(9) Mr. Shaw owns 19.7% of Sutton Group Financial Services, Ltd. which owns
1,750,000 of the Company's common stock giving Mr. Shaw beneficial
ownership to these shares and 210,613 shares represented by a 12.035%
ownership interest of Sutton Group Financial Services controlled by his
wife.
(10) Includes 135,000 shares and 469,282 warrants held by Bolder Venture
Partners, LLC of which Mr. Yurek is a 60% partner.
(11) These shares were transferred by Sutton Group Financial Services Ltd. and
DataDirect Holdings Inc. in January 2000
(12) Includes 348,408 options exercisable presently or within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into transactions with its officers and
directors, and with principal shareholders listed in Item 11 or affiliated
entities as described below.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS.
Ted Henderson -On September 16, 1999 the Company and Mr. Henderson,
the President and Chief Executive Officer and a director of the Company, entered
into an employment agreement that extends for a twelve month period commencing
on September 16, 1999. The agreement shall automatically renew for a successive
twelve month period unless the Company provides written notice sixty days prior
to the expiration of this term. Under the terms of the agreement, the Company
will pay to Mr. Henderson the sum of US $9,1667 per month. Additionally, the
Company will pay the premium for a one million dollar term life insurance policy
with half the benefits going to the heirs and half going to the company. If Mr.
Henderson is terminated without cause or if the Company elects not to renew the
agreement, the options to purchase common shares of the Company granted under
the Henderson Letter Agreement shall vest immediately and Mr. Henderson will be
paid a lump sum separation amount equal to 6 months salary and a pro rated
bonus. In addition, Mr. Henderson was granted incentive stock options to acquire
500,000 shares of the Company's common stock at a price of US $1.00 per share
for a period of four years. The options vest over a thirty-six month period as
follows: 7/36 of the options will vest in April 2000 and 1/36 of the options
will vest each month thereafter. Mr. Henderson is also eligible to receive
incentive pay equal to 50% of his annual salary based on objectives agreed by
Mr. Henderson and the Company's Board of Directors.
-25-
<PAGE> 44
Peter Fahlman -On November 26, 1999 the Company and Mr. Fahlman, the
Vice President of Business Development and a director of the Company, entered
into an employment agreement commencing on November 26, 1999. Under the terms of
the agreement, the Company will pay to Mr. Falhman the sum of Cdn. $7,500 per
month. In addition, Mr. Fahlman was granted incentive stock options to acquire
50,000 shares of the Company's common stock at a price of US $1.00 per share for
a period of five years. The options vest over a thirty-six month period as
follows: 1/36 of the options will vest in upon signing of the agreement and 1/36
of the options will vest each month thereafter. The options vest immediately if
Mr. Falhman terminations for good reason or is terminated without cause. In his
capacity as a director of the Company, Mr. Fahlman was subsequently granted
stock options to acquire an additional 25,000 common shares at US $1.00 per
share which stock options vested immediately.
Other Employment Agreements
The Company has entered into employment agreements with two other
employees with a range of salary levels and benefits. The employment agreements
have no fixed term. The agreements salary levels ranging from Cdn. $5,000 to
Cdn. $7,500 per month. The employees under these agreements have received
incentive stock options to purchase between 50,000 shares of the Company's
common stock at exercise prices of US $1.00 per share. Certain of the employment
agreements also contain twelve month non-competition and confidentiality
provisions, and provide for the immediate vesting of all stock options and six
months severance pay in the event the agreement is terminated by the employee as
a result of a failure by the Company to pay an amount due to the employee under
the agreement, or if the agreement is terminated by the Company without cause.
The Company and executives of the Company have entered into
confidentiality agreements that include non-confidential and non-disclosure
provisions with respect to confidential information obtained by the executives
in the course of their employment with the Company.
RELATED PARTIES
Consulting Agreement
The Company is party to a consulting agreement (the "Consulting
Agreement") with Bolder Venture Partners L.L.C. ("Bolder") made July 28, 1999
and amended on February 15, 2000. Bolder Venture Partners is a limited liability
company incorporated under the laws of the State of Colorado and is owned 10% by
Cliff Mah, a director of the Company and is owned 60% by Daryl Yurek.
Under the terms of the Consulting Agreement, Bolder agrees to provide
consulting services to the officers of the Company relating to matters of
corporate development, strategic planning, raising of capital and other
financial matters, and to assist with certain private placements and public
offerings of the Company's securities, including this offering. In consideration
of these services, the Company agreed to pay Bolder Venture Partners a monthly
retainer of US $10,000, and purchase warrants to acquire up to 1,232,136 shares
of the Company's common stock for a period of five years from July 28, 1999. The
remaining warrants will be exercisable as follows:
-26-
<PAGE> 45
o 225,000 of the warrants at US $0.25 per share on July 28, 1999
were exercised;
o 557,136 at US $1.00 per share as amended on February 15, 2000;
o 225,000 at US $1.00 per share upon completion of this offering;
and
o 225,000 at a price per share equal to the price per share under a
future private placement of not less than US $3,000,000, if such
a private placement is made.
The exercise price of all of the Warrants referred to herein will
increase by 15% in each of the second, third, fourth and fifth year of the term
of the share purchase warrants until exercised. The term of the Consulting
Agreement ends on June 30, 2000.
DataDirect Holdings, Inc.
In 1997, Mr. Fahlman formed DataDirect and DataDirect Consulting
Services with Robert Roker and Brian Archer. DataDirect is owned 60% by Mr.
Fahlman and 40% by Robert Roker. In 1998, a joint venture was established
between DataDirect and the Sutton Group, which became E-xact. Under a management
agreement dated April 15, 1999 between DataDirect, Peter Fahlman, Robert Roker,
and the Company, the Company retained DataDirect to provide certain management
services including services to the ongoing development of the Company's
software. The term of the agreement commenced April 15, 1999 and continued
through November 30, 1999 at which time it was terminated. The Company paid
DataDirect a monthly fee of Cdn. $20,000 per month plus G.S.T. (goods and
services tax).
Sutton Group Financial Services Ltd.
The Company has had accounts payables and accrued liabilities due to
Sutton Group Financial Services Ltd. for operating costs paid by Sutton on
behalf of the Company from time to time. The maximum amount ever due to Sutton
was approximately Cdn. $41,000. As of December 31, 1999 all amounts owed by the
Company to Sutton have been paid in full. Sutton Group is 27% beneficially owned
by Lance Tracy and 26% beneficially owned by Scott Shaw.
-27-
<PAGE> 46
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. The following Exhibits are filed herewith or have been
previously filed with the Securities and Exchange Commission and are
incorporated by reference herein:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
3.1 Certificate of Domestication of E-xact Transactions Ltd.*
3.2 Certificate of Incorporation of E-xact Transactions Ltd.*
3.3 Bylaws*
10.1 Amended Sponsorship Agreement dated January, 2000 between E-xact
Transactions Ltd., Inc. and Canaccord Capital Corporation*
10.2 Lease dated April 22, 1999 between Harbour Centre Complex Limited
as attorney- in-fact for Lord Realty Holdings Limited and Privest
Properties Ltd. (Landlord) and E-xact Transactions Ltd.*
10.3 Stock Option Plan*
10.4 Letter Agreement dated September 16, 1999 between E-xact
Transactions Ltd. And Ted Henderson.*
10.5 Letter Agreement dated July 28, 1999 between E-xact Transactions
Ltd. And Bolder Venture Partners, LLC.*
10.6 Management Agreement dated April 15, 1999 between DataDirect
Holdings, Inc. and Peter Fahlman, and Robert Roker, and E-xact
Transactions Ltd.*
10.7 Form of Employment Agreement executed between E-xact Transactions
Ltd. and each of Peter Fahlman, Robert Roker and Brian Archer**
10.8 Confidentiality Agreement dated December 10, 1999 between E-xact
Transactions Ltd. and Ted Henderson**
10.9 Amended Letter Agreement dated January 18, 2000 between E-xact
Transactions Ltd. and Bolder Venture Partners, LLC.***
10.1 Agency Agreement Amendment dated January 19, 2000 between E-xact
Transactions Ltd. and Canaccord Capital Corporation.***
10.11 Sublease Agreement dated December 14, 1999 between E-xact
Transactions Ltd. and Kinder Morgan, Inc.***
27 Financial Data Schedule
- ---------------------
* Filed with Registration Statement on Form SB-2 filed October 22,
1999.
** Filed with Registration Statement on Amendment No. 1 to Form SB-2
filed December 22, 1999.
*** Filed with Registration Statement Amendment No. 2 to Form SB-2 filed
February 8, 2000.
**** Filed with Registration Statement Amendment No. 3 to Form SB-2 filed
February 11,2000.
b) Reports on Form 8-K. During the last quarter of the period covered by
this report, the Company filed reports on Form 8-K as listed below.
None.
-28-
<PAGE> 47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
E-xact Transaction Ltd.
Date: April 14, 2000 By: /s/ Ted Henderson
- -------------------- -------------------
Ted Henderson
President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Peter Fahlman Vice President and April 14, 2000
- ------------------------------------
Peter Fahlman Director
/s/ Edmund Shung Chief Financial Officer April 14, 2000
- ------------------------------------
Edmund Shung
/s/ Lance Tracey Director April 14, 2000
- ------------------------------------
Lance Tracey
Director
- -----------------------------------
Dieter Heidrich
/s/ Clifford Mah Director April 14, 2000
- ------------------------------------
Clifford Mah
Director
- ------------------------------------
Paul MacNeill
</TABLE>
-29-
<PAGE> 48
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Domestication of E-xact Transactions Ltd.*
3.2 Certificate of Incorporation of E-xact Transactions Ltd.*
3.3 Bylaws*
10.1 Amended Sponsorship Agreement dated January, 2000 between E-xact
Transactions Ltd., Inc. and Canaccord Capital Corporation*
10.2 Lease dated April 22, 1999 between Harbour Centre Complex Limited
as attorney-in-fact for Lord Realty Holdings Limited and Privest
Properties Ltd. (Landlord) and E-xact Transactions Ltd.*
10.3 Stock Option Plan*
10.4 Letter Agreement dated September 16, 1999 between E-xact
Transactions Ltd. And Ted Henderson.*
10.5 Letter Agreement dated July 28, 1999 between E-xact Transactions
Ltd. And Bolder Venture Partners, LLC.*
10.6 Management Agreement dated April 15, 1999 between DataDirect
Holdings, Inc. and Peter Fahlman, and Robert Roker, and E-xact
Transactions Ltd.*
10.7 Form of Employment Agreement executed between E-xact Transactions
Ltd. and each of Peter Fahlman, Robert Roker and Brian Archer**
10.8 Confidentiality Agreement dated December 10, 1999 between E-xact
Transactions Ltd. and Ted Henderson**
10.9 Amended Letter Agreement dated January 18, 2000 between E-xact
Transactions Ltd. and Bolder Venture Partners, LLC.***
10.1 Agency Agreement Amendment dated January 19, 2000 between E-xact
Transactions Ltd. and Canaccord Capital Corporation.***
10.11 Sublease Agreement dated December 14, 1999 between E-xact
Transactions Ltd. and Kinder Morgan, Inc.***
27 Financial Data Schedule
- ---------------------
* Filed with Registration Statement on Form SB-2 filed October 22,
1999.
** Filed with Registration Statement on Amendment No. 1 to Form SB-2
filed December 22, 1999.
*** Filed with Registration Statement Amendment No. 2 to Form SB-2 filed
February 8, 2000.
**** Filed with Registration Statement Amendment No. 3 to Form SB-2 filed
February 11,2000.
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> CDN DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.4858
<CASH> 442,639
<SECURITIES> 0
<RECEIVABLES> 123,897
<ALLOWANCES> 5,000
<INVENTORY> 0
<CURRENT-ASSETS> 567,832
<PP&E> 94,756
<DEPRECIATION> (28,091)
<TOTAL-ASSETS> 892,461
<CURRENT-LIABILITIES> 687,658
<BONDS> 0
0
0
<COMMON> 5,897
<OTHER-SE> 198,906
<TOTAL-LIABILITY-AND-EQUITY> 892,461
<SALES> 139,171
<TOTAL-REVENUES> 139,171
<CGS> 42,780
<TOTAL-COSTS> 1,044,206
<OTHER-EXPENSES> (18,815)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (966,630)
<INCOME-TAX> (149,000)
<INCOME-CONTINUING> (1,115,630)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,115,630)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
