1
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 JUNE 30, 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 August 15, 2001 was 8,502,000.
Page 1 of 18 Pages
2
E-XACT TRANSACTIONS, LTD
FORM 10-QSB
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated balance sheets -
June 30, 2001 and December 31, 2000 3
Consolidated statements of operations - three months ended
June 30, 2001 and six months ended June 30, 2001 4
Consolidated statements of cash flows -
Six months ended June 30, 2001 and 2000 5
Notes to consolidated financial statements 6 - 12
Item 2. Management's discussion and analysis of financial condition
and results of operations 13 -16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signature 18
</Table>
2
3
E-XACT TRANSACTIONS LTD. Exhibit "A"
CONSOLIDATED BALANCE SHEET
Unaudited - Expressed in US Dollars
================================================================================
<Table>
<Caption>
June 30 December 31
2001 2000
----------- -----------
ASSETS
CURRENT
Cash $ 25,520 $ 10,476
Accounts receivable (Note 3) 112,881 72,671
Prepaid expenses and deposits 13,803 5,356
----------- -----------
152,204 88,503
Capital assets (Note 4) 83,214 103,601
----------- -----------
TOTAL ASSETS $ 235,418 $ 192,104
=========== ===========
LIABILITIES
CURRENT
Accounts payable and accrued liabilities (note 5) $ 529,939 $ 541,163
Income taxes payable 71,911 71,909
Advance payable (note 6) 67,647 222,558
----------- -----------
TOTAL CURRENT LIABILITIES $ 669,497 $ 835,630
=========== ===========
CONTINUING OPERATIONS (Note 1)
COMMITMENTS (Note 10)
(CAPITAL DEFICIENCY)
Common stock, common shares issued and outstanding (Note 7)
8,502,000 at June 30, 2001 and at December 31, 2000 $ 8,502 $ 8,502
Additional paid-in capital 3,128,382 3,128,382
Special warrants 400,000 --
Accumulated deficit, per Exhibit "B" (3,970,963) (3,780,410)
----------- -----------
Capital deficiency $ (434,079) $ (643,526)
----------- -----------
TOTAL CAPITAL DEFICIENCY AND LIABILITIES $ 235,418 $ 192,104
=========== ===========
</Table>
3
4
E-XACT TRANSACTIONS LTD. Exhibit "B"
CONSOLIDATED STATEMENT OF OPERATIONS
Unaudited - Expressed in US Dollars
================================================================================
<Table>
<Caption>
3 months ended 6 months ended
2001 2000 2001 2000
June 30 June 30 June 30 June 30
------------ ------------ ------------ ------------
Revenue $ 97,933 $ 50,022 $ 182,858 $ 103,021
Cost of sales 20,164 29,764 34,745 42,707
------------ ------------ ------------ ------------
Gross margin $ 77,769 $ 20,258 $ 148,113 $ 60,314
------------ ------------ ------------ ------------
Expenses
General and administrative expenses $ 98,675 $ 420,955 $ 214,237 $ 713,744
Sales and marketing 6,280 313,763 29,904 433,579
Research and development 41,949 317,286 106,229 475,678
------------ ------------ ------------ ------------
$ 146,904 $ 1,052,004 $ 350,370 $ 1,623,001
------------ ------------ ------------ ------------
Operating Income (Loss) $ (69,135) $ (1,031,746) $ (202,257) $ (1,562,687)
------------ ------------ ------------ ------------
Other Income
Interest Income $ 217 $ 13,725 $ 456 $ 16,421
Foreign exchange gain 10,968 93,764 11,248 73,003
------------ ------------ ------------ ------------
$ 11,185 $ 107,489 $ 11,704 $ 89,424
------------ ------------ ------------ ------------
Net loss before income taxes $ (57,950) $ (924,257) $ (190,553) $ (1,473,263)
Income taxes -- (26,615) -- 58,724
------------ ------------ ------------ ------------
Net loss $ (57,950) $ (950,872) $ (190,553) $ (1,414,539)
Retained Earnings (Deficit), beginning of period (3,913,013) (1,270,505) (3,780,410) (806,838)
------------ ------------ ------------ ------------
Retained Earnings (Deficit), end of period to
Exhibit "A" $ (3,970,963) $ (2,221,377) $ (3,970,963) $ (2,221,377)
============ ============ ============ ============
LOSS PER SHARE
Basic $ (0.005) $ (0.155) $ (0.019) $ (0.186)
Diluted $ (0.005) $ (0.155) $ (0.019) $ (0.186)
WEIGHTED AVERAGE NUMBER OF SHARES USED TO CALCULATE
BASIC AND DILUTED LOSS PER SHARE 11,390,889 6,109,500 9,946,444 7,601,167
</Table>
4
5
E-XACT TRANSACTIONS LTD. Exhibit "C"
CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited- Expressed in US Dollars
================================================================================
<Table>
<Caption>
June 30 June 30
2001 2000
------------ ------------
OPERATING ACTIVITIES
Net Loss, per Exhibit "B" $ (190,553) $ (1,414,539)
Item not affecting cash:
Warrants issued -- 26,559
Amortization 20,387 75,220
------------ ------------
$ (170,166) $ (1,312,760)
Net change in operating assets and liabilities
(Increase) in accounts receivable (40,210) (45,667)
(Increase) in prepaid expenses and deposits (8,447) (40,095)
(Increase) in income taxes recoverable -- (60,691)
(Decrease) in accounts payable and accrued liabilities (11,224) (6,243)
------------ ------------
$ (230,047) $ (1,465,456)
------------ ------------
FINANCING ACTIVITIES
Proceeds on issuance of capital stock, net of offering costs -- 1,827,779
Proceeds on issuance of special warrants 400,000 --
Repayment of Loan (368,365) --
Advances from shareholders 213,456 --
Deferred share issue costs, net of related accounts payables -- 175,545
------------ ------------
$ 245,091 $ 2,003,324
------------ ------------
INVESTING ACTIVITIES
Purchase of capital assets -- (161,519)
------------ ------------
$ -- $ (161,519)
------------ ------------
INCREASE IN CASH 15,044 376,349
CASH, BEGINNING OF PERIOD 10,476 304,668
------------ ------------
CASH, END OF PERIOD $ 25,520 $ 681,017
============ ============
Supplemental disclosure of non-cash investing and financing cash flow
disclosures:
Warrants issued for financing services $ -- $ 75,220
Shares issued for financing services $ -- $ 74,556
</Table>
6
E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES 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 Ltd. ("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 $57,950 for the quarter ended June 30, 2001
and at June 30, 2001 had a working capital deficiency of $517,293 and capital
deficiency of $434,079. 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. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with the following
significant accounting polices.
(a) Basis of consolidation
These consolidated financial statements include the assets, liabilities and
operating results of the Company and its wholly-owned subsidiary.
(b) 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, recoverability of
long-lived assets, income taxes, and contingencies. Actual results may differ
from those estimates.
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (continued)
(c) Foreign Currency Translation
The Company determined that as of April 1, 2000 its functional currency was the
United States dollar ("US Dollars"). Previously the functional currency of the
Company was the Canadian dollar. The majority of the Company's operating and
financing transactions are now denominated in the US dollar. Monetary assets and
liabilities denominated in other than the US dollar are translated using the
exchange rates prevailing at the balance sheet date. Revenues and expenses are
translated using average exchange rates prevailing during the period. Gains and
losses on foreign currency transactions are recorded in the consolidated
statement of operations. The Company has remeasured its assets, liabilities,
revenues and expenses for prior periods using the historical exchange rate in
existence at the date of the transaction.
(d) Research and Development Costs
All research and development costs are expensed when incurred unless they meet
generally accepted accounting criteria for deferral and amortization. The
Company reassesses whether it has met the relevant criteria for deferral and
amortization at each reporting date. To date, no development costs have been
deferred.
(e) 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.
(f) Capital Assets and Amortization
Capital assets are recorded at cost and amortized over the estimated useful
lives of the assets on the following basis:
Leasehold improvement 5 years on a straight-line basis
Computer software 100% declining balance
Computer equipment 30% 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 quarter ended June 30, 2001.
(g) Revenue Recognition
The Company's revenue is derived from the following source:
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Online Transactions
Revenue from the setup, maintenance, and processing of online transactions is
recognized when the services are performed, the amount of revenue is fixed or
determinable and collectability is reasonably assured.
(h) Income Taxes
The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. This statement provides for a liability approach
under which deferred income taxes are provided based upon enacted tax laws and
rates applicable to the periods in which the taxes become payable.
Deferred tax assets, if any, are recognized only to the extent that, in the
opinion of management, it is more likely than not that the income tax assets
will be realized.
(i) Basic and Diluted Loss Per Share
Basic loss per share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares outstanding for the
period along with the contingently issuable common shares from the issuance of
special warrants which have been treated as outstanding as all necessary
conditions have been satisfied.
(j) 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.
3. ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of a $4,162 allowance for doubtful accounts
at June 30, 2001 (December 31, 2000 - $65,581).
4. CAPITAL ASSETS
<Table>
<Caption>
June 30 December 31
2001 2000
---------------------------------------------- ------------
Accumulated Net Book Net Book
Cost Amortization Value Value
------------ ------------ ------------ ------------
Leasehold improvements $ 4,940 $ 988 $ 3,952 $ 4,446
Computer software 87,251 80,079 7,172 14,344
Computer equipment 119,165 47,075 72,090 84,811
------------ ------------ ------------ ------------
$ 211,356 $ 128,142 $ 83,214 $ 103,601
------------ ------------ ------------ ------------
</Table>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The principal components of accounts payable and accrued liabilities were as
follows:
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
<Table>
<Caption>
June 30, 2001 December 31, 2000
------------- -----------------
Trade payables $ 486,507 $ 498,149
Other accrued liabilities $ 43,432 $ 43,014
------------ ------------
$ 529,939 $ 541,163
============ ============
</Table>
6. ADVANCES PAYABLE
The advances payable from certain stockholders of the Company bear interest at
prime plus one per cent and have no fixed terms of repayment. These advances are
secured by the assets of the Company.
7. STOCKHOLDERS' EQUITY
(a) Authorized Stock
The Company was initially incorporated on August 13, 1998 under the laws of
British Columbia, Canada with 50,000,000 authorized common stock with no par
value. On July 28, 1999 the Company was reincorporated in the State of Delaware.
The Company has an authorized share capital of 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, $37,930 was reclassified during 1998 from common stock to
additional paid in capital.
On September 2, 1999 the Company's common stock were split, twenty-one
thousand-for-one. All per share amounts of prior periods have been adjusted to
reflect the split.
(b) Issued and outstanding
<Table>
<Caption>
Number of Additional
Shares Amount paid-in capital
------------ ------------ ---------------
Issued and Outstanding:
Balance, December 31, 2000 8,502,000 $ 8,502 $ 3,128,382
------------ ------------ ------------
Balance, June 30, 2001 8,502,000 $ 8,502 $ 3,128,382
============ ============ ============
</Table>
9
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
Warrants - At June 30, 2001, the following warrants were outstanding:
<Table>
<Caption>
Date Granted Expiry Date Number of Shares Excise Price
- ------------ -------------- ---------------- -------------
July 28, 1999 July 28, 2004 1,007,136 $ 1.00
August 2, 2001 August 2, 2003 549,532 $ 2.25
-------------- ------------- -------------
Balance, June 30, 2001 1,556,668
=============
</Table>
Stock Options - At June 30, 2001, the following stock options were outstanding:
<Table>
<Caption>
Date Granted Expiry Date Number of Shares Excise Price
- ------------ ---------------- ---------------- -------------
January 12, 2000 January 11, 2005 407,000 $ 1.00
March 15, 2000 March 14, 2005 13,000 $ 1.00
May 17, 2000 May 16, 2005 78,500 $ 3.35
April 24, 2001 April 23, 2006 675,000 $ 0.25
---------------- ------------- -------------
Balance, June 30, 2001 1,173,500
=============
</Table>
(c) Special Warrants
On April 26, 2001 the Company completed an offering of 2,000,000 special
warrants at US$0.20 per special warrant, for total proceeds of US$400,000. Each
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. As at June 30, 2001, none of the special
warrants have been converted. Upon conversion, the proceeds of $400,000 will be
allocated between the warrants and common shares based on their relative fair
values. This will result in an allocation of $363,000, $2,000 and $35,000 to the
warrants, common shares, and additional paid in capital, respectively. The fair
values of the warrants were calculated using the Black-Scholes model with the
following assumptions: dividend yield- 0%; volatility - 180%; risk-free interest
rate - 4.2%, and expected life - 2 years.
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
8. 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 June 30, 2001
and December 31, 2000 because of the demand or short-term maturity of these
instruments.
(b) Credit Risk and Economic Dependence
Financial instruments that 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. For the six months ended June 30, 2001
revenue from one client accounted for approximately 16% of total revenue
compared to 69% (obtained from two customers) for the six months ended June 30,
2000.
(c) Foreign Exchange Risk
During the period ended June 30, 2001, the majority of the Company's operations
were conducted in the Canada. The Company undertakes certain transactions in
Canadian dollars and is therefore exposed to foreign exchange risk .
9. RELATED PARTY TRANSACTIONS
Related party transactions not otherwise disclosed in these financial statements
include: During the period ended June 30, 2001, the Company incurred interest of
$12,303 (June 30, 2000 - $nil) on advances from certain stockholders of the
Company.
During the period ended June 30, 2001, the Company incurred accounting service
of $23,587 (June 30, 2000 - $nil) from a company related to a stockholder of the
Company.
10. COMMITMENTS
Future minimum operating lease payment for premises and equipment leases for the
years ended June 30, are due as follows:
<Table>
2002 $ 29,071
2003
11,688
-------
$40,759
=======
</Table>
11. 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 six months ended June 30, 2001, 97% of revenues were
derived in Canada and 3% from the
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
US (six months ended June 30, 2000 - 100% of revenue was derived from Canada).
Long-lived assets include capital assets and are located in Canada.
The Company's customer sales concentration is discussed in Note 8 (b).
12. COMPARTIVE FIGURES
Where applicable, the previous periods figures have been reclassified to conform
with the presentation used in the current period.
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
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
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.
Results of Operations
Interim Financial Results
(All amounts are expressed in U.S. dollars)
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US 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 June 30, 2001, revenues were
$97,933 compared to $50,022 for the three months ended June 30, 2000, and
$86,704 for the quarter ended March 31, 2001. The increase in revenue of
$11,229 or 13% from the first quarter of 2001 to the second quarter of 2001
is the result of a more productive customer base. The Company terminated
accounts which did not produce transaction revenue while it was also
successful in signing up more established customers who could generate
revenue immediately upon activation of their accounts. Revenues were
derived primarily from transaction processing fees and monthly service
fees. Gross margins decreased from 83% in quarter ended March 31, 2001 to
79% in the quartered ended June 30 , 2001. The decreased was primarily due
to higher cost of sales. The Company's policy is to concentrate on
prospective customers referred to it by its channel partners such as banks
as well as by direct sales efforts with specific merchants .
Revenue for the six months ended June 20, 2001 amounted to $182,858
compared to $103,021 for the six months ended June 30, 2000. This increase
of 77% over the comparable period in 2000 is primarily due to a more
productive customer base. Gross profit for the six months ended June 30,
2001 increased from 59% in 2000 to 81% in 2001. The increase in margin is
mainly due to higher revenue volume without a commensurate increase in
carrier costs.
Expenses. For the quarter ended June 30, 2001, the Company continued to
reduce its operating expenses. Total expenses during the three months ended
June 30 , 2001 amounted to $146,904 compared to $1,052,004 for the three
months ended June 30, 2000 and $234,467 for the quarter ended March 31,
2001. By the end of the first quarter, the Company had consolidated its
operations in Vancouver, B.C., Canada.
The operating expenses for the quarter ended June 30, 2001 consisted solely
of the Canadian operations whereas the comparable quarter ended June 30,
2000 included operations in the US.
Total expenses for the six months ended June 30, 2001 amounted to $350,370
compared to $1,623,001 for the comparable period ended June 30, 2000. The
June 30, 2000 expenses included start up expenses related to the opening of
the US office.
General and Administrative (G&A). During the three months ended June 30,
2001, G&A expenses were $98,675 compared to $420,955 for the comparable
period in 2000 and $115,516 for the quarter ended March 31, 2001. The 77%
decrease in G&A expenses over the comparable period in 2000 was the result
of the closure of the US operations.
G&A expenses for the six months ended June 30, 2001 amounted to $214,237
compared to $713,744 in the comparable period June 30, 2000. The decrease
of 70% is due to the closure of the US operations in the fourth quarter of
2000 and first quarter of 2001.
Sales and Marketing. Sales and Marketing expenses for the quarter ended
June 30, 2001 amounted to $6,280 compared to $23,624 incurred in the
previous three months ended March 31, 2001. The Company's marketing efforts
were concentrated on developing a referral network with banks as well as
direct contact with prospective customers. This approach has been both
productive and cost effective.
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
Sales and marketing expenses for the six months ended June 30, 2001
amounted to $29,904 compared to $433,579 in the six months ended June 30,
2000. The decrease is attributable to the closure of the US office.
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 $41,949 for the three months ended June
30, 2001 compared to $317,286 in the comparable period in 2000 and $64,280
for the three months ended March 31, 2001. The Company has adequate
resources to meet its software development goals.
Research and development expenses amounted to $106,229 for the six months
ended June 30, 2001 compared to $475,678 for the six months ended June 30,
2000. The decrease of 78% over the comparable period is due to a
substantial reduction in personnel as a result of the closure of the US
office.
Net loss. The Company incurred a net loss (before income taxes) of $57,950
for the three months ended June 30, 2001 compared to a loss of $924,257 for
the three months ended June 30, 2000 and a loss of $128,952 for the three
months ended March 31, 2001.
Net loss (before income taxes) for the six months ended June 30, 2001
amounted to $190,553 compared to a net loss (before income taxes) of
$1,473,263 for the comparable period ended June 30, 2000. The reduction of
the loss is attributable to the closure of the US office as well as a more
productive customer base.
Recent Accounting Pronouncements
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.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, "Business Combinations" and
SFAS No.142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses
the initial recognition and measurement of goodwill and other intangible
assets acquired in a business combination and SFAS No. 142 addresses the
initial recognition and measurement of intangible assets acquired outside
of a business combination whether acquired individually or with a group of
other assets. These standards require all future business combinations to
be accounted for using the purchase method of accounting. Goodwill will no
longer be amortized but instead will be subject to impairment tests at
least annually. The Company is
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
required to adopt SFAS No. 141 and 142 on a prospective basis as of January
1, 2002, however, certain provisions of these new Standards may also apply
to any acquisitions concluded subsequent to June 30, 2001. The adoption of
SFAS No. 141 and SFAS No. 142 is not expected to have a material effect on
the Company's financial position, results of operations and cash flows in
2002 and subsequent years.
Liquidity & Capital Resources
Cash flow. The Company's net cash flows used for operating activities
during the six months ended June 30, 2001 was a negative $230,047 compared
to a negative $1,465,456 for the six months ended June 30, 2000.
No investment was made in capital equipment during the six months ended
June30, 2001. During the six months ended June 30, 2001 shareholder
advances amounted to $213,456. 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 its
operating expenses. Management will continue to review its operations and
adjust its operations based on market conditions.
In June, 2001 the Company completed a non-brokered private placement of
2,000,000 special warrants at a price of US$0.20 per special warrant. The
private placement raised US$400,000 which was used to repay secured debt
holders in the amount of US$368,365 and the balance of US$31,635 was used
for working capital purposes. The special warrants consisted of one common
share and one non-transferable share purchase warrant. Each warrant
entitles the holder to purchase a further common share of the Company over
a period of two years at a price of US$0.23 per warrant share in the first
year and at a price of US$0.27 per warrant share in the second year.
Capital resources. The Company had a capital deficiency of $434,079 as at
June 30, 2001 compared to a stockholders' equity of $630,046 as at June 30,
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.
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.
Part II. Other Information
Item 1. Legal Proceedings
The Company is in the process of responding to an alleged breach of
contract with one its suppliers. The disputed amount is approximately
$6,300.
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
Item 2. Changes in Securities
In June, 2001 the Company issued 2,000,000 special warrants
which entitles the holder to one common share and to purchase a further
common share of the Company over a period of two years at a price of
US$0.23 per warrant share in the first year and at a price of US$0.27 per
warrant share in the second year. These transactions are regarded as
unregistered transactions under the Securities Exchange Act of 1933.
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 June 30, 2001
17
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(ALL FIGURES EXPRESSED IN US DOLLARS)
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: August 20, 2001 By: /s/Peter Fahlman
---------------------------------
Peter Fahlman
President and CEO
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