SUBJECT TO COMPLETION, DATED OCTOBER 22, 1999
REGISTRATION NO.
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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)
COLORADO 7232 APPLIED FOR
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization)Classification Code Number)(Identification Number)
1610-555 WEST HASTINGS STREET 1610-555 WEST HASTINGS STREET CT CORPORATION
VANCOUVER, BRITISH COLUMBIA VANCOUVER, BRITISH COLUMBIA 1209 ORANGE STREET
CANADA V6H 4N6 CANADA V6H 4N6 WILMINGTON, DELAWARE
(604) 691-1670 (604) 691-1670 19801 USA
(Address and telephone number (Address of principal place (302))658-7581
of principal executive offices) of business) (Name, address and
telephone number 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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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price Per Share(1/ Aggregate Offering Price(1) Registration Fee
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Common Stock, par value $.001 per share... 4,804,500 $ 1.00 $4,804,500 $1,335
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/1/Estimated solely for the purpose of calculating the registration fee, based
upon the expected price at which the shares of common stock, $.001 par value,
are to be offered.
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 1,725,000 shares (the "Public Shares") of common stock, $.001 par
value, (b) 75,000 shares paid to the placement agent, Canaccord, as a corporate
finance fee, (c) 172,500 shares underlying a warrant paid to Canaccord in
consideration of Canaccord's commitment to sell all of the shares in the
offering, and (d) the concurrent offering on a delayed basis of 2,832,000 shares
of common stock by certain selling stockholders of E-xact. The primary
prospectus (the "Company Prospectus") covers the Public Shares being offered by
E-xact. An alternate prospectus (the "Selling Stockholders Prospectus") will be
used by the Selling Stockholders in connection with an offering by them for
their accounts of up to 2,832,000 shares of common stock held by such Selling
Stockholders. The Selling Stockholders Prospectus is identical to the Company
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 Company 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:
6 Months Ended Year Ended
June 30, 1999 December 31, 1998
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Rate at end of period: $1.4630 $1.5333
Average rate for period: $1.4691 $1.4831
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 OCTOBER 22, 1999
INITIAL PUBLIC OFFERING
PROSPECTUS
1,725,000 Shares
[GRAPHIC OMITTED]
E-XACT TRANSACTIONS LTD.
Common Stock, $.001 par value
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E-xact Transactions Ltd. is a software development company that offers a
simple, electronic commerce solution for real time transaction processing over
the Internet combined with a suite of value added merchant services. E-xact's
computer 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 processing centers for authorization and settlement.
Canaccord Capital Corporation, E-xact's agent, has entered into a firm
commitment agreement to sell all of the stock in this public offering at a price
of $1.00 per share, for aggregate gross proceeds of $1,725,000.
E-xact has filed an application to list its common stock on the facilities
of the Vancouver Stock Exchange.
UNDERWRITTEN BY:
CANACCORD CAPITAL CORPORATION
Total Per Share
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Public Offering Price $ 1,725,000 $ 1.00
Underwriter Commissions* $ 129,375 $ 0.075
Proceeds $ 1,595,625 $ 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.
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THE SHARES OF COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" LOCATED AT PAGES 2 TO 7.
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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 ______, 1999
TABLE OF CONTENTS
PAGE
SUMMARY......................................................................1
RISK FACTORS.................................................................2
DILUTION.....................................................................8
USE OF PROCEEDS..............................................................9
DESCRIPTION OF E-XACT.......................................................10
DESCRIPTION OF BUSINESS.....................................................10
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................................25
DESCRIPTION OF SECURITIES...................................................28
PLAN OF DISTRIBUTION........................................................31
DIRECTORS AND SENIOR OFFICERS...............................................33
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................35
EXECUTIVE COMPENSATION......................................................36
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS..................37
DIVIDEND RECORD AND POLICY..................................................37
EXPERTS.....................................................................37
LEGAL MATTERS...............................................................37
WHERE YOU CAN FIND MORE INFORMATION.........................................38
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SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To better
understand the offering, you should read this entire document and the documents
we have referred you to. See "Where You Can Find More Information." Unless
otherwise indicated, all dollar amounts are expressed in U.S. dollars.
E-XACT: E-xact was incorporated under the laws of the Province of
British Columbia on August 13, 1998. On July 22, 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. The authorized share capital of E-xact
consists of 50,000,000 shares of common stock with a par
value of $.001 per share.
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.
OFFERING: The offering consists of 1,725,000 shares of common stock to
be offered to the public. Upon completion of the offering,
there will be approximately 7,777,000 shares of common stock
issued and outstanding. In addition:
o E-xact has granted stock options pursuant to which up
to ____ shares may be issued in the future.
o E-xact has granted warrants pursuant to which up to
847,500 shares may be issued in the future.
USE OF PROCEEDS: The gross proceeds from this offering will be $1,725,000.
From these proceeds, E-xact will pay an aggregate commission
of $129,375 to Canaccord. After deducting the commission and
prior to the payment of expenses, the net proceeds from this
offering will be $1,595,625. E-xact's working capital as of
September 30, 1999 was approximately $25,200. The net
proceeds from the offering plus the working capital totals
approximately $1,620,825 before expenses, and will be used
to further E-xact's business objectives outlined in the
"Description of Business" section of this Prospectus.
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 CANNOT BE SURE THAT SUFFICIENT WORKING CAPITAL WILL BE AVAILABLE TO COVER
NECESSARY EXPENSES
Since inception E-xact has financed its operations primarily through the
private placement of equity securities, stockholder loans, and minimal sales
from its e-commerce products. From inception, E-xact has raised approximately
$840,517 in net proceeds from private equity financing.
E-xact has expended and will continue to expend substantial funds for
research and development, testing, capital expenditures, manufacturing and
marketing of its products. The timing and amount of such spending is difficult
to predict accurately and will depend upon several factors, including the
progress of research and development efforts and competing technological and
market developments, commercialization of products currently under development
and market acceptance and demand for E-xact's products. E-xact currently
estimates that it will be necessary to spend approximately $1,287,000 for the
twelve months ending November 2000. There can be no assurance that cash flow
from operations, together with working capital and net proceeds from this
offering will be sufficient to fully fund the planned expansion of E-xact's
operations. If necessary, E-xact may seek additional funds through equity or
debt financing, through collaborative or other arrangements with other companies
and from other sources. If additional funds are raised by issuing equity
securities, further dilution to shareholders could occur. There can be no
assurance that additional financing will be available when needed or on terms
acceptable to E-xact. If adequate funds are not available, E-xact could be
required to delay development or commercialization of new products, to license
to third parties the rights to commercialize certain products or technologies
that E-xact would otherwise seek to commercialize for itself or to reduce the
marketing, customer support or other resources devoted to certain of its
products, each of which could have a material adverse effect on E-xact's
business, financial condition and results of operations.
WE HAVE A LIMITED OPERATING AND SALES HISTORY
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. E-xact has generated only limited revenues from sales of its
e-commerce products and services and does not have experience in manufacturing,
selling or marketing its products in large, commercial quantities. E-xact's
products and services have not gained significant market exposure or
demonstrable market acceptance yet. 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.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET
E-xact's products compete against those of other established companies,
some of which have greater financial, marketing and other resources than those
of E-xact. These competitors may be able to institute and sustain price wars, or
imitate the features of E-xact's products, resulting in a reduction of E-xact's
share of
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the market and reduced price levels and profit margins. In addition, there are
no significant barriers to new competitors entering the market place.
WE RELY ON KEY PERSONNEL
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 not entered into employment agreements with anyone other than Ted Henderson,
but anticipates executing such agreements with all key personnel by the end of
1999. E-xact anticipates that the agreements to be entered into with key
personnel will include non-competition provisions that extend for twelve months
following the employee's termination and non-disclosure provisions that extend
three years following the employee's termination. The employment agreement with
Ted Henderson extends from September 16, 1999 to September 15, 2000.
Competition for such personnel is intense, 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 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.
WE MUST DEVELOP AND SELL NEW PRODUCTS IN ORDER TO KEEP UP WITH TECHNOLOGICAL
CHANGES
The e-commerce software industry is characterized by rapid and significant
technological change. Many software applications have a life cycle of under
twelve months. E-xact's future success will depend in large part on E-xact's
ability to continue to respond to such changes. There can be no assurance that
E-xact will be able to respond to such changes or that new or improved competing
products will not be developed that render E-xact's software products and
e-commerce services non-competitive. 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.
E-xact's products may face competition from, or be rendered obsolete by, new
products that have yet to be launched.
RISKS ASSOCIATED WITH ENCRYPTION TECHNOLOGY
A significant barrier to online commerce is the secure transmission of
confidential information over public networks. E-xact relies on third party
encryption technology to provide the security necessary to transmit confidential
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other events or developments
will not result in a compromise of breach of the encryption technology used by
E-xact to protect customer transaction data. If any such compromise of E-xact's
security were to occur, it could have a material adverse effect on the Company's
business, financial condition and operating results.
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WE HAVE LIMITED SALES AND MARKETING EXPERIENCE
E-xact has only limited experience selling and marketing its e-commerce
products and services, and does not have any experience selling and marketing
its products in commercial quantities.
WE MAY BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES
The Year 2000 ("Y2K") 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.
E-xact's e-commerce products and services are being developed to be fully
Y2K compliant, although the effectiveness of present efforts to address the Y2K
issue cannot be assured. In addition, E-xact intends to implement programs to
ensure that all software and hardware used in connection with the design of its
software products and the provision of services to its customers and suppliers
and its internal operations will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality.
E-xact does not anticipate incurring significant additional costs to address the
Year 2000 issue, although the effectiveness of its present efforts to address
the Y2K issue cannot be assured. E-xact is in the process of testing its
transaction software with various banks to ensure that transactions will be
processed accurately after December 31, 1999, and expects these tests to be
completed by the end of October 1999 at a total cost of Cdn. $5,000 to Cdn.
$7,000. E-xact has not yet sought information from third parties, including
their customers and suppliers, with respect to their compliance with the Y2K
issue with respect to their own computer software and hardware. If the present
efforts to address the Y2K issue are unsuccessful, or if other third parties
with which E-xact conducts business do not successfully address the Y2K issue,
the business and financial condition of E-xact could be adversely affected.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED; RISK OF THIRD PARTY CLAIMS
OF INFRINGEMENT
The patent, trademark, copyright and trade secret positions of e-commerce
companies, including those of E-xact, are uncertain and involve complex and
evolving legal and factual questions. The coverage sought in a patent
application either can be denied or significantly reduced before or after the
patent is issued. Consequently, there can be no assurance that any patents from
any future patent application will be issued, that the scope of the patent
protection will exclude competitors or provide competitive advantages to E-xact,
that any of E-xact's patents will be held valid if subsequently challenged or
that others will not claim rights in or ownership of the patents and other
proprietary rights held by E-xact. In addition, there can be no assurance that
competitors, many of which have substantial resources, will not seek to apply
for and obtain patents that will prevent, limit or interfere with E-xact's
ability to make, use or sell its products and services either in Canada, the
United States or in international markets. Litigation or regulatory proceedings,
which could result in substantial cost and uncertainty to E-xact, may also be
necessary to enforce patent or other intellectual property rights of E-xact or
to determine the scope and validity of other parties' proprietary rights. There
can be no assurance that E-xact will have the financial resources to defend its
patents, trademarks and copyrights from infringement or claims of invalidity.
E-xact also relies upon unpatented proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise
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gain access to or disclose E-xact's proprietary technology or that E-xact can
meaningfully protect its rights in such unpatented proprietary technology.
PRODUCT LIABILITY RISK; POSSIBLE INSUFFICIENCY OF INSURANCE
E-xact's business involves the risk of product liability claims. Although
E-xact has not experienced any product liability claims to date, any such claims
could have a material adverse effect on E-xact. E-xact does not currently
maintain product liability insurance. E-xact intends to obtain such insurance
but there can be no assurance that it would be available on commercially
acceptable terms, or at all. Even if E-xact obtains product liability insurance,
there can be no assurance that it would prove adequate or that a product
liability claim, insured or uninsured, would not have a material adverse effect
on E-xact's business, financial condition and results of operations. Even if a
product liability claim is not successful, the time and expense of defending
against such a claim may adversely affect E-xact's business, financial condition
and results of operations.
TRANSACTION PROCESSING VOLUME RISK
The e-commerce and real-time electronic credit card payment transaction
processing industries require reliable, efficient high volume transaction
capability. Transaction processing software applications 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 software solutions
will be able to process large transaction volumes in a seamless manner. 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 high volume transaction processing market.
MANAGEMENT WILL HAVE DISCRETION TO ALLOCATE THE OFFERING PROCEEDS
Of the $1,595,625 net proceeds ($1,393,125 after offering costs) from the
offering (based upon an assumed initial public offering price of $1.00 per
share), 100% of the funds will be used by E-xact to fund day to day operations.
The forecast expenses for the next twelve months (to November 2000) are expected
to be approximately $1,287,000 and the proceeds of the offering will be used to
bridge cash flow until net operating profits can fund the operations of E-xact.
If E-xact cannot gain broader customer acceptance in the e-commerce market, or
if E-xact's pricing model must change significantly due to competing forces in
e-commerce transaction processing, this could adversely affect E-xact's
business, financial condition and results of operations. In addition, the
amounts allocated for specific uses may vary significantly depending on numerous
factors, including the costs and timing of expansion of sales and marketing and
development activities. Accordingly, E-xact's management will retain broad
discretion in the allocation of the net proceeds which discretion will only be
exercised for sound business reasons.
OUR STOCK HAS NEVER BEEN PUBLICLY TRADED; POSSIBLE VOLATILITY OF STOCK; DILUTION
Prior to the offering, there has been no public market for E-xact's common
stock, and there can be no assurance that an active trading market will develop
and be sustained upon the completion of the offering, or that the market price
of the shares will not decline below the initial public offering price. The
initial public offering price of the shares has been determined by negotiations
between E-xact and Canaccord. As such, the
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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. The
market prices for securities of e-commerce software and services companies have
historically been highly volatile. Announcements of technological innovations or
new products by E-xact or its competitors, developments concerning proprietary
rights, including patents and litigation matters, and changes in financial
estimates by securities analysts or failure of E-xact to meet such estimates and
other factors may have a significant impact on the market price of the shares.
In addition, E-xact believes that fluctuations in its operating results may
cause the market price of its shares to fluctuate, perhaps substantially.
REVENUE PROJECTIONS
Revenue growth projections of E-xact are not yet supported by sales
contracts or by firm sales opportunities. There is no assurance that E-xact will
be able to achieve competitive pricing for its planned products or a significant
volume of sales.
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION AND MAY EXPERIENCE
FURTHER DILUTION
The initial public offering price of the common stock in this offering
will be substantially higher than the net tangible book value per share of the
common stock immediately after this offering. Therefore, if you purchase shares
of common stock in this offering, you will incur immediate and substantial
dilution of $0.70 per share in the net tangible book value per share of common
stock from the price you paid, assuming an initial public offering price of
$1.00 per share.
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
Vancouver Stock 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.
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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LISTING THE STOCK ON THE VANCOUVER STOCK EXCHANGE DOES NOT ASSURE A MARKET FOR
THE SHARES AT ALL TIMES
[The shares of E-xact common stock have been approved for listing on the
Vancouver Stock Exchange and will be primarily traded on that Exchange.] The
rules of the Vancouver Stock Exchange do not require any market maker or
specialist to maintain a market for the listed shares at all times. Therefore,
the 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
1,954,000 shares of its common stock that are presently owned by the
shareholders. All of those shares were initially purchased by the shareholders
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 Vancouver Stock Exchange, it is anticipated that approximately
776,000 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.
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DILUTION
The following sets forth the dilution per share (as of June 30, 1999)
after giving effect to this offering:
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Effective price of Common Shares offered hereunder: $1.00
Net tangible book value before the offering:(1) 0.11
Increase in net tangible book value attributable to the offering: 0.19
Net tangible book value after the offering: 0.30 0.30
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Dilution to investor:(2) 0.70
Dilution to investor (as a percentage): 70%
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(1)This table gives effect to the issuance of an aggregate of 1,552,000 shares
of common stock at $0.50 per share on October 14, 1999.
(2)This table does not give effect to the proposed exercise by Bolder Venture
Partners, LLC of outstanding warrants to purchase up to 675,000 shares of
common stock, the possible exercise of a warrant to purchase up to 172,500
shares held by Canaccord Capital Corporation, and 75,000 shares of common
stock issued to Canaccord Capital Corporation as a corporate finance fee. The
issuance of these shares would have a less than a $0.01 per share effect on
the dilution calculated above.
E-xact issued one share each to Sutton Group Financial Services, Ltd. and
DataDirect Holdings, Inc. upon incorporation. Shortly thereafter, E-xact issued
ninety-nine shares to each of Sutton Group Financial Services Ltd. and
DataDirect Holdings Inc. in consideration of those two entities transferring to
E-xact their respective interests in a computer software system designed by
DataDirect. These shares were subject to a 21000:1 share split effective
September 2, 1999, yielding an effective price per share of Cdn. $0.25 per
share.
There are currently outstanding stock options pursuant to which ___ shares
may be issued in the future and warrants pursuant to which 847,500 shares may be
issued at prices ranging from $0.50 to a price per share to be determined by a
follow-on private placement. If all such options and warrants are exercised
after completion of this offering, then there would be a total of approximately
____ shares issued and outstanding.
-8-
USE OF PROCEEDS
The gross proceeds from this offering will be $1,725,000. From these
proceeds, E-xact will pay an aggregate commission of $129,375 to Canaccord.
After deducting the commission and prior to expenses of the offering, the net
proceeds from this offering will be $1,595,625. E-xact's working capital, as of
September 30, 1999 was approximately $25,200.(1) The gross proceeds from the
offering plus the working capital totals approximately $1,750,200 (the "Funds
Available") which will be used as follows:
Funds Available: $1,750,200
==========
Proposed Uses:
Costs of this Offering: $ 202,500
---------
Consultants $ 26,100
Legal Fees $ 110,400
Accounting Fees $ 60,000
Registration Fees $ 1,000
Listing Fees $ 2,000
Transfer Agent Fees $ 2,000
Printing $ 1,000
Agent's Commission $ 129,375
Capital Expenditures to Accommodate Staff Increases
and to Extend Network Capabilities: $ 208,000
Management and Staff Recruitment, Hiring and Contracting:
Management and Administration: $ 302,000
Marketing and Sales: $ 143,000
Technical Development: $ 525,000
Marketing: $ 109,000
---------
Working Capital at September 30, 1999 to Fund Ongoing
Operations and Unallocated Working Capital $ 131,325
---------
$1,750,200
=========
(1)Proceeds of $453,500 representing consideration for subscriptions for 907,000
shares of E-xact common stock were received as of September 30, 1999 and have
been included in the calculation of working capital. Subsequent to period
end, on October 14, 1999, the private placement of a total of 1,552,000
shares of E-xact common stock was completed.
E-xact will spend the funds available to it upon completion of this
offering to further E-xact's business objectives set out in "Description of
Business."
The use of proceeds described above represents E-xact's best estimate of
its allocation of the Funds Available based upon the current state of its
business operations, its current plans and current economic and industry
conditions. There may be circumstances where, for sound business reasons, a
reallocation of funds may be necessary in order for E-xact to achieve its
business objectives.
If Canaccord exercises its warrant to purchase up to 172,500 shares at a
price of $1.00 per share, E-xact will receive additional proceeds of up to
$172,500 if exercised at any time up to one year from the Listing Date. If
Canaccord exercises the warrant, the proceeds will also be added to E-xact's
working capital.
-9-
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 1610 - 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 a simple 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
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e-commerce merchants. Since that time, E-xact has gained some fifty additional
clients and has begun to 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 (only 300KB) 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 eight 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:
1. Gateway Server
2. Transaction Server
3. Remote Transaction Component
4. Audit Database
5. 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.
-12-
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.
-13-
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 over 600,000 transactions.
Cdn. $217,145 has been spent on product development as of June 30, 1999.
Of this amount Cdn. $152,628 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 a computer
software system 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 Software
System, representing costs incurred by Sutton Group in the development of the
Software System, consisted of ninety-nine common shares issued at a deemed
aggregate value of Cdn. $32,515. 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.
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
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
-14-
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
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:
-15-
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:
1. Internet service providers;
2. Web developers;
3. Application developers; and
4. Financial institutions and independent sales organizations.
E-xact offers its Partners the following benefits:
o Private label branding;
o The potential for private dedicated network connections;
o Transactional revenue sharing;
-16-
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: ISPs, 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 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
-17-
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: 1) providing the E-xact
Transaction Processing Component as part of e-commerce solutions which they sell
to their customers and 2) as users of 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 PC 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:
(a) hire a Vice President of Finance in the first quarter of 2000;
(b) hire a Vice President of Technology in the first quarter of
2000; and
(c) hire a Vice President of Marketing in the second quarter of
2000.
The total estimated annual cost for these potential expenditures is
$250,000 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:
(a) achieve a second U.S. Gateway certification by end of the
second quarter of 2000;
(b) hire additional development programmers or Contractors in the
fourth quarter of 1999;
(c) develop automated processes to acquire new clients;
(d) develop additional fraud prevention and risk assessment
capabilities; and
(e) enhance software scaleability.
The total estimated annual cost for these expenditures is $525,000 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:
(a) deploy redundant server computers (and associated software)
needed to facilitate E-xact's North American Transaction
Processing network;
(b) deploy scalable, redundant database servers for development
and production environments; and
(c) acquire additional workstations.
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The total estimated annual cost for these expenditures is $200,000 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:
(a) produce print and electronic media materials to be used by
sales staff, channel re-sellers and customers;
(b) form strategic relationships with identified channel
opportunities; and
(c) hire marketing and business development staff.
The total estimated annual cost for these expenditures is $175,000 and is
accounted for as part of E-xact's proposed marketing expenses.
5. E-xact will be establishing larger operational and management
facilities, increased connectivity and communication costs, travel
and other operational costs. The total estimated annual cost for
these expenditures is $131,325 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. The company 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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VeriFone, a division of Hewlett-Packard
Since the early 1980s, VeriFone has been offering a wide range of
point-of-sale terminals and printers, and innovative software payment solutions.
VeriFone provides point-of-sale payment solutions to major financial
institutions and processors around the world and Internet payment programs for
merchants, financial institutions and consumers.
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
InternetSecure 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.
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
No manager or employee of E-xact has signed an employment or
confidentiality agreement. However, E-xact intends to have all personnel sign
confidentiality agreements before the end of 1999, which agreements will likely
provide for non-disclosure of confidential information for a term of
approximately
-21-
three years following termination of employment with E-xact. Additionally,
E-xact intends to have each Management Team Member sign a non-compete agreement
for a term of approximately 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.
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.
Mr. Henderson assumed a finance and operations leadership position with a
start-up software development company in 1985, before accepting a controller
position with Key Investments Inc., a KeyCorp company. 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 as annual revenues
doubled annually through organic growth and acquisitions. 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. Most recently, Mr. Henderson was employed by Centrobe, an EDS
company, as Vice-President of Business Development in which he was responsible
for the company's sales engineering efforts to provide outsourced electronic
business solutions to the Fortune 500 Marketplace. Prior to his promotion to
this position, Mr. Henderson provided leadership of strategic planning and
acquisition activities for one year and managed profit and loss performance for
a business unit of the company as General Manager for one and a half years.
Prior to joining E-xact, Mr. Henderson assisted in the strategic planning
and acquisition activities, and managed profit and loss performance for a
business unit of Centrobe.
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 ("NCP"). He began a project
with NCP preparing the first local access of the Internet in the Okanagan Valley
of British Columbia. During that time, he established a teaching lab at NCP 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 Hyper Sound's operations as well
as with other Cybernet Systems clients.
-22-
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. Mr.
Fahlman also led the acquisition of Boran Software Corp., Canada's largest real
estate accounting software company.
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, specializing in ore testing software. He attended Simon Fraser
University, majoring in computer science.
-23-
PERSONNEL
E-xact currently has a total of 8 full time employees. Of these, 1
employee serves in a management and administration capacity, 1 employee serves
in a sales and marketing capacity, 4 employees serve in a research and
development capacity, and 2 employees serve in a customer support capacity.
E-xact proposes to hire additional personnel to meet its stated business
objectives, and to establish a U.S.-based headquarters.
DESCRIPTION OF OFFICES
E-xact leases approximately 1,320 square feet of space at 1610 - 555 West
Hastings Street, Vancouver, B.C., V6H 4N6 under a lease expiring September 14,
2001. All of the employees currently operate out of this office although the
establishment of US based operations is pending.
-24-
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 June 30, 1999:
E-xact's total revenue for the six months ended June 30, 1999 was Cdn.
$45,700 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. $7,600 per month or 52%. E-xact's focus over the six 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 June 30, 1999 amounted to
approximately Cdn. $13,800 and Cdn. $40,200 for the period ended December 31,
1998. Amortization has been included under research and development ("R&D")
expense except Cdn. $16,000 related to acquired other intangible assets which
was amortized to sales and marketing expense. Programming costs for the period
ended June 30, 1999 amounted to Cdn. $116,400 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 six months ended
June 30, 1999. Computer equipment was leased in order to facilitate E-xact's
growth.
-25-
General and administration ("G&A") expenses for the four and a half months
ended December 31, 1998 was Cdn. $39,300 compared to Cdn. $36,767 for the six
months ended June 30, 1999.
Sales and marketing expenses for the period ended December 31, 1998
included the 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. $350,000 after allowing for tax losses.
LIQUIDITY AND FINANCIAL CONDITION
Subsequent to the period ended June, 1999 E-xact completed a private
placement of 1,552,000 shares of common stock to raise $750,100 after deducting
share issue expenses.
In addition to these funds E-xact is expected to raise net funds of
$1,595,625 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
of approximately $150,000 and software of $64,000. 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 ("Y2K") 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 Y2K compliant.
E-xact may, however, be affected by Y2K issues related to non-compliant internal
systems developed by third party vendors. E-xact has not completed a review of
its systems to ensure that they are Y2K compliant. E-xact is not currently aware
of any Y2K 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 Y2K compliant.
Management believes that absent a systemic failure outside the control of
E-xact, such as a prolonged loss of electrical or telephone service, Y2K
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.
-26-
Cost Associated With Y2K Compliance
Costs of testing E-xact's transaction software to ensure it is Y2K
compliant are expected to be approximately Cdn. $5,000 to Cdn. $7,000. Such
expenditures are 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 Y2K compliance, E-xact believes that its
spending on compliance to date has not been material.
Any failure of E-xact to make its products Y2K compliant could result in a
decrease in sales of its products, an increase in allocation of resources to
address Y2K 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 Y2K 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 Y2K compliant. Due to the general uncertainty inherent in
the Y2K computer problem, resulting from the uncertainty of the Y2K readiness of
third party suppliers and vendors, E-xact is unable to determine whether the
consequences of Y2K failures will have a material impact on its business,
results of operations, and financial condition.
-27-
DESCRIPTION OF SECURITIES
STOCK CAPITAL
The authorized capital stock of E-xact consists of 50,000,000 common
shares of common stock with a par value of $0.001 per share. There are
approximately 50 holders of E-xact common stock and as of the date of this
Prospectus, E-xact had a total of 5,752,000 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 Vancouver Stock Exchange.
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, 5,752,000 shares of common stock of
E-xact are issued and outstanding. These shares are subject to resale
restrictions imposed by the Vancouver Stock 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
------------------------ --------------------------------------
776,000 Immediately
776,000 Three Months
1,050,000 Six Months
1,050,000 Nine Months
1,050,000 Twelve Months
1,050,000 Fifteen Months
1,050,000 Eighteen Months
-28-
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 Percentage of Issued
Common Shares Percentage Share Capital After
Name and Municipality of Beneficially Issued Share of the Completion of
Residence of Shareholder Owned Capital This Offering
- --------------------------------- ------------- ---------- ---------------------
Ted Henderson 50,000 0.87% -0-
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Peter Fahlman(1) 880,000 15.30% 9.91%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Cliff Mah(2) 107,500 1.87% -0-
1450 Creekside Drive, Suite 800
Vancouver, B.C. V6J 5B3
Canada
Paul MacNeill(3) 12,000 0.21% -0-
c/o Campney & Murphy
Suite 2100
1111 West Georgia Street
Vancouver, British Columbia
Canada
Lance Tracey(4) 461,000 8.01% 5.19%
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Dieter Heidrich(5) 240,000 4.19% -0-
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Robert Roker(6) 840,000 14.60% -0-
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
-29-
Number of Percentage of Issued
Common Shares Percentage Share Capital After
Name and Municipality of Beneficially Issued Share of the Completion of
Residence of Shareholder Owned Capital This Offering
- --------------------------------- ------------- ---------- ---------------------
Brian Archer(7) 420,000 7.3% -0-
c/o E-xact Transactions Ltd.
1610 - 555 West Hastings Street
Vancouver, British Columbia V6H 4N6
Canada
Daryl Yurek(8) 685,000 11.96% -0-
1327 Spruce Street, Suite 300
Boulder, Colorado 80302
Scott Shaw(9) 336,000 5.8% -0-
c/o 1628 555 West Hastings Street
Vancouver, British Columbia V6B 4N6
Canada
[DIRECTORS, OFFICERS, PROMOTERS, AND 5% 4,031,500 70.11% 15.09%
SHAREHOLDERS]
- ---------------------------
(1)40,000 of these shares are held in the name of Michelle Fahlman, Peter
Fahlman's wife. The remaining shares are beneficially owned through Mr.
Fahlman's ownership of 40% of DataDirect Holdings, Inc. which owns 2,100,000
shares of E-xact common stock.
(2)Includes 67,500 shares that may be acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which Cliff
Mah is a 10% member.
(3)All of these shares are held in the name of Debra Windjack, Mr. MacNeill's
wife.
(4)20,000 of these shares are held in the name of Shelagh Tracey, Lance Tracey's
wife. The remaining shares are beneficially owned through Mr. Tracey's
ownership of 21% of Sutton Group Financial Services Ltd., which owns
2,100,000 shares of E-xact common stock.
(5)80,000 of these shares are held jointly with Marie K. Heidrich, Mr.
Heidrich's wife. The remaining shares are beneficially owned through Mr.
Heidrich's position as general partner of the manager of Opus Capital Fund,
LLC, which owns 160,000 shares of E-xact common stock.
(6)These shares are beneficially owned through Mr. Roker's ownership of 40% of
DataDirect Holdings, Inc., which owns 2,100,000 shares of E-xact common
stock.
(7)All of these shares are beneficially owned through Mr. Archer's ownership of
20% of DataDirect Holdings, Inc., which owns 2,100,000 shares of E-xact
common stock.
(8)Includes 405,000 shares that may be acquired prior to the public offering 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.
(9)All of these shares are beneficially owned through Mr. Shaw's ownership of
16% of Sutton Group financial Services, Ltd., which owns 2,100,000 shares of
E-xact common stock.
OPTIONS TO PURCHASE SECURITIES
E-xact's Stock Option Plan was approved by the Company's board of
directors on October 14, 1999 and will be submitted to the Company's
shareholders for approval at the Annual Meeting of Shareholders scheduled for o,
1999. Pursuant to the terms of the 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 and which will vest over a 36-month period.
-30-
PLAN OF DISTRIBUTION
OFFERING AND APPOINTMENT OF AGENT
By an agreement dated for reference the 9th day of August, 1999 (the
"Agency Agreement"), E-xact appointed Canaccord Capital Corporation as its Agent
to offer a total of 1,725,000 shares to non-U.S. persons in Canada through the
facilities of the Vancouver Stock Exchange. The shares will be offered at a
price of $1.00 per share on a day (the "Offering Day"), as determined by
Canaccord and E-xact, with the consent of the Vancouver Stock Exchange, which is
not more than 90 days following the date of the receipt issued by the British
Columbia Securities Commission for this Prospectus. In accordance with Vancouver
Stock Exchange rules, E-xact will receive the net proceeds of the offering
within ten business days of the Offering Day. The offering will be made in
accordance with the rules and policies of the Vancouver Stock 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.
E-xact has filed an application to list its common stock on the facilities
of the Vancouver Stock 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 Agent's Warrant (described below).
E-xact has granted Canaccord a right of first refusal to provide further
public equity financing to E-xact for a period of twelve months from the
effective date of this Prospectus.
The obligations of Canaccord under the Agency Agreement may be terminated
prior to the opening of the market on the day (the "Listing Date") E-xact's
shares are to commence trading on the Vancouver Stock 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.
AGENT'S GUARANTEE AND AGENT'S WARRANT
Canaccord has agreed to purchase the balance of any shares remaining
unsold on the Offering Day (the "Agent's Guarantee"). In consideration of the
Agent's Guarantee, Canaccord has been granted the Agent's Warrant.
The Agent's Warrant entitles Canaccord to purchase up to 172,500 shares at
a price of $1.00 per share at any time up to 5:00 p.m. on the first anniversary
of the Listing Date. The Agent's Warrant is non-transferable and will contain,
among other things, anti-dilution provisions and provision 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.
-31-
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 Agent's Warrant 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.
-32-
DIRECTORS AND SENIOR OFFICERS
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 Residence Principal Occupation for Previous Five Years
- -------------------------- --------------------------------------------
Ted Henderson(1) President, Chief Executive Officer and a Director of E-xact since
Morrison, Colorado October 4, 1999. Prior to that he was Vice President of Business
President, Chief Executive Development from February 1999 to September 1999; General
Officer and Director 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 and pioneer in full-service banking and investments.
Peter G. Fahlman President and a director of E-xact since September 1, 1998;
Delta, B.C. partner in Data Direct Consulting Services, an internet software
Vice-President (Business development company, since November, 1997; prior to that he was
Development) and Director 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 September 1, 1998; President
North Vancouver, B.C. of Code Marketing Ltd. since January 1990; President and Director
Secretary 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 venture capital company,
Boulder, Colorado since October 1993. Prior to that he was a general partner with
Weiss, Peck, and Greer Venture Partners from October 1986 to October 1993.
-33-
Name and Municipality of Residence Principal Occupation for Previous Five Years
- -------------------------- --------------------------------------------
Cliff Mah(2) Partner with Bolder Venture Partners, LLC, a venture capital
Vancouver, B.C. company, since June 1999. Prior to joining Bolder Venture Partners,
Director 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 Solicitors, since 1981.
West Vancouver, B.C.
Director
- --------------------------
(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. See "Principal Holders of
Securities" for particulars of the shares held by the directors and senior
officers.
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
- -------------- --------------------------------------- ---------------------- -------------------
Lance Tracey Sutton Group Financial Services Ltd. Director 01/87 - present
ID Internet Direct Ltd. Director and Officer 01/93 - present
dba Telecom Corp. Director 07/92 - 01/96
Paul C. America Mineral Fields Inc. Director 03/98 - present
MacNeill Anaconda Uranium Corp. Director 12/97 - present
Axion Communications Inc. Director 08/96 - present
Consolidated Firstfund Capital Corp. Secretary 09/92 - 06/95
Diagem International Resource Corp. Director 12/97 - present
Jordex Resources Inc. Secretary 04/98 - present
Minefinders Corporation Inc. Director 05/95 - present
Minefinders Corporation Inc. Secretary 07/95 - present
Prospex Mining Inc. Director 10/93 - 06/99
Unique Broadband Systems Inc. Director 07/97 - present
Unique Broadband Systems Inc. Secretary 07/97 - 08/97
-34-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Consulting Agreement
E-xact is party to a consulting agreement (the "Consulting Agreement")
with Bolder Venture Partners L.L.C. ("Bolder") made July 28, 1999. Bolder
Venture Partners is a limited liability company incorporated under the laws of
the State of Colorado and is owned 10% by Cliff Mah, a director of E-xact.
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 agrees to pay Bolder Venture
Partners a monthly retainer of $10,000, and purchase warrants to acquire up to
900,000 shares of E-xact for a period of five years from July 28, 1999. The
warrants will be exercisable as follows:
o 25% at $0.25 per share as of July 28, 1999;
o 25% at $0.50 per share as of October 14, 1999;
o 25% at $1.00 per share upon completion of this offering; and
o 25% 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.
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 will
continue on a month-to-month basis until terminated by either party upon 30
days' prior notice to the other party. E-xact will pay DataDirect a monthly fee
of Cdn. $20,000 per month plus G.S.T. (goods and services tax).
-35-
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
Annual Compensation Compensation
----------------------------------- ------------
Awards Payouts
------------ -------
Options/
Name and Sars
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 is
eligible to receive options to purchase up to 500,000 shares of E-xact
common stock at an exercise price of $1.00 per share that will vest over a
36-month period and expire five years from the date of grant.
-36-
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 auditors of E-xact are Deloitte & Touche LLP, Chartered Accountants,
2100-1055 Dunsmuir Street, Vancouver, British Columbia, V7X 1P4. The financial
statements of E-xact Transactions Ltd. included in this Prospectus have been
audited by Deloitte & Touche LLP, Chartered Accountants, to the extent and for
the period set forth in their report appearing elsewhere herein, and are
included herein in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
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.
-37-
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
Vancouver Stock 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."
-38-
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 OCTOBER 22, 1999
SELLING STOCKHOLDER
PROSPECTUS
2,832,000 Shares
[GRAPHIC OMITTED]
E-XACT TRANSACTIONS LTD.
Common Stock, $.001 par value
------------------------------
E-xact Transactions Ltd. is a software development company that offers a
simple, electronic commerce solution for real time transaction processing over
the Internet combined with a suite of value added merchant services. E-xact's
computer 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 processing centers for authorization and settlement.
The 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 2,832,000 shares of common stock of E-xact Transactions Ltd. offered
hereby are being offered for sale by the Selling Stockholders identified herein.
See "Selling Stockholders." 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 8.
------------------------------
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 ______, 1999
TABLE OF CONTENTS
PAGE
SUMMARY............................................................Alternate 3
RISK FACTORS.......................................................Alternate 4
SELLING STOCKHOLDERS...............................................Alternate 9
PLAN OF DISTRIBUTION..............................................Alternate 16
USE OF PROCEEDS...................................................Alternate 16
Alternate 2
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the offering, you should read this entire document and the documents we have
referred you to. See "Where You Can Find More Information".
E-XACT: E-xact was incorporated under the laws of the Province of British
Columbia on August 13, 1998. On July 22, 1998 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. The authorized
share capital of E-xact consists of 50,000,000 shares of common
stock with a par value of $.001 per share. See "The Company."
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.
THE OFFERING: Common Stock
Offered by the
Selling Stockholders2,832,000 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 CANNOT BE SURE THAT SUFFICIENT WORKING CAPITAL WILL BE AVAILABLE TO COVER
NECESSARY EXPENSES
Since inception E-xact has financed its operations primarily through the
private placement of equity securities, stockholder loans, and minimal sales
from its e-commerce products. From inception, E-xact has raised approximately
$840,517 in net proceeds from private equity financing.
E-xact has expended and will continue to expend substantial funds for
research and development, testing, capital expenditures, manufacturing and
marketing of its products. The timing and amount of such spending is difficult
to predict accurately and will depend upon several factors, including the
progress of research and development efforts and competing technological and
market developments, commercialization of products currently under development
and market acceptance and demand for E-xact's products. E-xact currently
estimates that it will be necessary to spend approximately $1,287,000 for the
twelve months ending November 2000. There can be no assurance that cash flow
from operations, together with working capital and net proceeds from the initial
public offering will be sufficient to fully fund the planned expansion of
E-xact's operations. If necessary, E-xact may seek additional funds through
equity or debt financing, through collaborative or other arrangements with other
companies and from other sources. If additional funds are raised by issuing
equity securities, further dilution to shareholders could occur. There can be no
assurance that additional financing will be available when needed or on terms
acceptable to E-xact. If adequate funds are not available, E-xact could be
required to delay development or commercialization of new products, to license
to third parties the rights to commercialize certain products or technologies
that E-xact would otherwise seek to commercialize for itself or to reduce the
marketing, customer support or other resources devoted to certain of its
products, each of which could have a material adverse effect on E-xact's
business, financial condition and results of operations.
WE HAVE A LIMITED OPERATING AND SALES HISTORY
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. E-xact has generated only limited revenues from sales of its
e-commerce products and services and does not have experience in manufacturing,
selling or marketing its products in large, commercial quantities. E-xact's
products and services has not gained significant market exposure or demonstrable
market acceptance yet. 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.
WE OPERATE IN A HIGHLY COMPETITIVE MARKET
E-xact's products compete against those of other established companies,
some of which have greater financial, marketing and other resources than those
of E-xact. These competitors may be able to institute and sustain price wars, or
imitate the features of E-xact's products, resulting in a reduction of E-xact's
share of
Alternate 4
the market and reduced price levels and profit margins. In addition, there are
no significant barriers to new competitors entering the market place.
WE RELY ON KEY PERSONNEL
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 not entered into employment agreements with anyone other than Ted Henderson,
but anticipates executing such agreements with all key personnel by the end of
1999. E-xact anticipates that the agreements to be entered into with key
personnel will include non-competition provisions that extend for twelve months
following the employee's termination and non-disclosure provisions that extend
three years following the employee's termination. The employment agreement with
Ted Henderson extends from September 16, 1999 to September 15, 2000.
Competition for such personnel is intense, 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 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.
WE MUST DEVELOP AND SELL NEW PRODUCTS IN ORDER TO KEEP UP WITH TECHNOLOGICAL
CHANGES
The e-commerce software industry is characterized by rapid and significant
technological change. Many software applications have a life cycle of under
twelve months. E-xact's future success will depend in large part on E-xact's
ability to continue to respond to such changes. There can be no assurance that
E-xact will be able to respond to such changes or that new or improved competing
products will not be developed that render E-xact's software products and
e-commerce services non-competitive. 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. E-xact's products may face competition from, or be rendered
obsolete by, new products which have yet to be launched.
RISKS ASSOCIATED WITH ENCRYPTION TECHNOLOGY
A significant barrier to online commerce is the secure transmission of
confidential information over public networks. E-xact relies on third party
encryption technology to provide the security necessary to transmit confidential
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other events or developments
will not result in a compromise of breach of the encryption technology used by
E-xact to protect customer transaction data. If any such compromise of E-xact's
security were to occur, it could have a material adverse effect on the Company's
business, financial condition and operating results.
Alternate 5
WE HAVE LIMITED SALES AND MARKETING EXPERIENCE
E-xact has only limited experience selling and marketing its e-commerce
products and services, and does not have any experience selling and marketing
its products in commercial quantities.
WE MAY BE ADVERSELY AFFECTED BY YEAR 2000 ISSUES
The Year 2000 ("Y2K") 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.
E-xact's e-commerce products and services are being developed to be fully
Y2K compliant, although the effectiveness of present efforts to address the Y2K
issue cannot be assured. In addition, E-xact intends to implement programs to
ensure that all software and hardware used in connection with the design of its
software products and the provision of services to its customers and suppliers
and its internal operations will manage and manipulate data involving the
transition of dates from 1999 to 2000 without functional or data abnormality.
E-xact does not anticipate incurring significant additional costs to address the
Year 2000 issue, although the effectiveness of its present efforts to address
the Y2K issue cannot be assured. E-xact is in the process of testing its
transaction software with various banks to ensure that transactions will be
processed accurately after December 31, 1999, and expects these tests to be
completed by the end of October 1999. E-xact has not yet sought information from
third parties, including their customers and suppliers, with respect to their
compliance with the Y2K issue with respect to their own computer software and
hardware. If the present efforts to address the Y2K issue are unsuccessful, or
if other third parties with which E-xact conducts business do not successfully
address the Y2K issue, the business and financial condition of E-xact could be
adversely affected.
PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED; RISK OF THIRD PARTY CLAIMS
OF INFRINGEMENT
The patent, trademark, copyright and trade secret positions of e-commerce
companies, including those of E-xact, are uncertain and involve complex and
evolving legal and factual questions. The coverage sought in a patent
application either can be denied or significantly reduced before or after the
patent is issued. Consequently, there can be no assurance that any patents from
any future patent application will be issued, that the scope of the patent
protection will exclude competitors or provide competitive advantages to E-xact,
that any of E-xact's patents will be held valid if subsequently challenged or
that others will not claim rights in or ownership of the patents and other
proprietary rights held by E-xact. In addition, there can be no assurance that
competitors, many of which have substantial resources, will not seek to apply
for and obtain patents that will prevent, limit or interfere with E-xact's
ability to make, use or sell its products and services either in Canada, the
United States or in international markets. Litigation or regulatory proceedings,
which could result in substantial cost and uncertainty to E-xact, may also be
necessary to enforce patent or other intellectual property rights of E-xact or
to determine the scope and validity of other parties' proprietary rights. There
can be no assurance that E-xact will have the financial resources to defend its
patents, trademarks and copyrights from infringement or claims of invalidity.
E-xact also relies upon unpatented proprietary technology, and no
assurance can be given that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise
Alternate 6
gain access to or disclose E-xact's proprietary technology or that E-xact can
meaningfully protect its rights in such unpatented proprietary technology.
PRODUCT LIABILITY RISK; POSSIBLE INSUFFICIENCY OF INSURANCE
E-xact's business involves the risk of product liability claims. Although
E-xact has not experienced any product liability claims to date, any such claims
could have a material adverse effect on E-xact. E-xact does not currently
maintain product liability insurance. E-xact intends to obtain such insurance
but there can be no assurance that it would be available on commercially
acceptable terms, or at all. Even if E-xact obtains product liability insurance,
there can be no assurance that it would prove adequate or that a product
liability claim, insured or uninsured, would not have a material adverse effect
on E-xact's business, financial condition and results of operations. Even if a
product liability claim is not successful, the time and expense of defending
against such a claim may adversely affect E-xact's business, financial condition
and results of operations.
TRANSACTION PROCESSING VOLUME RISK
The e-commerce and real-time electronic credit card payment transaction
processing industries require reliable, efficient high volume transaction
capability. Transaction processing software applications 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 software solutions
will be able to process large transaction volumes in a seamless manner. 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 high volume transaction processing market.
OUR STOCK HAS NEVER BEEN PUBLICLY TRADED; POSSIBLE VOLATILITY OF STOCK; DILUTION
Prior to the initial public offering, there was no public market for
E-xact's common stock, and there can be no assurance that an active trading
market will develop and be sustained, or that the market price of the shares
will not decline below the initial public offering price. The initial public
offering price of the shares was determined by negotiations between E-xact and
Canaccord. 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. The market prices for securities of e-commerce software and
services companies have historically been highly volatile. Announcements of
technological innovations or new products by E-xact or its competitors,
developments concerning proprietary rights, including patents and litigation
matters, and changes in financial estimates by securities analysts or failure of
E-xact to meet such estimates and other factors may have a significant impact on
the market price of the Common Shares. In addition, E-xact believes that
fluctuations in its operating results may cause the market price of its Common
Shares to fluctuate, perhaps substantially.
REVENUE PROJECTIONS
Revenue growth projections of E-xact are not yet supported by sales
contracts or by firm sales opportunities. There is no assurance that E-xact will
be able to achieve competitive pricing for its planned products or a significant
volume of sales.
Alternate 7
WE HAVE NEVER PAID DIVIDENDS AND DO NOT ANTICIPATE PAYING DIVIDENDS IN THE
FUTURE
E-xact has not paid dividends in the past and does not anticipate paying
dividends in the near future. E-xact expects to retain its earnings to finance
further growth and, when appropriate, retire debt. See "Dividend Record and
Policy."
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.
LISTING THE STOCK ON THE VANCOUVER STOCK EXCHANGE DOES NOT ASSURE A MARKET FOR
THE SHARES AT ALL TIMES
[The shares of E-xact common stock have been approved for listing on the
Vancouver Stock Exchange and will be primarily traded on that exchange.] The
rules of the Vancouver Stock Exchange do not require any market maker or
specialist to maintain a market for the listed shares at all times. Therefore,
the Vancouver Stock Exchange listing does not assure a stockholder that there
will be a purchaser for his shares when the stockholder wishes to sell.
Alternate 8
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of E-xact's common stock as of October 12, 1999, 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 Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
477928 B.C. Ltd. 50,000 50,000 -0- -0-
5648 Westhaven Road
West Vancouver, B.C.
V7W 1T6
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
Thomas J. Ahmann 15,000 15,000 -0- -0-
2601 Jeweh Lane North
Plymouth, MW
55447, USA
Ahmad Akrami(1) 82,500 105,000 -0- -0-
902 S. Wiley Ct.
Superior, Colorado 80027
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
Randy Ayers 6,000 6,000 -0- -0-
10511 Suncrest Drive
Delta, B.C.
V4C 2N1
Bruce Buckland 6,000 6,000 -0- -0-
7083 114A Street
Delta, B.C.
V4E 1X3
Alternate 9
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
Glenn R. Butterworth 6,000 6,000 -0- -0-
9346 Romaniuk Drive
Richmond, B.C.
V7E 5G7
Raymond Gordon Campbell 10,000 10,000 -0- -0-
3166 Point Grey Road
Vancouver, B.C.
V6K 1B2
Jeannet Clark 3,000 3,000 -0- -0-
2515 Amber Court
Coquitlam, B.C.
V3E 3K8
DataDirect Holdings Inc. 2,100,000 190,000 1,910,000 24.73%
1610-555 West Hastinngs Street
Vancouver, B.C.
V6B 4N6
Maggie Elliot 10,000 10,000 -0- -0-
9 Amalia Crescent
Belwood, Ontario
N0B 1J0
Michelle Fahlman 40,000 40,000 -0- -0-
855 55A Street
Delta, B.C.
V4M 3M3
Ted Henderson 50,000 50,000 -0- -0-
c/o E-xact Transactions Ltd.
1616 - 555 West Hastings Street
Vancouver, B.C.
V6H 4N6
K. Dieter & Marie K. Heidrich(2) 80,000 80,000 -0- -0-
230 Green Rock Drive
Boulder, Colorado
80302
Brian Leigh Hilder 10,000 10,000 -0- -0-
5295 9th Avenue
Delta, B.C.
V4M 1V8
William E. Hodal 40,000 40,000 -0- -0-
7999 Berkley Street
Burnaby, B.C.
V5E 4G5
Alternate 10
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
Chueh-Hui Hsia 180,000 180,000 -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
Amy Lennon 20,000 20,000 -0- -0-
750 Seymour Boulevard
North Vancouver, B.C.
V7J 2J6
Ben Mah 10,000 10,000 -0- -0-
RR1 - 1306 St. Andrews Road
Gibsons, V0N 1V0
Cliff Mah(3) 107,500 130,000 -0- -0-
1450 Creekside Drive, Suite 800
Vancouver, B.C.
V6J 5B3
Jan Mark 10,000 10,000 -0- -0-
110-777 West 7th Avenue
Vancouver, B.C.
V5Z 1B9
Gary Mathiesen 10,000 10,000 -0- -0-
2795 Palmerston Avenue
West Vancouver, B.C.
V7V 2W9
Donald Grant McIntosh 8,000 8,000 -0- -0-
103-3555 Westminister Hwy
Richmond, B.C.
V7C 5P6
James William Milne 10,000 10,000 -0- -0-
831 Forrest Drive
Trail, B.C.
V1R 4P9
Douglas R. Nagely 20,000 20,000 -0- -0-
537-3400 Avenue
Manchester, Kansas
67410-7505
Kent Nuzum(4) 97,500 120,000 -0- -0-
1829 Mapleton Avenue
Boulder, Colorado
80304
Alternate 11
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
James Oleynick 40,000 40,000 -0- -0-
3581 Haida Drive
Vancouver, B.C.
V5M 3Y9
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
Sera Rhyane 20,000 20,000 -0- -0-
408-620 Avenue Road
Toronto
M4V 2K8
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
Robert Sali 19,000 19,000 -0- -0-
2535 West 1st Avenue
Vancouver, B.C.
V6K 1G8
Gregg J. Sedun 10,000 10,000 -0- -0-
2200-885 West Georgia Street
Vancouver, B.C.
V6C 3E8
Edmund Shung 10,000 10,000 -0- -0-
110-1082 West 8th Avenue
Vancouver, B.C.
V6H 1C4
Lawrence D. Smith 10,000 10,000 -0- -0-
5566 49th Avenue
Delta, B.C.
V4K 3N8
William Neal Speight 8,000 8,000 -0- -0-
Box 7, Site 4, RR# 2
Rocky Mountain House
Alberta, T0M 1T0
Alternate 12
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
Richard Stokes 10,000 10,000 -0- -0-
452 East 7th Street
North Vancouver, B.C.
V7L 1R9
Grant Sutherland 8,000 8,000 -0- -0-
1600-777 Dunsmuir Street
P.O. Box 10425, Pacific Centre
Vancouver, B.C.
V7Y 1K4
Sutton Group Financial Services Ltd. 2,100,000 190,000 1,910,000 24.73%
1628-555 West Hastings Street
Vancouver, B.C.
V6B 4N6
Tom Tennessen(5) 77,500 100,000 -0- -0-
4870 Menelith Way #202
Boulder, Colorado
80303
Shelagh Tracey 20,000 20,000 -0- -0-
978 Seymour Boulevard
North Vancouver, B.C.
V7J 2J8
Wallace Development Corp. 8,000 8,000 -0- -0-
938-Howe Street, 11th floor
Vancouver, B.C.
V6Z 3N9
Tanyce Westgard 8,000 8,000 -0- -0-
3295 Canterbury Drive
Surrey, B.C.
V4P 2N4
Grace Wilson 10,000 10,000 -0- -0-
36 Coyne Street
St. Thomas, Ontario
N5R 4K8
Debra Windjack 12,000 12,000 -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
Alternate 13
Shares Beneficially Shares Shares Beneficially Post-
Owned Pre- Offered in Owned Offering %
Name and Address Offering the Offering Post-offering Ownership
- ------------------------------------- --------------------- --------------- ------------------- ----------
Daryl Yurek(6) 525,000 660,000 -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
Paul Yurek 10,000 10,000 -0- -0-
50 Lombard Street
Toronto, Ontario
M5C 2X4
TOTAL 6,427,000 2,832,000
(1)Includes: (i) 22,500 shares acquired prior to the public offering by exercise
of a warrant held by Bolder Venture Partners, LLC, of which Mr. Akrami is a
10% member; (ii) 22,500 shares that may be acquired prior to the initial
public offering by exercise of a warrant held by Bolder Venture Partners,
LLC; and (iii) 22,500 shares that may be acquired upon completion of the
initial public offering by exercise of a warrant held by Bolder Venture
Partners, LLC. Shares Beneficially Owned Pre-Offering excludes warrants to
purchase up to 22,500 shares exercisable after the public offering and
expiring five years from the date the shares are listed for public trading on
the Vancouver Stock Exchange, but Shares Offered in the Offering includes
such warrant shares.
(2)Excludes 160,000 shares which are deemed to be beneficially owned by Mr.
Heidrich through his position as general partner of the manager of Opus
Capital Fund, LLC, which owns 160,000 shares of E-xact common stock.
(3)Includes: (i) 22,500 shares acquired prior to the public offering by exercise
of a warrant held by Bolder Venture Partners, LLC, of which Mr. Mah is a 10%
member; (ii) 22,500 shares that may be acquired prior to the initial public
offering by exercise of a warrant held by Bolder Venture Partners, LLC; and
(iii) 22,500 shares that may be acquired upon completion of the initial
public offering by exercise of a warrant held by Bolder Venture Partners,
LLC. Shares Beneficially Owned Pre-Offering excludes warrants to purchase up
to 22,500 shares exercisable after the public offering and expiring five
years from the date the shares are listed for public trading on the Vancouver
Stock Exchange, but Shares Offered in the Offering includes such warrant
shares.
(4)Includes: (i) 22,500 shares acquired prior to the public offering by exercise
of a warrant held by Bolder Venture Partners, LLC, of which Mr. Nuzum is a
10% member; (ii) 22,500 shares that may be acquired prior to the initial
public offering by exercise of a warrant held by Bolder Venture Partners,
LLC; and (iii) 22,500 shares that may be acquired upon completion of the
initial public offering by exercise of a warrant held by Bolder Venture
Partners, LLC. Shares Beneficially Owned Pre-Offering excludes warrants to
purchase up to 22,500 shares exercisable after the public offering and
expiring five years from the date the shares are listed for public trading on
the Vancouver Stock Exchange, but Shares Offered in the Offering includes
such warrant shares.
(5)Includes: (i) 22,500 shares acquired prior to the public offering by exercise
of a warrant held by Bolder Venture Partners, LLC, of which Mr. Tennesen is a
10% member; (ii) 22,500 shares that may be acquired prior to the initial
public offering by exercise of a warrant held by Bolder Venture Partners,
LLC; and (iii) 22,500 shares that may be acquired upon completion of the
initial public offering by exercise of a warrant held by Bolder Venture
Partners, LLC. Shares Beneficially Owned Pre-Offering excludes warrants to
purchase up to 22,500 shares exercisable after the public offering and
expiring five years from the date the shares are listed for public trading on
the Vancouver Stock Exchange, but Shares Offered in the Offering includes
such warrant shares.
(6)Includes: (i) 135,000 shares acquired prior to the public offering by
exercise of a warrant held by Bolder Venture Partners, LLC, of which Mr.
Yurek is a 10% member; (ii) 135,000 shares that may be acquired prior to the
initial public offering by exercise of a warrant held by Bolder Venture
Partners, LLC; and (iii) 135,000 shares that may be acquired upon completion
of the initial public offering by exercise of a warrant held by Bolder
Venture Partners, LLC. Shares Beneficially Owned Pre-Offering excludes
warrants to purchase up to 135,000 shares exercisable
Alternate 14
after the public offering and expiring five years from the date the shares
are listed for public trading on the Vancouver Stock Exchange, but Shares
Offered in the Offering includes such warrant shares. Excludes 160,000 shares
which are deemed to be beneficially owned by Mr. Yurek through his position
as general partner of the manager of Opus Capital Fund, LLC, which owns
160,000 shares.
Alternate 15
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.
Alternate 16
Report and Financial Statements of
E-XACT TRANSACTIONS LTD.
June 30, 1999 and December 31, 1998
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS......................F-2
BALANCE SHEETS - June 30, 1999 and December 31, 1998.......................F-3
STATEMENTS OF OPERATIONS - Seven Months Ended June 30, 1999 and
From Inception (August 13, 1998) to December 31, 1998......................F-4
STATEMENTS OF CASH FLOWS -Seven Months Ended June 30, 1999 and
From Inception (August 13, 1998) to December 31, 1998......................F-5
NOTES TO FINANCIAL STATEMENTS..............................................F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Directors of
E-xact Transactions Ltd.
We have audited the balance sheet of E-xact Transactions Ltd. as at December 31,
1998 and the statements of operations, shareholders' capital deficiency and cash
flows for the period from the date of 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 audit.
We conducted our audit 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.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and the
results of its operations and its cash flows for the period from the date of
inception, August 13, 1998, to December 31, 1998 in accordance with accounting
principles generally accepted in the United States.
Chartered Accountants
Vancouver, British Columbia
August 13, 1999 (except as to Note 14
which is as of October 20, 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 August 13, 1999 (except as to Note 14 which is as of
October 20, 1999) 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
August 13, 1999 (except as to
Note 14 which is as of October 20, 1999)
E-XACT TRANSACTIONS LTD.
BALANCE SHEETS
(EXPRESSED IN CANADIAN DOLLARS)
- --------------------------------------------------------------------------------
June 30, December 31,
1999 1998
---------- ------------
(Unaudited)
ASSETS
CURRENT
Cash $ 19,352 $ 4,502
Accounts receivable (Note 3) 20,611 18,520
Prepaid expenses and deposits 6,296 6,296
Total current assets 46,259 29,318
ACQUIRED SOFTWARE AND INTANGIBLES (Note 4) 12,128 24,258
CAPITAL ASSETS (Note 5) 9,692 2,069
Total assets $ 68,079 $ 55,645
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (Note 7) $ 72,751 $ 32,731
Due to shareholders (Note 6) 123,065 10,605
Total current liabilities 195,816 43,336
COMMITMENTS (Note 11)
SHAREHOLDERS' CAPITAL DEFICIENCY
Common stock, common shares issued and outstanding (Note 8)
4,200,000 at June 30, 1999 and December 31, 1998 64,517 64,517
Accumulated deficit (192,254) (52,208)
Total shareholders' capital deficiency (127,737) 12,309
---------- ---------
Total liabilities and shareholders' capital deficiency $ 68,079 $ 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, 1998
Six Months Ended to December 31,
June 30, 1999 1998
---------------- ---------------
(Unaudited)
REVENUES
Online transactions $ 36,843 $ 22,254
Web development 8,861 20,792
45,704 43,046
COST OF SALES
Cost of online transactions 10,577 7,835
Cost of web development -- 10,052
10,577 17,887
EXPENSES
General and administrative expenses 36,767 39,283
Sales and marketing 6,143 17,719
Research and development 132,263 20,365
175,173 77,367
NET LOSS (140,046) (52,208)
BASIC AND DILUTED LOSS PER SHARE $ (0.03) $ (0.01)
----------- -----------
WEIGHTED AVERAGE NUMBER OF SHARES 4,200,000 3,820,832
USED TO CALCULATE LOSS PER SHARE
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,
Six Months 1998 to
Ended June 30, December 31,
1999 1998
-------------- --------------
(Unaudited)
OPERATING ACTIVITIES
Net loss $ (140,046) $ (52,208)
Item not affecting cash
Amortization of capital assets, acquired software and other intangible assets 13,863 40,275
Net change in non-cash working capital balances
Accounts receivable (2,091) (18,520)
Prepaid expenses and deposits -- (6,296)
Accounts payable and accrued liabilities 40,020 32,731
Advances from shareholders -- 10,605
(88,254) 6,587
----------- ----------
FINANCING ACTIVITIES
Advances from shareholders 112,460 --
Proceeds on issuance of capital stock -- 1
112,460 1
--------------- --------------
INVESTING ACTIVITY
Purchase of capital assets (9,356) (2,086)
--------------- --------------
NET CASH INFLOW 14,850 4,502
CASH, BEGINNING OF PERIOD 4,502 --
--------------- --------------
CASH, END OF PERIOD $ 19,352 $ 4,502
--------------- --------------
SUPPLEMENTAL CASH FLOW INFORMATION
Common shares issued for acquired software and intangibles $ -- $ 64,517
See accompanying Notes to the financial statements
F-5
E-XACT TRANSACTIONS LTD.
STATEMENTS OF CASH FLOWS
(EXPRESSED IN CANADIAN DOLLARS)
- -------------------------------------------------------------------------------
Total
Shareholders'
Common Stock Accumulated Capital
Shares Amount Deficit Deficiency
---------- --------- ----------- -----------
Issuance of common stock for cash 42,000 $ 2 $ -- $ 2
Issuance of common stock for acquired
software and intangibles (Note 3) 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
Net loss -- -- (140,046) (140,046)
---------- --------- ----------- -----------
Balances at June 30, 1999 $4,200,000 $ 4,200 $ (192,254) $ (127,737)
---------- --------- ----------- -----------
See accompanying Notes to the financial statements
F-6
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
1. 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 29, 1999 the Company was reincorporated
in the State of Delaware.
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 $140,046 in the six months period ended June 30, 1999 (period from
inception August 13, 1998 to December 31, 1998 - $52,208) and at June 30,
1999 had a working capital deficiency of $149,557 and capital deficiency of
$127,737.
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 June 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 June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
(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 June 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 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 June 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 June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
(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. Under SOP 98-5, the cost of start-up activities
should be expensed as incurred. The company expects that the adoption
of SOP 98-5 will not have a material impact on its financial position
and 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 June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
(j) Basic and diluted loss per share
Basic and diluted 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
Effective July 29, 1999, 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.
(l) Unaudited interim information
The balance sheet at June 30, 1999 and statement of operations for the
six month period ended June 30, 1999 was taken from the Company's books
and records without audit. However, in the opinion of management, such
information includes all adjustments (consisting only of normal
recurring accruals) which are necessary to properly reflect the
financial position of the Company at June 30, 1999 and the results of
operation for the six months ended June 30, 1999. The results of
operation for the interim periods presented are not necessarily
indicative of those to be expected for the year.
3. ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of no allowance for doubtful accounts
at June 30, 1999 and December 31, 1998.
4. ACQUIRED SOFTWARE AND INTANGIBLES
June 30, 1999 December 31, 1998
--------------- -------------------
Acquired software and intangible $ 48,515 $ 48,515
Accumulated amortization (36,387) (24,257)
$ 12,128 $ 24,258
----------- -------------
F-10
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
4. ACQUIRED SOFTWARE AND INTANGIBLES (CONTINUED)
Effective September 1, 1998, the Company entered into an agreement with
Sutton Group Financial Services Ltd. ("Sutton"), a shareholder, under which
the Company purchased all rights, title and interest in and to Version 2 of
the E-xact Gateway software. The consideration paid for this asset,
representing the costs incurred by Sutton in the development of this asset,
consisted of 2,100,000 common shares at a deemed value of $32,515 (Note 8).
At the same time, the Company entered into an agreement with DataDirect
Holdings Inc. ("DataDirect"), a shareholder, under which the Company
acquired intangible assets consisting of the development rights in and to
Version 2 of E-xact Gateway software as well as certain rights and customer
lists. The consideration for these intangibles, representing the costs
incurred by DataDirect in the development of these assets of $16,000 for
the software rights and $16,000 of other intangible assets, consisted of
2,100,000 common shares at a deemed value of $32,000 (Note 8).
5. CAPITAL ASSETS
June 30, 1999 December 31, 1998
--------------------------------------- -----------------
Accumulated Net Book Net Book
Cost Amortization Value Value
------------ ------------ ----------- -------------
Computer equipment $ 11,557 $ 1,865 $ 9,692 $ 2,069
------------ ---------- ----------- -------------
$ 11,557 $ 1,865 $ 9,692 $ 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:
June 30, 1999 December 31, 1998
------------- -----------------
Trade payables $ 35,796 $ 17,446
Other accrued liabilities 36,955 15,285
$ 72,751 $ 32,731
----------- -------------
F-11
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
8. SHAREHOLDERS' CAPITAL DEFICIENCY
(a) Authorized share capital
The Company was initially incorporated on August 13, 1998 under the
laws of British Columbia, Canada with 50,000,000 authorized common
shares with no par value. On July 29, 1999 the Company was
reincorporated in the State of Delaware.
The Company has authorized 50,000,000 common shares with a par value of
$0.001 per share. As a result of the reincorporation and change to par
value shares, subsequent to June 30, 1999 $60,317 was reclassified from
common stock to additional paid in capital.
(b) Subsequent to June 30, 1999, on September 2, 1999 the Company's common
shares were split, twenty-one thousand-for-one. All share and per share
amounts of prior periods have been adjusted to reflect the split.
(c) Employee Stock Option Plan
Subsequent to June 30, 1999, on October 7, 1999 the Company's board of
directors approved a stock option plan. Under the plan 20% of the
outstanding shares are for issuance as stock options. The plan is
subject to approval at the next meeting of the shareholders.
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 June 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 June 30, 1999 - $31,271
(period from inception August 13, 1998 to December 31, 1998 - $22,135)
of revenue was derived from a single customer. As at June 30, 1999
accounts receivable included $4,855 December 31, 1998 - $5,408 due from
a single customer.
F-12
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
(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
(a) During the six months ended June 30, 1999 the Company paid consulting
fees of $50,000 (1998 - Nil) to a corporate shareholder for research
and development services.
(b) As at June 30, 1999 accounts payable and accrued liabilities include
$41,223 (December 31, 1998 - $6,499 due to a corporate shareholder for
operating costs paid on its behalf.
11. COMMITMENTS
Future minimum operating lease payment for premises and equipment leases
for the years ending December 31 are due as follows:
June 30, 1999 December 31, 1998
------------- -----------------
1999 $ 97,964 $ 62,835
2000 106,565 46,565
2001 28,047 28,047
----------- -------------
$ 232,576 $ 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:
June 30, 1999 December 31, 1998
----------- -------------
Canadian basis statutory tax rate 45% 45%
Expected income tax recovery $ (63,021) $ (23,494)
Losses producing no current tax benefit 63,021 23,494
$ -- $ --
----------- -------------
F-13
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
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 June 30, 1999 and December 31, 1998 are as
follows:
June 30, 1999 December 31, 1998
------------- -----------------
Deferred income tax assets
Net operating tax loss carry forwards
61,500 23,494
Valuation allowance for deferred income
tax asset (61,500) (23,494)
------------ -------------
Net deferred income tax assets -- --
------------
Deferred income tax liabilities -- --
------------ -------------
Due to uncertainty surrounding the realization of the deferred income
tax assets in future income tax returns, the Company has a 100%
valuation allowance against its deferred income tax assets.
As of June 30, 1999, the Company has Canadian tax loss carry-forwards of
approximately $150,000 available to reduce future years' income for tax
purposes. These carry-forward losses expire between 2005 and 2006.
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 June 30, 1999, the Company:
(a) 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 this Agreement, at a price of U.S.$0.25 per share;
F-14
E-XACT TRANSACTIONS LTD.
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Information as at June 30, 1999 and for the six months ended June 30, 1999
is unuadited)
(Expressed in Canadian Dollars)
- --------------------------------------------------------------------------------
(ii) 25% of the Warrants will be exercisable upon completion of the
Initial Placement, at a price per share equal to the private
placement price (estimated to be U.S.$0.50 per share);
(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.
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 shares on August 28, 1999 less the option
price which approximates $84,000. 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.
(b) was reincorporated in the State of Delaware on July 28, 1999. As a
result of certain changes to the par value of the shares of common
stock, $60,317 was reclassified from common stock to additional paid-in
capital. In addition, this event resulted in a deemed tax year end and
a taxable gain for Canadian tax purposes, based on the excess of the
fair market value of the Company's assets over their related tax cost.
The Company estimates that a provision for Canadian taxes on the
estimated taxable gain, net of available current tax losses of $350,000
will result.
(c) completed a private placement of 1,552,000 common shares for gross
proceeds of $776,000 U.S.; and
(d) filed a preliminary prospectus with the British Columbia Securities
Commission on October 14, 1999 covering the sale of 1,725,000 common
shares for expected gross proceeds of $1,725,000 U.S.
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 shares as a
corporate finance fee.
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 $ 110,400
Accounting Fees $ 60,000
Registration Fees $ 1,000
Listing Fees $ 2,000
Transfer Agent Fees $ 2,000
Printing $ 1,000
------------
$ 202,500
II-1
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:
Number of Price Per Total
Issued Shares Share Consideration
------------- ----------- -------------
Prior sales:(1) 4,200,000 Cdn. $0.25 Cdn. $1,050,000
1,552,000 U.S. $0.50 U.S. $ 776,000
----------- --------------
Issued as at October 14, 1999: 5,752,000 Cdn. $1,050,000
===========
U.S. $ 776,000
===============
Offering: 1,725,000 U.S. $1.00 U.S. $1,725,000
Corporate Finance Shares 75,000 U.S. $ 75,000
----------- ---------------
To be issued: 1,800,000 U.S. $1,800,000
=========== ===============
The particulars of these share issuances are as follows:
1. E-xact issued 200 common shares to certain shareholders in consideration
of the transfer of certain assets to the E-xact. These shares were subject
to a 21,000:1 share split effective September 2, 1999. These shares have
been assigned a deemed price of Cdn. $0.25 per share to reflect the
estimated value of the shares as at June 15, 1999.
2. E-xact issued 1,552,000 shares of common stock to a total of 37
individuals at a price of U.S. $0.50 per share to raise seed capital of
$776,000.
3. E-xact issued all presently outstanding shares in exempt transactions
under Section 4(a) of the Securities Act of 1933 and Regulation D, as no
public offering was involved.
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*
II-2
10.1 Sponsorship Agreement dated August 9, 1999 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.*
23 Consent of Deloitte & Touche LLP (chartered accountants)*
- ----------------------
* Filed herewith.
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.
II-3
(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.
(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.
II-4
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 21st day of October, 1999.
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 October 21, 1999
Ted Henderson Executive Officer
/s/Peter Fahlman Vice-President, October 21, 1999
- ------------------------------------------- Director and Chief
Peter Guy Fahlman Financial Officer
/s/Dieter Heidrich
- ------------------------------------------ Director October 21, 1999
Dieter Heidrich
/s/Lance Tracey
- ------------------------------------------- Director October 21, 1999
Lance Tracey
/s/Cliff Mah
- ------------------------------------------- Director October 21, 1999
Cliff Mah
/s/Paul MacNeill
- ------------------------------------------- Director October 21, 1999
Paul C. MacNeill
II-5