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 SEPTEMBER 30, 2002
[ ] 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.)
134 ABBOTT STREET SUITE 304 VANCOUVER, B.C., V6B 2K4
(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 November 07, 2002 was 10,502,000.
E-XACT TRANSACTIONS, LTD
FORM 10-QSB
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Consolidated balance sheets -
September 30, 2002 and December 31, 2001 2
Consolidated statements of operations and deficit -
three months ended September 30, 2002 and 2001, and
nine months ended September 30, 2002 and 2001 3
Consolidated statements of cash flows -
three months ended September 30, 2002 and 2001, and
nine months ended September 30, 2002 and 2001 4
Notes to consolidated financial statements 5 - 14
Item 2. Management's discussion and analysis of financial condition
and results of operations 15 - 20
Item 3. Controls and procedures 21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signature 23
- 1 -
EXACT TRANSACTIONS LTD.
CONSOLIDATED BALANCE SHEET
Expressed in Canadian Dollars
============================================================================================
SEPTEMBER DECEMBER 31
2002 2001
- --------------------------------------------------------------------------------------------
(unaudited)
ASSETS
CURRENT
Cash $ 60,626 $ 33,402
Accounts receivable (Note 3) 131,273 104,329
Prepaid expenses and deposits 21,133 12,520
- --------------------------------------------------------------------------------------------
213,032 150,251
Capital assets (Note 4) 73,896 94,296
- --------------------------------------------------------------------------------------------
TOTAL ASSETS $ 286,928 $ 244,547
============================================================================================
LIABILITIES AND CAPITAL DEFICIENCY
CURRENT
Accounts payable and accrued liabilities (Note 5) $ 869,526 $ 893,355
Advance payable (Note 6) 209,892 188,335
- --------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,079,418 1,081,690
- --------------------------------------------------------------------------------------------
CONTINUING OPERATIONS (Note 1)
COMMITMENTS (Note 10)
CONTINGENCIES (Note 12)
CAPITAL DEFICIENCY
Common stock, common shares issued and outstanding (Note 7)
10,502,000 at December 31, 2001 and June 30, 2002 11,715 11,715
Share purchase warrants 281,465 281,465
Additional Paid In Capital 4,833,343 4,833,343
Accumulated deficit (5,919,013) (5,963,666)
- --------------------------------------------------------------------------------------------
Capital Deficiency (792,490) (837,143)
- --------------------------------------------------------------------------------------------
TOTAL CAPITAL DEFICIENCY AND LIABILITIES 286,928 244,547
============================================================================================
See accompanying notes to consolidated financial statements
- 2 -
EXACT TRANSACT IONS LTD.
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT AND RETAINED EARNINGS
Expressed in Canadian Dollars
====================================================================================================================================
3 months ended September 30 9 months ended September 30
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUE $ 240,561 157,639 $ 709,219 437,879
Cost of sales 27,272 39,420 80,245 92,772
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS MARGIN $ 213,289 118,219 $ 628,974 345,106
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
General and administrative expenses 99,319 162,761 338,457 490,976
Sales and marketing 26,479 36,684 83,392 82,455
Research and development 56,653 47,339 171,952 210,196
- ------------------------------------------------------------------------------------------------------------------------------------
182,450 246,783 593,801 783,626
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) $ 30,838 (128,565) $ 35,173 (438,520)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER (EXPENSES) INCOME
Other Income (47,642) (27,390) 9,480 (16,152)
- ------------------------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME BEFORE INCOME TAXES (16,804) (155,955) 44,653 (454,672)
Income taxes -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (16,804) (155,955) $ 44,653 (454,672)
Deficit, beginning of period (5,902,209) (5,797,376) (5,963,666) (5,498,658)
- ------------------------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (5,919,013) (5,953,330) $ (5,919,013) (5,953,330)
====================================================================================================================================
Basic earnings (loss) per share $ -- $ (0.02) $ 0.01 $ (0.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earning (loss) per share $ -- $ (0.02) $ 0.01 $ (0.05)
WEIGHTED AVERAGE NUMBER OF SHARES USED TO CALCULATE LOSS PER SHARE
BASIC 10,502,000 8,502,000 10,502,000 8,502,000
DILUTED 10,502,000 8,502,000 10,502,000 8,502,000
See accompanying notes to consolidated financial statements
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EXACT TRANSACTIONS LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
Expressed in Canadian Dollars
=================================================================================================================
3 months ended September 30 9 months ended September 30
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net (Loss) Income $(16,804) (155,955) $ 44,653 (454,672)
Item not affecting cash:
Amortization of capital assets 9,496 15,589 24,153 47,109
Loss on disposal of capital asset -- -- 426 --
Foreign exchange loss and interest on advances 10,524 -- 7,274 --
Net change in operating assets and liabilities
(Increase) Decrease in accounts receivable 8,129 1,923 (26,944) (60,009)
(Increase) Decrease in prepaid expenses and deposits 1,159 12,349 (8,613) (517)
Increase (Decrease) in accounts payable and accrued
liabilities 49,069 65,221 (23,830) 57,122
- -----------------------------------------------------------------------------------------------------------------
61,573 (60,872) 17,118 (410,969)
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from special warrants -- -- -- 605,600
Advances from shareholders -- 22,118 14,285 (209,191)
- -----------------------------------------------------------------------------------------------------------------
-- 22,118 14,285 396,409
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of capital assets (4,090) (627) (4,179) (1,894)
- -----------------------------------------------------------------------------------------------------------------
(4,090) (627) (4,179) (1,894)
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH $ 57,483 (39,381) $ 27,224 (16,455)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,143 38,635 33,402 15,709
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS (BANK INDEBTEDNESS),
END OF PERIOD $ 60,626 (746) $ 60,626 (746)
=================================================================================================================
See accompanying notes to consolidated financial statements
- 4 -
E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(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 28, 1999 the Company was continued into 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 $16,804 for the quarter ended September
30, 2002, and at September 30, 2002 had a working capital deficiency of
$866,386 and capital deficiency of $792,490. 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.
In the event that cash flow from operations, if any, together with the
proceeds of any future financings, are insufficient to meet the Company's
current operating expenses, the Company will be required to reevaluate its
planned expenditures and allocate its total resources in such manner as
the Board of Directors and management deems to be in the Company's best
interest. This may result in the substantial reduction of the scope of
existing and planned operations.
The success of the Company's future operations is dependent upon
maintaining its profitability, and upon its ability to raise additional
financing. Management's plans include obtaining the continued support of
creditors, expanding product offerings within its own sales channel and
with channel partners, raising additional financing and, ultimately,
positioning the Company for profitable operations.
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
The accompanying financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those
rules or regulations. The interim financial statements are unaudited, but
reflect all adjustments which are, in the opinion of management, necessary
to provide a fair statement of results for the interim periods presented.
These financial statements should be read in conjunction with the
consolidated financial statements and related notes thereto in the
Company's Annual Report on Form 10KSB for the year ended December 31,
2001. The results of operations for the interim periods are not
necessarily indicative of the results to be expected in the future
periods.
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (CONTINUED)
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. All significant intercompany balances and
transactions have been eliminated.
(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.
(c) Foreign Currency Translation
On January 1, 2002 the Company changed its functional currency from
the United States dollar to the Canadian dollar. The majority of the
Company's operating transactions are denominated in Canadian
dollars. Monetary assets and liabilities denominated in other than
the Canadian dollars 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 re-measured its assets, liabilities, revenues and expenses for
prior periods using the historical exchange rates in existence at
the date of the transactions.
(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.
- 6 -
E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(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:
Leasehold improvements useful life of asset on a straight-line
basis
Computer software 100% declining balance
Computer equipment 30% declining balance
In the year of acquisitions, half the above-mentioned rates are
used.
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. One adjustment in
assets had been identified by the Company in the period ended
September 30, 2002 and no impairment in assets was identified in
2001. The adjustment identified for the nine months ended September
30, 2002 resulted from the Company's decision to end its office
lease at October 31, 2002 and relocate to a new office space.
Leasehold improvement was adjusted to reflect the one month
remaining on the office lease.
(f) Revenue Recognition
The Company's revenue is derived from the following sources:
(i) Online Transactions
Revenue from the setup, maintenance, customization and
processing of online transactions is recognized when the
services are performed, the amount of revenue is fixed or
determinable and collectibility is reasonably assured.
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(f) Revenue Recognition
(ii) Web Development
Revenue from services related to web development are
recognized when the services are performed, the amount of
revenue is fixed or determinable and collectibility is
reasonably assured. Provision for estimated losses on
contracts is recorded when identified.
(g) Income Taxes
The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards ("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
temporary differences between the accounting values of the Company's
assets and liabilities and their corresponding tax values will
reverse.
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.
(h) 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 on exercise of special warrants which have been
treated as outstanding as all necessary conditions for their
exercise have been satisfied.
(i) 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.
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Recent Accounting Pronouncements
In July 2001,the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS No. 141 addresses the
initial recognition and measurement of intangible assets acquired in
a business combination and SFAS No. 142 addresses the subsequent
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 business combinations
to be accounted for using the purchase method of accounting.
Goodwill is no longer amortized but instead is subject to impairment
tests at least annually.
The Company was required to adopt SFAS No. 141 and No. 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 No.
142 did not to have a material effect on the Company's financial
position or results of operations.
The FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, in August 2001. SFAS No. 144, which
addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of,
supersedes SFAS No. 121 and is effective for fiscal years beginning
after December 15, 2001. Therefore, the Company was required to
adopt SFAS No. 144 as of January 01, 2002. The adoption of SFAS No.
144 did not have a material impact on the Company's financial
position or results of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. Among other things, SFAS No. 145 rescinds
both SFAS No. 4, Reporting Gains and Losses from Extinguishment of
Debt, and the amendment to SFAS No. 4, SFAS No. 64, Extinguishments
of Debt Made to Satisfy Sinking-Fund Requirements. Through this
rescission, SFAS No. 145 eliminates the requirement (in both SFAS
No. 4 and SFAS No. 64) that gains and losses from the extinguishment
of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. Generally,
SFAS No. 145 is effective for transactions occurring after May 15,
2002. The Company does not expect SFAS No. 145 to have a material
impact on the Company's results of operations or its financial
position.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires
that the liability for a cost associated with an exit or disposal
activity be recognized at its fair value when the liability is
incurred. Under previous guidance, a liability for certain exit
costs was recognized at the date that management committed to an
exit plan, which was generally before the actual
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Recent Accounting Pronouncements (continued)
liability has been incurred. As SFAS No. 146 is effective only for
exit or disposal activities initiated after December 31, 2002, the
Company does not expect the adoption of this statement to have a
material impact on the Company's financial statements.
(k) Stock options
Stock options are denominated in United States dollars and are
therefore subject to variable accounting. For the three and nine
months ended September 30, 2002 no compensation expense was
recognized as the exercise price of the options was greater than
market price.
(l) Comparative figures
Certain comparative figures have been reclassed to conform with the
current period's presentation
3. ACCOUNTS RECEIVABLE
Accounts receivable and other are recorded net of a $12,523 allowance for
doubtful accounts at September 30, 2002 (December 31, 2001 - $19,999)
4. CAPITAL ASSETS
September 30 December 31
-------------------------------------- -----------
2002 2001
-------------------------------------- -----------
Accumulated Net Book Net Book
Cost Amortization Value Value
-------- ------------ -------- -----------
Leasehold improvements .. $ 7,333 $ 7,211 $ 122 $ 5,143
Computer software ....... 133,509 131,639 1,870 775
Computer equipment ...... 177,298 105,393 71,905 88,378
-------- -------- ------- -------
$318,140 $244,243 $73,897 $94,296
======== ======== ======= =======
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The principal components of accounts payable and accrued liabilities were
as follows:
September 30 December 31
2002 2001
------------ -----------
Trade payables .................................... $ 819,380 $ 855,067
Other accrued liabilities ......................... 50,146 38,288
---------- ----------
$ 869,526 $ 893,355
========== ==========
6. ADVANCES PAYABLE
The advances payable from certain stockholders of the Company bear
interest at bank prime rate plus one percent and have no fixed terms of
repayment. The advances are secured by certain 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 continued
into the State of Delaware.
The Company has authorized 50,000,000 common stock with a par value
of $0.001 per share.
(b) Stock Options
The following table summarizes information about stock options
outstanding at September 30, 2002:
Date granted Expiry date Number of options Exercise price
(US dollars)
12-Jan-00 11-Jan-05 357,000 $ 1.00
21-Mar-00 20-Mar-05 13,000 1.00
17-May-00 16-May-05 78,500 3.35
24-Apr-01 23-Apr-06 625,000 0.25
------------
1,073,500
------------
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
7. STOCKHOLDERS' EQUITY (CONTINUED)
(c) Warrants
The following warrants were outstanding as at September 30, 2002
Date granted Expiry date Number of shares Exercise price
(US dollars)
28-Jul-99 28-Jul-04 1,007,136 $1.32
26-Apr-01 26-Apr-03 2,000,000 0.23
---------
3,556,668
---------
8. FINANCIAL INSTRUMENTS
(a) Fair Value
The carrying values of cash, accounts receivable, and deposits as
reflected in the balance sheet, approximate their respective fair
values as at September 30, 2002 and December 31, 2001 because of the
demand or short-term maturity of these instruments.
Due to the substantial doubt with regard to the going concern
assumption (Note 1), creditors may not be able to obtain full
settlement of amounts due. As such, the fair value of accounts
payable and accrued liabilities and advances payable are
indeterminable.
(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.
The Company is subject to credit risk as it earns revenue from a
limited number of customers. During the nine months ended September
30, 2002 - $178,126 (2001 - $82,987) and the quarter ended September
30, 2002 - $43,241 (2001 - $37,731) of revenue was derived from two
customers. As at September 30, 2002 accounts receivable included
$20,531 (December 31, 2001 - $6,235) due from these two customers.
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E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
9. RELATED PARTY TRANSACTIONS
Related party transactions not otherwise disclosed in these financial
statements include:
(a) As at September 30, 2002 accounts payable and accrued liabilities
included $115,005 (December 31, 2001 - $83,028) due to two corporate
stockholders for operating costs paid on its behalf;
(b) During the quarter ended September 30, 2002 and nine months ended
September 30, 2002, the Company incurred interest of $5,206 (2001 -
$1376) and $7,762 (2001 - $21,967), respectively, on advances from
certain stockholders of the Company; and,
(c) As at September 30, 2002, $209,893 (December 31, 2001 - $188,335)
was due to certain stockholders and directors of the Company;
10. COMMITMENTS
Future minimum operating lease payment for premises and equipment leases
for the periods ended September 30, are due as follows:
2003 ..................................................... $ 41,897
2004 ..................................................... 38,089
2005 ..................................................... 35,079
2006 ..................................................... 35,079
2007 ..................................................... 26,309
----------
$ 176,453
==========
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 quarter ended September 30, 2002,
90% of revenues were derived in Canada (quarter ended September 30, 2001 -
95%). During the nine months ended September 30, 2002, 90% of revenues
were derived in Canada (nine months ended September 30, 2002 - 95%).
Long-lived assets include capital assets and are located in Canada.
The Company's customer sales concentration is discussed in Note 8 (b).
- 13 -
E-XACT TRANSACTIONS LTD.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
(EXPRESSED IN CANADIAN DOLLARS)
12. CONTINGENCIES
The Company received a statement of assessment from Canada Customs and
Revenue Agency on April 18, 2002 denying the Company's filing position
with regards to its continuation in the U.S. CCRA has assessed a liability
of $324,484. On July 10, 2002 the company filed its Notice of Objection
strongly defending its position. No provision for this amount has been
recorded, as the outcome of this assessment is uncertain.
On October 2, 2001, a former employee (the "Plaintiff") filed a complaint
in the Supreme Court of British Columbia, Vancouver County, against the
Company in connection with an employment contract dated November 26, 1999.
The Plaintiff alleges that he was terminated without cause on September
11, 2001 and seeks severance pay of $45,000 plus two weeks vacation and
out of pocket expenses of $2,431.
On October 23, 2001 the Company filed a Statement of Defense denying the
allegation that any moneys are due to the Plaintiff.
The Company believes that the Plaintiff's complaint is without merit and
intends to vigorously defend these proceedings. The Company believes that
the Plaintiff was terminated with reasonable cause and has sufficient
evidence to support its case.
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E-XACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2002
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
consolidated financial interm 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 North American 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 principles 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 Internet technology. Its electronic commerce (e-commerce) software
services allow PC based point-of-sale terminals, PCs, computer systems and
proprietary product platforms to accept credit card payments and submit those
payments to various payment processing networks 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 financial
networks in North America.
The Company has certifications with financial networks in North America and
there have been and will likely continue to be, from time to time, ongoing
changes to these certification requirements. The Company has met any regulatory
and technical changes and will endeavor to meet any future regulatory and
technical changes as required by the networks for which the Company maintains
certification with. A
- 15 -
E-XACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2002
recent regulatory program sponsored by Visa International was successfully
completed by the Company requiring it to comply with a comprehensive set of
security, audit and control procedures related to the handling of sensitive Visa
account information. The program was conducted by independent third party
auditors who presented a compliance report back to Visa International.
The Company's success will depend largely upon its ability to compete
successfully, comply with evolving regulatory and technical standards, develop
new products, and services and market them successfully in a market that is
becoming increasingly competitive.
The Company determined that as of January 1, 2002 its functional currency was
the Canadian dollar. Previously the functional currency of the Company was the
United States dollar. The change in the Company's functional currency was made
as the majority of the Company's operating transactions are now denominated in
the Canadian dollar. Monetary assets and liabilities denominated in other than
Canadian dollars were translated using the exchange rates prevailing at the
balance sheet date. Revenues and expenses were translated using average exchange
rates prevailing during the period. Gains and losses on foreign currency
transactions were recorded in the consolidated statement of operations and
deficit. The Company re-measured its assets, liabilities, revenues and expenses
for prior periods using historical exchange rates in existence at the date of
the transactions. As at September 30, 2002 a significant component of the
existing accounts payable and accrued liabilities and advances payable were
denominated in United States dollars ($425,575). The impact of a 1% increase in
the relative value of the Canadian dollar to the United States dollar would
reduce accounts payable and accrued liabilities and advances payable and
increase net income from operations by $4,256 United States dollars -
approximately $6,300 Canadian dollars.
Results of Operations
Interim Financial Results
(All amounts are expressed in Canadian 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.
Additional revenue is also derived through consulting services charged to
customers who require a customized solution.
Revenues
The revenues are derived primarily from transaction processing fees and monthly
service fees. During the three month period ended September 30, 2002, revenues
increased by 152.60% over the comparable period in 2001. The increase was due
primarily to an increase in the number of customers, an increase in the number
of transactions processed per customer, and custom solutions for certain
customers. As at September 30, 2002 the Company had 338 customers compared to
270 customers as at September 30, 2001. The total value of transactions
processed by the Company for the quarter ended September 30, 2002 amounted to
approximately $240 million compared to $356 million in the comparable quarter in
2001. For the nine month period ended September 30, 2002, revenue increased by
161.97% over the comparable period in 2001 for the above mentioned reasons.
Gross profit percentage for the three months ended September 30, 2002 increased
from 74.99% in 2001 to 88.66% in 2002. For the nine months then ended, gross
profit percentages were 88.69% in 2002 and 78.81% in 2001. The Company was able
to contain its cost of sales despite an increase in revenue. In the three and
nine months ended September 30, 2002, cost of sales in the comparative periods
were lower due
- 16 -
E-XACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2002
the fact that the company had ceased relations with a large financial processing
network in the United States in the fourth quarter of 2001. Most of the setup
and monthly costs of this relationship were recorded in three months ended
September 30, 2001.
Expenses
Total expenses during the three months ended September 30, 2002 amounted to
$182,450 compared to $246,783 for the three months ended September 30, 2001. The
decrease of 26.07% in operating expenses was due to continued cost cutting and
process automation efforts that the Company has focused on since closing its
office in the United States.
The decrease in operating expenses from $783,626 for the nine months ended
September 30, 2001 to $593,801 in 2002 is largely attributable to continued cost
cutting and process automation efforts that the Company has focused on since
closing its office in the United States.
General and Administrative (G&A): During the three months ended September 30,
2002, G&A expenses amounted to $99,319 compared to $162,761 in the comparable
period in 2001. The decrease of approximately 39% in G&A expenses over the
comparable period was due to the fact the Company has continued to focus on cost
cutting and reductions in non-essential activities requiring G & A resources.
For the ended September 30, 2002, accounting expenses decreased from $ 66,823 in
2001 to $39,133 in 2002, rent decreased from $34,427 in 2001 to $32,192 in 2002.
Amortization of equipment decreased from $46,873 in 2001 to $36,428 in 2002.
Wages and salaries decreased from $146,331 in 2001 to $141,930 in 2002. For the
nine months ended September 30, 2002, G&A expenses decreased from $490,976 in
2001 to $338,457. The decrease in G&A expenses is largely attributable to
continued cost cutting and process automation efforts that the Company has
focused on since closing its office in the United States.
Sales and Marketing: Sales and Marketing expenses for the nine months ended
September 30, 2002 were $83,392 compared to $82,455 for the same period ended
2001 and quarter ended September 30, 2002 amounted to $26,479 compared to
$36,684 incurred in the three months ended September 30, 2001. The majority of
the sales and marketing expense consisted of the payroll of employees involved
in marketing.
Research and Development (R&D): 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 $56,653 for the three months ended September 30,
2002 compared to $47,339 in the comparable period in 2001. For the nine months
ended September 30, 2002, research and development expenditures were $171,952
compared to $210,196 in the comparable period in 2001. The decrease in R&D
expenses was due to a reduction of US staff that were required for transition in
2001. The Company has adequate resources to maintain its operating systems and
continue with modest software development goals. The Company feels it can hire
contract developers to enhance existing development resources to meet essential
development goals. The Company matches new development initiatives with the
resources it has available and therefore limits new development initiatives
appropriately.
Other Income: The Company is subject to foreign exchange gains and losses as a
large portion of its liabilities and advances are denominated in United States
Dollars. For the quarter ended September 30, 2002, the Company experienced
foreign exchange losses of $47,642 (27,390 for the quarter ended September 30,
2001). For the nine months then ended, foreign exchange gains and other income
resulted
- 17 -
E-XACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2002
in a contribution of $9,480 to the Company's net income. For the same period
2001, foreign exchange losses and other expenses were $16,152. As the Company
continues to incur liabilities and earn a portion of its revenue in the United
States, the Company will continue to be subject to foreign exchange gains and
losses.
Net (Loss) Income:
The Company incurred a net loss of $12,936 for the three months ended September
30, 2002 and a net profit of $44,653 for the nine months then ended compared to
a loss of $155,955 for the three months ended September 30, 2001 and $454,672
for the nine months then ended. As the Company has a significant amount of its
trade payables denominated in United States dollars and because the Canadian
dollar had weakened against the United States dollar during the quarter ended
September 30, 2002, it recognized approximately $54,000 of unrealized foreign
exchange losses included in other income in this quarter. Management believes
that it has a good mix of customers to maintain its profitability in the future
and recognizes consolidation trends with its competitors and a general slowdown
in new customer acquisition.
Recent Accounting Pronouncements
In July 2001,the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 addresses the initial recognition and measurement of
intangible assets acquired in a business combination and SFAS No. 142 addresses
the subsequent 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 business combinations to be accounted for
using the purchase method of accounting. Goodwill is no longer amortized but
instead is subject to impairment tests at least annually.
The Company is required to adopt SFAS No. 141 and No. 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 September 30, 2001. The
adoption of SFAS No. 141 and No. 142 did not to have a material effect on the
Company's financial position or results of operations.
The FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, in August 2001. SFAS No. 144, which addresses financial
accounting and reporting for the impairment of long-lived assets and for
long-lived assets to be disposed of, supersedes SFAS No. 121 and is effective
for fiscal years beginning after December 15, 2001. Therefore, the Company was
required to adopt SFAS No. 144 as of January 1, 2002. The adoption of SFAS No.
144 has not had a material impact on the Company's financial position or results
of operations.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.
Among other things, SFAS No. 145 rescinds both SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and the amendment to SFAS No. 4, SFAS No.
64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. Through
this rescission, SFAS No. 145 eliminates the requirement (in both SFAS No. 4 and
SFAS No. 64) that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect. Generally, SFAS No. 145 is effective for transactions occurring
after May 15, 2002. The Company does not expect SFAS No. 145 to have a material
impact on the Company's results of operations or its financial position.
- 18 -
E-XACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2002
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 requires that the liability for a cost
associated with an exit or disposal activity be recognized at its fair value
when the liability is incurred. Under previous guidance, a liability for certain
exit costs was recognized at the date that management committed to an exit plan,
which was generally before the actual liability has been incurred. As SFAS No.
146 is effective only for exit or disposal activities initiated after December
31, 2002, the Company does not expect the adoption of this statement to have a
material impact on the Company's financial statements.
Critical Accounting Policies and Estimates
The significant accounting policies are outlined within note 2 to the
consolidated interim financial statements. Some of those accounting policies
require the Company to make estimates and assumptions that affect the amounts
reported by the Company. The following items require the most significant
judgment or estimation:
Revenue Recognition:
New customers are required to complete a Merchant Registration Form and a
Transactions Processing Agreement. The term of the Agreement is normally
for a year with an automatic renewal at the anniversary date. The Company
receives it revenue from four sources: new account activations, monthly
service/membership fees, online transactions fees and customized
development. These revenues are recognized when the services are
performed, the amount of revenue is fixed or determinable and
collectibility is reasonably assured.
Accounts Receivable:
The Company performs monthly reviews of its accounts receivable. Customers
who are in arrears are normally given the opportunity to pay off arrear
balances prior to suspension of processing services. Provision for
doubtful accounts are normally based on customers who are 120 days in
arrears. However, the review is also based on a case by case basis
depending on the customer's circumstances. A significant change in the
financial position of the Company's customers could have a material
adverse impact on the collectability of the accounts receivable.
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 and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Examples include provisions for
bad debts, and the contingencies described in Legal Proceedings in item 1
following. Actual results could differ from those estimates.
Liquidity & Capital Resources
Cash flow:
The Company's net cash inflow during the three months ended September 30,
2002 was $57,483 compared to a net cash outflow of $ 39,381 for the three
months ended September 30, 2001 and for the nine months ended September
30, 2002 was net cash inflow was $27,224 compared to a net outflow of
$16,455 for the nine months ended September 30, 2001. The increase in cash
inflow for
- 19 -
E-XACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2002
this quarter ended September 30, 2002 is mainly due to receipt of payment
for customization revenue incurred this quarter and for payment of
accounts for customization revenue recorded in past quarters. The
Company's cash position is expected to improve as it expects to activate
new accounts as a result of its continued sales efforts with its own sales
resources as well as expanding its product availability within its Partner
channels.
The Company acquired a new laser printer for its general office use and
upgraded it's core development tools to the current version. Additional
investment was made in the form of computer memory required to process
increased volume of transactions. Management will continue to review its
operations and adjust its operations based on market conditions.
Capital resources: The Company had a capital deficiency of $792,490 as at
September 30, 2002 compared to a deficiency of $866,386 as at December 31,
2001. In the event that cash flow from operations, together with the
proceeds of any future financings, are insufficient to meet the Company's
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 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.
The Company incurred a net loss of $16,804 for the quarter ended September
30, 2002 and a net profit of $44,653 for the nine months then ended, and
at September 30, 2002 had a working capital deficiency of $866,386 and
capital deficiency of $792,490. 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.
In the event that cash flow from operations, if any, together with the
proceeds of any future financings, are insufficient to meet the Company's
current operating expenses, the Company will be required to reevaluate its
planned expenditures and allocate its total resources in such manner as
the Board of Directors and management deems to be in the Company's best
interest. This may result in the substantial reduction of the scope of
existing and planned operations.
The success of the Company's future operations is dependent upon
maintaining its profitability, 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.
Subsequent events
The Company entered into a new five year lease for operating premises to
begin on November 1, 2002 at new facilities in Vancouver, B.C. The new
lease will save the Company approximately $850 per month in rent expense
compared to rent expense on its previous premises. As a result of the
lease, the company is committed to an estimated annual cost of $35,079.
- 20 -
E-XACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2002
ITEM 3. CONTROLS AND PROCEDURES
Based on their evaluation (the "Evaluation"), the Company's Chief
Executive Officer, Peter Fahlman, and Chief Financial Officer,
Edmund Shung, have concluded that the Company's disclosure controls
and procedures are generally effective, but also concluded that due
to the company's small staff, weakness exists due to it being
impractical for full segregation of duties. The Company's Chief
Executive Officer, Peter Fahlman, and Chief Financial Officer,
Edmund Shung, have concluded that these weaknesses did not have a
material impact on the accuracy of the Company's financial
statements.
As of the date of this report, there have not been any significant
changes in the Company's internal controls or in other factors that
could significantly affect these controls subsequent to the date of
the Evaluation.
- 21 -
E-XACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2002
Part II. Other Information
Item 1. Legal Proceedings
1. On October 2, 2001 Robert Roker, a former employee (the "Plaintiff")
filed a complaint in the Supreme Court of British Columbia, Vancouver County,
against the Company in connection with an employment contract dated November 26,
1999. The Plaintiff alleges that he was terminated without cause on September
11, 2001 and seeks severance pay of $45,000 plus two weeks vacation and out of
pocket expenses of $2,431.
On October 23, 2001 the Company filed a Statement of Defense denying the
allegation that any moneys are due to the Plaintiff.
The Company believes that the Plaintiff's complaint is without merit and
intends to vigorously defend these proceedings. The Company believes that the
Plaintiff was terminated with reasonable cause and has sufficient evidence to
support its case.
Item 2. Changes in Securities
No changes in securities.
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 September
30, 2002
- 22 -
E-XACT TRANSACTIONS LTD.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2002
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: November 14, 2002 By: /s/ Peter Fahlman
Peter Fahlman
President and CEO
- 23 -
I, Peter Fahlman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of E-xact Transactions
Ltd.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 18, 2002
/s/ Peter Fahlman
-----------------
Peter Fahlman
President
I, Edmund Shung, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of E-xact Transactions
Ltd.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 18, 2002
/s/ Edmund Shung
----------------
Edmund Shung
Chief Financial Officer