AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000
REGISTRATION NO. 333-89561
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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E-XACT TRANSACTIONS LTD.
(Exact name of small business issuer as specified in its charter)
DELAWARE 7232 98-0212722
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
CT CORPORATION
2410-555 WEST HASTINGS STREET 2410-555 WEST HASTINGS STREET 1209 ORANGE STREET
VANCOUVER, BRITISH COLUMBIA VANCOUVER, BRITISH COLUMBIA WILMINGTON, DELAWARE 19801
CANADA V6H 4N6 CANADA V6H 4N6 USA
(604) 691-1670 (604) 691-1670 (302))658-7581
(Address and telephone number of (Address of principal place of business) (Name, address and telephone number
principal executive offices) of agent for service)
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Copies to:
LESTER R. WOODWARD, ESQ.
DAVIS, GRAHAM & STUBBS LLP
370 SEVENTEENTH STREET, SUITE 4700
DENVER, COLORADO 80202
(303) 892-9400
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APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
EXPLANATORY NOTE
This registration statement covers (a) the primary public offering by
E-xact of 2,250,000 shares of common stock, $.001 par value, (b) 75,000 shares
paid to the placement agent, Canaccord, as a corporate finance fee, (c) 225,000
shares underlying a warrant paid to Canaccord in consideration of Canaccord's
commitment to sell up to 2,250,000 shares in the offering, and (d) the
concurrent offering on a delayed basis of 3,309,136 shares of common stock by
certain selling stockholders of E-xact. The initial public offering prospectus
covers the shares being offered by E-xact. A separate selling stockholders
prospectus will be used by the selling stockholders in connection with an
offering by them for their accounts of up to 3,309,136 shares of common stock.
The selling stockholders prospectus is identical to the initial public offering
prospectus, except for (1) alternate front and back cover pages, which alternate
cover pages are noted in the registration statement, (2) the sections entitled
"Summary," "Use of Proceeds," "Plan of Distribution" and "Risk Factors" which
alternate sections are indicated in the registration statement, and (3) the
sections entitled "Determination of Offering Price" and "Dilution" which
sections shall appear only in the initial public offering prospectus.
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:
Year Ended Month Ended
December 31, 1999 January 31, 2000
----------------- ----------------
Rate at end of period: $ 1.5333 $1.4456
THIS INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT DELIVER THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH __, 2000
INITIAL PUBLIC OFFERING
PROSPECTUS
2,250,000 Shares
[GRAPHIC OMITTED]
E-XACT TRANSACTIONS LTD.
Common Stock, $.001 par value
------------------------------
Canaccord Capital Corporation, E-xact's agent, has entered into a firm
commitment agreement to sell up to 2,250,000 shares in this public offering at a
price of $1.00 per share, and E-xact may sell up to 920,000 of such shares
directly to investors in the United States at a price of $1.00 per share.
Aggregate gross proceeds of this offering will be $2,250,000.
E-xact is concurrently registering 3,309,136 shares of its common stock on
behalf of selling stockholders.
Before offers to sell shares of common stock are made, the shares of
E-xact common stock will have been approved for listing on the facilities of the
Canadian Venture Exchange.
UNDERWRITTEN BY:
CANACCORD CAPITAL CORPORATION
Total Per Share
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Public offering price $ 2,250,000 $ 1.00
Underwriter commissions* $ 168,750 $ 0.075
Proceeds $ 2,081,250 $ 0.925
E-xact has paid Canaccord a sponsorship fee of $10,000, an administrative
fee of Cdn. $4,000 and granted to Canaccord a warrant entitling it to
purchase shares of common stock in the future. E-xact also will pay
Canaccord a corporate finance fee of 75,000 shares of common stock.
------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" LOCATED AT PAGES 2 TO 4.
------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is o, 2000
TABLE OF CONTENTS
PAGE
Summary......................................................................1
Risk factors.................................................................2
Dilution.....................................................................3
Use of proceeds..............................................................5
Description of E-xact........................................................6
Description of business......................................................6
Management discussion and analysis of financial condition and results
of operations..............................................................21
Description of securities...................................................24
Plan of distribution........................................................28
Directors and senior officers...............................................30
Certain relationships and related transactions..............................32
Executive compensation......................................................33
Cautionary statement concerning forward-looking statements..................34
Dividend record and policy..................................................34
Experts.....................................................................34
Legal matters...............................................................34
Where you can find more information.........................................35
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SUMMARY
BUSINESS OF E-XACT: E-xact is a software development company that offers a
simple electronic commerce, also known as "e-commerce,"
solution for real- time transaction processing combined
with a suite of value added merchant services.
E-xact's software allows computer controlled cash
registers, personal computers, personal computer based
point-of-sale terminals, computer systems and
proprietary product platforms to accept credit card
payments and submit those payments to payment
processing centers for authorization and settlement.
E-xact's principal office is located at 2410-555 West
Hastings Street; Vancouver, British Columbia (Canada)
V6H 4N6. The telephone number
is (604) 691-1670.
OFFERING: The offering consists of 2,250,000 shares of common
stock to be offered to the public. Upon completion of
the offering, there will be approximately 8,447,000
shares of common stock issued and outstanding.
In addition:
o E-xact has granted stock options pursuant to which
up to 1,104,700 shares may be issued in the future
pursuant to E-xact's stock option plan.
o E-xact has granted warrants pursuant to which up
to 1,007,136 shares may be issued in the future.
USE OF PROCEEDS: The net proceeds from this offering will be
$2,081,250. E-xact's working capital as of December 31,
1999 was approximately $15,466. The net proceeds from
the offering plus the working capital totals
approximately $2,096,716 before expenses, and will be
used to pay the costs of this offering, expand software
functionality, extend network capabilities, recruit
management and additional staff, and to fund general
corporate marketing.
RISK FACTORS
An investment in E-xact common stock involves certain risks. Prospective
investors should carefully consider the following risk factors, in addition to
all of the other information in this prospectus, in determining whether to
purchase shares of E-xact stock.
WE HAVE A LIMITED OPERATING AND SALES HISTORY AND EVEN WITH THE OFFERING
PROCEEDS MAY NOT HAVE SUFFICIENT FUNDS TO COVER NECESSARY EXPENSES.
E-xact has a limited history of operations that has consisted primarily of
research and development and initial sales of its e-commerce products and
services. Since inception E-xact has financed its operations primarily through
the private placement of equity securities, stockholder loans, and has generated
only limited revenues from sales of its e-commerce products and services.
Whether E-xact can successfully manage the transition to a larger-scale
commercial enterprise will depend upon a number of factors, including expanding
its sales and marketing capabilities. Given the absence of clear market
acceptance with respect to this line of products, there can be no assurance as
to the achievability of projected market penetration rates and associated sales
revenues.
THE LOSS OF KEY PERSONNEL, ESPECIALLY IF WITHOUT ADVANCE NOTICE, OR THE
INABILITY TO HIRE OR RETAIN QUALIFIED PERSONNEL, COULD HAVE A MATERIAL ADVERSE
EFFECT UPON E-XACT'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
E-xact's future success depends in significant part upon the continued
service of certain key technical and management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Key personnel of E-xact include Ted Henderson (President and Chief
Executive Officer), Peter Fahlman (Vice President of Business Development),
Robert Roker (Product Manager), and Brian Archer (Development Manager). E-xact
has entered into employment agreements with all key personnel. The employment
agreements with Messrs. Fahlman, Roker, and Archer have an unlimited term
beginning December 1, 1999. The employment agreement with Ted Henderson extends
from September 16, 1999 to September 15, 2000. All of the agreements contain
confidentiality provisions that are unrestricted as to time, and non-competition
and non-solicitation provisions that extend 12 months following the employee's
termination.
Competition for such personnel is particularly intense in the internet
industry, and there can be no assurance that E-xact can retain its key technical
and managerial personnel or that it can attract, assimilate or retain other
highly qualified technical and managerial personnel in the future.
THE INABILITY TO CONTINUE DEVELOPING AND SELLING NEW PRODUCTS MAY RESULT IN
CONTINUED LOSSES.
The e-commerce software industry is characterized by rapid and significant
technological change. Many software applications have a life cycle of under
twelve months. Product research and development will require substantial
expenditures and will be subject to inherent risks and there can be no assurance
that E-xact will successfully develop or improve products that have the
characteristics necessary to effectively meet the market's needs, or that any
new products introduced will be successfully commercialized.
The e-commerce and real-time electronic credit card payment transaction
processing industries require reliable, efficient high volume transaction
capability. Transaction processing software applications
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may run efficiently in low volume transaction processing environments but slow
down or cease to operate in high volume environments or during peak hours of
use. E-xact's future success will depend in large part on whether E-xact's
software solutions will adequately respond to such high volume transaction
processing environments in a reliable and efficient manner. There can be no
assurance that E-xact will be successful in developing or improving products
that will be able to process large transaction volumes in a seamless manner.
THE PUBLIC OFFERING PRICE WAS DETERMINED THROUGH NEGOTIATIONS AND MAY NOT BE
RELATED TO THE VALUE OF THE STOCK.
The initial public offering price of E-xact's common stock on the Canadian
Venture Exchange of $1.00 per share was arrived at arbitrarily by negotiation
between E-xact and Canaccord, and represents their independent assessment of the
value of the shares being offered. As such, the initial public offering price is
not necessarily related to E-xact's net worth or any other established criteria
of value and may not bear any relationship to the market price of the shares
following the completion of the offering.
LISTING THE STOCK ON THE CANADIAN VENTURE EXCHANGE DOES NOT ASSURE A MARKET FOR
THE SHARES AT ALL TIMES.
The shares of E-xact common stock will be approved for listing on the
Canadian Venture Exchange and will be primarily traded on that exchange. The
rules of the Canadian Venture Exchange do not require any market maker or
specialist to maintain a market for the listed shares at all times. Therefore,
the Canadian Venture Exchange listing does not assure a stockholder that there
will be a purchaser for this shares when the stockholder wishes to sell.
THE POTENTIAL SUPPLY OF MARKETABLE SHARES FOR IMMEDIATE SALE MAY ADVERSELY
IMPACT THE MARKET PRICE OF THE SHARES.
Concurrently with the registration of the shares offered under this
prospectus, E-xact has registered under the U.S. securities laws approximately
3,309,136 shares of its common stock that are presently owned by its
stockholders. All of those shares were initially purchased by the stockholders
in private transactions between September 1998 and October 1999. Although some
of these shares are subject to restrictions on their sale for periods of time
specified by the Canadian Venture Exchange, it is anticipated that approximately
848,500 of these shares, in addition to those offered in the public offering,
would be immediately available for sale to the public, thus adding to the supply
of shares in the market. If a significant portion of those shares are offered
for sale within a short period of time, the price of the shares in the market
would likely decline. If the supply substantially exceeds the demand, it might
become impossible to find buyers for all the shares that are being offered,
which would likely further depress the price and, perhaps, make it impossible
for you to sell all of your shares as quickly as you may desire.
-3-
DILUTION
The following sets forth the diulution per share (as of December 31,
1999) after giving effect to this offering:
- ----------------------------------------------------------------------------------------
Effective price of shares of common stock offered hereunder: $1.00
Net tangible book value before the offering: 0.01
Increase in net tangible book value attributable to the offering: 0.21
Net tangible book value after the offering: 0.22 0.22
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Dilution to investor: 0.78
Dilution to investor (as a percentage): 78%
- ----------------------------------------------------------------------------------------
The calculations in the table above do not give effect to the
exercise by Bolder Venture Partners LLC of 225,000 warrants at $0.25 per share
or the possible exercise by Bolder Venture Partners LLC of outstanding warrants
to purchase up to 1,007,136 shares of common stock at prices varying between
$1.00 to a price to be determined by a follow on private placement, or the
possible exercise of a warrant to purchase 225,000 shares held be Canaccord
Capital Corp. at a price of $1.00 per share. If all currently exercisable or
convertible derivative securities were to be exercised to the extent that we
know what the share price would be, then the issuance of common stock underlying
them would have a $0.07 per share effect on the dilution calculation above. In
such a case, the Dilution to investor and the Dilution to investor (as a
percentage) in the table above would read $0.71 and 71%, respectively. If all
such exercisable or convertible derivative securities are exercised after
completion of this offering, then there would be a total of
approximately 9,229,136 shares issued and outstanding.
E-xact issued 1,104,700 employee stock options on January 12, 2000 at
$1.00 per share.
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USE OF PROCEEDS
The gross proceeds from this offering will be $2,250,000. Assuming
that all 2,250,000 shares are sold by Canaccord, from these proceeds E-xact will
pay an aggregate commission of $168,750 to Canaccord. After deducting the
commission and prior to expenses of the offering, the net proceeds from this
offering will be $2,081,250. The gross proceeds from the offering will be used
as follows:
Funds available: $ 2,250,000
===========
Proposed uses:
Additional costs of this offering:
Legal fees $ 40,000
Accounting fees $ 20,000
Printing $ 10,000
Agent's commission $ 168,750
Capital expenditures to accommodate staff increases and to extend network
capabilities: $ 163,000
Management and staff recruitment, hiring and contracting:
Management and administration: $ 560,000
Marketing and sales: $ 180,000
Technical development: $ 355,000
Marketing: $ 110,000
Administration: $ 453,000
Working capital to fund ongoing operations and unallocated working capital: $ 190,250
-----------
$ 2,250,000
===========
If Canaccord exercises its warrant to purchase up to 225,000 shares at
a price of $1.00 per share, E-xact will receive additional proceeds of up to
$225,000 if exercised at any time up to one year from the date that shares of
E-xact common stock are first listed for trading on the facilities of the
Canadian Venture Exchange. If Canaccord exercises the warrant, the proceeds will
also be added to E-xact's working capital.
The unallocated working capital balance of $190,250 as well as revenue
from E-xact's operations will be used to fund monthly administration expenses of
$37,750. These administrative expenses consist of rent for office space
(approximately $10,000), professional fees and expenses (approximately $4,750),
and miscellaneous expenses (approximately $23,000).
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DESCRIPTION OF E-XACT
E-xact was incorporated under the laws of the Province of British
Columbia on August 13, 1998. On July 29, 1999 E-xact 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.
E-xact's principal office is located at 2410 - 555 West Hastings
Street, Vancouver, British Columbia, V6H 4N6 Canada. E-xact's registered agent
in the U.S. is located at 1209 Orange Street, Wilmington, Delaware 19801 USA.
E-xact has no subsidiaries.
DESCRIPTION OF BUSINESS
INTRODUCTION
E-xact offers an electronic commerce, known as "e-commerce," 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 E-xact has
developed software and a network system to act as a third party payment
processor to conduct transaction processing with all major banks in North
America. E-xact is currently approved to conduct transaction processing with all
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
E-xact to process financial transactions with many of the major banks in the
U.S.
E-xact was founded in 1998, initially as a joint venture between the
Sutton Group Financial Services Ltd. and DataDirect Holdings Inc. On September
1, 1998, each of Sutton Group and DataDirect transferred to E-xact their
respective interests in a computer software system designed by DataDirect, known
as the Transaction Software and Processing System, in exchange for ninety-nine
shares of common stock of E-xact each. The software system offered to real time
credit card transaction processing capabilities for other e-commerce providers.
Version 2.0 provided the ability to move transactional data between
E-xact'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,
E-xact focused on further testing of its system and on designing the system to
easily grow to serve thousands or tens of thousands of customers. 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,
E-xact 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 E-xact's transaction processing component was released
in January 1999. The software allowed other computers to speak to E-xact's
computers. Following this release, E-xact introduced versions for various
computer operating systems including LINUX, UNIX and JAVA.
In June 1999, E-xact 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, E-xact has gained some fifty additional clients and has begun
to
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develop its marketing plan. E-xact is currently seeking additional staff
qualified to design and build specific technologies to create additional sales
opportunities in the North American transaction processing arena.
OVERVIEW OF OPERATIONS
Due to the exponential growth of the internet and e-commerce during the
past few years, the initial target of E-xact's marketing will be focused
primarily towards companies conducting business over the internet. E-xact can
process transactions in US 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, E-xact 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 the date of this prospectus, E-xact 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.
E-xact 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, E-xact offers its
e-commerce transaction processing solution to internet service providers, web
developers, application developers and financial institutions, which E-xact
refers to as partners. E-xact's partners may receive a percentage of every
transaction fee processed by shared customers and may use E-xact's comprehensive
web tools and services for the benefit of such partner's clients or e-merchants.
The partner may apply its own corporate look and branding to these tools and
effectively promote its own brand using E-xact's products and services. E-xact
is in the process of developing a marketing strategy to complement its technical
development plan.
A key advantage of E-xact's transaction processing software is that it
is small and can easily be integrated with most existing systems. Additionally,
E-xact provides the interface to match a customer's existing operations rather
than requiring them to meet and design their systems to E-xact's pre-defined
protocols, something most major competitors require.
E-xact currently operates with a core group of 13 individuals, four
of whom comprise the management team. Mr. Ted Henderson is the president and
chief executive officer, and has over sixteen years of experience in a variety
of high-tech sectors. Mr. Peter Fahlman is a founder of E-xact and its vice
president of business development. He has an extensive background in developing
and implementing computer-based solutions. Mr. Robert Roker is a computer
professional with over 10 years experience designing and implementing
financial-based information technology and is the product manager. Mr. Brian
Archer is the head of the development team. Mr. Archer's computer experience
began in 1981 and he has been involved in many aspects of development and
support.
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THE PRODUCTS
Product/service description
E-xact'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 E-xact'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 E-xact'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 E-xact'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.
E-xact transaction software and processing system
The current processing system is version 4.0, which was released in
June 1999. It 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 and Shared Network
Systems.
E-xact's system has five components:
o Gateway Server
o Transaction Server
o Remote Transaction Component
o Audit Database
o 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
E-xact'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.
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THE TRANSACTION SERVER communicates with the Gateway Server and also
provides communications to the Remote Transaction Component. The Transaction
Server resides within E-xact's network and is accessible on the internet via the
Remote Transaction Component.
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 E-xact's network. Merchants can download this
component from E-xact'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 E-xact's Transaction Server and subsequently
the Gateway Server and the financial networks. E-xact 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. Specific enhancements are under
development to meet the requirements of processing with VITAL Processing
Services in the United States. 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 E-xact'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 E-xact'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, E-xact 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 E-xact's Gateway Server for a comprehensive electronic transaction
processing solution, including complete maintenance and audit capabilities.
Non-web based transactions
E-xact 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
E-xact has developed can be applied to virtually any type of electronic network.
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Financial transaction processing certification
Certification with transaction processing networks that handle the
financial transactions that E-xact's product/service is designed for is an
integral and necessary part of E-xact 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.
STAGE OF DEVELOPMENT AND COSTS
E-xact's current Transaction Software and Processing System has been in
full operation since June of 1999. The system is fully operational and
approximately 4,000 transactions are processed per day through E-xact's systems.
Since September 1, 1998, E-xact has processed approximately 363,000
transactions.
Cdn. $280,191 has been spent on product development as of September 30,
1999. Of this amount Cdn. $215,674 has been expensed by E-xact and primarily
includes fees paid to programmers. On September 1, 1998, each of Sutton Group
and DataDirect transferred to E-xact their respective interests in certain
assets designed by DataDirect, known as the Transaction Software and Processing
System, in exchange for ninety-nine shares of E-xact 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.
During the three-month period ended December 31, 1999, E-xact incurred
additional research and development expenses of Cdn. $88,000, bringing the
total development costs incurred at December 31, 1999 to Cdn. $368,139.
DEVELOPMENT PLANS
E-xact 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 E-xact's system contains a basic fraud engine, these
additional tools would address issues such as:
o excessive frequency of credit card use;
o over-purchasing limits;
o purchasing from unauthorized locations; and
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o fake credit card number generators.
In addition, E-xact 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 E-xact's services is intended
to be deployed to dramatically reduce the cost and time of acquiring new
customers.
Furthermore, E-xact 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.
E-xact 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. This would expand E-xact's
position in the U.S. marketplace by providing broader processing capabilities
and allow service with over 95% coverage of the U.S. banks.
E-xact 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.
THE MARKET FOR THE PRODUCTS
Market overview
E-commerce
The term "internet 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
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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:
o securely transmit and store payment information with minimal
interruption of a consumer's online experience;
o are convenient for merchants to install and maintain;
o connect merchants to major payment processors and financial
institutions;
o facilitate familiar types of transactions from the physical
world - (such as bill payment) on the internet; and
o provide common payment platforms for merchants selling goods
and services both at physical points-of-sale and electronic
storefronts.
MARKETING AND SALES STRATEGY
Overview
To date, E-xact has undertaken virtually no advertising, either
off-line or online to promote E-xact in the e-merchant/internet marketplace,
other than establishing its web site.
E-xact is currently in the process of developing a comprehensive
marketing strategy, which will serve to launch its product/service on a wider
scale. E-xact is considering participation in industry trade shows to expand its
exposure, conducting press tours, and generally achieving greater visibility in
the marketplace. A portion of the proceeds of this offering will be used to
develop a sales and marketing strategy tied with further development of the
software product.
E-xact'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 to establish their internet e-commerce systems. Firms within these
channels become E-xact partners. The four market channels which E-xact is
pursuing are:
o internet service providers;
o web developers;
o application developers; and
o financial institutions and independent sales organizations.
E-xact offers its partners the following benefits:
o private label branding;
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o the potential for private dedicated network connections;
o transactional revenue sharing;
o ability to package the transaction processing component with
the partner's software or web hosting solutions;
o technical support; and
o ease of integration.
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. When the merchant logs on to the
financial institution's or internet service provider's web site to look at his
or her merchant account, the financial institution's or internet service
provider's name and corporate logo or branding appears at the top of the screen
with a company logo also appearing on the page.
Where it is necessary, as with financial institutions that become
partners, E-xact 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 E-xact'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
E-xact 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 E-xact bill them directly. E-xact 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.
E-xact charges an activation fee for each merchant credit card account
the customer would like to enable with E-xact (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 E-xact's servers.
Included in this charge is access to E-xact's member services that feature tools
such as internet point of sale terminals, transactional searching, and reporting
tools.
TARGET MARKET CHANNELS
Technical market channels: internet service providers, web developers,
application developers
E-xact considers internet service providers, web developers and
application developers as technical market channels since they understand
software, servers, connectivity and other aspects necessary for
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integrating E-xact's Transaction Processing Component. A key aspect of E-xact's
marketing to these technical channels is the fact that its software is easy to
integrate. E-xact provides an interface to communicate with the most common
operating systems such as JAVA, LINUX, UNIX and COM. This reduces the technical
barrier and makes it easier for these companies to incorporate E-xact's
transaction processing component with their existing software and systems.
A second key aspect of E-xact'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. E-xact can be
identified only by a company logo.
Internet service providers present a dual market by providing the
E-xact Transaction Processing Component as part of e-commerce solutions that
they sell to their customers and by using E-xact's system to handle their own
transaction processing (accepting payment for their internet access programs and
other services). Due to the volume of transactions possible with internet
service providers, pricing to internet service providers is typically negotiated
on a deal by deal basis.
Web developers can provide E-xact'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,
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 E-xact 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
E-xact 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
E-xact's marketing strategy, however, it is taking place via E-xact's web site
and through word-of-mouth. For over three months, it has been possible to
download E-xact's transaction processing component from its web site at
WWW.E-XACT.COM. Management reports that an estimated 500 downloads of the
component have taken place to date. These are primarily companies with which
E-xact has had no direct prior contact. Not all of these are processing
transactions through E-xact 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 E-xact's current client base has made first
contact with E-xact by way of word-of-mouth referrals. Among E-xact's
approximately 75 current clients are the BC Children's Hospital, Lowrider
Records, Internet Direct and the Telelink Paging Network.
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BUSINESS OBJECTIVES AND MILESTONES
The following business objectives and milestones describe the major goals
that E-xact proposes to accomplish in the twelve months following the completion
of this offering.
1. E-xact intends to augment its management team by hiring individuals with
experience in key functional areas. In order to achieve this objective,
the following milestones will have to be met:
o Hire a controller/vice president of finance in the first quarter
of 2000;
o Hire a vice president of technology in the first quarter of 2000;
o Hire a marketing manager and a vice president of marketing in the
first and second quarters of 2000, respectively; and
o Hire directors of customer service and technical support together
with support professionals in the first and second quarters of
2000.
The total estimated annual cost for these potential expenditures is
$390,000 and is accounted for as part of E-xact's proposed management and
administration expenses.
2. E-xact intends to continue to further develop its software capabilities,
new client acquisition process and web based merchant reporting tools. In
order to achieve this objective, the following milestones will have to be
met:
o Achieve a second U.S. Gateway certification by end of the second
quarter of 2000;
o Hire additional development programmers or contractors beginning
in the first quarter of 2000;
o Develop automated processes to acquire new clients in the first
quarter of 2000;
o Develop additional fraud prevention and risk assessment
capabilities in the second quarter of 2000; and
o Enhance software scaleability and value-added capabilities in the
first quarter of 2000.
The total estimated annual cost for these expenditures is $355,000 and is
accounted for as part of E-xact's proposed technical development.
3. E-xact will be expanding its personnel and extending network capabilities
in the form of mission critical and fault tolerant systems and will need
to add network hardware and software. In order to achieve this objective,
the following milestones will have to be met:
o Deploy redundant server computers (and associated software) needed
to facilitate E-xact's North American Transaction Processing
network in the first and second quarters of 2000;
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o Deploy scalable, redundant database servers for development and
production environments in the second quarter of 2000; and
o Acquire additional workstations for increased personnel starting
in the first quarter of 2000.
The total estimated annual cost for these expenditures is $163,000 and is
accounted for as part of E-xact's proposed capital expenditures.
4. E-xact intends to develop and execute a sales and marketing strategy to
develop channel partners, re- sellers and strategic relationships
resulting in increased sign-ups of "e-merchants" using E-xact's system. In
order to achieve this objective, the following milestones will have to be
met:
o Produce print and electronic media materials to be used by business
development staff, channel re-sellers and customers in the first
and second quarters of 2000;
o Form strategic relationships with identified channel opportunities
in the first and second quarters of 2000; and
o Hire business development staff in the first and second quarters
of 2000.
The total estimated annual cost for these expenditures is $290,000 and is
accounted for as part of E-xact's proposed marketing expenses.
5. The total first year estimated cost for E-xact's general and
administrative functions including rent, utilities, and administrative
salaries will be approximately $453,000 and is accounted
for as part of E-xact's proposed working capital expenses.
COMPETITION
Competition in the market
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.
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.
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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.
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PATENTS, TRADEMARKS AND COPYRIGHTS
Generally speaking, E-xact relies on general trademark and copyright law
to protect its products. E-xact has not formally registered trademarks or
copyrights nor has it obtained any patent protection for any of its products.
MANAGEMENT
Key personnel of E-xact have signed employment agreements, which
agreements provide for non-disclosure of confidential information following
termination of employment with E-xact and non-competition/ non-solicitation for
a term of one year.
Ted Henderson, Chief Executive Officer and President
Mr. Henderson, age 37, is the President and Chief Executive Officer of
E-xact and has over 16 years expertise in a variety of high-tech sectors. He is
a director of E-xact and is employed on a full-time basis. Mr. Henderson devotes
100% of his time to E-xact and has served in this capacity since October 1999.
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Mr. Henderson began his career in public accounting providing business
services to public and private companies, achieving the position of Audit
Manager with Coopers & Lybrand, a leading international public accounting firm.
In 1985, Mr. Henderson was appointed Director of Finance and Operations for
Advanced Management Systems, Inc., a start-up software development company. He
subsequently accepted a controller position with Key Investments Inc., a KeyCorp
company providing full service investment products to the consumer marketplace.
After one and one-half years of service, Mr. Henderson was promoted to the
position of Chief Financial Officer with responsibility for directing financing
and accounting, management information systems and operations activities of the
company. In 1995, Mr. Henderson accepted a finance and operations management
position with Echostar Communications Corp. in which he helped the company
achieve the successful launch of its small dish satellite service, The Dish
Network. Mr. Henderson helped develop and manage the customer sales and service
infrastructure, and actively participated in Echostar's initial public stock
offering and secondary debt offering. In 1997, Mr. Henderson was promoted to
General Manager at Centrobe. In 1998 he was promoted to the position
Vice-President of Business Development and was responsible for the company's
sales engineering efforts to provide outsourced electronic business solutions to
the Fortune 500 companies. Prior to his promotion to this position, Mr.
Henderson provided leadership of strategic planning and acquisition activities
for one year and managed financial results and service delivery for a business
unit.
Mr. Henderson has a Bachelor of Business Administration granted by Sienna
College, Londonville, New York, in 1983, and is a Certified Public Accountant
recognized by the American Institute of CPA's and the New York State Society of
CPA's.
Peter Fahlman, Vice-President
Mr. Fahlman, age 35, is a founder, Vice-President (Business Development)
and director of E-xact, and is currently employed as an independent contractor
on a full time basis.
Mr. Fahlman has over 15 years experience in the computer industry. In
1984, he began programming music using the then new MIDI standard and began
working with regional recording studios in 1986, with computer aided sequencing
software and other MIDI instruments. During that time period, Mr. Fahlman worked
extensively with digital recording technology and software.
In 1993, Mr. Fahlman formed a relationship with local PC manufacturer and
communications company, Northern Computer Products. He began a project with
Northern Computer Products preparing the first local access of the internet in
the Okanagan Valley of British Columbia. During that time, he established a
teaching lab at Northern Computer Products and began developing courses on how
to use the internet. He also taught internet courses at Okanagan College in 1994
and 1995, and worked with Cybernet Systems in deploying Windows NT as the LAN
backbone in the operations of Hyper Sound, a retail operation specializing in
high-tech digital music instruments. as well as with other Cybernet Systems
clients.
Mr. Fahlman joined Cybernet Systems full-time as a Microsoft NT network
consultant in 1995 and left in 1996 to become president of Prophase Digital
Corp., a high-tech spin-off of NRS Block Brothers that offered online print
services to the real estate community under the name of Homenet. During Mr.
Fahlman's tenure, Prophase also undertook other projects including a re-write of
Telecheque Canada processing system using Microsoft web and SQL technologies
integrated fully with bank processing terminals used in stores (Interac
machines) and establishment of a digital recording studio for AM104 radio.
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In 1997, Mr. Fahlman formed DataDirect and DataDirect Consulting Services
with Robert Roker and Brian Archer. The following year, he left Prophase to
focus his interests on DataDirect and its goal to establish itself as a
financial transaction processor and to provide other internet consulting
activities. In 1998, a joint venture was established between DataDirect and the
Sutton Group, which became E-xact.
Robert Roker, Product Manager
Mr. Roker, age 33, is a co-founder of DataDirect, DataDirect Consulting
Services and of E-xact. He is the Product Manager and is currently employed by
E-xact as an independent contractor on a full time basis.
Mr. Roker is a computer professional with over 10 years experience
designing and implementing financial based information technology. He has
specialized in the development of financial based applications in areas of new
accounting systems, billing and auditing applications for companies such as
Rogers Cantel, BC Tel Mobility, and Westel Telecommunications. In addition, he
has several years of experience as consultant delivering engineering automation
for Rogers Cable and Rogers Shared Services, and significant exposure as a
database analyst responsible for the day-to-day operation of mission critical
corporate information.
Prior to joining E-xact, Mr. Roker was the manager of information
technology for Prophase. During his tenure with Prophase, he led a group of
computer professionals and delivered new facilities for an internet real estate
search engine and print catalog service called "Homenet," an office management
application for real estate offices called BORAN, and a complete re-engineering
of an authorization network for a company called Telecheck Canada.
Mr. Roker is a graduate of the Computer Systems Technology program at
Langara College and a graduate of Simon Fraser University with a bachelor's
degree in Computer Sciences.
Brian Archer, Development Manager
Mr. Archer, age 35, is currently employed by E-xact as an independent
contractor on a full time basis. He has been with E-xact since its inception and
his computer experience began in 1981. He had worked with Peter Fahlman since
1995 and Robert Roker since 1996 with Prophase and participated in the founding
of E-xact. Mr. Archer joined Prophase in 1991. During his tenure with Prophase,
his primary responsibility was in support of real estate applications on PCs,
mainframes and wide area communications.
Prior to joining Prophase, Mr. Archer spent several years working in the
mining industry with Cassian Mining Corporation, specializing in ore testing
software. Mr. Archer also worked in the area of software development at the
Prince Rupert Coal Terminal.
Edmund Shung, Chief Financial Officer
Mr. Shung, age 44, is the Chief Financial Officer for E-xact, and is
currently a part-time contractor. Mr. Shung devotes 25% of his time to E-xact
and has been employed by E-xact since November 1998.
Mr. Shung has 20 years of general business and accounting experience.
From March 1986 to September 1991 he was a controller to Dexter Associates, a
Vancouver based real estate firm. In October 1991 he acquired Totemcolor Film
Labs Ltd., a photo processing facility, which he operated, as President and
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owner, until November 1995. In December 1995 he joined Sutton Group Financial
Services Ltd. as Chief Financial Officer and Controller.
Mr. Shung was awarded a Bachelor of Commerce and Diploma in Accountancy
from the University of Witwatersrand, Johnnesburg, South Africa in 1976 and 1978
respectively. In 1979 he was awarded his Chartered Accountant designation by the
Transvaal Society of Chartered Accountants, Johannesburg, South Africa. In 1983
he was awarded his Chartered Accountant designation by the Institute of
Chartered Accountants of B.C. and in 1986 he received his Masters of Business
Administration from the University of Cape Town, South Africa.
PERSONNEL
E-xact currently employs a total of 14 employees comprised of four
full-time employees and 10 full-time and part-time independent contractors. Of
the four full-time employees, two serve in a management and administration
capacity, one serves in a sales and marketing capacity, and one serves as a
software programmer. Of the 10 independent contractors, two serve in a
management and administrative capacity, five serve in a technical development
capacity or as software programmers, and three serve in a customer relations and
customer support capacity.
DESCRIPTION OF OFFICES
E-xact's principal office consists of approximately 1,300 square feet
of leased office space at 2410 - 555 West Hastings Street, Vancouver, B.C., V6H
4N6 under a lease expiring October 31, 2002. The monthly rent under the lease is
$3,377.81.
E-xact also leases approximately 4,500 square feet of office space at
143 Union Boulevard, Suite 850, P.O. Box 38, Lakewood, Colorado, under a
sublease expiring December 30, 2000. The monthly rent under the sublease is
approximately $6,800.
THE UNITED STATES PENNY STOCK RULES MAY MAKE IT MORE DIFFICULT FOR INVESTORS TO
SELL THEIR SHARES.
Because shares of E-xact common stock will not be quoted on a national
securities exchange in the United States, the shares will be subject to rules
adopted by the U.S. Securities and Exchange Commission regulating broker-dealer
practices in connection with transactions in "penny stocks." Such rules require
that prior to effecting any transaction in a penny stock, a broker or dealer
must give the customer a risk disclosure document that describes various risks
associated with an investment in penny stocks, as well as various costs and fees
associated with such an investment. It is possible that some brokers may be
unwilling to engage in transactions of shares of E-xact common stock because of
these added disclosure requirements, which would make it more difficult for a
purchaser in this offering to sell his shares.
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MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with E-xact's financial
statements and accompanying notes included elsewhere in this Prospectus.
INTRODUCTION
E-xact was incorporated under the Company Act of British Columbia, Canada
on August 13, 1998. On July 29, 1999 E-xact was reincorporated in the state of
Delaware, USA. E-xact 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.
RESULTS OF OPERATIONS
Period August 13, 1998 to December 31, 1998:
During this period, E-xact's revenue consisted of online transaction
revenue and web development revenue. Revenue from online transactions was
derived mainly from one major customer. The average income per month from this
customer was approximately Cdn. $4,400 per month. There is no contract in place
with this customer. Revenue from web development was derived solely from one
customer. Revenue for the period of Cdn. $21,000 was received in terms of a
development contract.
Period January 1, 1999 to September 30, 1999:
E-xact's total revenue for the nine months ended September 30, 1999 was
Cdn. $80,300 compared to Cdn. $43,000 for the four and a half months ended
December 31, 1998. The average monthly transaction fees increased from Cdn.
$5,000 per month to Cdn. $7,900 per month or 58%. E-xact's focus over the nine
month and prior periods was concentrated on the continued development of its
software system. Its customer base grew via networking and direct contact with
prospective customers. Web site development revenue decreased from Cdn. $20,800
in 1998 to Cdn. $9,000 in 1999. The revenue in both periods was obtained from
one customer. E-xact does not anticipate any further income from this division
as the development contract has since lapsed with this customer. In the future,
E-xact does not intend on pursuing web development as a profit center.
Amortization of capital assets for the period ended September 30, 1999 amounted
to approximately Cdn. $31,800 and Cdn. $40,275 for the period ended December 31,
1998. Programming costs for the period ended September 30, 1999 amounted to Cdn.
$184,237 and Cdn. $7,500 for the period ended December 31, 1998. These figures
are included under R&D. Programming costs were incurred to improve E-xact's
Software System for web based transactions as well as adding a variety of
functions to the existing software. For example, reporting features were
improved and search capabilities were added to allow merchants to query
transactions online. E-xact's databases were redesigned for greater stability
and fault tolerance. E-xact's web site has also been improved to streamline
communications with both existing and potential customers. Included in R&D
expense is equipment lease of Cdn. $6,000 for the four and a half months ended
December 31, 1998 and Cdn. $10,000 for the nine months ended September 30, 1999.
Computer equipment was leased in order to facilitate E-xact's growth.
General and administration ("G&A") expenses for the four and a half months
ended December 31, 1998 was Cdn. $39,300 compared to Cdn. $225,619 for the nine
months ended September 30, 1999.
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Sales and marketing expenses for the period ended December 31, 1998
included amortization of Cdn. $16,000 of intangible assets acquired from
DataDirect Holdings, Inc. for Cdn. $32,000.
As a result of E-xact's re-incorporation in the State of Delaware on July
29, 1999, there was a deemed disposition of E-xact's assets for Canadian income
tax purposes. E-xact is liable for income tax on the capital gains of the deemed
disposition. The income tax liability is currently estimated to be approximately
Cdn. $250,000 after allowing for tax losses.
LIQUIDITY AND FINANCIAL CONDITION
Subsequent to the period ended September 30, 1999 E-xact completed the
private placement of 1,697,000 shares of common stock to raise $848,500. As of
September 30, 1999, $553,500 of those proceeds had been received and were
reflected in share capital in E-xact's interim financial statements, net of
share issue costs of Cdn. $15,700. In addition, 225,000 share purchase warrants
were exercised for gross proceeds of $56,250.
In addition to these funds E-xact is expected to raise net funds of
$2,081,250 from the offering described herein, prior to the payment of expenses.
Based on E-xact's business model and funds from both the private placement and
this offering, E-xact believes that there should be sufficient working capital
for the business to operate within the next twelve months without resorting to
equity or debt financing.
Over the next twelve months, E-xact plans on purchasing computer hardware
and software valued at approximately $163,000. The hardware and software
purchases will be used to support the company's infrastructure and for further
development of its software product.
YEAR 2000 PROBLEM
The year 2000 computer problem refers to the potential for system and
processing failures of date- related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
State of readiness
All E-xact products and upgrades are being developed to be year 2000
compliant. E-xact may, however, be affected by year 2000 issues related to
non-compliant internal systems developed by third party vendors. E-xact has
completed a review of its systems to ensure that they are year 2000 compliant.
E-xact is not currently aware of any year 2000 problem relating to any of its
internal, material systems. E-xact does not believe that it has any material
systems that contain embedded chips that are not year 2000 compliant.
Management believes that absent a systemic failure outside the control of
E-xact, such as a prolonged loss of electrical or telephone service, year 2000
problems at third parties will not have a material impact on the company. E-xact
has no contingency plan for systemic failures such as loss of electrical or
telephone services. E-xact's contingency plan in the event of a non-systemic
failure is to establish relationships with alternative suppliers or vendors to
replace failed suppliers or vendors. E-xact has no other contingency plans or
intention to create other contingency plans.
-22-
Cost associated with year 2000 compliance
Costs of testing E-xact's transaction software to ensure it is year 2000
compliant were approximately Cdn. $5,000 to Cdn. $7,000. Such
expenditures were primarily absorbed within the product development
organization. Based on its overall development expenditure and the amount of
time people in the organization are spending on year 2000 compliance, E-xact
believes that its spending on compliance to date has not been material.
Any failure of E-xact to make its products year 2000 compliant could
result in a decrease in sales of its products, an increase in allocation of
resources to address year 2000 problems of its customers without additional
revenue commensurate with such dedication of resources, or an increase in
litigation costs relating to losses suffered by E-xact's customers due to such
year 2000 problems. Failure of E-xact's internal systems could temporarily
prevent it from processing orders, issuing invoices, and developing products,
and could require us to devote significant resources to correcting such
problems. E-xact is not aware of any software supplied by third parties, which
is part of the company's processing system, which is not year 2000 compliant.
Due to the general uncertainty inherent in the year 2000 computer problem,
resulting from the uncertainty of the year 2000 readiness of third party
suppliers and vendors, E-xact is unable to determine whether the possible
consequences of year 2000 failures could have a material impact on its business,
results of operations, and financial condition.
-23-
DESCRIPTION OF SECURITIES
STOCK CAPITAL
The authorized capital stock of E-xact consists of 50,000,000 shares of
common stock with a par value of $0.001 per share. There are approximately 55
holders of E-xact common stock and as of the date of this prospectus E-xact has
a total of 6,122,000 shares issued and outstanding. All of the issued shares of
E-xact common stock are fully paid and not subject to any future call or
assessment. On September 2, 1999 E-xact's board of directors authorized a stock
split of the authorized and issued share capital of 21,000:1 in preparation for
this offering. E-xact has filed an application to list its common stock on the
facilities of the Canadian Venture Exchange, and before offers to sell any
shares are made, such application will have been approved.
Under E-xact's certificate of incorporation, all of the common shares rank
equally as to voting rights, participation in a distribution of the assets of
E-xact on a liquidation, dissolution or winding-up of E-xact and the entitlement
to dividends. The holders of the common shares are entitled to receive notice of
all meetings of shareholders and to attend and vote the shares at the meetings.
Each share of common stock carries with it the right to one vote.
In the event of the liquidation, dissolution or winding-up of E-xact or
other distribution of its assets, the holders of the shares of common stock will
be entitled to receive, on a pro rata basis, all of the assets remaining after
E-xact has paid out its liabilities. Distribution in the form of dividends, if
any, will be set by the board of directors.
Provision as to the modification, amendment or variation of the rights
attached to the capital of E-xact are contained in E-xact's certificate of
incorporation and the Delaware General Corporation Law. Generally speaking,
substantive changes to the share capital require the approval of the
shareholders by special resolution (at least 75% of the votes cast).
SHARES ELIGIBLE FOR SALE
As of the date of this prospectus, 6,122,000 shares of common stock of
E-xact are issued and outstanding. These shares are subject to resale
restrictions imposed by the Canadian Venture Exchange, which allows shares to be
released for trading at various times commencing on the date the shares
initially listed for public trading. Pursuant to these regulations the shares
will be released as follows:
Number of shares released Time of release after date of listing
------------------------- -------------------------------------
848,500 Immediately
904,750 Three months
56,250 Six months
56,250 Nine months
1,106,250 Twelve months
1,050,000 Fifteen months
1,050,000 Eighteen months
1,050,000 Twenty-one months
-24-
STOCK OWNERSHIP
The following are the shareholdings of the directors, senior officers and
promoters of E-xact and of any other shareholders which, to the knowledge of
E-xact, beneficially own, directly or indirectly, more than five percent of the
issued common shares of E-xact:
Number of shares Percentage of Percentage of issued share
Name and municipality of of common stock issued share capital after the
residence of shareholder beneficially owned capital completion of this offering
- -------------------------------------------- ----------------------- ------------------ ----------------------------
Ted Henderson(1) 75,000 1.24% 0.31%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Peter Fahlman(2) 767,776 11.14% 7.76%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Cliff Mah(3) 165,714 2.71% 0.31%
1450 Creekside Drive, Suite 800
Vancouver, B.C. V6J 5B3
Canada
Paul MacNeill(4) 57,000 0.93% 0.30%
c/o Campney & Murphy
Suite 2100
1111 West Georgia Street
Vancouver, British Columbia
Canada
Lance Tracey(5) 518,025 8.6% 5.59%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Dieter Heidrich(6) 265,000 4.38% 0.31%
230 Green Rock Drive
Boulder, Colorado 80302
Robert Roker(7) 702,776 11.6% 7.85%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Brian Archer(8) 352,776 5.83% 3.94%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
-25-
Number of shares Percentage of Percentage of issued share
Name and municipality of of common stock issued share capital after the
residence of shareholder beneficially owned capital completion of this offering
- -------------------------------------------- ----------------------- ------------------ ----------------------------
Daryl Yurek(9) 884,282 14.44% -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
Scott Shaw(10) 450,450 7.44% 5.03%
c/o 1628 555 West Hastings Street
Vancouver, British Columbia V6B 4N6
Canada
Edmund Shung(11) 10,416 0.17% 0.005%
110-1082 West 8th Avenue
Vancouver, B.C.
V6H 1C4 Canada
DataDirect Holdings Inc.(12) 1,750,000 28.59% 18.85%
1610 - 555 West Hastings Street
Vancouver, B.C.
V6B 4N6
Canada
Sutton Group Financial Services Ltd. (13) 1,750,000 28.59% 18.85%
1628 - 555 West Hastings Street
Vancouver, B.C.
V6B 4N6
Canada
Acacia Management Services Ltd.(14) 700,000 11.43% 7.54%
Kuttelgasse, 4 CH - 8001
Zurich, Switzerland
Bolder Venture Partners L.L.C.(15) 1,007,136 16.45% -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
[DIRECTORS AND OFFICERS] 2,889,483 47.2% 26.38%
- --------------------
(1) Includes 25,000 shares that may be acquired immediately by exercise of a
stock option.
(2) 40,000 of these shares are held in the name of Michelle Fahlman, Peter
Fahlman's wife. 725,000 shares are beneficially owned through Mr. Fahlman's
ownership of 40 % of DataDirect Holdings, Inc. which owns 1,750,000 shares
of E-xact common stock. 27,776 of these shares may be acquired immediately
by exercise of a stock option.
(3) Includes 100,714 shares beneficially owned through Mr. Mah's ownership of
10% of Bolder Venture Partners, LLC. 25,000 of these shares may be
acquired immediately by exercise of a stock option.
(4) 32,000 of these shares are held in the name of Debra Windjack, Mr.
MacNeill's wife. 25,000 of these shares may be acquired immediately by
exercise of a stock option.
(5) 20,000 of these shares are held in the name of Shelagh Tracey, Lance
Tracey's wife. 473,025 shares are beneficially owned through Mr. Tracey's
ownership of 27.03% of Sutton Group Financial Services Ltd., which owns
1,750,000 shares of E-xact common stock. 25,000 of these shares may be
acquired immediately by exercise of a stock option.
(6) 80,000 of these shares are held jointly with Marie K. Heidrich, Mr.
Heidrich's wife. 160,000 shares are beneficially owned through Mr.
Heidrich's position as general partner of the manager of Opus Capital
Fund, LLC. 25,000 of these shares may be acquired immediately by exercise
of a stock option.
-26-
(7) 350,000 of these shares are beneficially owned through Mr. Roker's
ownership of 40% of DataDirect Holdings, Inc., which owns 1,750,000 shares
of E-xact common stock. 2,776 of these shares may be acquired immediately
by exercise of a stock option.
(8) 697,224 of these shares are beneficially owned through Mr. Archer's
ownership of 20% of DataDirect Holdings, Inc., which owns 1,750,000 shares
of E-xact common stock. 2,776 of these shares may be acquired
immediately by exercise of a stock option.
(9) Includes 604,282 shares acquired by exercise of a warrant held by Bolder
Venture Partners, LLC, of which Daryl Yurek is a 60% member, and 160,000
shares beneficially owned through Mr. Yurek's position as general partner
of the manager of Opus Capital Fund, LLC, which owns 160,000 shares of
E-xact common stock.
(10) All of these shares are beneficially owned through Mr. Shaw's ownership of
25.74% of Sutton Group financial Services, Ltd., which owns 1,750,000
shares of E-xact common stock.
(11) 416 of these shares may be acquired immediately by exercise of a stock
option.
(12) DataDirect Holdings Inc. is owned 40% by Peter Fahlman, 40% by Robert
Roker, and 20% by Brian Archer.
(13) Sutton Group Financial Services Ltd. is a public company in which Lance
Tracey owns 27.03% interest and in which Scott Shaw owns a 25.74% interest.
(14) 350,000 shares were purchased from each of DataDirect Holdings Inc. and
Sutton Group Financial Services, Ltd. on January 10, 2000.
(15) Bolder Venture Partners L.L.C. is a limited liability company in which
Cliff Mah owns a 10% interest and in which Daryl Yurek owns a 60%
interest. Includes 557,136 shares that may be acquired immediately by
exercise of a warrant and 225,000 shares that may be acquired upon
completion of the initial public offering by exercise of a warrant, but
does not include 225,000 shares that may be acquired by exercise of a
warrant at such time as E-xact completes a private placement in the
future of not less than $3,000,000.
OPTIONS TO PURCHASE SECURITIES
E-xact's stock option plan was approved by E-xact's board of directors on
October 14, 1999.
The stock option plan reserves a maximum of 1,695,400 shares for issuance.
Options granted pursuant to the plan shall vest in accordance with the terms set
forth in each particular grant, but no option shall vest 100% before the
recipient has at least two years of continuous service to E-xact. No option
granted shall be for a term in excess of five years, and the exercise price per
share shall not be less than the average of the closing prices of the common
stock on the Canadian Venture Exchange on the ten trading days immediately
preceding the date of the stock option grant.
Pursuant to the terms of a letter agreement dated September 16, 1999
between E-xact and Ted Henderson, Mr. Henderson is eligible to receive options
to purchase up to 500,000 shares of common stock of E-xact at a price of $1.00
per share. 25,000 of these options vest immediately and the remaining
475,000 options will vest over a 36-month period. In addition, on January 12,
2000, E-xact granted options to approximately 18 directors, employees, and
officers of E-xact pursuant to which an aggregate of up to 604,700 shares of
common stock of E-xact may be purchased at a price of $1.00 per share. These
options vest over periods ranging from 12 months to 36 months.
-27-
PLAN OF DISTRIBUTION
OFFERING AND APPOINTMENT OF AGENT
By an agency agreement dated for reference August 9, 2000 and amended
January 19, 1999, E-xact appointed Canaccord Capital Corporation as its agent to
offer a total of up to 2,250,000 shares to non-U.S. persons in Canada through
the facilities of the Canadian Venture Exchange. The shares will be offered at a
price of $1.00 per share on a day, as determined by Canaccord and E-xact, with
the consent of the Canadian Venture Exchange, that is not more than 90 days
following the date of the receipt issued by the British Columbia Securities
Commission for the prospectus filed in connection with the E-xact's application
for listing on the Canadian Venture Exchange. In accordance with Canadian
Venture Exchange rules, E-xact will receive the net proceeds of the offering
within ten business days of the date the shares are first offered to the public.
The offering will be made in accordance with the rules and policies of the
Canadian Venture Exchange.
Under the terms of the agency agreement, E-xact has agreed to pay to
Canaccord a commission of $0.075 per share for each share sold from this
offering.
Before offers to sell shares of E-xact common stock are made, the shares
of E-xact common stock will have been approved for listing on the facilities of
the Canadian Venture Exchange.
Canaccord has reserved the right to offer selling group participation in
the normal course of the brokerage business to selling groups of other licensed
broker-dealers, brokers and investment dealers who may or may not be offered
part of the commissions or warrants offered to Canaccord.
The obligations of Canaccord under the agency agreement may be terminated
prior to the opening of the market on the day E-xact's shares are to commence
trading on the Canadian Venture Exchange at the discretion of Canaccord on the
basis of its assessment of the state of the financial markets. The Agency
Agreement may also be terminated at any time upon the occurrence of certain
stated events.
E-xact may offer directly to investors in the United States up to
920,000 of the 2,250,000 total shares offered in this offering.
AGENT'S GUARANTEE AND WARRANT
Canaccord has agreed to purchase the balance of any shares remaining
unsold on the day E-xact's shares commence trading on the Canadian Venture
Exchange. In consideration of this guarantee, Canaccord has been granted a
warrant.
The warrant entitles Canaccord to purchase up to 225,000 shares at a price
of $1.00 per share at any time up to 5:00 p.m. on the first anniversary of the
date shares of E-xact common stock are first listed for trading on the
Canadian Venture Exchange. The warrant is non-transferable and will contain,
among other things, anti-dilution provisions and provisions for appropriate
adjustment for the class, number and price of shares issuable pursuant to any
exercise thereof upon the occurrence of certain events, including any
subdivision, consolidation or reclassification of the shares or the payment of
stock dividends or the amalgamation of E-xact.
-28-
Additionally, as consideration for services provided to E-xact by
Canaccord, including providing advice with respect to the structure, timing and
price of the offering, E-xact paid Canaccord a sponsorship fee of $10,000, an
administrative fee of Cdn. $4,000, and a corporate finance fee of 75,000 shares.
The shares of common stock comprising the corporate finance fee and the
shares underlying the warrant granted to Canaccord are being registered pursuant
to this registration statement.
THE PURPOSE OF THIS PROSPECTUS
This prospectus has been included in a registration statement filed under
the U.S. Securities Act of 1933 in order to permit the shares to be legally sold
to the United States purchasers. Copies of this prospectus are being furnished
to each purchaser of the shares, whether in the United States, Canada, or
elsewhere. In addition, the United States securities laws require that the
prospectus be furnished to all subsequent purchasers of the shares from the date
of the U.S. registration statement. Copies of the prospectus will therefore be
made available to any securities broker-dealer who proposes to sell any of the
shares for a customer to a U.S. purchaser.
-29-
DIRECTORS AND SENIOR OFFICERS
The following is a list of the current directors and senior officers of
E-xact, and their municipalities of residence, current positions with E-xact,
and principal occupations during the past five years:
Name and municipality of Principal occupation for previous five years
residence
- --------------------------- -------------------------------------------------
Ted Henderson(1) President, Chief Executive Officer and a
Morrison, Colorado Director of E-xact 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., from September,
1992 to March, 1995, a financial services
company.
Peter G. Fahlman Vice-President (Business Development) and a
Delta, B.C. Director of E-xact since September 1, 1998;
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.
Lance Tracey(1)(2) Secretary and a Director of E-xact since
North Vancouver, B.C. 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(2) Managing Director of Opus Capital, LLP, a
Boulder, Colorado venture capital company, since October 1993
and a Director of E-xact 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.
-30-
Name and municipality of Principal occupation for previous five years
residence
- --------------------------- -------------------------------------------------
Cliff Mah(2) Director of E-xact since September 1, 1999.
Vancouver, B.C. 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(1) Partner with Campney & Murphy, Barristers and
West Vancouver, B.C. Solicitors, since 1981 and a Director of E-xact
since September 1, 1999.
Edmund Shung Chief Financial Officer of E-xact since
Vancouver, B.C. November, 1999. 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.
- ------------------
(1) Member of the audit committee.
(2) Member of the compensation committee.
Other than receiving stock options from time to time, the directors of
E-xact are not compensated for serving as directors.
Other associations
During the past five years, the principals of E-xact have served as
principals of the following reporting issuers during the periods and in the
capacities noted below:
Principal Reporting issuer Capacity Period
- ------------- -------------------------------- ----------------- -------------
<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. MacNeill America Mineral Fields Inc. Director 03/98 - present
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
-31-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Bolder Venture Partners L.L.C.
E-xact is party to a consulting agreement with Bolder Venture Partners
L.L.C. dated July 28, 1999 (amended January 21, 2000). Bolder Venture Partners
is a limited liability company incorporated under the laws of the State of
Colorado and is owned 60% by Daryl Yurek, and 10% by each of Cliff Mah (a
director of E-xact), Ahmad Akrami, Kent Nuzum and Tom Tennessen.
Under the terms of the consulting agreement, Bolder agrees to provide
consulting services to the officers of E-xact 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 E-xact's
securities, including this offering.
In consideration of these services, E-xact agreed to pay Bolder Venture
Partners a monthly retainer of $10,000, and purchase warrants to acquire up to
1,236,136 shares of E-xact for a period of five years from July 28, 1999.
225,000 of the warrants were exercised at $0.25 per share on January 18,
2000. The remaining warrants became exercisable or will be exercisable as
follows:
o 557,136 at $1.00 per share as of October 14, 1999;
o 225,000 at $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 $3,000,000, if such a
private placement is made.
The term of the consulting agreement ends on June 30, 2000.
DataDirect Holdings, Inc.
Under a management agreement dated April 15, 1999 between DataDirect,
Peter Fahlman, Robert Roker, and E-xact, E-xact retained DataDirect to provide
certain management services including services to the ongoing development of
E-xact's software. The term of the agreement commenced April 15, 1999 and was
terminated effective December 1, 1999. E-xact paid DataDirect a monthly fee of
Cdn. $20,000 per month plus G.S.T. (goods and services tax) while the agreement
was in effect.
DataDirect Holdings, Inc., which owns 2,100,000 shares of E-xact common
stock, is owned 40% by Peter Fahlman (E-xact Vice President of Business
Development and Director), 40% by Robert Roker (E-xact Product Manager), and 20%
by Brian Archer (E-xact Development Manager).
Sutton Group Financial Services Ltd.
E-xact has had accounts payable and accrued liabilities due to Sutton
Group Financial Services Ltd. for operating costs paid by Sutton on behalf of
E-xact from time to time. The maximum amount ever due to Sutton was
approximately $41, 000. As of September 30, 1999, all amounts owed by E-xact to
Sutton have been paid in full.
-32-
Sutton Group Financial Services Ltd., which owns 2,100,000 shares of
E-xact common stock, is owned 27.03% by Lance Tracey (E-xact Director) and
25.74% by Scott Shaw (E-xact shareholder).
EXECUTIVE COMPENSATION
The following table is a summary of the compensation paid to the two most
highly paid executive officers of E-xact during the most recently completed
financial year for services rendered to E-xact:
- -------------------------------------------------------------------------------------------------------------------------------
Long term
compensation
-----------------------
Annual compensation Awards Payouts
--------------------------------- --------- -------
Options/
SARs
Name and principle Other annual granted LTIP(1) All other
position Period Salary Bonus compensation (#) payouts compensation
- -------------------------------------------------------------------------------------------------------------------------------
Peter Fahlman, Year ended N/a N/a N/a N/a N/a N/a
President(2) Dec. 31, 1998
Ted Henderson(3) N/a N/a N/a N/a N/a N/a
- -------------------------------------------------------------------------------------------------------------------------------
(1) "LTIP" or "long term incentive plan" means any plan which provides
compensation intended to serve as incentive for performance to occur over a
period longer than one financial year, but does not include option or stock
appreciation right plans.
(2) Mr. Fahlman has served as the acting Chief Executive Officer while E-xact
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.
(3) Mr. Henderson began serving as the President and Chief Executive Officer on
October 4, 1999. Mr. Henderson will receive an annual salary of $110,000,
and will be eligible to receive a bonus of up to 50% of his annualized base
salary based on the achievement of goals to be mutually agreed upon between
Mr. Henderson and the board of directors of E-xact. Mr. Henderson has been
granted options to purchase up to 500,000 shares of E-xact common stock at
an exercise price of $1.00 per share, 25,000 of which vest immediately and
475,000 of which will vest over a 36-month period and expire five years
from the date of grant.
-33-
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
We have made certain forward-looking statements in this document and in
the documents referred to in this document which are subject to risks and
uncertainties. These statements are based on the beliefs and assumptions of the
management of the companies and on the information currently available to such
management. Forward-looking statements include information concerning possible
or assumed future results of E-xact. These statements may be preceded by,
followed by, or otherwise include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of E-xact may differ materially from those expressed in these forward-looking
statements. Many of the factors that will determine these results and values are
beyond our ability to control or predict. Investors are cautioned not to put
undue reliance on any forward- looking statements. Except for their ongoing
obligations to disclose material information as required by the federal
securities law, we do not have any intention or obligation to update
forward-looking statements after this Prospectus is delivered, even if new
information, future events or other circumstances have made them incorrect or
misleading.
You should understand that various factors, in addition to those discussed
elsewhere in this document and in the documents referred to in this document,
could affect the future results of the combined company following the merger and
could cause results to differ materially from those expressed in such forward-
looking statements.
DIVIDEND RECORD AND POLICY
E-xact has not paid any dividends since incorporation and it has no plans
to pay dividends in the immediate future. E-xact expects to retain its earnings
to finance further growth and, when appropriate, retire debt. The directors of
E-xact will determine if and when dividends should be declared and paid in the
future based on E-xact's financial position at the relevant time. All of the
shares of E-xact are entitled to an equal share in any dividends declared and
paid.
EXPERTS
The financial statements included in this prospectus and the related
financial statement schedules included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
E-xact knows of no material pending legal proceedings to which E-xact is
or is likely to be a party or to which any of its properties are or are likely
to be the subject.
-34-
Campney & Murphy, Barristers and Solicitors, 2100-1111 West Georgia
Street, Vancouver, British Columbia, Canada, V7X 1K9 has served as legal counsel
of E-xact in connection with the offering of the securities in Canada on the
Canadian Venture Exchange.
The validity of the securities offered will be passed upon for E-xact by
Davis, Graham & Stubbs LLP, Denver, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
You may read and copy any reports, statements or other information that we
file with the Securities and Exchange Commission at the SEC's public reference
rooms in Washington, D.C.; New York, New York; and Chicago, Illinois. Please
call the Securities and Exchange Commission at 1 (800) SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from commercial document retrieval services and at the web site
maintained by the Securities and Exchange Commission at "http://www.sec.gov."
-35-
OUTSIDE BACK COVER
Until ___________ __, 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
-36-
THIS INFORMATION IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT DELIVER THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH __, 2000
SELLING STOCKHOLDER
PROSPECTUS
3,309,136 Shares
[GRAPHIC OMITTED]
E-XACT TRANSACTIONS LTD.
Common Stock, $.001 par value
------------------------------
The shares of common stock may be offered and sold from time to time by
the selling stockholders through underwriters, dealers, agents, or directly to
one or more purchasers in fixed price offerings, in negotiated transactions, at
market prices prevailing at the time of sale or at prices related to such market
prices. The terms of the offering and sale of common stock in respect of which
this prospectus is being delivered, including any initial public offering price,
any discounts, commissions, or concessions allowed or paid to underwriters,
dealers, or agents, the purchase price of the common stock and the proceeds to
the selling stockholders, and any other material terms shall be set forth in a
prospectus supplement.
All 3,309,136 shares of common stock of E-xact Transactions Ltd. offered
hereby are being offered for sale by the selling stockholders identified herein.
E-xact will not receive any proceeds from the sale of the common stock by the
selling stockholders.
------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" LOCATED AT ALTERNATE PAGES 4 TO 6.
------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is o, 2000
TABLE OF CONTENTS
PAGE
Summary............................................................Alternate 3
Risk factors.......................................................Alternate 4
Selling stockholders...............................................Alternate 6
Plan of distribution..............................................Alternate 13
Use of proceeds...................................................Alternate 13
Cautionary statement concerning forward-looking statements........Alternate 13
Dividend record and policy........................................Alternate 14
Experts...........................................................Alternate 14
Legal matters.....................................................Alternate 14
Where you can find more information...............................Alternate 14
Alternate 2
SUMMARY
BUSINESS OF E-XACT: E-xact is a software development company that offers
a simple electronic commerce, also known as
"e-commerce," solution for real time transaction
processing combined with a suite of value added
merchant services. E-xact's software allows computer
controlled cash registers, personal computers,
personal computer based point-of-sale terminals,
computer systems and proprietary product platforms to
accept credit card payments and submit those payments
to payment processing centers for authorization and
settlement.
E-xact's principal office is located at
2410 - 555 Hastings Street, Vancouver, British
Columbia (Canada) V6H 4N6. The telephone number is
(604) 691-1670.
THE OFFERING: Common stock
offered by the
selling stockholders 3,309,136 shares
Use of proceeds: All proceeds from the offering
will be received by the
selling stockholders.
SELLING STOCKHOLDERS: The selling stockholders are founders of E-xact or
purchased their shares in a private placement
pursuant to an exemption provided by Regulation D
under the Securities Act of 1933, as amended.
Alternate 3
RISK FACTORS
An investment in E-xact common stock involves certain risks. Prospective
investors should carefully consider the following risk factors, in addition to
all of the other information in this prospectus, in determining whether to
purchase shares of E-xact stock.
WE HAVE A LIMITED OPERATING AND SALES HISTORY AND EVEN WITH THE INITIAL PUBLIC
OFFERING PROCEEDS MAY NOT HAVE SUFFICIENT FUNDS TO COVER NECESSARY EXPENSES.
E-xact has a limited history of operations that has consisted primarily of
research and development and initial sales of its e-commerce products and
services. Since inception E-xact has financed its operations primarily through
the private placement of equity securities, stockholder loans, and has generated
only limited revenues from sales of its e-commerce products and services.
Whether E-xact can successfully manage the transition to a larger-scale
commercial enterprise will depend upon a number of factors, including expanding
its sales and marketing capabilities. Given the absence of clear market
acceptance with respect to this line of products, there can be no assurance as
to the achievability of projected market penetration rates and associated sales
revenues.
THE LOSS OF KEY PERSONNEL, ESPECIALLY IF WITHOUT ADVANCE NOTICE, OR THE
INABILITY TO HIRE OR RETAIN QUALIFIED PERSONNEL, COULD HAVE A MATERIAL ADVERSE
EFFECT UPON E-XACT'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
E-xact's future success depends in significant part upon the continued
service of certain key technical and management personnel and its continuing
ability to attract and retain highly qualified technical and managerial
personnel. Key personnel of E-xact include Ted Henderson (President and Chief
Executive Officer), Peter Fahlman (Vice President of Business Development),
Robert Roker (Product Manager), and Brian Archer (Development Manager). E-xact
has entered into employment agreements with all key personnel. The employment
agreements with Messrs. Fahlman, Roker, and Archer extend from December 1, 1999
to November 30, 2000. The employment agreement with Ted Henderson extends from
September 16, 1999 to September 15, 2000. All of the agreements contain
confidentiality provisions that are unrestricted as to time, and non-competition
and non-solicitation provisions that extend 12 months following the employee's
termination.
Competition for such personnel is particularly intense in the internet
industry, and there can be no assurance that E-xact can retain its key technical
and managerial personnel or that it can attract, assimilate or retain other
highly qualified technical and managerial personnel in the future.
THE INABILITY TO CONTINUE DEVELOPING AND SELLING NEW PRODUCTS MAY RESULT IN
CONTINUED LOSSES.
The e-commerce software industry is characterized by rapid and significant
technological change. Many software applications have a life cycle of under
twelve months. Product research and development will require substantial
expenditures and will be subject to inherent risks and there can be no assurance
that E-xact will be successful in developing or improving products that have the
characteristics necessary to effectively meet the market's needs, or that any
new products introduced will be successfully commercialized.
The e-commerce and real-time electronic credit card payment transaction
processing industries require reliable, efficient high volume transaction
capability. Transaction processing software applications
Alternate 4
may run efficiently in low volume transaction processing environments but slow
down or cease to operate in high volume environments or during peak hours of
use. E-xact's future success will depend in large part on whether E-xact's
software solutions will adequately respond to such high volume transaction
processing environments in a reliable and efficient manner. There can be no
assurance that E-xact will be successful in developing or improving products
that will be able to process large transaction volumes in a seamless manner.
LISTING THE STOCK ON THE CANADIAN VENTURE EXCHANGE DOES NOT ASSURE A MARKET FOR
THE SHARES AT ALL TIMES.
The shares of E-xact common stock will be approved for listing on the
Canadian Venture Exchange and will be primarily traded on that exchange. The
rules of the Canadian Venture Exchange do not require any market maker or
specialist to maintain a market for the listed shares at all times. Therefore,
the Canadian Venture Exchange listing does not assure a stockholder that there
will be a purchaser for his shares when the stockholder wishes to sell.
Alternate 5
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of E-xact's common stock as of February 1, 2000, and as
adjusted to reflect the sale of shares being offered hereby, for each of the
selling stockholders. Except as otherwise noted, the persons or entities in this
table have sole voting and investing power with respect to all of the shares
owned by them.
Shares Shares
beneficially Shares beneficially Post-
owned pre- offered in owned post- offering %
Name and address offering the offering offering ownership
- ---------------------------------------- ------------ -------------- ------------ ----------
Shares issued to Sutton Group Financial Services Ltd. and DataDirect Holdings Ltd. in September 1998 in consideration software
transferred to E-xact.
DataDirect Holdings Inc.(1) 1,750,000 158,000 1,592,500 18.85%
1610-555 West Hastings Street
Vancouver, B.C.
V6B 4N6
Sutton Group Financial Services Ltd.(2) 1,750,000 158,000 1,592,500 18.85%
1628-555 West Hastings Street
Vancouver, B.C.
V6B 4N6
Acacia Management Services Ltd.(3) 700,000 64,000 637,000 7.54%
Kuttelgasse 4, CH-8001
Zurich, Switzerland
TOTAL 4,200,000 380,000 3,470,000 42.24%
Shares issued to various stockholders in connection with a private placement commencing June 1999 and closing October 1999.
477928 B.C. Ltd. 50,000 50,000 -0- -0-
5648 Westhaven Road
West Vancouver, B.C.
V7W 1T6 Canada
574733 B.C. Ltd. 10,000 10,000 -0- -0-
c/o 1450 Creekside Drive, Suite 800
Vancouver, B.C.
V6J 5B3 Canada
585231 B.C. Ltd. 50,000 50,000 -0- -0-
3251 West 3rd Avenue
Vancouver, B.C.
V6K 1N5 Canada
Thomas J. Ahmann 15,000 15,000 -0- -0-
2601 Jeweh Lane North
Plymouth, MN 55447
Ahmad Akrami(4) 115,714 15,000 -0- -0-
902 S. Wiley Ct.
Superior, Colorado 80027
Alternate 6
Shares Shares
beneficially Shares beneficially Post-
owned pre- offered in owned post- offering %
Name and address offering the offering offering ownership
- ---------------------------------------- ------------ -------------- ------------ ----------
Joanne Archer 20,000 20,000 -0- -0-
1508 - 820 5th Avenue, S.W.
Calgary, A.B
T2P ONY Canada
Ann Archibald 30,000 30,000 -0- -0-
1797 Layton Drive
North Vancouver, B.C.
V7H 1X7 Canada
Randy Ayers 6,000 6,000 -0- -0-
10511 Suncrest Drive
Delta, B.C.
V4C 2N1 Canada
Bruce Buckland 6,000 6,000 -0- -0-
7083 114A Street
Delta, B.C.
V4E 1X3 Canada
Bolder Venture Partners L.L.C.(12) 1,007,136 1,232,136 -0- -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
Glenn R. Butterworth 6,000 6,000 -0- -0-
9346 Romaniuk Drive
Richmond, B.C.
V7E 5G7 Canada
Raymond Gordon Campbell 10,000 10,000 -0- -0-
3166 Point Grey Road
Vancouver, B.C.
V6K 1B2 Canada
Jeannet Clark 3,000 3,000 -0- -0-
2515 Amber Court
Coquitlam, B.C.
V3E 3K8 Canada
Maggie Elliot 10,000 10,000 -0- -0-
9 Amalia Crescent
Belwood, Ontario
N0B 1J0 Canada
Michelle Fahlman 40,000 40,000 -0- -0-
855 55A Street
Delta, B.C.
V4M 3M3 Canada
Ted Henderson(5) 75,000 50,000 25,000 less than
c/o E-xact Transactions Ltd. 1%
2410 - 555 West Hastings Street
Vancouver, B.C.
V6H 4N6 Canada
Alternate 7
Shares Shares
beneficially Shares beneficially Post-
owned pre- offered in owned post- offering %
Name and address offering the offering offering ownership
- ---------------------------------------- ------------ -------------- ------------ ----------
K. Dieter & Marie K. Heidrich(6) 105,000 80,000 25,000 less than
230 Green Rock Drive 1%
Boulder, Colorado 80302
Brian Leigh Hilder 10,000 10,000 -0- -0-
5295 9th Avenue
Delta, B.C.
V4M 1V8 Canada
William E. Hodal 40,000 40,000 -0- -0-
7999 Berkley Street
Burnaby, B.C.
V5E 4G5 Canada
Chueh-Hui Hsia 240,000 240,000 -0- -0-
#28, Alley 4, Lane 69
Section 5
Ming-seng E. Road
Taipei, Taiwan
Kimberley L. Kipp 10,000 10,000 -0- -0-
RR #1, Port Stanley
Ontario
N5L 1J1 Canada
Amy Lennon 20,000 20,000 -0- -0-
750 Seymour Boulevard
North Vancouver, B.C.
V7J 2J6 Canada
Ben Mah 10,000 10,000 -0- -0-
RR1 - 1306 St. Andrews Road
Gibsons
V0N 1V0 Canada
Cliff Mah(7) 165,714 40,000 -0- less than
1450 Creekside Drive, Suite 800 1%
Vancouver, B.C.
V6J 5B3 Canada
Jan Mark 10,000 10,000 -0- -0-
110-777 West 7th Avenue
Vancouver, B.C.
V5Z 1B9 Canada
Gary Mathiesen 10,000 10,000 -0- -0-
2795 Palmerston Avenue
West Vancouver, B.C.
V7V 2W9 Canada
Donald Grant McIntosh 8,000 8,000 -0- -0-
103-3555 Westminister Hwy
Richmond, B.C.
V7C 5P6 Canada
Alternate 8
Shares Shares
beneficially Shares beneficially Post-
owned pre- offered in owned post- offering %
Name and address offering the offering offering ownership
- ---------------------------------------- ------------ -------------- ------------ ----------
Selena C. McLachlan 2,000 2,000 -0- -0-
38-103 Parkside Drive
Port Moody, B.C.
V3H 4Y8 Canada
James William Milne 10,000 10,000 -0- -0-
831 Forrest Drive
Trail, B.C.
V1R 4P9 Canada
Douglas R. Nagely 20,000 20,000 -0- -0-
537-3400 Avenue
Manchester, Kansas 67410-7505
Kent Nuzum(8) 130,714 30,000 -0- -0-
1829 Mapleton Avenue
Boulder, Colorado 80304
James Oleynick 40,000 40,000 -0- -0-
3581 Haida Drive
Vancouver, B.C.
V5M 3Y9 Canada
Opus Capital Fund, LLC 160,000 160,000 -0- -0-
1113 Spruce Street, Suite 506
Boulder, Colorado 80302
Janis Parmar 2,000 2,000 -0- -0-
713 E 4th Street
North Vancouver, B.C.
V7L 1K1 Canada
Sera Rhyane 20,000 20,000 -0- -0-
408-620 Avenue Road
Toronto
M4V 2K8 Canada
Judith Roker 40,000 40,000 -0- -0-
47 - 15860 82nd Avenue
Surrey, B.C.
V3S 8M4 Canada
John T. Rose 200,000 200,000 -0- -0-
13826 Vintage Centre Drive
Houston, Texas 77069
Powder Capital Inc. 50,000 50,000 -0- -0-
Box 209
Chancery Court
Leeward NWY
Providenciales
Turks & Caicos
Alternate 9
Shares Shares
beneficially Shares beneficially Post-
owned pre- offered in owned post- offering %
Name and address offering the offering offering ownership
- ---------------------------------------- ------------ -------------- ------------ ----------
Robert Sali 19,000 19,000 -0- -0-
2535 West 1st Avenue
Vancouver, B.C.
V6K 1G8 Canada
Gregg J. Sedun 10,000 10,000 -0- -0-
2200-885 West Georgia Street
Vancouver, B.C.
V6C 3E8 Canada
Edmund Shung(11) 10,414 10,000 -0- less than
110-1082 West 8th Avenue 1%
Vancouver, B.C.
V6H 1C4 Canada
Lawrence D. Smith 10,000 10,000 -0- -0-
5566 49th Avenue
Delta, B.C.
V4K 3N8 Canada
William Neal Speight 8,000 8,000 -0- -0-
Box 7, Site 4, RR# 2
Rocky Mountain House
Alberta
T0M 1T0 Canada
Richard Stokes 10,000 10,000 -0- -0-
452 East 7th Street
North Vancouver, B.C.
V7L 1R9 Canada
Grant Sutherland 8,000 8,000 -0- -0-
1600-777 Dunsmuir Street
P.O. Box 10425, Pacific Centre
Vancouver, B.C.
V7Y 1K4 Canada
Tom Tennessen(9) 110,714 10,000 -0- -0-
4870 Menelith Way #202
Boulder, Colorado 80303
Alex Tak-Ming Tam 3,000 3,000 -0- -0-
1289 Tercel Court
Coquitlam, B.C.
V3E 2C3 Canada
Croft Tracey 10,000 10,000 -0- -0-
101-145 West 17th Street
North Vancouver, B.C.
V7M 3G4 Canada
Alternate 10
Shares Shares
beneficially Shares beneficially Post-
owned pre- offered in owned post- offering %
Name and address offering the offering offering ownership
- ---------------------------------------- ------------ -------------- ------------ ----------
Shelagh Tracey 20,000 20,000 -0- -0-
978 Seymour Boulevard
North Vancouver, B.C.
V7J 2J8 Canada
Wallace Development Corp. 8,000 8,000 -0- -0-
938-Howe Street, 11th floor
Vancouver, B.C.
V6Z 3N9 Canada
Tanyce Westgard 8,000 8,000 -0- -0-
3295 Canterbury Drive
Surrey, B.C.
V4P 2N4 Canada
Grace Wilson 10,000 10,000 -0- -0-
36 Coyne Street
St. Thomas, Ontario
N5R 4K8 Canada
Debra Windjack 32,000 32,000 -0- -0-
c/o 2100-111 West Georgia Street
Vancouver, B.C.
V7X 1K9 Canada
Darryl Yea 8,000 8,000 -0- -0-
5294 Keith Road
West Vancouver, B.C.
V7W 2N1 Canada
Daryl Yurek(10) 884,282 120,000 -0- -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
Jody Yurek 10,000 10,000 -0- -0-
170 Fairview Avenue
St. Thomas
N5R 4Y1 Canada
Paul Yurek 10,000 10,000 -0- -0-
50 Lombard Street
Toronto, Ontario
M5C 2X4 Canada
Total 2,704,138 2,929,136
- ------------------
(1) Reflects share split of 21,000:1 effective September 2, 1999.
(2) Reflects share split of 21,000:1 effective September 2, 1999.
(3) 350,000 shares were purchased from each of DataDirect Holdings, Inc. and
Sutton Group Financial Services Ltd. on January 10, 2000.
(4) Shares beneficially owned pre-offering includes 100,712 shares in which Mr.
Mah has a beneficial ownership interest in through his ownership of 10% of
Bolder Venture Partners L.L.C., but shares offered in the offering excludes
such shares.
Alternate 11
(5) President and chief executive officer of E-xact. Shares beneficially
owned pre-offering includes 25,000 shares that may be acquired immediately
by exercise of a stock option but shares offered in the offering excludes
such shares.
(6) Mr. Heidrich is a director of E-xact. Shares beneficially owned
pre-offering includes 160,000 shares that are deemed to be beneficially
owned by Mr. Heidrich through his position as general partner of the
Manager of Opus Capital Fund LLC, but shares offered in the offering
excludes such shares. Shares beneficially owned pre-offering includes
25,000 shares that may be acquired immediately be exercise of a stock
option but Shares offered in the offering excludes such shares.
(7) Director of E-xact. Shares beneficially owned pre-offering includes
25,000 shares that may be acquired immediately by exercise of a stock
option but shares offered in the offering excludes such shares. Shares
beneficially owned pre-offering includes 100,712 shares in which Mr.
Mah has a beneficial ownership interest in through his ownership of 10%
of Bolder Venture Partners L.L.C., but shares offered in the offering
excludes such shares.
(8) Shares beneficially owned pre-offering includes 100,712 shares in which
Mr. Nuzum has a beneficial ownership interest in through his ownership of
10% of Bolder Venture Partners L.L.C., but shares offered in the
offering excludes such shares.
(9) Shares beneficially owned pre-offering includes 100,712 shares in which
Mr. Tennessen has a beneficial ownership interest in through his ownership
of 10% of Bolder Venture Partners L.L.C., but shares offered in the
offering excludes such shares.
(10)Shares beneficially owned pre-offering includes 604,282 shares in which
Mr. Yurek has a beneficial ownership interest in through his ownership
of 60% of Bolder Venture Partners L.L.C., but shares offered in the
offering excludes such shares. Shares beneficially owned pre-offering
includes 160,000 shares that are deemed to be beneficially owned by Mr.
Yurek through his position as general partner of the Manager of Opus
Capital Fund LLC, but shares offered in the offering excludes such
shares.
(11)Shares beneficially owned pre-offering includes 414 shares that may be
acquired immediately by exercise of a stock option but shares offered
in the offering excludes such shares.
(12)Includes 557,136 shares that may be acquired immediately by exercise of
a warrant and 225,000 shares that may be acquired upon completion of
the initial public offering by exercise of a warrant. Shares
beneficially owned pre-offering excludes warrants to purchase up to
225,000 shares exercisable after the public offering if E-xact
completes a private placement of at least $3,000,000 worth of stock,
but share offered in the offering includes such shares. Bolder Venture
Partners L.L.C. is owned 60% by Daryl Yurek and 10% by each of Cliff
Mah (director of E-xact), Ahmad Akrami, Kent Nuzum, and Tom Tennessen.
Alternate 12
PLAN OF DISTRIBUTION
The common stock offered hereby may be sold from time to time to
purchasers directly by the selling stockholders. Alternatively, the selling
stockholders may from time to time offer the shares through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, concessions or commissions from the selling stockholders and/or the
purchasers of the shares for whom they may act as agent. The selling
stockholders and any underwriters, dealers or agents that participate in the
distribution of the shares may be deemed to be underwriters and any profit on
the sale of the shares by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. At the time a
particular offer of shares is made, to the extent required, a prospectus
supplement will be distributed that will set forth the specific shares to be
sold and the terms of the offering, including the name or names of any
underwriters or dealer agents, any discounts, commissions and other items
constituting compensation from the selling stockholders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers.
The shares may be sold from time to time in one or more transactions at a
fixed offering price that may be changed or at varying prices determined at the
time of sale or negotiated prices.
E-xact has paid substantially all of the expenses incident to the offering
of the shares, other than commissions and discounts of underwriters, dealers or
agents and the fees and expenses of counsel to the selling stockholders.
USE OF PROCEEDS
E-xact will not receive any of the proceeds from the offering. All of such
proceeds will be received by the selling stockholders.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
We have made certain forward-looking statements in this document and in
the documents referred to in this document which are subject to risks and
uncertainties. These statements are based on the beliefs and assumptions of the
management of the companies and on the information currently available to such
management. Forward-looking statements include information concerning possible
or assumed future results of E-xact. These statements may be preceded by,
followed by, or otherwise include the words "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions. The future results and stockholder values
of E-xact may differ materially from those expressed in these forward-looking
statements. Many of the factors that will determine these results and values are
beyond our ability to control or predict. Investors are cautioned not to put
undue reliance on any forward- looking statements. Except for their ongoing
obligations to disclose material information as required by the federal
securities law, we do not have any intention or obligation to update
forward-looking statements after this prospectus is delivered, even if new
information, future events or other circumstances have made them incorrect or
misleading.
Alternate 13
You should understand that various factors, in addition to those discussed
elsewhere in this document and in the documents referred to in this document,
could affect the future results of the combined company following the merger and
could cause results to differ materially from those expressed in such forward-
looking statements.
DIVIDEND RECORD AND POLICY
E-xact has not paid any dividends since incorporation and it has no plans
to pay dividends in the immediate future. E-xact expects to retain its earnings
to finance further growth and, when appropriate, retire debt. The directors of
E-xact will determine if and when dividends should be declared and paid in the
future based on E-xact's financial position at the relevant time. All of the
shares of E-xact are entitled to an equal share in any dividends declared and
paid.
EXPERTS
The financial statements included in this prospectus and the related
financial statement schedules included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
E-xact knows of no material pending legal proceedings to which E-xact is
or is likely to be a party or to which any of its properties are or are likely
to be the subject.
Campney & Murphy, Barristers and Solicitors, 2100-1111 West Georgia
Street, Vancouver, British Columbia, Canada, V7X 1K9 has served as legal counsel
of E-xact in connection with the offering of the securities in Canada on the
Canadian Venture Exchange.
The validity of the securities offered will be passed upon for E-xact by
Davis, Graham & Stubbs LLP, Denver, Colorado.
WHERE YOU CAN FIND MORE INFORMATION
You may read and copy any reports, statements or other information that we
file with the Securities and Exchange Commission at the SEC's public reference
rooms in Washington, D.C.; New York, New York; and Chicago, Illinois. Please
call the Securities and Exchange Commission at 1 (800) SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from commercial document retrieval services and at the web site
maintained by the Securities and Exchange Commission at "http://www.sec.gov."
Alternate 14
OUTSIDE BACK COVER
Until ___________ __, 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealer's obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Alternate 15
Report and Financial Statements of
E-XACT TRANSACTIONS LTD.
September 30, 1999 and December 31, 1998
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS......................F-2
BALANCE SHEETS - September 30, 1999 and December 31, 1998..................F-3
STATEMENTS OF OPERATIONS - Nine Months Ended September 30, 1999 and
From Inception (August 13, 1998) to December 31, 1998......................F-4
STATEMENTS OF CASH FLOWS -Nine Months Ended September 30, 1999 and
From Inception (August 13, 1998) to December 31, 1998......................F-5
STATEMENTS OF SHAREHOLDERS' EQUITY - Nine-Months Ended September 30,
1999 and From Inception (August 13, 1998) to December 31, 1998.............F-6
NOTES TO FINANCIAL STATEMENTS..............................................F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Directors of
E-xact Transactions Ltd.
We have audited the balance sheets of E-xact Transactions Ltd. as at
September 30, 1999 and December 31, 1998 and the statements of operations,
shareholders' equity and cash flows for the nine month period ended
September 30, 1999 and period from inception 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 generally accepted auditing standards
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 September 30, 1999 and
December 31, 1998 and the results of its operations and its cash flows for the
nine month period ended September 30, 1999 and period from inception August 13,
1998 to December 31, 1998 in accordance with accounting principles generally
accepted in the United States.
Chartered Accountants
Vancouver, British Columbia
October 29, 1999 (except as to
Note 14 which is as of December 21, 1999)
COMMENTS BY AUDITOR FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCE
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph when the financial statements are affected by
conditions and events that cast substantial doubt on the Company's ability to
continue as a going concern, such as those described in Note 1 to the financial
statements. Our report to the shareholders dated October 29, 1999 (except as to
Note 14 which is as of o) is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditors' report when these are adequately disclosed in the financial
statements.
Chartered Accountants
Vancouver, British Columbia
October 29, 1999 (except as to
Note 14 which is as of December 21, 1999)
F-2
E-XACT TRANSACTIONS LTD.
BALANCE SHEETS
(Expressed in Canadian Dollars)
================================================================================
September 30, December 31,
1999 1998
------------- ------------
ASSETS
CURRENT
Cash $ 475,945 $ 4,502
Accounts receivable (Note 3) 59,157 18,520
Prepaid expenses and deposits 7,442 6,296
- -------------------------------------------------------------------------------
542,544 29,318
DEFERRED SHARE ISSUE COSTS 143,006 --
ACQUIRED SOFTWARE AND INTANGIBLES 6,064 24,258
(Note 4)
CAPITAL ASSETS (Note 5) 56,157 2,069
- -------------------------------------------------------------------------------
$ 747,771 $ 55,645
===============================================================================
LIABILITIES
CURRENT
Accounts payable and accrued $ 226,452 $ 32,731
liabilities (Note 7)
Due to shareholders (Note 6) -- 10,605
Income taxes payable 250,000 --
- -------------------------------------------------------------------------------
476,452 43,336
COMMITMENTS (Note 11)
SHAREHOLDERS' EQUITY
Common stock, common shares issued
and outstanding (Note 8)
5,307,000 at September 30,
1999 and 4,200,000
at December 31, 1998 5,307 64,517
Additional paid in capital 945,815 --
Accumulated deficit (679,803) (52,208)
- --------------------------------------------------------------------------------
271,319 12,309
- --------------------------------------------------------------------------------
$ 747,771 $ 55,645
===============================================================================
CONTINUING OPERATIONS (Note 1)
See accompanying Notes to the financial statements
F-3
E-XACT TRANSACTIONS LTD.
STATEMENTS OF OPERATIONS
(Expressed in Canadian Dollars)
================================================================================
From inception
August 13,
Nine Months ended 1998 to
September 30, December 31,
1999 1998
----------------- --------------
REVENUES
Online transactions $ 71,451 $ 22,254
Web development 8,861 20,792
- --------------------------------------------------------------------------------
80,312 43,046
COST OF SALES
Cost of online transactions 19,203 7,835
Cost of web development 4,625 10,052
- --------------------------------------------------------------------------------
23,828 17,887
- --------------------------------------------------------------------------------
EXPENSES
General and administrative expenses 225,619 39,283
Sales and marketing 13,151 17,719
Research and development 195,309 20,365
- --------------------------------------------------------------------------------
434,079 77,367
- --------------------------------------------------------------------------------
NET LOSS BEFORE UNDERNOTED ITEM (377,595) (52,208)
INCOME TAX PROVISION ON REDOMICILE OF
COMPANY (Note 12) 250,000 --
- --------------------------------------------------------------------------------
NET LOSS (627,595) (52,208)
BASIC AND DILUTED LOSS PER SHARE $ (0.15) $ (0.01)
===============================================================================
WEIGHTED AVERAGE NUMBER OF SHARES USED
TO CALCULATE LOSS PER SHARE 4,323,000 3,820,832
===============================================================================
See accompanying Notes to the financial statements
F-4
E-XACT TRANSACTIONS LTD.
STATEMENTS OF CASH FLOWS
(Expressed in Canadian Dollars)
================================================================================
From inception
August 13,
Nine Months ended 1998 to
September 30, December 31,
1999 1998
----------------- --------------
OPERATING ACTIVITIES
Net loss $ (627,595) $ (52,208)
Item not affecting cash
Amortization of capital assets, acquired
software and other intangible assets 31,832 40,275
Warrants issued for financing fees 84,730 --
Net change in non-cash working capital
balances
Accounts receivable (40,637) (18,520)
Prepaid expenses and deposits (1,146) (6,296)
Accounts payable and accrued liabilities 193,720 32,731
Income taxes payable 250,000 --
Advances from shareholders (10,605) 10,605
- -------------------------------------------------------------------------------
(119,701) 6,587
- -------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds on issuance of capital stock, net
of offering costs 801,875 1
Deferred share issue costs (143,006) --
- -------------------------------------------------------------------------------
658,869 1
INVESTING ACTIVITY
Purchase of capital assets (67,725) (2,086)
- -------------------------------------------------------------------------------
NET CASH INFLOW 471,443 4,502
CASH, BEGINNING OF PERIOD 4,502 --
- -------------------------------------------------------------------------------
CASH, END OF PERIOD $ 475,945 $ 4,502
===============================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Common shares issued for acquired software $ -- $ 64,517
and intangibles
See accompanying Notes to the financial statements
F-5
E-XACT TRANSACTIONS LTD.
STATEMENTS OF SHAREHOLDERS' EQUITY
(Expressed in Canadian Dollars)
=====================================================================================================================
Additional Total
Common Stock paid in Accumulated Shareholders'
Shares Amount Capital Deficit Equity
---------------------- ------------- --------------- -----------------
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 $15,700 1,107,000 1,107 800,768 -- 801,875
Net loss -- -- -- (627,595) (627,595)
- ---------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1999 5,307,000 $ 5,307 $ 945,815 $(679,803) $ 271,319
=====================================================================================================================
See accompanying Notes to the financial statements
F-6
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
1. DESCRIPTION OF THE BUSINESS AND CONTINUING OPERATIONS
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).
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company
incurred a net loss of $627,595 in the nine months period ended September
30, 1999 (period from inception August 13, 1998 to December 31, 1998 -
$52,208) and at September 30, 1999 had a working capital deficiency of
$224,798 and capital deficiency of $287,019.
These factors among others indicate that the Company may be unable to
continue as a going concern for a reasonable period of time. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. The Company's continuation as a
going concern is dependent upon achieving operating levels adequate to
support the Company's cost structure and obtaining adequate financial
resources through a contemplated initial public offering of its shares or
otherwise. The Company expects to have sufficient working capital from
the proceeds of the initial public offering and other contemplated
financing to support its operations during the twelve-month period
subsequent to September 30, 1999. However, there can be no assurance that
such offerings will be successful.
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) Research and development costs
All research and development costs are expensed when incurred.
F-7
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) 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.
(d) 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
September 30, 1999 and December 31, 1998.
(e) 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
September 30, 1999 and December 31, 1998.
(f) 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-8
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) 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.
(g) 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.
(h) 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.
(i) Recent accounting pronouncements
In March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position ("SOP") 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for
Internal Use". This SOP was effective for fiscal years beginning
after December 15, 1998. This SOP requires capitalization of certain
costs of computer software developed or obtained for internal use.
The adoption of this statement had no significant effect on the
financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, Reporting on the Costs of
Start-up Activities. This SOP was effective four years beginning
after December 15, 1998. Under SOP 98-5, the cost of start-up
activities should be expensed as incurred. The adoption of this
statement had no significant effect on the financial position or
results of operations.
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.
F-9
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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.
(k) 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 reviews in accordance with SFAS 52 the
determination of its functional currency.
3. ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of no allowance for doubtful
accounts at September 30, 1999 and December 31, 1998.
4. ACQUIRED SOFTWARE AND INTANGIBLES
September 30, December 31,
1999 1999
------------- ------------
Acquired software and intangible $ 64,515 $ 64,515
Accumulated amortization
(58,451) (40,257)
-----------------------------------------------------------------------
$ 6,064 $ 24,258
=======================================================================
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).
F-10
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
4. ACQUIRED SOFTWARE AND INTANGIBLES (CONTINUED)
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
September 30, 1999 December 31, 1998
------------------------------------ --------------------
Accumulated Net Book Net Book
Cost Amortization Value Value
------------------------------------ --------------------
Computer software $ 21,156 $ 7,933 $ 13,223 $ --
Computer equipment
48,656 5,722 42,934 2,069
--------------------------------------------------------------------------------
$ 69,812 $ 13,655 $ 56,157 $ 2,069
================================================================================
6. DUE TO SHAREHOLDERS
The amounts due to shareholders are unsecured, non-interest bearing and
are repayable under the Company's normal trade terms.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The principal components of accounts payable and accrued liabilities were
as follows:
September 30, 1999 December 31, 1998
------------------- ------------------
Trade payables $ 186,566 $ 17,446
Other accrued liabilities 39,886 15,285
----------------------------------------------------------------------
$ 226,452 $ $ 32,731
======================================================================
F-11
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
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) Employee Stock Option Plan
Subsequent to September 30, 1999, on October 7, 1999 the Company's
board of directors approved a stock option plan. Under the Employee
Stock Option Plan, a maximum of 1,510,000 shares has been reserved
for issuance.
(d) Warrants
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 900,000 shares
exercisable for a period of five years from July 28, 1999, which
will vest in four equal tranches, subject to performance by BVP as
follows:
(i) 25% of the Warrants will be exercisable upon execution by
E-xact of the agreement, at a price of U.S.$0.25 per share
(these Warrants became exercisable on August 28, 1999 and are
outstanding at September 30, 1999);
(ii) 25% of the Warrants will be exercisable upon completion of
the initial private placement, at a price per share equal to
the private placement price (estimated to be U.S.$0.50 per
share) (subsequent to September 30, 1999, on October 14,
1999, these Warrants became exercisable;
(iii) 25% 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
(iv) the final 25% of the Warrants will be exercisable immediately
upon completion of the Follow-On Placement, at a price equal
to the private placement price.
F-12
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
8. SHAREHOLDERS' EQUITY
(d) Warrants (continued)
The first tranche is not contingent on obtaining financing and
therefore will be accounted for as a compensatory finance fee equal
to the fair market value of the stock on August 28, 1999 less the
option price which approximates $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. Under this 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 $10,000 per
month.
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 September 30, 1999 and December 31, 1998 because of the
demand or short-term maturity of these instruments.
(b) Credit risk and economic dependence
The Company is subject to credit risk as it earns revenue from a
limited number of customers. Bad debt experience has not been
significant. During the six months ended September 30, 1999 -
$52,567 (period from inception August 13, 1998 to December 31, 1998
- $22,135) of revenue was derived from a single customer. As at
September 30, 1999 accounts receivable included $16,392
(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 nine months ended September 30, 1999 the Company
paid consulting fees of $110,000 (1998 - Nil) to a corporate
shareholder for research and development services.
(b) As at September 30, 1999 accounts payable and accrued liabilities
include $Nil (December 31, 1998 - $6,499 due to a corporate
shareholder for operating costs paid on its behalf.
F-13
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(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:
September 30, 1999 December 31, 1998
------------------ ------------------
1999 $ 86,225 $ 62,835
2000 106,565 46,565
2001 28,047 28,047
------------------------------------------------------------------------
$ 220,837 $ 137,447
========================================================================
12. INCOME TAXES
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:
September 30, 1999 December 31, 1998
------------------ -----------------
Canadian basis statutory
tax rate 45% 45%
Expected income tax recovery $ (169,918) (23,494)
Losses producing no current
tax benefit -- 23,494
Tax provision on redomicile
of company 419,918 --
-----------------------------------------------------------------------
$ 250,000 --
=======================================================================
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 September 30, 1999 and
December 31, 1998 are as follows:
September 30, 1999 December 31, 1998
------------------ -----------------
Deferred income tax assets
Net operating tax loss
carry forwards $ -- $ 23,494
Valuation allowance for
deferred income tax asset
Net deferred income tax
assets -- (23,494)
--
-------------------------------------------------------------------------
Deferred income tax
liabilities $ -- $ --
=========================================================================
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
F-14
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Information as at September 30, 1999 and for the nine months ended
September 30, 1999 is audited)
(Expressed in Canadian Dollars)
================================================================================
market value of the Company's assets over their related tax cost.
Accordingly, a provision for the Canadian taxes on the estimated
taxable gain, net of available current tax losses, has been recorded in
the amount of $250,000.
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 September 30, 1999, the Company:
(a) completed a private placement of 520,000 common stocks for gross
proceeds of U.S.$260,000;
(b) filed a preliminary prospectus with the British Columbia
Securities Commission on December 10, 1999 covering the sale of
1,725,000 common stocks for expected gross proceeds of
U.S.$1,725,000.
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 U.S.$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 172,500 shares at a price of U.S.$1.00
per share, plus 75,000 common stocks as a corporate finance fee.
(c) approved 500,000 employee stock options to purchase shares of
common stock at U.S.$1.00 per share. The issuance of these
stock options in accordance with the Company's Employee Stock
Option Plan are subject to Board approval.
F-15
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the certificate
of incorporation of E-xact eliminates the liability of directors to E-xact or
its shareholders for monetary damages for breach of fiduciary duty as a
director, except to the extent otherwise required by the Delaware General
Corporation Law.
(b) The certificate of incorporation provides that E-xact will indemnify
each person who was or is made a party to any proceeding by reason of the fact
that such person is or was a director or officer of E-xact against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith to the fullest extent authorized by the Delaware General Corporation
Law. E-xact's bylaws provide for a similar indemnity to directors and officers
of E-xact to the fullest extent authorized by the Delaware General Corporation
Law.
(c) The certificate of incorporation also gives E-xact the ability to
enter into indemnification agreements with each of its directors and officers.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Consultants $ 26,100
Legal fees $ 257,900
Accounting fees $ 70,000
Registration fees $ 1,000
Listing fees $ 2,000
Transfer agent fees $ 2,000
Printing $ 1,000
-----------
$ 360,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
During the period from E-xact's incorporation through to the date of this
prospectus, E-xact has issued the following shares, after giving effect to the
September 2, 1999 stock split of 21,000 to 1:
o E-xact issued 100 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 E-xact. Effective September 2, 1999, these
shares were subject to a 21,000:1 share split in connection
with the domestication of E-xact 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
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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.
o Between August 5, 1999 and October 14, 1999, E-xact sold and
issued 670,000 shares of common stock to nine U.S. persons at a
price of $0.50 per share (gross proceeds $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.
o Between June 1, 1999 and December 22, 1999, E-xact 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 $0.50 (gross proceeds of $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.
o On January 12, 2000, the board of directors authorized the
grant of options to purchase up to an aggregate of 1,104,700
shares of E-xact common stock to 19 individuals who are
directors, officers, or employees of E-xact. 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 $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.
o Pursuant to a consulting agreement dated July 28, 1999 (amended
January 21, 2000), E-xact granted Bolder Venture Partners a
warrant to purchase up to 1,236,136 shares of E-xact common
stock for a period of five years from July 28, 1999. 225,000 of
the warrants were exercised at $0.25 per share on January 18,
2000. The remaining warrants became exercisable or will become
exercisable as follows:
- 557,136 at $1.00 per share as of October 14, 1999.
- 225,000 at $1.00 per share upon completion of the
initial public offering of E-xact.
- 225,000 at a price per share equal to the price per
share under a future private placement of not less
than $3,000,000, if such a private placement is made.
o 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.
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ITEM 27. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- --------- ------------------------------------------------------------------
1 Agency Agreement dated October 13, 1999 between E-xact Transactions
Ltd. and Canaccord Capital Corporation*
3.1 Certificate of Domestication of E-xact Transactions Ltd.*
3.2 Certificate of Incorporation of E-xact Transactions Ltd.*
3.3 Bylaws*
5.1 Legal Opinion of Davis, Graham & Stubbs LLP****
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.***
10.10 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.***
23 Consent of Deloitte & Touche LLP (chartered accountants)****
- ----------------------
* 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.
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UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of E-xact pursuant to E-xact's Bylaws or Certificate of
Incorporation, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned hereby undertakes that:
(1) It will file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(3) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(4) Remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(5) To file a post-effective amendment to include any financial statements
required to be filed pursuant to section 210.3-19 at the start of any delayed
offering or throughout a continuous offering.
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(6) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Vancouver, Province of British Columbia, on the 3rd day of March, 2000.
E-XACT TRANSACTIONS LTD.
By: /s/Ted Henderson
---------------------------------------
Name: Ted Henderson
Title: President and Chief Executive
Officer
SIGNATURES TITLE DATE
- ---------------------------------- ------------------- ------------------
/s/Ted Henderson
- ------------------------------ President and Chief March 3, 2000
Ted Henderson Executive Officer
/s/Peter Guy Fahlman
- ------------------------------ Vice-President and March 3, 2000
Peter Guy Fahlman Director
- ------------------------------ Director
Dieter Heidrich
/s/Lance Tracey
- ------------------------------ Director March 3, 2000
Lance Tracey
/s/Cliff Mah
- ------------------------------ Director March 3, 2000
Cliff Mah
/s/Paul C. MacNeill
- ------------------------------ Director March 3, 2000
Paul C. MacNeill
/s/Edmund Shung
- ------------------------------ Chief Financial March 3, 2000
Edmund Shung Officer
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