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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTER ENDED MARCH 31, 2001
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 333-89561
E-XACT TRANSACTIONS, LTD
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 98-0212722
(State of Incorporation) (IRS Employer Identification No.)
555 WEST HASTINGS STREET, SUITE 2410 VANCOUVER, B.C., V6B 4N4
(Address of principal executive offices) (City, state, zip code)
Registrant's telephone number, including area code: (604) 691-1670
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Transitional Small Business Disclosure format (check one):
Yes No X
---- ----
The number of shares outstanding of the Registrant's $0.001 par value common
stock on May 21, 2001 was 8,502,000.
Page 1 of 14 Pages
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E-XACT TRANSACTIONS, LTD
FORM 10-QSB
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Consolidated balance sheets -
March 31, 2001 and December 31, 2000 3
Consolidated statements of operations - Three Months Ended
March 31, 2001 and 2000 4
Consolidated statements of cash flows -
Three Months Ended March 31, 2001 and 2000 5
Notes to consolidated financial statements 6 - 9
Item 2. Management's discussion and analysis of financial condition
and results of operations 10 -12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
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EXACT TRANSACTIONS LTD.
CONSOLIDATED BALANCE SHEETS
Expressed in US Dollars
================================================================================
March 31 December 31
2001 2000
------------ ------------
Unaudited
ASSETS
Current
Cash $ 30,648 $ 10,476
Accounts receivable (Note 3) 112,686 72,671
Prepaid expenses and deposits 16,994 5,356
------------ ------------
160,328 88,503
Capital assets 93,407 103,601
------------ ------------
$ 253,735 $ 92,104
============ ============
LIABILITIES AND CAPITAL DEFICIENCY
Accounts payable and accrued liabilities
(Note 4) $ 583,460 $ 541,163
Income taxes payable 71,909 71,909
Advance payable 370,844 222,558
------------ ------------
1,026,213 835,630
============ ============
Continuing operations (Note 1)
(CAPITAL DEFICIENCY)
Common stock, common shares issued and outstanding (Note 5)
8,502,000 at March 31, 2001 and Dec. 31, 2000 8,502 8,502
Additional paid-in capital 3,128,382 3,128,382
Accumulated deficit (3,909,362) (3,780,410)
------------ ------------
(772,478) (643,526)
------------ ------------
$ 253,735 $ 192,104
============ ============
See accompanying notes to consolidated financial statements
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EXACT TRANSACTIONS LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
Expressed in US Dollars
================================================================================
For the three month period ended March 31 2001 2000
------------ ------------
Unaudited Unaudited
Revenue 117,751 49,009
Cost of sales 14,581 11,935
------------ ------------
Gross margin 103,170 37,074
------------ ------------
Expenses:
General and administrative 146,563 251,553
Sales and marketing 23,624 110,629
Research and development 64,280 157,990
------------ ------------
234,467 520,172
------------ ------------
Operating Income (Loss) (131,297) (483,098)
------------ ------------
Other Income (Expenses)
Interest Income 1,865 2,486
Gain on disposal of capital assets 200 --
Foreign exchange gain (loss) 280 (19,141)
------------ ------------
2,345 (16,655)
------------ ------------
Net (Loss) Before Income Taxes (128,952) (499,753)
Income taxes -- 78,690
------------ ------------
(128,952) (421,063)
(Deficit), beginning of period (3,780,410) (741,110)
------------ ------------
(Deficit), end of period (3,909,362) (1,162,173)
============ ============
Basic loss per share $ (0.02) $ (0.07)
------------ ------------
See accompanying notes to consolidated financial statements
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E-XACT TRANSACTIONS LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
Expressed in US Dollars
================================================================================
For the three month period ended March 31 2001 2000
------------ ------------
Unaudited Unaudited
OPERATING ACTIVITIES
Net Loss (128,952) (421,063)
Item not affecting cash:
Amortization 10,196 8,081
------------ ------------
(118,756) (412,982)
Net change in operating assets and liabilities
(Increase) in accounts receivable (40,015) (17,350)
(Increase) in prepaid expenses and deposits (11,640) (29,721)
(Increase) in income taxes recoverable -- (78,690)
Increase in accounts payable and accrued liabilities 42,297 131,303
------------ ------------
(128,114) (407,440)
------------ ------------
FINANCING ACTIVITIES
Proceeds on issuance of capital stock, net of offering costs -- 1,733,211
Proceeds on notes payable 148,286 --
Deferred share issue costs, net of related accounts payables -- 163,704
------------ ------------
148,286 1,896,915
------------ ------------
INVESTING ACTIVITY
Purchase of capital assets -- (75,590)
------------ ------------
-- (75,590)
------------ ------------
INCREASE IN CASH 20,172 1,413,885
CASH, BEGINNING OF PERIOD 10,476 280,899
------------ ------------
CASH, END OF PERIOD 30,648 1,694,784
============ ============
Supplemental non cash investing and financing cash flow disclosure:
Warrants issued for financing $ -- $ 138,744
============ ============
Common stock issued to underwriters $ -- $ 75,000
============ ============
See accompanying notes to consolidated financial statements
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN US 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 28, 1999 the Company was reincorporated in the State of
Delaware.
The Company was formed through the acquisition of certain software and
other intangible assets from Sutton Group Financial Services ("Sutton")
and Data Direct Holdings Ltd. ("DataDirect"). In consideration for the
acquisition of these assets Sutton and Data Direct, two unrelated
companies, at the time of the acquisition, each received 2,100,000
common shares.
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 $128,952 for the quarter ended March
31, 2001 and at March 31, 2001 had a working capital deficiency of
$865,884 and capital deficiency of $772,478. The success of the
Company's future operations is dependent upon attaining profitable
operations, and upon its ability to raise additional financing.
Management's plans include obtaining the continued support of
creditors, raising additional financing and, ultimately, positioning
the Company for profitable operations.
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 financing or otherwise. However, there
can be no assurance that such financings will be successful.
2. BASIS OF PRESENTATION
The accompany unaudited financial statements do not include all
information and footnote disclosures required under accounting
principles generally accepted in the United States of America (US
GAAP). In the opinion of management, all adjustments (consisting
primarily of normal recurring adjustments) considered necessary for a
fair presentation of the financial position, results of operations and
cash flows as at March 31, 2001, and for all periods presented, have
been included.
The unaudited balance sheet, statements of operations and deficit and
statements of cash flows have been prepared in accordance with
accounting principles generally accepted in the United States of
America which conform in all material aspects with Canadian generally
accepted accounting principles for interim financial statements. The
accompanying financial statements have been prepared pursuant to the
rules and regulations of the Securities and
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
2. BASIS OF PRESENTATION (continued)
Exchange Commission ("SEC") and the relevant guidance of the Canadian
Institute of Chartered Accountants ("CICA"). These interim financial
statements follow the same accounting policies and methods of
applications as the most recent annual financial statements dated
December 31, 2000. These financial statements should be read in
conjunction with the financial statements and notes thereto included in
the Company's Canadian statutory annual report and filing with the SEC
on form 10K-SB for the fiscal year ended December 31, 2000.
3. ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of a $29,926 allowance for
doubtful accounts at March 31, 2001 (December 31, 2000 - $65,581).
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The principal components of accounts payable and accrued liabilities
were as follows:
-----------------------------------
March 31, 2001 December 31, 2000
-------------- -----------------
Unaudited
Trade payables $ 532,451 $ 498,149
Other accrued liabilities $ 51,009 $ 43,014
------------ ------------
$ 583,460 $ 541,163
============ ============
5. SHARE CAPITAL
As at May 18, 2001, there were 8,502,000 common shares issued and
outstanding. As at May 18,2001 there were 498,500 options issued and
outstanding at exercise prices ranging from $1.00 to $3.35 with
remaining weighted-average contractual lives of approximately 4 years.
In addition, as at May 18, 2001, there were 1,556,668 warrants issued
and outstanding, entitling the holders to acquire 1,331,668 common
shares at prices ranging from $1.00 to $2.25 and 225,000 common shares
at a price to be based on a follow-on private placement.
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN US DOLLARS)
6. FINANCIAL INSTRUMENTS
(a) Fair Value
The carrying values of cash, accounts receivable, deposits, accounts
payable and accrued liabilities income taxes payable and advances
payable, as reflected in the balance sheet, approximate their
respective fair values as at March 31, 2001 and December 31,2000
because of the demand or short-term maturity of these instruments.
(b) Credit Risk and Economic Dependence
Financial instruments which potentially subject the Company to
credit risk consist of bank deposits and accounts receivable.
Cash is deposited with high credit quality financial
institutions. Accounts receivable consist of amounts
receivable from trade and other receivables. The Company does
not require collateral or other security to support accounts
receivable. The Company estimates its allowance for doubtful
accounts based on analysis of specific accounts and its
operating history. During the three months ended March 31,
2001 11 % of revenue was derived from two customers (2000-
68%)
7. RELATED PARTY TRANSACTIONS
Related party transactions not otherwise disclosed in these financial
statements include:
(a) During the three month period ended March 31, 2001, the
Company incurred interest of $8,286 (2000 - $Nil); on advances
from certain stockholders of the Company.
(b) During the three month period ended March 31,2001, the Company
incurred accounting fees of $12,000 (2000-$9,500) from a
company related to a stockholder of the Company
8. 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. During the quarter ended March 31, 2001,
100% of revenues were derived in Canada (quarter ended March 31, 2000 -
100%). Long-lived assets include capital assets and are located in
Canada.
The Company's customer sales concentration is discussed in Note 6(b).
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E-XACT TRANSACTIONS LTD
9. SUBSEQUENT EVENTS
On April 27, 2001 the Company announced that it had arranged, subject
to regulatory approval, a non-brokered private placement of 2,000,000
special warrants at US$0.20 per special warrant, for total proceeds of
US$400,000. Each special warrant consists of one common share (at no
cost to the holder) and one purchase warrant. Each purchase warrant
will entitle the holder to purchase one additional common share at a
price of US$0.23 per share in the first year and US$0.27 per share in
the second. year.
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E-XACT TRANSACTIONS LTD
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-looking Statements
The following Management Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the
accompanying condensed financial statements and notes included in this
report. Statements made in this Form 10-QSB that are not historical or
current facts are "forward-looking statements" made pursuant to the
safe harbor provisions of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements
often can be identified by the use of terms such as "may," "will,"
"expect," "believes," "anticipate," "estimate," or "continue," or the
negative thereof. The Company intends that such forward-looking
statements be subject to the safe harbors for such statements. The
Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made.
Any forward-looking statements represent management's best judgment as
to risks, uncertainties and important factors beyond the control of the
Company that could cause actual results and events to differ materially
from historical results of operations and events from those presently
anticipated or projected. These factors include adverse economic
conditions, entry of new and stronger competitors, inadequate capital,
unexpected costs, failure to gain product approval in the United States
or foreign countries and failure to capitalize upon access to new
markets. Additional risks and uncertainties that may affect
forward-looking statements about the Company's business and prospects
include the possibility that a competitor will develop a more
comprehensive solution, delays in market awareness of its products,
possible delays in execution of sales and marketing strategy, which
could have an immediate and material adverse effect. The Company
disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated
events.
Overview
The Company was incorporated under the laws of the Province of British
Columbia on August 13, 1998. On July 29, 1999 the Company filed a
certificate of domestication and certificate of incorporation with the
Secretary of State of the State of Delaware, thereby "domesticating" or
transitioning from a Canadian company to one organized under the laws
of the State of Delaware.
The consolidated financial statements of the Company are prepared in
accordance with accounting policies generally accepted in the United
States of America which for this Company complies in all material
respects with Canadian generally accepted accounting principles. The
Company provides real-time financial transaction processing services
using web-centric technology. Its electronic commerce (e-commerce)
software services allow 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 pre-authorization, authorization and
settlement/deposit. The Company is approved to act as a third party
payment processor to conduct transaction processing with major banks in
North America.
The Company's success will depend largely upon its ability to compete
successfully, develop new products and services and market them
successfully in a market that is becoming increasingly competitive.
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E-XACT TRANSACTIONS LTD
Results of Operations
Interim Financial Results
(All amounts are expressed in U.S. dollars)
The Company earns its revenues by charging its customers setup fees,
monthly account maintenance fees and transaction fees for usage of its
services. Transaction fees are based on the number of transactions
processed in a month.
Revenues. During the three month period ended March 31, 2001, revenues
were $117,751 compared to $49,009 for the three months ended March 31,
2000. Revenues were derived primarily from transaction processing fees
and monthly service fees. Gross margins increased from 76% in 2000 to
88% in the quartered ended March 31, 2001. The increased was due
primarily higher sales volumes without the need for increasing delivery
capacity.
Expenses. During the quarter ended March 31, 2001, the Company embarked
on an aggressive campaign to reduce its operating expenses. Total
expenses during the three months ended March 31, 2001 amounted to
$234,467 compared to $520,172 for the three months ended March 31,
2000.
General and Administrative (G&A). During the three months ended March
31, 2001, G&A expenses were $146,563 compared to $251,553 for the
comparable period in 2000. Consulting fees decreased from $61,219 in
2000 to $1,747 in 2001 while wages and salaries decreased from $97,720
in 2000 to $48,452. The Company began reducing its personnel in the
fourth quarter of 2000 and the first quarter of 2001. This process was
completed by the end of March 31, 2001.
Sales and Marketing. Sales and Marketing expenditures decreased from
$110,629 for the three months ended March 31, 2000 to $23,624 for the
corresponding period in 2001. The Company reduced its marketing budget
as it concentrated its resources on ensuring that it was able to meet
it operating expenses.
Research and development. Research and development expenses consist
primarily of compensation expenses and consulting fees to support the
development of the Company's software, services and technologies.
Research and development expenditures were $64,280 for the three months
ended March 31, 2001 compared to $157,990 for the comparable period in
2000. The decrease in expenses was due to a reduction in personnel as
well as a reduction in the use of outside consultants. The Company
believes that these reductions will not impede the Company's ability to
development its software programs.
Net loss. The Company incurred a net loss ( before income taxes ) of
$128,952 for the three months ended March 31, 2001 compared to a loss
of $421,062 in 2000. The net loss in the first quarter of 2001
consisted primarily of operational expenses compared to 2000 which
included startup expenses for the US office as well operational
expenses.
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E-XACT TRANSACTIONS LTD
In July 1999, the FASB announced a delay of the effective date of SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities
to the first quarter of 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities . It requires companies to recognize all derivatives as
either assets or liabilities on the balance sheet and measure those
instruments at fair value. Under SFAS No. 133, gains or losses
resulting from changes in the values of those derivatives are accounted
for depending on the use of the derivative and whether it qualifies for
hedge accounting. The Company adopted SFAS No. 133 on January 1, 2001
with no material effect on the Company's financial position or results
of operations.
Liquidity & Capital Resources
Cash flow. The Company's net cash flows used for operating activities
during the three months ended March 31, 2001 was a negative $128,115
compared to a negative $407,439 for the three months ended March 31,
2000. The loss was financed by advances from certain shareholders. No
investment was made in capital equipment during the quarter ended March
31, 2001.During the quarter ended March 31, 2001 shareholder advances
amounted to $148,286. These advances were used to cover the Company's
operating expenses. The Company's negative cash flow from operations is
the result of inadequate sales revenue to support operating expenses.
Management will continue to review its operations and adjust its
operations based on market conditions.
Capital resources. The Company had a working capital deficiency of
$865,884 as at March 31, 2001 compared to a deficiency of $747,127 as
at December 31, 2000.
Management believes that the Company will continue to incur losses
through the remainder of 2001. In the event that cash flow from
operations, together with the proceeds of any future financings, are
insufficient to meet these expenses, the Company will be required to
re-evaluate its planned expenditures and allocate its total resources
in such manner as the board of directors and management deems to be in
the best interest of the Company and its stockholders.
Subsequent events
On April 27, 2001 the Company announced that it had arranged, subject
to regulatory approval, a non-brokered private placement of 2,000,000
special warrants at US$0.20 per special warrant, for total proceeds of
US$400,000. Each special warrant consists of one common share (at no
cost to the holder) and one purchase warrant. Each purchase warrant
will entitle the holder to purchase one additional common share at a
price of US$0.23 per share in the first year and US$0.27 per share in
the second. year.
The Company is currently negotiating with its trade suppliers and
creditors. The success of the company is dependant upon the continuing
support of its creditors, its ability to continue to raise financing to
fund operations and ultimately upon its ability to achieve profitable
operations.
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E-XACT TRANSACTIONS LTD
Part II. Other Information
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
No change
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K.
No form 8-K reports were file in the quarter ended March 31, 2001
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E-XACT TRANSACTIONS LTD
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933 the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
E-XACT TRANSACTIONS LTD
(Registrant)
Dated: May 21, 2001 By: /s/ Peter Fahlman
-------------------------------
Peter Fahlman
President and CEO
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