<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly report pursuant section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended MARCH 31, 2000
/ / Transition report pursuant section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from ____________ to ________________
BIDHIT.COM, INC.
(Exact name of small business issuer as specified in its charter)
Commission file number: 000-27685
NEVADA 91-1973193
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
SUITE 204, 18702 NORTH CREEK PARKWAY, BOTHELL, WASHINGTON 98011
(Address of principal executive offices)
(425) 424-3660
(Issuer's telephone number)
-------------------
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Not applicable
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of May 12, 2000 the Registrant had
18,678,931 shares of Common Stock outstanding.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (check one): Yes / / No /X/
<PAGE>
BIDHIT.COM, INC.
FORM 10-QSB
FOR THE QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Index Page Number
PART I FINANCIAL INFORMATION
<S> <C>
Item 1. Consolidated Balance Sheet at March 31, 2000 and December 31, 1999 2
Consolidated Statements of Operations for the three month periods 3
ended March 31, 2000 and March 31, 1999
Consolidated Statements of Cash Flows for the three month periods 4
ended March 31, 2000 and March 31, 1999
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURE
EXHIBIT INDEX
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheet at March 31, 2000 and December 31, 1999
Consolidated Statements of Operations for the three month periods ended March
31, 2000 and March 31, 1999
Consolidated Statements of Cash Flows for the three month periods ended March
31, 2000 and March 31, 1999
Notes to Unaudited Consolidated Financial Statements
1
<PAGE>
BIDHIT.COM, INC.
(formerly Third Millennium Software Corp.)
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
=====================================================================================================================
March 31, December 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 1,669,070 $ 2,534,434
Accounts receivable 13,258 12,110
Prepaid expenses (Note 3) 2,061,529 350,571
--------------- ---------------
Total current assets 3,743,857 2,897,115
PREPAID EXPENSES (Note 3) 2,433,653 666,165
CAPITAL ASSETS (Note 6) 56,331 31,488
DOMAIN NAME RIGHTS (Note 7) 509,819 523,778
SOFTWARE DEVELOPMENT COSTS (Note 8) 9,750 11,841
--------------- ---------------
TOTAL ASSETS $ 6,753,410 $ 4,130,387
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 74,905 $ 189,094
--------------- ---------------
STOCKHOLDERS' EQUITY (Note 9)
Common stock
Authorized
50,000,000 common shares with a par value of $0.001
Issued and outstanding
March 31, 2000 - 12,844,036 common shares
December 31, 1999 - 11,658,893 common shares 12,844 11,659
Additional paid-in capital 10,411,307 6,325,101
Deficit accumulated during the development stage (3,662,646) (2,312,467)
Deficit (83,000) (83,000)
--------------- ---------------
Total stockholders' equity 6,678,505 3,941,293
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,753,410 $ 4,130,387
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
BIDHIT.COM, INC.
(formerly Third Millennium Software Corp.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
=====================================================================================================================
Three Month Three Month
Period Ended Period Ended
March 31, March 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
REVENUE
<S> <C> <C>
Sales commissions $ 3,617 $ -
--------------- ---------------
OPERATING EXPENSES
Amortization 16,050 -
Bad debt (Note 4) - 70,000
Consulting fees 619,391 -
Depreciation 1,794 -
Director's fees - 5,000
Insurance 5,487 -
Listing and filing fees - -
Marketing materials 231,683 -
Office and administration 17,927 -
Press release and shareholder information 18,098 -
Professional fees 151,934 24,500
Rent 15,032 -
Repairs and maintenance 1,135 -
Salaries and bonuses 151,471 -
Telephone 3,318 -
Travel and promotion 42,841 -
Website/internet fees 94,720 -
--------------- ---------------
(1,370,881) (99,500)
--------------- ---------------
(1,367,264) (99,500)
OTHER ITEM
Interest income 17,085 -
--------------- ---------------
LOSS BEFORE EXTRAORDINARY ITEM (1,350,179) (99,500)
EXTRAORDINARY ITEM
Gain on forgiveness of debt (net of tax) (Note 5) - 44,500
--------------- ----------------
LOSS FOR THE PERIOD $ (1,350,179) $ (55,000)
=====================================================================================================================
BASIC AND DILUTED LOSS PER SHARE BEFORE EXTRAORDINARY ITEM $ (0.12) $ (0.80)
EXTRAORDINARY ITEM - 0.36
--------------- ---------------
BASIC AND DILUTED LOSS PER SHARE $ (0.12) $ (0.44)
=====================================================================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 11,687,301 125,000
=====================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
BIDHIT.COM, INC.
(formerly Third Millennium Software Corp.)
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
=====================================================================================================================
Three Month Three Month
Period Ended Period Ended
March 31, March 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Loss for the period $ (1,350,179) $ (55,000)
Items not affecting cash:
Depreciation and amortization 17,844 -
Common stock issued for financial services 181,355 -
Common stock issued as an employment bonus 28,000 -
Warrants issued for financial advisory services 270,142 -
Stock options granted for financial advisory services 107,894 -
Bad debt - 70,000
Gain on forgiveness of debt - (44,500)
Changes in non-cash working capital items:
Increase in prepaid expenses 39,042 -
Increase in accounts receivable (1,148) -
Decrease in due to shareholder - -
Increase (decrease) in accounts payable and accrued liabilities (114,189) -
--------------- ---------------
Net cash used in operating activities (821,239) (29,500)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash acquired on acquisition of subsidiary - -
Capital assets (26,637) -
Domain name rights - -
Software development costs - -
Prepaid expenses (17,488) -
--------------- ---------------
Net cash used in investing activities (44,125) -
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock - 55,000
Note payable - (25,500)
--------------- ---------------
Net cash provided by financing activities - 29,500
--------------- ---------------
INCREASE IN CASH AND CASH EQUIVALENTS POSITION FOR THE PERIOD (865,364) -
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,534,434 -
--------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,669,070 $ -
=====================================================================================================================
</TABLE>
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS (Note 12)
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
BIDHIT.COM, INC.
(formerly Third Millennium Software Corp.)
(A Development Stage Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2000
===============================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized October 13, 1995, under the laws of the State
of Nevada, as Painted Desert Farms, Inc. In accordance with Statement
of Financial Accounting Standards No. 7, "Accounting and Reporting by
Development Stage Enterprises", it is considered a development stage
company.
On January 5, 1998, the Company changed its name to Third Millennium
Software Corp.
On May 17, 1999, the Company approved a 20:1 reverse stock split, thus
decreasing the total number of shares from 5,250,000 issued and
outstanding to 262,500 issued and outstanding common shares.
On May 7, 1999, the Company changed its name to Bidhit.com, Inc.
On May 19, 1999, the Company acquired all of the issued and outstanding
shares of Bidhit.com, Inc. (Washington), a Washington corporation.
The Company is an online auction company which specializes in
auctioning name brand consumer electronics from manufacturers to
consumers.
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly
the financial position, results of operations, changes in stockholders'
equity and cash flows at March 31, 2000 and for the periods then ended
have been made. These financial statements should be read in
conjunction with the audited financial statements of the Company for
the year ended December 31, 1999. The results of operations for the
period ended March 31, 2000 are not necessarily indicative of the
results to be expected for the year ending December 31, 2000.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
These consolidated financial statements include Bidhit.com, Inc.
(Nevada) and its wholly-owned subsidiary, Bidhit.com, Inc. (Washington)
("BHcW"), which was incorporated in the state of Washington on May 19,
1999. All significant inter-company balances and transactions have been
eliminated upon consolidation.
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 amount of assets and
liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues
and expenses during the year. Actual results could differ from these
estimates.
5
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
CASH AND CASH EQUIVALENTS
The Company considers all investments with a maturity of three months
or less to be cash equivalents.
The Company is required to maintain an irrevocable standby letter of
credit with a bank under the terms of a lease agreement. At March 31,
2000, $338,268 of cash is restricted for that purpose.
LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" ("SFAS 128"). Under SFAS 128, basic and diluted earnings per
share are to be presented. Basic earnings per share is computed by
dividing income available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted
earnings per share takes into consideration common shares outstanding
(computed under basic earnings per share) and potentially dilutive
common shares.
CAPITAL ASSETS AND DEPRECIATION
Capital assets are recorded at cost less accumulated depreciation. The
cost of capital assets is depreciated over the estimated useful lives,
ranging from four to ten years, of the related assets.
SOFTWARE DEVELOPMENT COSTS
The Company has adopted Statement of Position 98-1 ("SOP 98-1")
"Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use", as its accounting policy for internally developed
computer software costs. Under SOP 98-1, computer software costs
incurred in the preliminary development stage are expensed as incurred.
Computer software costs incurred during the application development
stage are capitalized and amortized over the software's estimated
useful life of three years.
REVENUE RECOGNITION
The Company recognizes sales commission revenues as items are sold on
its internet site and as collection of these amounts is reasonably
assured.
ADVERTISING COSTS
The Company recognizes advertising expenses in accordance with
Statement of Position 98-7, "Reporting on Advertising Costs". As such,
the Company expenses the cost of communicating advertising in the
period in which the advertising space or airtime is used.
DOMAIN NAME RIGHTS
The costs of domain name rights are amortized over 10 years from the
date of commencement of operations.
INCOME TAXES
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". A deferred
tax asset or liability is recorded for all temporary differences
between financial and tax reporting and net operating loss
carryforwards. Deferred tax expense (benefit) results from the net
change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of enactment.
6
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133") which
establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. In June
1999, the FASB issued SFAS 137 to defer the effective date of SFAS 133
to fiscal quarters of fiscal years beginning after June 15, 2000. The
Company does not anticipate that the adoption of the statement will
have a significant impact on its financial statements.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies
to record compensation cost for stock-based employee compensation plans
at fair value. The Company has chosen to account for stock-based
compensation using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly compensation
cost for stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant over the
amount an employee is required to pay for the stock.
COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". This
statement establishes rules for the reporting of comprehensive income
and its components. The adoption of SFAS 130 had no impact on total
stockholders' equity as of March 31, 2000.
3. PREPAID EXPENSES
<TABLE>
<CAPTION>
===========================================================================================================
March 31, December 31,
2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Prepaid advertising $ 4,061,748 $ 999,248
Prepaid financial advisory services 350,000 -
Prepaid - other 83,434 17,488
--------------- ---------------
4,495,182 1,016,736
Less: current portion (2,061,529) (350,571)
--------------- ---------------
$ 2,433,653 $ 666,165
===========================================================================================================
</TABLE>
Pursuant to an agreement during fiscal 1999 with Hollinger
International, Inc. ("Hollinger"), the Company issued 363,363 shares of
common stock in exchange for $1,000,000 in advertising media
availabilities in Hollinger print media. During the period, the Company
issued an additional 600,000 shares in exchange for $2,100,000 in
advertising media availabilities. This media will be made available to
the Company on an as ordered basis for a period of 3 years. These costs
will be expensed as the Company orders advertising from Hollinger. In
addition, the Company issued 300,000 shares of the Company at a deemed
value of $1,050,000, of which $87,500 was expensed during the period,
in exchange for a non-exclusive use of content in Hollinger
publications and a pilot project for a one year period.
Pursuant to an agreement with Ravelston Holdings, Inc. ("Ravelston"),
the Company issued 100,000 shares of common stock at a deemed
value of $350,000, in consideration for Ravelston extending the
financial advisory and consulting services it provides to the Company
until January 1, 2002.
7
<PAGE>
4. NOTE RECEIVABLE
On March 17, 1997, the Company received $70,000 from Ardrail Services
Ltd., as part of a note agreement between the Company and Peat Moss
International Ltd. ("PMI"). These funds were advanced to PMI as bridge
financing prior to completion of a merger. The merger was subsequently
not completed and the funds remained outstanding as a note receivable.
Continued communications and correspondence with PMI indicate that the
note would not be repaid. The Company made every effort to collect the
note and deemed the note to be uncollectible. During the period ended
March 31, 1999, a loss has been recorded for the full amount of the
note receivable.
5. NOTE PAYABLE
The Company was liable for $70,000 payable to Ardrail Services Ltd.,
for the funds advanced for the loan receivable mentioned in Note 4.
During the period ended March 31, 1999, the Company repaid $25,500 to
Ardrail Services Ltd. as settlement of the outstanding payable.
Repayment of the balance of the loan payable was forgiven creating a
gain on forgiveness of debt in the amount of $44,500.
6. CAPITAL ASSETS
<TABLE>
<CAPTION>
===========================================================================================================
Net Book Value
------------------------------
Accumulated March 31, December 31,
Cost Depreciation 2000 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office furniture and equipment $ 60,065 $ 3,734 $ 56,331 $ 31,488
===========================================================================================================
7. DOMAIN NAME RIGHTS
===========================================================================================================
Net Book Value
------------------------------
Accumulated March 31, December 31,
Domain name Cost Amortization 2000 1999
-----------------------------------------------------------------------------------------------------------
Bidhit.com $ 558,350 $ 48,531 $ 509,819 $ 523,778
===========================================================================================================
</TABLE>
8. SOFTWARE DEVELOPMENT COSTS
Software development costs of $9,750 (net of amortization cost of
$6,520) (December 31, 1999 - $11,841) represent amounts incurred to
develop the Company's portal website.
9. STOCKHOLDERS' EQUITY
REVERSE STOCK SPLIT
On May 17, 1999, the Company implemented a 20:1 reverse stock split
(Note 1). The consolidated statements of changes in stockholders'
equity has been restated to give retroactive recognition of the reverse
stock split for all years presented by reclassifying from common stock
to additional paid-in capital the par value of consolidated shares
arising from the split. In addition, all references to number of shares
and per share amounts of common stock have been restated to reflect the
stock split.
8
<PAGE>
9. STOCKHOLDERS' EQUITY (cont'd.....)
COMMON STOCK
In connection with a private placement offering made in April 1999, the
Company issued 137,500 shares of common stock under Rule 504 Regulation
D of the Securities Act of 1933 for proceeds of $55,000.
In connection with a private offering made in May 1999, the Company
issued 9,000,000 shares of common stock under Rule 504 of Regulation D
of the Securities Act of 1933 for proceeds of $900,000.
The Company issued 600,000 shares of common stock for proceeds of
$3,000,000, and incurred share issuance costs of $100,000.
As part of the acquisition of Bidhit.com, Inc. (Washington), the
Company issued 926,250 common shares at a deemed value of $259,350.
The Company issued 300,000 shares of common stock at a deemed value of
$84,000 as an employment bonus and 391,923 shares of common stock at a
deemed value of $1,161,646 for financial advisory and consulting
services.
The Company issued 1,263,363 shares of common stock at a deemed value
of $4,149,248 for prepaid contract advertising.
The Company issued 100,000 shares of common stock at a deemed value of
$350,000 for prepaid financial advisory services.
10. BUSINESS COMBINATION
Pursuant to a share exchange agreement on May 19, 1999, the Company
purchased all of the issued and outstanding shares of BHcW in
consideration for $300,000 in cash and 926,250 common shares of the
Company at a deemed value of $259,350.
The total purchase price of $559,350 has been allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 1,655
Accounts receivable 3,274
Capital assets 780
Domain name 558,350
Accounts payable and accrued liabilities (110)
Loan payable, shareholder (4,599)
--------------
$ 559,350
=============
</TABLE>
The 926,250 common shares were deemed to have a value of $0.28 per
share, based on the closing market value quotation of the shares on the
date of acquisition.
9
<PAGE>
11. INCOME TAXES
The Company's total deferred tax asset is as follows:
<TABLE>
<CAPTION>
==========================================================================================================
<S> <C> <C>
March 31, December 31,
2000 1999
----------------------------------------------------------------------------------------------------------
Tax benefit relating to net operating loss carryforwards $ 1,190,000 $ 714,000
Valuation allowance (1,190,000) (714,000)
---------------- ----------------
$ - $ -
==========================================================================================================
</TABLE>
The Company has a net operating loss carryforward of approximately
$3,500,000 which expires between the years 2002 and 2006. The Company
provided a full valuation allowance on the deferred tax asset because
of the uncertainty regarding realizability.
12. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
<TABLE>
<CAPTION>
==========================================================================================================
From Start of
Development
on May 1,
1999
to March 31, March 31, March 31,
2000 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for income taxes $ - $ - $ -
Cash paid for interest - - -
====================================================== =================== ============= =================
</TABLE>
The following non-cash operating, investing and financing transactions
occurred during the three month period ended March 31, 2000:
a) The Company issued 100,000 shares of common stock at a deemed
value of $28,000 as an employment bonus.
b) The Company issued 85,143 shares of common stock at a deemed
value of $181,355 for financial advisory and consulting
services.
c) The Company issued 900,000 shares of common stock at a deemed
value of $3,150,000 for prepayment of contract advertising.
d) The Company issued 100,000 shares of common stock at a deemed
value of $350,000 for prepayment of financial advisory
services.
e) The Company granted 65,143 broker warrants at a deemed value
of $270,142 for financial advisory services (Note 13).
f) The Company recorded an amount of $107,894 for financial
advisory services, relating to previously granted stock
options which vested during the period.
There were no non-cash operating, investing and financing transactions
during the three month period ended March 31, 1999.
The following non-cash operating, investing and financing transactions
for the period from start of development stage on May 1, 1999 to March
31, 2000:
a) The Company acquired BHcW for a purchase price of $559,350, of
which $300,000 was paid in cash and 926,250 common shares were
issued at a deemed value of $259,350.
10
<PAGE>
12. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS (cont'd.....)
b) The Company issued 391,923 shares of common stock at a deemed
value of $1,161,646 for financial advisory and consulting
services.
c) The Company issued 300,000 shares of common stock at a deemed
value of $84,000 as an employment bonus.
d) The Company issued 1,263,363 shares of common stock at a
deemed value of $4,149,248 for prepayment of contract
advertising.
e) The Company issued 100,000 shares of common stock at a deemed
value of $350,000 for prepayment of financial advisory
services.
f) The Company granted 101,923 broker warrants at a deemed value
of $429,013 for financial advisory services (Note 13).
g) The Company recorded an amount of $107,894 for financial
advisory services, relating to previously granted stock
options which vested during the period.
13. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash
equivalents, accounts receivable and accounts payable and accrued
liabilities. Unless otherwise noted, it is management's opinion that
the Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments. The fair value of these
financial instruments approximate their carrying values, unless
otherwise noted.
14. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. Although the change in
date has occurred, it is not possible to conclude that all aspects of
the Year 2000 Issue that may affect the entity, including those related
to customers, suppliers, or other third parties, have been fully
resolved.
15. SHARE PURCHASE WARRANTS
As at March 31, 2000, the following share purchase warrants were
outstanding;
<TABLE>
<CAPTION>
=====================================================================================================================
Number Exercise
of Shares Price Expiry Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
36,780 $ 3.00 December 7, 2001
65,143 3.50 March 2, 2002
=====================================================================================================================
</TABLE>
11
<PAGE>
16. STOCK OPTIONS
As at March 31, 2000, the following stock options were outstanding:
<TABLE>
<CAPTION>
=====================================================================================================================
Number Exercise
of Shares Price Expiry Date
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
555,750 $ 4.00 June 1, 2001
300,000 4.00 June 1, 2002
8,000 4.00 October 21, 2001
250,000 2.85 December 1, 2002
200,000 4.00 December 1, 2002
=====================================================================================================================
</TABLE>
17. STOCK BASED COMPENSATION EXPENSE
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based
compensation using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees". Accordingly, compensation
cost for stock options is measured as the excess, if any, of quoted
market price of the Company's stock at the date of grant over the
option price. No stock based compensation has resulted from the use of
this prior standard.
Following is a summary of the status of the plan during 2000:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Weighted
Average
Number Exercise
of Shares Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1999 1,113,750 $ 3.74
Granted 200,000 4.00
Forfeited - -
Exercised - -
------------- -------------
Outstanding at March 31, 2000 1,313,750 $ 3.78
====================================================================================================================
Weighted average fair value of options granted during the period $ 4.66
====================================================================================================================
</TABLE>
Following is a summary of the status of the options outstanding at
March 31, 2000:
<TABLE>
<CAPTION>
=====================================================================================================================
<S> <C> <C>
Outstanding Options Exercisable Options
------------------------------------- -----------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
------------------------------------- -----------------------------------
Exercise Price Number Life Price Number Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 4.00 1,063,750 1.71 $ 4.00 641,723 $ 4.00
2.85 250,000 2.67 2.85 31,250 2.85
=====================================================================================================================
</TABLE>
12
<PAGE>
17. STOCK BASED COMPENSATION EXPENSE (cont'd.....)
COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for its stock option plan. There was no compensation cost
incurred based on options granted in 1999 and 2000. Had compensation
cost been recognized on the basis of fair value pursuant to Statement
of Financial Accounting Standards No. 123, net loss and loss per share
would have been adjusted as follows:
<TABLE>
<CAPTION>
====================================================================================================================
From Start of
Development
Stage on
May 1,
1999
to March 31, March 31, March 31,
2000 2000 1999
- --------------------------------------------------------------------------------------------------------------------
NET LOSS
<S> <C> <C> <C>
As reported $ (3,662,646) $ (1,350,179) $ (55,000)
==============================================
Pro forma $ (3,669,057) $ (1,352,316) $ (55,000)
==============================================
BASIC AND DILUTED LOSS PER SHARE
As reported $ - $ (0.12) $ (0.44)
==============================================
Pro forma $ - $ (0.12) $ (0.44)
====================================================================================================================
</TABLE>
The fair value of each option granted is estimated using the Black
Scholes Model. The assumptions used in calculating fair value are as
follows:
<TABLE>
<CAPTION>
====================================================================================================================
2000 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 5.63 -
Expected life of the options 1.5 years -
Expected volatility 197% -
Expected dividend yield - -
====================================================================================================================
</TABLE>
18. RELATED PARTY TRANSACTIONS
The Company entered into the following transactions with related
parties during the three month period ended March 31, 2000:
a) The Company issued 100,000 shares of common stock of the
Company at a deemed value of $28,000 to a director of the
Company as an employment bonus.
b) The Company paid $105,000 in consulting fees to a company with
a director in common.
There were no related party transaction for the three month period
ended March 31, 1999.
13
<PAGE>
19. COMMITMENT
The Company has a lease commitment of $19,256 per month, covering
office space, which expires on May 31, 2007. Future minimum lease
payments would be as follows:
June 1, 2000 - December 31, 2000 $ 134,790
January 1, 2001 - December 31, 2006 231,068
January 1, 2007 -May 31, 2007 96,278
20. SUBSEQUENT EVENTS
The following transactions occurred subsequent to March 31, 2000:
a) The Company issued 100,000 shares of common stock pursuant to a
private placement financing under Regulation S of the Securities
Act of 1933, for total proceeds of $300,000.
b) On May 12, 2000 the Company closed the acquisition of EZBid, Inc.
("EZBid") pursuant to the terms of an Agreement and Plan of
Merger dated April 21, 2000, as amended May 11, 2000. In exchange
for all the issued and outstanding shares of EZBid, the Company
issued 5,734,895 shares of its common stock to the former
shareholders of EZBid.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
BIDHIT.COM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
STATEMENT OF FORWARD-LOOKING INFORMATION
This document contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These statements relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expect," "plan,"
"anticipate," "believe," "estimate," "predict," "potential" or "continue,"
the negative of such terms, or other comparable terminology. These statements
are only predictions. Actual events or results may differ materially.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. In this regard, the business and
operations of the Company are subject to substantial risks which increase the
uncertainty inherent in the forward-looking statements contained in this Form
10-QSB. In evaluating the Company's business, you should give careful
consideration to the information set forth below under the caption "Risk Factors
That May Affect Future Operating Results," in addition to the other
information set forth herein.
The inclusion of the forward-looking statements should not be regarded
as a representation by the Company, or any other person, that such
forward-looking statements will be achieved. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance, or
achievements. We undertake no duty to update any of the forward-looking
statements, whether as a result of new information, future events or
otherwise. In light of the foregoing, readers are cautioned not to place
undue reliance on the forward-looking statements contained in this report.
OVERVIEW
Bidhit.com, Inc. (www.bidhit.com) (the "Company") is an Internet
auction and e-commerce company. The Company specializes in online auctions that
develop loyal customers, in both the business-to-customer and
business-to-business markets. The Company provides its registered users with the
opportunity to bid on quality brand name products in such categories as
computers and peripherals, camera equipment, sporting goods, household goods,
home electronics and sports memorabilia.
The Company was incorporated under the laws of the State of Nevada on
October 13, 1995 under the name "Painted Desert Farms, Inc." The Company changed
its name to "Third Millennium Software Corp." on January 5, 1998, and then to
"Bidhit.com, Inc." on May 7, 1999. The Company has not been involved in any
bankruptcy, receivership or similar proceedings. There has been no material
reclassification, merger, consolidation or purchase or sale of significant
assets not in the ordinary course of the Company's business.
Since 1997, Bidhit.com (operating as Bidhit.com, Inc. (Washington)
prior to May 1999) has attempted to differentiate itself from its competition by
its strong customer care focus. The Company's customer service, certified
vendors, extended warranty program, LIVE HELP for customers, and easy to use Web
site set it apart from other online auction sites. Bidhit.com is a member in
good standing of the Better Business Bureau (BBB) and the BBB Online.
15
<PAGE>
Presently, the Company offers close to 1,000 products for sale each
week, during two auction periods. The Company derives commission revenue from
its pre-qualified or certified vendors based on completed product sales. At the
close of each auction, each pre-qualified vendor is forwarded their respective
order information, and the items are drop-shipped directly to the customer. The
Company holds no inventory and assumes no liability for the items offered for
auction.
The Company operates an online auction for new and excess branded
merchandise, offering closeout and refurbished products to consumers and small
to medium-sized businesses. The Company's online auction represents a sales
format for users that leverages the interactive nature of the Internet. The
Company's Internet auctions feature a rotating selection of brand name computer,
consumer electronics and housewares, and sports and recreation products, which
typically sell at significant discounts to prices found at traditional
retailers.
The Company believes its competitive edge will be in building its
online community and in attracting and retaining its customers with the use of
highly focused and effective consumer education and customer service programs.
The Company's research indicates that many e-commerce consumers and online
auction customers find it difficult to obtain reliable and authoritative product
and category information and that they are often disappointed with the nature
and quality of the product and the reliability of the vendor. The Company is
focusing on meeting these consumer needs to develop a loyal customer base. The
Company is currently developing a Customer Education Center that will strive to
provide accurate and unbiased information on products.
All merchandise is provided through agreements between the Company and
approved, certified vendors, virtually eliminating inventory and distribution
costs for the company. This allows the Company to auction the newest products
and the latest technology without the concern for unsold inventory and
ultimately cash flow constraints.
The Company was the first online auction company to introduce "Live
Chat Help." This service allows a customer to instantly start an online
electronic chat with a Bidhit.com customer service representative. This new
customer service began in December 1999, with positive endorsements from
Bidhit.com users.
The Company uses high standards of network security to protect customer
information, including credit card data. Financial information is encrypted on
the Company's own secure servers. The Company follows all applicable federal and
state laws to assure customers their names and information are not used without
their permission.
On May 12, 2000 the Company closed the acquisition of EZBid, Inc.
("EZBid") pursuant to the terms of an Agreement and Plan of Merger dated
April 21, 2000, as amended May 11, 2000. In exchange for all the issued and
outstanding shares of EZBid, the Company issued 5,734,895 shares of its
common stock to the former shareholders of EZBid.
16
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
The results for this period discuss the consolidated operating
results of the Company for the quarters ending March 31, 2000 and March 31,
1999.
Revenue
Revenues of $3,617 for the three months ended March 31, 2000 were
derived primarily from the sale commissions on products sold on the Company's
website. The Company had no revenue for the three months ended March 31,
1999. During 1999, the Company's attentions were primarily focused on
implementing management systems and increasing sales and marketing efforts.
Sales in the three months ended March 31, 2000 have accordingly increased as
a result of last year's stepped-up efforts.
Operating expenses
The Company's operating expenses consist of marketing and general
and administrative expenses. Operating expenses were $1,370,881 and $99,500
for the quarters ended March 31, 2000 and 1999, respectively.
Professional fees paid to the Company's accountants, attorneys and
computer consultants for the quarter ended March 31, 2000 of $151,934
increased $127,434 or 520% from the comparable period in 1999.
The significant increases in operating expenses for the quarter
ended March 31, 2000 from the comparable period in 1999 is attributable to
the fact that the Company was not operational during the three months ended
March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had cash and accounts receivable in
the aggregate amount of $1,682,328. The Company's primary source of liquidity
was cash received through private placements made in connection with the
Company's acquisition of Bidhit.com, Inc. (Washington) in May 1999. The
Company also received $200,000 in debt financing from Systemax Inc. in
connection with the Company's acquisition of EZBid Inc. on May 12, 2000. This
indebtedness is secured by substantially all of the assets of EZbid Inc. The
Company intends to raise additional capital through the sale of its equity
securities or the incurrence of additional indebtedness. There can be no
assurance that the Company will successfully raise any equity financing
or that other sources of debt financing will be available to the Company if
and when needed. The failure of the Company to obtain adequate additional
capital may require the Company to postpone some or all of the expansion of
its proposed business operations and, potentially, to cease its operations.
Any additional equity financings may involve substantial dilution to the
Company's then-existing shareholders.
17
<PAGE>
RISK FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Investment in the shares of our common stock involves a high degree
of risk. Investors should carefully consider the risks described below,
together with all of the other information included in this registration
statement, before making an investment decision. If any of the following
risks actually occurs, our business, financial condition or operating results
could be materially adversely affected. In such case, the trading price of
our common stock could decline, and investors may lose all or part of their
investment.
NEED FOR ADDITIONAL FINANCING.
During the next 12 months, the Company's foreseeable cash
requirements are expected to be met by a combination of existing cash,
revenue generated by the Company's sales commissions, and additional equity
or debt financing. The Company is currently devoting substantial resources to
the development of its website and to the establishment of co-marketing
relationships. Substantial additional capital may be required in the future
to fund website development and launch cycles. No assurance can be given that
additional financing will be available or that, if available, such financing
will be obtainable on terms favorable to the Company or its shareholders. If
needed capital is unavailable, the Company's ability to continue in business
will be jeopardized. To the extent the Company raises additional capital by
issuing equity or securities convertible into equity, ownership dilution to
the Company's shareholders will result.
HISTORY OF LOSSES AND NEGATIVE CASH FLOW; ANTICIPATED CONTINUED LOSSES.
Since the Company's inception, it has incurred significant losses
and negative cash flow, and as of March 31, 2000, it had an accumulated
deficit of $3,662,646. The Company has not achieved profitability and it
expects to continue to incur operating losses for the foreseeable future as it
funds operating and capital expenditures in areas such as establishment and
expansion of markets, advertising, brand promotion, sales and marketing, and
operating infrastructure. The Company cannot assure investors that it will
ever achieve or sustain profitability or that its operating losses will not
increase in the future.
COMPETITION.
The market for online auction services is increasingly competitive
and subject to rapid change. Further, the market can be significantly
affected by the introduction of new services and other activities of
companies in this market. Our competitors offer a variety of products and
services to address the needs of the market in which we sell our services. We
believe that the principal competitive factors in this market are:
- brand awareness
- flexibility
- strategic relationships to drive traffic
- service quality
- functionality and service features
- company reputation
Direct and indirect competitors in the online auction industry
include eBay and uBid as well as several other larger entrants into this
market. We expect to face competition in the future from these and other
companies. Some of these competitors and future competitors have an advantage
over us because they:
- have name recognition
- have significantly greater financial, technical, and other resources
- have well-established relationships with our potential customers
As a result, our current and future competitors may be able to
devote greater resources to the development of their products than we can. We
cannot assure you that we will be able to compete successfully against
current and future competition, and the failure to do so would have a
materially adverse effect upon our business, operating results and financial
condition.
RELIANCE ON KEY INDIVIDUALS
The Company is dependent upon the active participation of several
key management personnel, including Tim Black, President, CEO, Treasurer and
Secretary, and Jeff Mendenhall, Vice President. The Company does not
currently maintain key employee insurance policies. The Company will likely
need to recruit additional qualified personnel in order to expand according
to its business plan. Although the Company is committed to offering
competitive salaries, stock options, benefits and an appealing work
environment, there can be no assurance that the Company will be able to
attract such persons or retain any of its key personnel. The failure to
attract and retain key personnel could have a material adverse effect on the
Company's viability.
RISKS OF LOW-PRICED STOCKS; PENNY STOCK REGULATIONS.
Common Stock traded on NASD'S "Over-the Counter Bulletin Board,"
such as the Company's, is subject to Rule 15g-9 under the Exchange Act, which
imposes certain sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and institutional
accredited investors. For transactions covered by this rule, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale.
Consequently, the rule may affect the ability of broker-dealers to sell the
Company's Common Stock and may affect the ability of purchasers to sell any
of the Common Stock acquired in the secondary market.
SHARE PRICE VOLATILITY.
The trading price of the Common Stock could be subject to wide
fluctuations in response to quarter to quarter variations in operating
results, changes in earnings estimates by analysts, announcements of
technological innovations or new products by the Company or its competitors,
general conditions in the personal products industries and other events or
factors. In addition, in recent years the stock market in general has
experienced extreme price fluctuations. This volatility has had a substantial
effect on the market price of securities issued by many companies for reasons
unrelated to the operating performance of the specific companies. These broad
market fluctuations may adversely affect the market price of the Common
Stock. To date, the Company's Common Stock has not traded in sufficient
volumes, or for a sufficient length of time, to produce any meaningful
evidence of correlation between its price and general market volatility.
18
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 1, 2000 the Company granted options to purchase 200,000
shares of common stock of the Company to Paul Healy in exchange for consulting
services at an exercise price of $4.00 per share. Twelve and one-half percent
(12.5%) of the shares vest every three months following the date of the option
grant, with full vesting on January 1, 2002. The options expire on December 1,
2002.
On March 17, 2000, the Company issued 100,000 shares of common stock
to Jeff Mendenhall at a deemed value of $28,000 as an employment bonus pursuant
to the terms of the Employment and Services Agreements dated May 20, 1999
between the Company and Jeff Mendenhall (the "Agreement"). Under the Agreement,
Mr. Mendenhall is granted 400,000 common shares of the Company which are to be
issued to him at the rate of 100,000 shares at the end of the third, sixth,
ninth and twelfth months of the term of the agreement.
On March 31, 2000 the Company issued 600,000 shares of common
stock of the Company to Hollinger International, Inc. ("Hollinger") in
exchange for $2,100,000 in advertising media availabilities. This media will
be made available to the Company on an as ordered basis for a period of 3
years. In addition, the Company issued 300,000 shares of the Company at a
deemed value of $1,050,000, in exchange for a non-exclusive use of content in
Hollinger publications and a pilot project for a one year period. The Company
also issued 100,000 shares to Hollinger for $3.00 in cash.
On March 31, 2000, pursuant to an agreement with Salman Partners Inc.
("Salman Partners"), the Company issued 85,143 shares of common stock at a
deemed value of $181,355
19
<PAGE>
for financial advisory and consulting services. As additional consideration for
the services to be provided to Salman Partners, on March 31, 2000 the Company
also granted Salman Partners 65,143 warrants to purchase common stock of the
Company at an exercise price of $3.50 per share. The warrants vested immediately
upon grant and expire on March 2, 2002.
On March 31, 2000, pursuant to an agreement with Ravelston Holdings,
Inc. ("Ravelston"), the Company issued 100,000 common shares of the Company at a
deemed value of $350,000, in consideration for Ravelston extending the financial
advisory and consulting services it provides to the Company until January 1,
2002.
The Company claimed exemption for the above transactions pursuant to
Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit No. Description
- -------------- -------------------------------------------------------------
3.1* Articles of Incorporation filed October 13, 1995, and
amendments thereto filed January 5, 1998 and May 7, 1999, as
filed in the Company's Form 10-SB (file no. 000-27685)
incorporated herein by reference.
3.2* Bylaws (and the amendment thereto dated January 17, 1997) as
filed in the Company's Form 10-SB (file no. 000-27685)
incorporated herein by reference.
10.1 Financial Advisory Agreement dated February 28, 2000 between
Bidhit.com, Inc. and Salman Partners Inc.
10.2 Advertising Services Agreement dated March 2, 2000 between
Bidhit.com, Inc. and Hollinger International Inc.
10.3 Supplemental Advisory and Consulting Agreement dated
March 2, 2000 between Bidhit.com, Inc. and The Ravelston
Corporation
27.1 Financial Data Schedule.
20
<PAGE>
* Incorporated herein by reference.
(b) Reports on Form 8-K.
None.
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BIDHIT.COM, INC.
Dated: May 22, 2000 By: /s/ Tim Black
--------------------------------
Tim Black
President/Treasurer
(Principal Executive and
Financial Officer)
22
<PAGE>
February 28, 2000
Bidhit.com, Inc.
#204-18702 North Creek Parkway
Bothell, Washington
USA 98011
Attention: Mr. Tim Black, President
Re: FINANCIAL ADVISORY AGREEMENT
Dear Sir:
Further to our discussions, we understand that Bidhit.com ("Bidhit" or
the "Corporation") has expressed a desire in entering into a relationship
whereby it will seek forms of advertisements including but not limited to
contra-advertising from one or more of the newspapers of the Hollinger group
of companies, which companies include, but are not limited to Hollinger Inc.,
Hollinger International Inc., Hollinger International Publishing Inc. and
Hollinger Canadian Publishing Holdings Inc. (collectively referred to as the
"Hollinger Group") in exchange for common shares of the Corporation (the
"Share For Advertisement Exchange"). We further understand that the
Corporation is desirous of retaining a financial adviser in reviewing the
proposed Share For Advertisement Exchange. We are pleased to outline the
terms of an agreement pursuant to which Salman Partners Inc. ("Salman
Partners") and its US subsidiary Salman Partners (USA) Inc. will be engaged
by Bidhit to act as its financial advisor in respect of the services defined
below. Upon the Corporation's acceptance, this letter shall constitute the
financial advisory agreement (the "Financial Advisory Agreement") between
Bidhit and Salman Partners.
1. SERVICES. Subject to the terms and conditions set forth below,
Bidhit hereby agrees to exclusively retain Salman Partners to provide the
following advisory services:
(a) evaluate and determine the various options available to the
Corporation with respect to their desire in undertaking the Share For
Advertisement Exchange with the Hollinger Group; and
(b) assist the Corporation in concluding a transaction whereby
the Corporation undertakes a Share For Advertisement Exchange with the
Hollinger Group (hereinafter referred to as the "Transaction").
<PAGE>
Bidhit.com, Inc.
February 28, 2000
Page 2
2. SALMAN PARTNERS FEES. In consideration for the services provided
hereunder, Bidhit agrees:
(a) whether or not the Transaction contemplated herein is
completed, to pay Salman Partners forty thousand (US$40,000) dollars and in
addition, to register in Salman Partners name twenty thousand (20,000) common
shares in the capital of Bidhit upon execution of this Financial Advisory
Agreement (together, the "Retainer Fee"); and
(b) upon successful closing of the Transaction, to pay Salman
Partners through its U.S. subsidiary Salman Partners (USA) Inc. a transaction
fee (the "Transaction Fee") equal to:
(i) six percent (6%) of the Transaction Value (as defined
below) payable in the form of common shares in the capital of Bidhit;
(ii) six percent (6%) of the Transaction Value (as defined
below) payable in the form of broker warrants in the capital of Bidhit; and
(iii) sixty thousand (US$60,000) dollars.
"Transaction Value" for purposes of this Financial Advisory Agreement
shall mean the total consideration expressed in dollars as a result of the
Transaction with the Hollinger Group and shall include the aggregate value of
all cash, securities and other property paid for in connection with the
Transaction, including all indebtedness assumed. In the event that the
consideration received in the Transaction is paid in whole or in part in the
form of securities of other property, then, for purposes of calculating the
fee hereunder, the value of such securities or other property shall be fair
market value thereof on the day immediately preceding the consummation of the
Transaction; provided, however, that if such securities consist of securities
with an existing public trading market, the value thereof shall be determined
by the weighted average of the closing prices for such securities on the 20
trading days immediately preceding the consummation of the Transaction.
3. HOLLINGER GROUP FEES. In consideration for entering into the
Share For Advertisement Exchange, Bidhit shall issue and register in the name
of Hollinger Group one million (1,000,000) common shares, and in addition, it
shall issue and register in the name of Ravelston Holdings Inc. one hundred
thousand (100,000) common shares. Six hundred thousand (600,000) of the one
million (1,000,000) common shares issued to Hollinger Group would be paid in
contra advertising at $3.50 per share, based on Hollinger Group's cost, one
hundred thousand (100,000) common shares to Hollinger for $3.00, in cash, and
three hundred thousand (300,000) common shares for the non-exclusive use of
content "limited by any pre-existing Hollinger agreements and approval from
Hollinger itself and for the Chicago Sun Times private
<PAGE>
Bidhit.com, Inc.
February 28, 2000
Page 3
program, to Bidhit at the deemed market price on NASDAQ at the time of
execution of this Financial Advisory Agreement.
4. EXPENSES. Whether or not a Transaction is completed, all
reasonable out-of-pocket expenses incurred by Salman Partners hereunder,
inclusive of telephone, facsimile, travel, legal counsel, word processing,
and third party expenses shall be borne by the Corporation (the
"Disbursement Fee"), subject to a maximum of $25,000 US, unless otherwise
agreed to by the Corporation.
5. INDEMNITY. In consideration of Salman Partners entering into this
Financial Advisory Agreement, the Corporation agrees to indemnify Salman
Partners in accordance with Schedule "A" attached hereto which Schedule forms
part of this Financial Advisory Agreement.
6. RIGHT OF FIRST REFUSAL. If Salman Partners is successful in
closing the Transaction, Bidhit shall grant to Salman Partners a right of
first refusal to act as co-underwriter, co-agent or co-financial advisor in
any initial public offering, whether pursuant to a prospectus, take-over bid
or business combination whether in Canada or the United States by the
Corporation, or any of its subsidiaries during a period ending thirty six
(36) months after termination of this Financial Advisory Agreement.
7. SUBSEQUENT TRANSACTION. The Corporation agrees that if a
Transaction occurs within one (1) year following termination of the
engagement hereunder involving the Hollinger Group, the Transaction Fee will
become due and payable to Salman Partners at the time of the closing of that
Transaction.
8. SHARE FOR ADVERTISEMENT EXCHANGE TERMINATION. The Hollinger Group
would have the right to revoke the Share for Advertisement Exchange anytime
within a twelve-month period commencing on the date of execution of this
Financial Advisory Agreement, if based on Hollinger Groups sole discretion,
the performances of Bidhit's obligations under the share For Advertisement
Exchange are unsatisfactory.
9. FINANCIAL ADVISORY TERMINATION. This Financial Advisory Agreement
may be terminated at any time by the Corporation or by Salman Partners by
giving written notice of termination which notice will be effective 5 days
following receipt thereof, and otherwise will terminate immediate following
the closing of a Transaction. Notwithstanding the termination of this
Financial Advisory Agreement for any reason whatsoever, the provisions of
paragraphs 2 through 11 hereof, inclusive, shall survive such termination,
provided that, if this Financial Advisory Agreement is terminated by either
the Corporation or Salman Partners, the Disbursement Fees payable to Salman
Partners as of the date of termination shall be immediately payable to Salman
Partners.
<PAGE>
Bidhit.com, Inc.
February 28, 2000
Page 4
10. PRESS RELEASE. Upon execution of this Financial Advisory
Agreement, Bidhit and the Hollinger Group will jointly issue a press release
outlining the proposed transaction and naming Bidhit their exclusive Online
Auction service.
11. MISCELLANEOUS.
(a) This Financial Advisory Agreement shall be construed and
enforced in accordance with, the rights of the parties shall be governed by
the laws of the Province of British Columbia.
(b) Any dispute concerning any question of fact or law arising out
of the circumstances of this Financial Advisory Agreement shall be determined
by arbitration, pursuant to the ARBITRATION ACT (British Columbia).
(c) Should any provision of this Financial Advisory Agreement, in
whole or in part, be or become invalid, illegal or not capable of
performance, the validity or legality of the remaining provisions of this
Financial Advisory Agreement shall not thereby be affected; and in any such
case in lieu of the invalid, illegal or inoperative provision, this Financial
Advisory Agreement shall be applied or interpreted in a reasonable manner
which so far as is legally permissible comes as close as possible to the
application that the parties intend or would have intended according to the
sense and purpose of this Financial Advisory Agreement had they known of the
invalidity, illegality or inoperativeness at the time of the execution of
this Financial Advisory Agreement.
(d) Time shall be of the essence of this Financial Advisory
Agreement.
(e) This Financial Advisory Agreement may be executed in one or
more counterparts and/or by facsimile each of which when so executed shall
constitute an original and all of which together shall constitute one and the
same agreement.
If the foregoing is in accordance with your understanding and is agreed
to by yourself, please confirm your acceptance by signing the enclosed
duplicate of this letter and returning same to the undersigned as soon as
possible.
Yours very truly,
SALMAN PARTNERS Inc.
/s/ Terry Salman
------------------------------
Terry Salman
President & CEO
<PAGE>
Bidhit.com, Inc.
February 28, 2000
Page 5
Agreed to and accepted this 3rd day of
March 2000.
Bidhit.com, Inc.
/s/ Tim Black
------------------------------
Tim Black, President
<PAGE>
EXHIBIT 10.2
March 2, 2000
PRIVATE AND CONFIDENTIAL
Hollinger International, Inc.
Suite 740
401 North Wabash Avenue
Chicago, IL 60511
Attention: Mr. David Radler, Deputy Chairman, President and Chief
Operating Officer
Dear Mr. Radler:
Re: Bidhit.com Inc. ("Bidhit") and Hollinger International Inc.
("Hollinger")
This letter sets forth the terms and conditions of the agreement and
understandings between Hollinger and Bidhit. This letter is supplemental to
the existing agreement between Bidhit and Hollinger dated November 15,
1999 (the "November 15 Agreement").
1. RECITALS. This agreement is made with reference to the following
material facts:
(a) Hollinger and Bidhit wish to expand their marketing relationship.
(b) Bidhit wishes to avail itself of Hollinger's continued advice and
counsel on an as-needed basis.
(c) Hollinger and Bidhit wish to expand their relationship through an
increased investment and increased advertising.
(d) Hollinger and Bidhit may expand their relationship on such terms
and conditions and under such circumstances as the parties may mutually agree
upon in the future.
2. ADVISORY SERVICES. Hollinger shall extend the advisory and
consulting services to Bidhit relating to most appropriate use of Hollinger
print and online properties as advertising and promotional vehicles for
Bidhit until January 1, 2002. No specific time requirements on Hollinger
are imposed and such services may be by telephone. The extended services
referred to in this paragraph are an extension of the services being provided
under the November 15 Agreement.
3. BIDHIT OBLIGATIONS. In consideration of Hollinger extending its
consulting relationship with Bidhit, Bidhit agrees to issue Hollinger 100,000
common shares of Bidhit for cash at $3.00 per share upon execution of a
subscription agreement by Hollinger and approval by resolution of the Bidhit
Board of Directors.
<PAGE>
4. ADVERTISING. Hollinger agrees to provide Bidhit with U.S. $2,100,000
in advertising media availabilities in Hollinger print and online media. This
media will be made available to Bidhit or through Bidhit's advertising agency
or media buyer on an as-ordered basis for a period of three (3) years from
the date of the execution of this agreement at the 10,000 line rate net of
commission in effect on the dates that such advertising is published. Bidhit
will advise Hollinger of the publications that Bidhit wishes to advertise in
and will otherwise follow all content and submission deadline requirements
prescribed by Hollinger's normal advertising policies. Online advertising
will be priced at the rate card at the then available rate for banner
advertising at the applicable web sites.
5. CONSIDERATION FOR ADVERTISING. Bidhit agrees to issue and Hollinger
agrees to accept 600,000 shares of Bidhit common stock valued at $3.50 per
share as full payment in advance for the contracted advertising in Hollinger
publications. The shares will be issued to Hollinger within ten (10) business
days of the execution of this agreement.
6. USE OF CONTENT AND PILOT PROJECT. In addition to advertising,
Hollinger agrees to provide Bidhit with non-exclusive use of content in
Hollinger publications for a one (1) year period beginning as of the date of
execution of this agreement. Further, Bidhit and Hollinger agree to consider,
as a pilot project, a co-branded auction site linked between the CHICAGO SUN
TIMES and Bidhit's web site. If successful, the pilot project will be
expanded to include further Hollinger publications deemed appropriate between
Hollinger and Bidhit. It is further understood that Hollinger and Bidhit will
agree, at a later date, on a revenue sharing/compensation model from the
co-branded auction site. It is the intention of both parties to resolve the
pilot project by the 3rd quarter of 2000. Bidhit will issue Hollinger 300,000
common shares at a deemed price of $3.50 per share in consideration for both
the non-exclusive use of content and the pilot project. The shares will be
issued to Hollinger within ten (10) business days of the execution of this
agreement. For purposes hereof, "content" shall be defined as those articles,
graphics and other materials contained in Hollinger publications mutually
agreed upon by Bidhit and Hollinger and which Hollinger has the right to let
third parties publish without having to obtain the consent of or make any
payment to any author or other party. Hollinger may terminate its obligation
to provide such content upon sixty (60) days notice to Bidhit, in which event
Hollinger shall promptly rebate a proportion of the 300,000 Bidhit shares as
of the date of termination.
7. BINDING AGREEMENT. This letter constitutes a binding agreement
between Bidhit and Hollinger. It shall enure to the benefit of and be binding
upon the parties and their successors and assigns.
8. ENTIRE AGREEMENT. This letter and the November 15 Agreement
constitute the entire agreement of the parties with respect to its subject
matter and supersede all previous communications and agreements whether oral
or written between the parties. No amendment to this agreement shall be valid
unless it is evidenced by a writing executed by both parties. This agreement
may be executed in counterpart and/or by facsimile.
9. NOTICE. All notices, requests, demands and other communications shall
be in writing and shall be deemed to have been given if delivered by hand or
faxed as follows:
<PAGE>
To Bidhit.com: Suite 204
18702 North Creek Parkway
Bothell, WA 98011
Facsimile: (425) 424-3661
and
Suite 2500, 1177 West Hastings Street
Vancouver, B.C.
V6E 2K3
Facsimile: (604) 687-0554
To Hollinger: Suite 740, 401 North Wabash Avenue
Chicago, IL 60611
Facsimile: (312) 321-6426
10. All such advertising media availabilities will be subject from time
to time to the then existing Hollinger contractual obligations.
IN WITNESS WHEREOF, the parties have executed this Agreement, consisting
of three (3) pages as of the 2nd day of March, 2000.
Bidhit.com, Inc. Hollinger International, Inc.
Per: /s/ Timothy J. Black Per: /s/ David Radler
- ------------------------------ --------------------------------------
Timothy J. Black David Radler
President & CEO Deputy Chairman, President & COO
<PAGE>
EXHIBIT 10.3
March 2, 2000
PRIVATE AND CONFIDENTIAL
The Ravelston Corporation Limited
C/O
Suite 740
401 North Wabash Avenue
Chicago, IL 60611
Attention: Mr. David Radler
Dear Mr. Radler:
Re: Bidhit.com, Inc. ("Bidhit") and The Ravelston Corporation Limited
("Ravelston")
This letter sets forth the terms and conditions of the agreement and
understandings between Ravelston and Bidhit. This letter is supplemental to
the existing agreement between Bidhit and Ravelston dated November 15, 1999
(the "November 15 Agreement").
1. Recitals: This agreement is made with reference to the following
material facts:
(a) Bidhit wishes to expand its access to Ravelston's advice and counsel
on an as needed basis.
(b) Ravelston and Bidhit may expand their relationship on such terms and
conditions and under such circumstances as the parties may mutually agree
upon in the future.
2. Advisory Services: Ravelston agrees to extend the advisory and
consulting services it provides to Bidhit under the November 15 Agreement
until January 1, 2002. No specific time requirements on Ravelston are imposed
and such services may be by telephone.
3. Bidhit Obligations: In consideration of an affiliate of Ravelston's
providing expanded advertising media availability and Ravelston's undertaking
to provide extended consulting services as an extension of the November 15
Agreement, Bidhit will issue Ravelston Holdings, Inc. 100,000 common shares
of Bidhit at a deemed price of $3.50 per share within ten (10) business days
of the execution of this agreement.
4. Binding Agreement: This letter constitutes a binding agreement between
Bidhit and Ravelston. It shall enure to the benefit of and be binding upon
the parties and their successors and assigns.
<PAGE>
May 19, 2000
Page 2
5. Entire Agreement: This letter and the November 15 Agreement constitute
the entire agreement of the parties with respect to its subject matter and
supersedes all previous communications and agreements whether oral or written
between the parties. No amendment to this agreement shall be valid unless it
is evidenced by a writing executed by both parties. This agreement may be
executed in counterpart and/or by facsimile.
6. Notice: All notices, requests, demands and other communications shall be
in writing and shall be deemed to have been given if delivered by hand or
faxed as follows:
To Bidhit: Suite 204
18702 North Creek Parkway
Bothell, Washington 98011
Facsimile: (425)424-3661
and
Suite 2500, 1177 West Hastings Street
Vancouver, B.C.
V6E 2K3
Facsimile: (604)687-0554
To Ravelston: C/O
Suite 740, 401 North Wabash Avenue
Chicago, IL 60611
Facsimile: (312)321-6426
In witness whereof the parties have executed this Agreement, consisting
of two (2) pages as of the 3rd day of March, 2000.
Bidhit.com, Inc. The Ravelston Corporation Limited
Per: /s/ Timothy J. Black Per: /s/ David Radler
Timothy J. Black David Radler
President & CEO
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