FORM 10-KSB
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______________ TO ______________
Commission file number: 000-28179
ABLEAUCTIONS.COM, INC.
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(Exact name of small business issuer in its charter)
Florida Not applicable
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1963 Lougheed Highway
Coquitlam, British Columbia Canada V3K 3T8
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (604) 521 2253
Securities Registered Under Section 12(b) of the Exchange Act:
None
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for most recent fiscal year: $898,450
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates based on the average bid and asked price as of March 31, 2000
being $6.715 per share: $56,919,851
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 19,549,517 shares of Common Stock as
of March 31, 2000.
Documents Incorporated by Reference: Portions of issuer's Proxy Statement
relating to its 2000 Annual Meeting of Shareholders to be filed on Schedule 14A
and the Current Report on Form 8-K/A (for event on March 20, 2000) dated April
4, 2000 are incorporated by reference into Part III of this Form 10-KSB
Transitional Small Business Format. Yes [ ] No [X]
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TABLE OF CONTENTS
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Page
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PART I............................................................................................................1
Item 1. Description of Business..................................................................................1
Item 2. Description of Property.................................................................................25
Item 3. Legal Proceedings.......................................................................................26
Item 4. Submission of Matters to a Vote of Security Holders.....................................................26
PART II..........................................................................................................27
Item 5. Market for Common Equity and Related Stockholder Matters................................................27
Item 6. Management's Discussion and Analysis of Financial Condition And Results of Operations...................28
Item 7. Financial Statements....................................................................................33
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................34
PART III.........................................................................................................35
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(a) of the Exchange Act.....................................................................35
Item 10. Executive Compensation.................................................................................35
Item 11. Security Ownership of Certain Beneficial Owners and Management.........................................35
Item 12. Certain Relationships and Related Transactions.........................................................35
Item 13. Exhibits and Reports on Form 8-K.......................................................................35
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NOTE REGARDING FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information contained herein
constitutes "forward-looking statements," including without limitation
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, as well as all projections of future results. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results or achievements of the
Registrant to be materially different from any future results or achievements of
the Registrant expressed or implied by such forward-looking statements. Such
factors include, but are not limited to, the following: risks involved in
implementing a new business strategy; the Registrant's ability to obtain
financing on acceptable terms; competition in the auction industry; market
acceptance of live auction broadcasts on the Internet; the Registrant's ability
to manage growth and integrate the operations of acquired auction houses; risks
of technological change; the Registrant's dependence on key personnel; the
Registrant's dependence on marketing relationships with auction houses and third
party suppliers; the Registrant's ability to protect its intellectual property
rights; government regulation of Internet commerce and the auction industry;
economic factors affecting the sales of auction merchandise; dependence on
continued growth in use of the Internet; risk of technological change; capacity
and systems disruptions; uncertainty regarding infringing intellectual property
rights of others and the other risks and uncertainties described under
"Description of Business - Risk Factors" in this annual report. Certain of the
forward looking statements contained in this annual report are identified with
cross-references to this section and/or to specific risks identified under
"Description of Business - Risk Factors".
The Registrant's management has included projections and estimates in this
annual report, which are based primarily on management's assessment of the
Registrant's results of operations, discussions and negotiations with third
parties, management's experience and a review of information filed by its
competitors with the Securities and Exchange Commission. Investors are cautioned
against attributing undue certainty to management's projections.
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PART I
Item 1. Description of Business
General
We, Ableauctions.com, Inc., are a Florida corporation engaged in the business of
auctioning a broad range of merchandise and equipment through our
"brick-and-mortar" auction house, over the Internet and by broadcasting some of
our live auctions on our web site at www.ableauctions.com.
We operate our business through our wholly owned subsidiaries, Able Auctions
(1991) Ltd. in Canada and Ableauctions.com (Washington), Inc. in the United
States. We acquired Able Auctions (1991) on August 24, 1999 and incorporated
Ableauctions.com (Washington) on February 29, 2000. We are an early stage
company with a limited operating history. Before our acquisition of Able
Auctions (1991), we were a shell company with no material revenues, expenses,
assets, or liabilities. Able Auctions (1991) has operated auctions in the Lower
Mainland of British Columbia, Canada since 1991.
We auction merchandise and equipment from a variety of industries including:
antique, bakery, broadcasting, chemical, construction, dairy, electronics,
energy, food processing, foundry, furniture, high-technology, machine tool,
metal fabrication, office, paper, pharmaceutical, plastic, printing, restaurant,
textile, and others. Our auctions are open to the public. Our typical auction
draws approximately 500 bidders in person and offers on average approximately
1,200 items or lots of merchandise and equipment for auction. In auctions that
we broadcast, our physical "brick-and-mortar" auction audiences are integrated
with our Web-based online auction audiences, and our online customers are able
to bid on and buy merchandise at our live auctions. Bidders are generally
businesses and commercial purchasers. We generally earn gross profit margins
ranging from 20% to 55% on the sale of goods at our physical auctions. We cannot
assure you that we will attain any particular level of gross profit margins or
that we will achieve profitability.
During our fiscal year ended December 31, 1999, we had a consolidated operating
loss of $1,339,492. These losses resulted from our efforts to develop
technologies and to implement our plan to broadcast live auctions over the
Internet and increase operating and administrative expenses associated with the
expansion of our business. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We launched our web site for public viewing in September 1999. We broadcasted
our first live auction on our web site in January, 2000. We currently broadcast
approximately 32% of our auctions over the Internet. We are in the process of
refining the technologies related to broadcasting live auctions on our web site.
Visitors to our web site were able to purchase items from our Retail Store and
bid on items in our Silent Auction beginning in November 1999.
We believe that we can increase the gross revenues and profitability of our
existing auction operations by expanding the scope of our auction audience
through the capabilities of the Internet. We have also begun to expand our
auction business by acquiring other brick-and-mortar existing auction companies.
In October 1999, we hired all of the employees and acquired the assets of Ross
Auctioneers, a small regional auction company, located in the Lower Mainland of
British Columbia, Canada. In February 2000, we acquired the assets of Falcon
Trading, another small regional auction company located in Redmond, Washington,
and hired Harlan Moore, the founder and sole principal of Falcon Trading. In
March 2000, we acquired the assets of Mesler's Auction House, an auction house
located in Scottsdale, Arizona. We also acquired related real estate and a
50,000 square foot building from an affiliate of Mesler's. We have also a signed
binding letter of intent to acquire, subject to certain closing conditions, the
assets of an auction house located in Tacoma, Washington. See "Acquisitions".
We currently have limited revenues from our operations. We do not believe our
past results of operations will be representative of our future operations for
the following reasons:
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o We may increase our operating expenses to broaden our geographic
market by acquiring existing auction houses, which will require us to
finance these acquisitions through the issuance of debt, equity, or a
combination of both;
o We have begun to implement an Internet strategy, which will require us
to dedicate a significant amount of our resources to developing the
technologies and systems to expand our web site capabilities;
o We intend to incur significant marketing costs to market our auction
houses and our web site;
o We anticipate that our management and administrative costs will
increase as we integrate our brick-and-mortar operations with our web
site and our operations with the auction houses that we acquire;
o We anticipate that we will incur increased inventory costs as we
expand our auction business; and
o We may incur unforeseen costs related to implementing a new business
strategy that differs significantly from our operations in the past.
See "Our Business Strategy." To the extent such increases in expenses are not
followed by increased revenues, which are sufficient to cover such costs, our
business and results of operations will be adversely affected. We believe that
period-to-period comparisons of our financial condition are not necessarily
meaningful, and you should not rely on them as an indication of future
performance.
We anticipate that we will incur substantial losses for the foreseeable future
because of increased costs related to implementing our business strategy. We
estimate that we will require additional financing of at least $10 million
through December 31, 2000 to fully implement our business plan and to
effectively market our web site in the United States and Canada. See "Note
Regarding Forward Looking Statements." Our financial statements were prepared
assuming we will continue as a going concern. In their independent auditor's
report dated March 23, 2000, Davidson & Co., expressed doubt about our ability
to continue as a going concern due to our lack of working capital for our
planned business activities. We previously estimated that our minimum cash
requirement to remove this going concern risk was approximately $4 million to
continue our auction operations and to maintain our web site. On February 25,
2000, we completed a private placement of 1,000,000 units at a price of $5.00
per unit for gross proceeds of $5,000,000. Each unit consisted of one share of
common stock and one non-transferable share purchase warrant. Each warrant
entitles the holder to purchase one additional share at the price of $5.00 until
February 25, 2001 and at the price of $6.00 until February 25, 2002. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Our ability to fully implement our business strategy will depend on
our ability to raise future financing. Factors that will affect our ability to
raise financing may include, among other things:
o the revenues and profits generated from our operations;
o our ability to identify and acquire additional auction houses or to
enter into arrangements with brick-and-mortar auction houses to
broadcast auctions on our web site on acceptable terms;
o the market acceptance of our Ableauctions.com web site by buyers of
auction merchandise;
o traffic on our web site and purchases made through our web site;
o our ability to obtain merchandise and consignments of merchandise for
our auctions; and
o the success of our silent auctions, charity auctions, and our
specialty web site stores.
We anticipate that we will raise additional financing through private placements
of our equity and/or debt during the first half of 2000. We are currently
seeking financing by presenting our business plan to merchant and investment
banks, fund managers, and investment advisors. We cannot assure you that we will
successfully complete any
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additional private placements or that we will obtain additional financing to
implement our business plans on acceptable terms, if at all. Our inability to
raise financing will have a material adverse affect on our business and results
of operations.
Industry Background
The Commercial Auction Industry
According to the National Auctioneers Association ("NAA") and MasestroSoft, the
commercial auction market in the United States is estimated to be a $267.5
billion business. The NAA estimates that more than 600,000 commercial auctions
and more than 350,000 charity auctions are performed annually by more than
12,000 licensed auctioneers.
Based on our discussions with operators of auction houses and our experience in
the industry, we believe that most brick-and-mortar based auctions are regional,
owner operated businesses. Each auction house must make significant investments
in real estate, personnel, inventory, and marketing for each location. Most
traditional auction houses obtain their inventory locally and must contend with
the logistical problems of matching supplies of available merchandise to
unpredictable demand.
The Internet Auction Industry
The Internet has become an increasingly significant global interactive medium
for communications, information, and commerce. Use of the Internet has grown
over the past 3 years. According to Deloitte Consulting, approximately 50% of
U.S. households own a personal computer. According to Deloitte Consulting, there
were 414,000 active commercial web sites at the beginning of 1998, more than
double that of a year earlier. Deloitte Consulting estimates that there will be
1.6 million web sites by 2002. According to ActiveMedia, Internet e-commerce
(the online purchase of goods and services by consumers and businesses) revenues
were approximately $2.7 billion in 1996, and is expected to reach $1.3 trillion
in 2003. ActiveMedia expects Internet e-commerce growth rates in 1999 to be
150%, and 138% in 2000.
Online auctions are one of the fastest growing areas of electronic commerce.
According to a January 1999 survey by Jupiter Communications, the number of
people in the United States participating in online auctions will grow from 1.2
million in 1998 to 6.5 million in 2002. Jupiter Communications estimates that
auction buyers are anticipated to represent 11% of the total online shopping
population in 2002. Forrester Research estimated that the total value of online
auctions would grow from $1.4 billion in 1998 to $19 billion in 2003.
Person-to-person auctions, like those of eBay.com, uBid.com, and Amazon.com,
currently dominate the market; however, according to Jupiter Communications,
business-to-consumer sales will comprise some 66% of total Internet auction
sales, or approximately $13 billion, by 2003.
There are five models of online auctions:
o Event-based live auctions: Bidders participate in live auctions
transmitted over the Internet in real-time. Users register to qualify
as bidders to participate before the time of the auction and bid for
merchandise auctioned at physical auctions. Online bidders typically
bid against bidders present at the physical auctions.
o Business-to-consumer: Businesses or consumers bid on products that are
listed on an auction's web site within a set time limit. The auctioned
merchandise is sold to the highest bidder.
o Consumer-to-consumer auctions: Sellers post merchandise on the web
site in one of several categories. Hundreds of thousands of items,
usually priced under $50, are listed and bidders haggle directly with
sellers to purchase the merchandise.
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o Specialty auctions: Sellers offer specific types of merchandise for
auction on specialty online auctions that serve eclectic collectors or
consumers interested in a special niche.
o Business-to-business: Businesses offer merchandise for auction to
other business, including items for liquidation, salvaged merchandise,
excess inventory, distressed inventory, and other items offered in
large lots of several hundred items.
Our Business Strategy
Our business strategy is to expand the geographic scope of our business through
the following growth and expansion strategies:
o Increasing the geographic reach and auction revenues of our existing
auction business by broadcasting our auctions live on our web site;
o Expanding our auction business and operations by acquiring existing
brick-and-mortar auction houses in strategic geographic locations
throughout North America;
o Building an Internet e-commerce site for live auctions by broadcasting
our auctions live and entering into strategic relationships with other
brick-and-mortar auction houses to broadcast their auctions live on
our web site on a transaction fee basis; and
o Generating revenues from silent auctions, charity auctions, and
specialty e-commerce stores on our web site.
We have recently acquired three additional auction houses in British Columbia,
Washington, and Arizona. See "Acquisitions." We have signed a letter of intent
to acquire the assets of Ehli's Auctions of Tacoma, Washington. We may acquire
additional auction companies during 2000. We have identified prospective targets
in Seattle, Toronto, and the United Kingdom and are in the process of
researching possible targets in the San Francisco Bay Area.
We have established the following general criteria for our acquisition
candidates:
o Owner-operated business
o Minimum $2 million in sales
o Need to be profitable
o At least 5 years in business
o Holds 2 or more auctions per month
o Involved in auctions of liquidated stock
We plan to link all of our physical auction sites through our Ableauctions.com
web site. We anticipate that each venue will broadcast its auctions live on our
web site, and as the volume of auctions increases, we expect to broadcast live
auctions on our Ableauctions.com web site daily. We believe each of our auction
houses will benefit from our marketing programs.
We cannot assure you that we will acquire any additional auction companies or
that we will have sufficient financing to acquire and operate the auction houses
we acquire, if any. We also cannot assure you that our marketing programs or
Internet broadcasts of our live auctions will result in increased auction
revenues.
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Competition
We intend to compete in two distinct markets: the industrial auction market and
the online auction market.
We conduct our auctions on an unreserved basis with no minimum prices, resulting
in each and every item being sold to the highest bidder on the day of the
auction. Our policy is to prohibit consignees from bidding on the items they
consign to us for auction. We attempt to differentiate our auction services from
our competitors through our "no minimum price policy" and by selling merchandise
without interference or competition from consignees.
We believe that our "no minimum price" policy coupled with broadcasting our
auctions live on the Internet through our web site will result in a greater
volume of consigned equipment and higher gross auction sales. Our business
strategy is intended to allow us to become a leading real-time Internet
auctioneer and to take advantage of efficiencies such as a consolidated
marketing strategy, uniform auction services, and increased customer
satisfaction.
We believe that the growth of the Internet has facilitated the development of
solutions to some of the traditional problems we face in operating our auction
business, including reaching potential buyers of merchandise and equipment in
other geographic locations, increasing the size of bidding audiences for our
auctions, reaching more potential consignees of merchandise, and automating our
auction preview process. Our goal is to expand our operations by linking
regional auction houses together through our web site. We believe this will
allow us to generate a greater volume of traffic and interest to our web site
and sales through our auctions.
Industrial/Commercial Auction Market
The used equipment market and the industrial equipment auction market are highly
fragmented. We compete for potential purchasers of industrial equipment with
other auction companies and with indirect competitors, such as equipment
manufacturers, distributors, new or used equipment dealers, and equipment rental
companies.
There are major competitors in the industrial/commercial auction market,
including Michael Fox International, an international auctioneer of industrial
equipment and real estate; Ritchie Bros. Auctioneers, an international
auctioneer of industrial equipment; Maynard's Auctioneers, an auctioneer and
liquidator of household items, antiques, and commercial goods; Jarvis Auctions,
an auctioneer of industrial and office equipment; as well as several other
independent auctioneers.
We believe that the principal competitive factors in the auction market are:
o reputation;
o customer service;
o the ability to provide the customer with a variety of merchandise at
an exceptional value, commission pricing, and structure; and
o the ability to attract the bidders necessary to generate the best
possible prices.
We intend to compete with a number of companies with substantially greater
financial, technical, and human resources than us. Our competitors include large
and small auction companies, dealers, and retailers, including discount retail
stores, liquidation centers, and other retailers of new and previously owned
merchandise.
Online Internet Auctions
We believe that the market leader in broadcasting live auctions over the
Internet is Livebid.com. Livebid.com is a Seattle-based company that pioneered
live, event-based auctions on the Internet. Amazon.com acquired Livebid.com in
May 1999.
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Livebid.com uses real-time software technology that allows auction houses to
broadcast their auctions live over the Internet and online bidders to bid on
merchandise and participate in the live auctions. LiveBid.com enables bidders to
review auction catalogues and place proxy bids before an event. Based on
information posted on its web site, LiveBid.com earns revenues by charging
transaction fees based on auction revenues.
In addition, Brilliant Digital Equipment, Inc. broadcasts live auctions over the
Internet at www.theauctionchannel.com, and provides broadcast services to major
auction houses like Christine's South Kensington, Phillips, Bonhams, Allsop &
Co., Brooks, and Antiquorum. We do not believe that Brilliant Digital is
currently broadcasting auctions from U.S. locations.
Additionally, several auctioneers have launched web sites that allow buyers to
search for and bid on merchandise contained within the seller's inventory. In
general, buyers search for and acquire merchandise by visiting the web site and
dealing directly with the auction. Based on our review of our competitors' web
sites, we believe that the inventory of most independent auctions is limited in
size and selection.
The Internet auction industry is new, rapidly evolving, and intensely
competitive, and we expect competition to intensify in the future. A variety of
auction web sites are presently available on the Internet that are dedicated to
facilitating person-to-person and business-to-person transactions on a bid-based
format. These auction services allow sellers to post merchandise on their web
sites and buyers to locate items and submit bids online. These services
generally organize merchandise by categories and provide descriptions, pictures,
or video clips of merchandise offered for sale.
Our silent auction will compete directly with online auction services such as
Onsale, First Auction, Surplus Auction, uBid, eBay, Yahoo!, Onsale, Excite,
Inc., Auction Universe, and a number of other auction based services. See
"Description of Ableauctions.com Web Offerings - the Silent Auction." We
potentially face competition from a number of large online communities and
services that have expertise in developing online commerce and in facilitating
online business-to-person interaction, including AOL, Lycos, Inc., and Microsoft
Corporation.
We believe that the following features may allow us to differentiate our web
site from the web sites of our competitors:
o Live Broadcast. We broadcast live auctions from physical auction sites
over the Internet in real time, which allow visitors to our web site
to compete against bidders attending the live auction;
o Quality Sound and Video. We are developing technology that will
provide quality video and sound to visitors and that will allow
bidders to respond immediately to the auctioneers calls;
o Commercial Goods. We intend to broadcast some live auctions that
feature merchandise and equipment targeted at business or commercial
buyers.
o Consumer Goods. We also intend to broadcast live auctions targeted at
consumers featuring merchandise such as antiques, collectibles,
furniture, household items, and other consumer goods.
o Retail Store. We will offer a retail store on our web site that will
feature a variety of merchandise that visitors can purchase at set
prices that we anticipate will be below retail prices.
o Silent and Charity Auction. We anticipate that our web site will
feature a silent auction and a charity auction that lists items for
auction that will be sold to the highest bidder.
See "Description of Ableauctions.com Web Offerings." In addition to the features
of our web site, we believe that our physical-based auction houses will allow us
to promote our auctions over the Internet to potential bidders and consignees
and will save potential bidders time and effort by allowing them to preview
merchandise in advance of an auction using video and sound clips posted on our
web site. We cannot assure you that we will successfully differentiate our web
site from the web sites of our competitors or that our web site will attract
visitors or bidders.
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Our Auctions Operations
We conduct physical auctions from our auction houses located in British
Columbia, Washington, California, and Arizona. The costs involved in conducting
a typical auction include, among other things, the cost of catalogues,
insurance, transportation, auction advertising, auction site rental fees,
security, temporary personnel and expenses of certain additional auction-related
accounting and shipping functions. In general, we charge purchasers a buyer's
premium on auction purchases equal to 10% to 15% of the hammer price of the
property and sellers a commission ranging from 5% to 25% of the hammer price.
Generally, we conduct approximately two auctions at each of our locations per
month. We auction up to approximately 1,200 items or lots at each auction. We
receive revenues from auction fees charged to consignees who consign merchandise
to be sold and from buyer's premiums charged to purchasers of the merchandise.
We also receive revenues from auctioning merchandise that we purchase and sell
at our auctions. We achieved gross revenues of approximately $80,000 from a
typical auction during 1999. The costs associated with conducting each auction
averages approximately $45,000, including approximately $15,000 for expenses
related to catalog printing, insurance, transportation, advertising, auction
site and storage rental, security, temporary personnel, shipping, and other
expenses associated with conducting the auction, and approximately $35,000 for
the costs of the goods that we purchase and sell.
Like most auctioneers, we do not provide any guarantee or warranty with respect
to the property offered for sale at auction except as noted in our terms and
conditions of sale for particular auctions. We generally auction each lot as
described in our auction catalogue or on an "as is" basis.
After an auction, purchasers generally make their own arrangements to take
possession of the auctioned property. We can also make available shipping
services to forward the property to the buyer by mail freight forwarder, truck
transport, or other delivery services for a cost. As agent of the consignor, we
normally collect payment from the buyer for property purchased and remit to the
consignor, on the settlement date, the consignor's portion of the buyer's
payment, less consignor cash advances, if any, and commissions payable to us. We
sometimes release property sold at auction to qualified buyers (primarily
dealers) on credit before we receive payment. These qualified buyers generally
have an account or line of credit (within established credit limits) with us and
agree to make payment within 30 days. We extend credit only to buyers who have
done business with us in the past and have an established credit standing with
us.
Under the standard terms and conditions of our auction sales, we are not
obligated to pay the consignor of the property if the purchase price for the
property has not been paid by the buyer. In these instances, we will hold
auctioned property until we receive payment from the buyer. If the buyer
defaults on payment, we may cancel the sale and return the property to the
owner, re-offer the property at another auction, or contact other bidders to
negotiate a private sale.
Sales of the Company's Inventory
We sometimes offer potential consignors the option to sell their property to us
for an amount determined by our expert appraisers. In an outright purchase, we
establish a price that we are willing to pay for the property and, if the price
is acceptable to the seller or if a price can be negotiated between us and the
seller, we typically pay the purchase price in full and take possession of the
property immediately. We will generally sell this property at auction with other
property or, if the purchase is large, at an auction of the purchased property.
Unlike sales of consigned property at auction, when selling our own inventory we
earn a profit or incur a loss on the sale of inventory to the extent the
purchase price exceeds or is less than the purchase price we paid for the
inventory. Generally, we provide for the sale of portions of our inventory at
public auctions. Occasionally, we may sell inventory to a customer directly
without placing the inventory for sale at auction. Our goal is to sell all our
inventory as quickly and as efficiently as possible in order to achieve a high
level of inventory turnover and maintain maximum liquidity.
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We also generate revenues by purchasing merchandise from a variety of sources
and re-selling it at our auctions. We purchase merchandise below normal
wholesale prices as a result of liquidation, generally from bankruptcy or
overproduction by manufacturers. In some cases, we purchase used equipment, such
as office equipment from bankrupt companies, closing businesses, or merging
companies. We normally average over 50% gross margin on sales, before fixed
expenses, on the sale of liquidated merchandise.
Consignor Advances
Frequently, an owner consigning property to us will request a cash advance when
the property is delivered to us and before its ultimate sale at auction or
otherwise. The cash advance is in the form of a self-liquidating secured loan,
using the consigned property as collateral. We are a secured party with respect
to the collateral, hold a security interest in the collateral, and maintain
possession of the collateral until it is sold.
The amount of cash that we advance generally does not exceed 50% of our
estimated value of the property when sold at auction.
Ableauctions.com - Web Solution
Our web site is designed to integrate the traditional physical brick-and-mortar
auction with electronic commerce by offering bidders with Internet access the
ability to bid at our larger auctions. We believe our system will increase the
size of our auction audiences, lower our overall transaction costs, and increase
interest in our brick-and-mortar auction houses and events. Our Ableauctions.com
web site is designed to make the online purchase of auction merchandise more
convenient for consumers.
We are designing our web site to target both business and retail customers. Our
goal is to offer visitors to our web site an extensive range of products and
merchandise.
We intend to increase income from our operations in existing markets by holding
larger and more frequently scheduled auctions. Our goal is to attract a larger
number of consignors and bidders to our auctions. We also intend to enhance our
corporate identity and establish a long-term presence in each geographic market
we enter by establishing offices and physical facilities for our auctions.
We anticipate that our web site will be attractive to business purchasers
looking for difficult-to-find equipment, fixtures, office equipment, furniture
and similar merchandise. We believe that offering previews of our merchandise
over the Internet will save our visitors time and increase the number of serious
bidders participating in our auctions. In addition, our web site is anticipated
to be attractive to consumers searching for merchandise such as jewelry,
consumer electronics, tools, collectibles, cameras, and musical instruments. We
do not intend to offer or auction firearms, adult materials, or other
potentially illegal merchandise on our web site.
We launched our web site for public viewing in September 1999 and have refined
our technology to broadcast live auctions over the Internet. We broadcasted our
first live auction in January 2000. Visitors to our web site are able to bid on
merchandise offered in our Silent Auctions and Charity Auctions and purchase
merchandise from our Retail Store.
Description of Ableauctions.com Web Offerings
Live Auctions
Our live auction feature is designed to allow us to broadcast our auctions live
by video over the Internet. Viewers will be able to conveniently preview items
in advance from their home or office and bid on merchandise live as the auction
is being conducted. Our auction previews will allow users to view a picture or a
video clip (a 360(degree) view) of each item and study items up to 8 hours
before the start of an auction. The users will also have the option to submit a
bid on an item before it goes to auction.
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Our live auctions typically draw an average of 500 people in person. With the
Internet broadcast of the auctions, the number of people attending our auctions
in person may only increase marginally, but we expect a number of virtual users
to participate in the bidding through the Internet.
During the live auctions, virtual viewers are able to see the auction in
progress and follow the lots of merchandise as they are being sold. They are
able to bid simultaneously with those attending in person and update bids at
their convenience. We post bids received from the Internet on large screen
monitors. Unlike eBay, Bid.com, or other web sites, we offer every item on an
unreserved basis, meaning there is no minimum bid for the merchandise we
auction. Every item we auction is physically present at the time of the auction
and sold to the highest bidder.
Our Ableauctions.com site allows visitors to register, bid, preview merchandise,
place bids on merchandise, and purchase and pay for merchandise in a secure
environment. Our web site software is expected to feature tools that calculate
taxes, exchanges rates for various currencies, and shipping costs. We intend to
post merchandise packaging and shipping information on our web site to
facilitate delivery of merchandise to purchasers.
The Silent Auction
Our silent auction will allow us to conduct auctions similar to eBay, Amazon,
and Bid.com. We intend to continuously run an auction that lists thousands of
featured items for sale, each with a digital picture or video clip (a
360(Degree) view of the item) illustrating the product.
We intend to offer certain items from our inventory and inventory from
bankruptcies, mergers, acquisitions, insolvencies, and expired leases on our
silent auction. We anticipate that we will offer merchandise on our silent
auction with no minimum bid.
Unlike our competitors, we intend to offer only merchandise that we own or that
is consigned to us for sale on our silent auction.
The Retail Store
Our web site is expected to feature a retail store offering a broad range of
products. We intend to offer the merchandise of diamond distributors, jewelers,
computer and electronics wholesalers, and antique dealers in catalogue format at
a set price with no bidding. In some instances, with antiques and specialized
items, the user may be allowed to make an offer on the merchandise. We have
established alliances with numerous distributors who have agreed to sell
merchandise on our web site. We anticipate our web site will feature the
following retail stores:
o Computers and Electronics
o Jewelry
o Specialty Items
o Lingerie
o Antiques
o Time Shares
Charity Auctions
Our charity auctions will allow registered non-profit organizations to raise
funds and awareness of their charities through auctions hosted on our web site.
We intend to charge commissions ranging from 10% for hosting an auction, to 25%
for fully-organized fundraisers. Charity auctions may offer merchandise such as
automobiles, vacation packages, and event passes to the highest bidder.
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Our Operating Strategy
We believe that we can develop key operating strengths that will allow us to
compete and achieve profitable growth. Our strategy is to offer the following:
Reputation for Conducting Fair Auctions
We believe our regional physical brick-and-mortar auctions have allowed us to
develop a reputation for being committed to fair dealing. We believe our
unreserved auction process and "no minimum bid" policy have been key
contributors to our growth and success. We require each consignor to agree not
to bid on its own consigned items, which deters the practice of artificially
inflating the price of auctioned merchandise. Based on our experience, we
believe our policy results in a larger number of bidders at our auctions and
fair pricing of our auctioned merchandise.
Our goal is to build a reputation as a reputable auctioneer on the Internet.
High Quality Services for Consignors and Bidders
Our auctions are designed to be conducted on a standardized basis, which
generally includes inspection services, appraisals, marketing, and auctioning.
We offer comprehensive services for consignors of merchandise, which typically
begins with an equipment appraisal that gives the prospective consignor an
estimate of the value of the appraised equipment. Our appraisals are based on
our experience selling similar merchandise and we typically tailor a proposal
for each consignor, which may include an alternative commission structure based
on a guaranteed minimum level of gross sale proceeds or an outright purchase of
the merchandise. Our willingness to take consignment of a customer's full
inventory (and all ancillary assets, including inventories, parts, tools,
attachments, and construction materials), rather than only the most desirable
items, is another service we offer to the consignor. We also offer repair and
refurbishment services to consignors and provide advice on how to present the
equipment to maximize the consignor's proceeds.
Our personnel perform title searches on certain merchandise and equipment
consigned for auction, and in some cases we warrant to each buyer free and clear
title to merchandise purchased at our auctions. We make merchandise being
offered at the auction available for inspection by prospective buyers before the
auction and generally allow bidders to preview merchandise on the day before the
auction. We also offer access to third-party financing and trucking and freight
forwarding at the auction venue.
Geographic Scope
We desire to market each auction to potential bidders and consignors on a larger
geographical scope through the Internet. We believe that access to a larger
audience of potential bidders will allow consignors to receive the highest
possible price for their merchandise. We believe buyers will save time by
attending auctions online and will have the ability to locate and bid on
difficult-to-find merchandise.
Databases and Software
We currently maintain computerized tracking systems which are used to catalogue
and describe all of the property delivered or consigned to us for auction.
Property is generally stored in our warehouse or at the auction venue until it
is sold or put on public exhibition for inspection, generally 7 to 21 days
before auction.
Tracking our consigned property allows us to promptly and efficiently produce
catalogues and marketing materials for auctions. Catalogues are an important
marketing tool that allows us to solicit the business of both potential
consignors and bidders. In the future, we intend to develop an online catalogue
of merchandise available at all our auctions. We believe that the
computerization of our auction operations will enable us to compete with other
auction houses by placing all of our upcoming auction information in the homes
and offices of potential consignors and bidders through the Internet.
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We intend to build a database containing information on our registered bidders
and their buying habits, which is expected to enhance our ability to target
market our auctions. We intend to track information such as auction attendance,
trade association membership, buying habits, sales tax, and account information.
Sales and Marketing Strategy
Our marketing strategy is designed to introduce and strengthen the
Ableauctions.com brand name.
We intend to market our web site and auction houses to increase customer traffic
to our web site, build customer loyalty, maximize repeat purchases, and develop
additional revenue opportunities. We intend to promote each of our Live
Auctions, Silent Auctions, Charity Auctions, and the Retail Store to a customer
base of potential bidders and consignors.
We intend to use electronic advertising, including banner advertising,
electronic mail, and facsimile transmission of advertisements to promote our
auctions. We will also use traditional print media, including classified
advertisements in major newspapers and the Yellow Pages. We believe that our
advertising will increase awareness of the Ableauctions.com brand. We may also
develop strategic alliances with other Internet companies who may provide links
to our web site, auctions, and other merchandise offerings.
We generally promote individual auctions using direct mail brochures, newspaper
advertisements, trade magazine advertisements, and other publications. We also
use personal sales in our marketing auction services to potential consignors in
the business community.
Our marketing efforts will be directed to specific regional areas where we
conduct auctions. We also intend to implement an after-sale marketing program,
which may include customer follow-up to reinforce purchase decisions and to
promote our web site. Our databases will be designed to track information
regarding potential bidders, consignors, industry information, equipment
valuations, which may enhance our ability to effectively market our auction
services and which may be used for marketing certain types of auctions to
bidders in the future.
Business/Strategic Affiliates
We have entered into strategic relationships, through an arrangement with Dexton
Technologies Corporation (a company controlled by Abdul Ladha, our President),
with a number of companies and strategic associates including Compaq Computer
Corporation, the Allaire Corporation, Telus Advanced Communications, Cybercash,
and eBay, as follows:
o Compaq installed a custom designed Distributed Internet Server Array
(DISA) on December 14, 1999 for approximately $28,000. In addition,
Compaq, through an arrangement with Dexton Technologies, agreed to
provide us with centralized international technical support from one
regional site in North America. We currently are in the process of
negotiating the terms of a definitive agreement related to additional
technical support and maintenance services.
o Under an arrangement with Dexton Technologies, Allaire Corporation
provided us with load-balanced server software for our web site
applications for the first phase of our web site launch for
approximately $25,500. Allaire discounted its products by
approximately 35% for the first phase of our web site launch. We are
in the process of discussing a formal arrangement with Allaire to
provide ongoing maintenance, support, and development services, and
intend to enter into a formal written agreement with Allaire in the
second quarter of 2000.
o Pursuant to an Internet Business Services Agreement between Telus
Advanced Communications and Dexton Technologies dated September 14,
1999, Telus provides us fault tolerant high-speed access to the
Internet, which is designed to minimize the risk of downtime for our
web site. We subscribe on a monthly basis to Telus's fault tolerant
high-speed access to the Internet and receive the same rates available
to other subscribers. We paid a $3,500 set up fee and pay monthly fees
of approximately $4,500 per server for these services. We currently do
not have a written agreement with Telus. We anticipate that we may
enter
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into an Internet access agreement with Telus in the second quarter of
2000, although we have not begun negotiations with respect to such an
agreement.
o Cybercash, a leading provider of third-party credit card processing
services, has agreed to facilitate our credit card transactions. We
have no formal arrangement with Cybercash and receive no preferential
discounts for their services. We anticipate that we will approach
Cybercash to enter into a written agreement for their services in the
second quarter of 2000.
o eBay, the world's largest person-to-person trading community, has
accepted our application to simultaneously list all of our Silent
Auction inventories on eBay's web site. eBay generally accepts all
requests for listing merchandise on its web site, and we receive no
advantage or preferential treatment in our listings. We pay eBay a 3%
fee for all transactions facilitated on eBay, which is subject to
change at eBay's sole discretion. Users logging on to
www.ableauctions.com and selecting "Silent Auction" will be linked to
a specific site on eBay's servers. Users logging on to www.ebay.com
will be able to preview and bid on Ableauctions.com's entire inventory
and our Charity Auctions. We anticipate that we will enter into an
arrangement with eBay to post the schedule of our Live Auctions on
their web site. We have no written agreement with eBay for listing our
products or linking to our site, and we cannot assure you that we will
enter into or maintain any relationships with eBay.
We cannot assure you that we will be able to maintain our relationships with
Compaq, Allaire, Telus, Cybercash, or eBay. The arrangements made with Compaq
Computer, Allaire Corporation and Telus Advanced Communications were made
through Dexton Technologies, a company controlled by our President, Abdul Ladha.
Dexton Technologies is an approved systems and service provider for Compaq
Computer and Allaire Corporation, and based on Dexton Technologies' existing
relationship with them, we believe that we may have received our systems and
services on terms that were more favorable than those we could have negotiated
independently. We cannot assure you that we will be able to maintain these
relationships or enter into any formal agreements with Allaire Corporation,
Telus Advanced Communications, Cybercash, or eBay for future services or
products on acceptable terms, if at all. If we are unable to maintain these
relationships, we will be required to enter into relationships with other
service providers and we may experience delays in completing the development of
our live auction broadcasting services or disruptions of our web site services.
Delays and/or disruptions may have a material adverse affect on our business and
results of operations.
We are also actively seeking listings with other Internet service providers,
including Yahoo! and Info Seek, to direct traffic to our web site. In the
future, we may enter into cooperative marketing arrangements designed to build
our Ableauctions.com brand name and to increase awareness of our web site.
Research and Development
We are in the process of developing technology to integrate our live auctions
with our web site. While our technology is primarily being developed internally,
we have outsourced development with the particular use of engineers and
developers including Compaq Computer Corporation, Allaire Corporation, and Telus
Advanced Communications. We intend to standardize our technology to industry
standards and to use off-the-shelf software, when available, to reduce our
development costs.
Our research and development program consists of developing technologies related
to our web site and the systems required to broadcast live auctions over the
Internet. As of December 31, 1999, we had spent $526,787 on expenses related to
research and development, including consulting fees, technical fees, development
of our data base management technologies, research and development of our
graphic and video broadcasting technologies, systems design and testing, and
other technological aspects of our web site. We anticipate that we will spend
approximately $750,000 on research and development efforts in 2000.
Our systems are expected to provide our web site with high-volume capabilities
that will allow us to transmit and conduct live auctions and other transactions
over the Internet.
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Our Ableauctions.com Technology
The following section outlines the technology components that are anticipated to
be used by us to deliver Web-based auctions:
DISA Technology
Our system will be based on distributed Internet server array or "DISA"
technology, a fault-tolerant architecture system custom designed by Compaq. DISA
uses industry-standard platforms and packaged application server software to
increase system flexibility. Compaq tests have shown that the DISA architecture
allows a web server, such as our ColdFusion application by Allaire Corporation,
to scale beyond the limitations of a single server. DISA enables a group of
servers to perform as a single, highly-scalable system, which can be networked
to share the load, compensate for server failures, and increase manageability of
a web site server system. DISA architecture also allows requests and processing
to be transferred from one machine to another in the event any one machine
becomes overloaded. If one of our data resource servers fail, we anticipate our
conventional fail-over clustering technology will allow us to minimize downtime.
Web Application Servers
We have installed Compaq 1850R servers to handle a large volume of transactions
on our web site and the transaction-intensive applications we intend to run. We
considered three critical factors in selecting our system: performance,
availability, and scalability.
Performance refers to the ability of an application to sustain a
business-defined performance metric, such as response time.
Availability refers to the amount of time that an application is available
to perform work, typically measured in percentage of uptime.
Scalability refers to the capacity of the application to perform increasing
amounts of work while maintaining acceptable performance levels.
The Compaq ProLiant 1850R servers we installed have the following features:
o A two-way symmetric multiprocessing (SMP) configuration of
400-megahertz (MHz) Intel Pentium II processors.
o 512-megabyte, 100 MHz SDRAM.
o Integrated dual Ultra Wide SCSI controller.
o Two PCI buses in master/slave configuration.
o Integrated remote console and other advanced manageability features.
o Designed for efficient racking, taking only 3 U of space on standard
racks. Our cluster with 72 nodes and 18 gigabytes (GB) of disk storage
was built with 22 42 U racks with plenty of room left for incremental
growth.
o Each node delivers excellent processor-memory bandwidth (450 megabytes
(MB) per second) on the STREAMS benchmark.
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Web Application Server Software
We have selected the following server software:
Microsoft Windows NT Server, Microsoft SQL Server and Allaire ColdFusion
Enterprise Servers.
Our server ColdFusion application runs as a 32-bit multi-threaded system service
or daemon on Windows NT. This architecture enables ColdFusion to scale upward to
support heavy user loads. The multi-threaded architecture allows each user or
page request to execute as a separate thread on the system, with each thread
handled by the underlying operating system threading architecture. The
multi-thread server architecture lends itself to scaling the application server
across machines. Windows NT supports a technology called SMP that allows
applications to execute threads across multiple processors on a single machine,
which increases the efficiency and processing capabilities of the machine. As
the number of processing units on the machine increases, the simultaneous
processing power of the ColdFusion server increases.
Video Technology
We developed specialized technology to enable us to transmit our auctions live
on our web sites. This technology incorporates a high-image quality,
no-download, and no-buffer streaming video server for low bandwidth Internet
transmission. The broadcast produces real-time, 144 x 176 pixel images at 7 to
15 frames per second over a 56 Kbps connection. More importantly, users do not
need to download any software to view the broadcast. The broadcast can be scaled
to a variety of sizes to best suit the intended audience. The technology and
systems required at each remote auction house include the following components:
o 2 Video Cameras
o 4 Digital Cameras
o Wireless 900 MHz transmitters
o ISDN or ADSL lines
o 1 Video Server, 6 notebook checkout stations, 3 notebook proxy bidding
stations
o Local network and server
The fixed cost to implement each web site is expected to cost $125,000 - to
$150,000.
Regulatory
Our brick-and-mortar auction houses are generally subject to extensive
regulation, supervision, and licensing under various federal, state, and local
statutes, ordinances, and regulations. Such laws and regulations may require us
to obtain a license or registration, or post a surety or bond as a precondition
of doing business within the jurisdiction. In addition, applicable laws may
require us to transact business and sell merchandise in accordance with specific
guidelines, including the means by which we obtain our merchandise, advertise
our auctions, conduct our bidding procedures, close transactions, hold client
funds, and other restrictions that may vary from state to state. We cannot
guarantee that we will not be subject to actions arising out of violations by
our brick-and-mortar auction houses. Such action may have a material adverse
affect on our business and results of operations.
There are currently few laws or regulations that directly apply to access to, or
commerce on, the Internet. It is possible that governing bodies may adopt a
number of laws and regulations governing such issues as user privacy on the
Internet and the pricing, characteristics, and quality of products and services
offered over the Internet. It is also possible that government authorities will
adopt sales or other taxes involving Internet business.
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Intellectual Property
We have developed the majority of our software internally. We have taken
measures to protect its intellectual property, ranging from confidentiality and
non-disclosure agreements for contractors and employees to deploying a
trans-modular development schedule where individual modules of software
developed or coded by employees or contractors have no stand-alone benefits
whatsoever until they are integrated with at least three independent modules.
"Ableauctions" and "Ableauctions.com" are our trademarks, which we intend to
register under Canadian and U.S. trademark laws in the second quarter of 2000.
We have not submitted an application to register these trademarks. We have
registered the Internet domain name "ableauctions.com". We intend to use
copyright, trademark, service mark, and trade secret laws and contractual
restrictions to protect our proprietary rights in products and services. We
cannot assure you that the measures we take to protect intellectual property
will prevent misappropriation of our technology or deter independent third-party
development of similar technologies.
Employees
As at December 31, 1999, we had 27 employees and 7 consultants. As at March 31,
2000, we had 55 full time employees and 6 consultants. In addition to
management, we employ auction staff, sales people, administrative staff, and
development and technical personnel. From time to time, we may employ
independent consultants or contractors to support our research and development,
marketing, sales and support, and administrative organizations. No collective
bargaining units represent our employees. We believe our relations with our
employees are good. We expect to hire additional senior management, customer
service management, database administrator, several software developers,
customer service representatives, technical support representatives and
sales/marketing staff. In total, we expect the size of our staff will grow to
nearly 150 by the end of fiscal 2000.
History of Our Corporation
We were incorporated in the State of Florida on September 30, 1996 as "J.B.
Financial Services, Inc." with an authorized share capital of 6,500 common
shares with a par value of $1.00 per share. We were inactive until August 1998.
On September 2, 1998, we amended our Articles of Incorporation to: (i) increase
our authorized capital to 50,000,000 shares of common stock with a par value of
$0.001 per share and (ii) effect a forward split of our issued and outstanding
stock on a 200-for-1 basis, increasing our total issued and outstanding share
capital from 5,000 to 1,000,000 common shares.
In March and April 1999, we issued 8,600,000 shares to a consulting company, and
an aggregate 850,000 shares to two other persons for services rendered.
Effective July 19, 1999, Douglas McLeod, a promoter and former director,
contributed back to Ableauctions.com 8,000,000 shares of common stock in
consideration of $100. The shares were returned to our treasury as part of an
agreement to restructure our share capital and to allow us to acquire Able
Auctions (1991) Ltd. As a result of the contribution, our total issued capital
was reduced by 8,000,000 shares. On July 19, 1999, we amended our Articles of
Incorporation to change our name to "Ableauctions.com, Inc."
On July 20, 1999, we distributed a dividend of four shares for every share held
by shareholders of record on July 20, 1999. After the dividend, we had
12,250,000 shares of common stock outstanding.
The Company's shares began trading on the National Association of Securities
Dealers' ("NASD") Over-the-Counter Bulletin Board ("OTCBB") under the symbol
"ABLC" on July 21, 1999.
On August 9, 1999, we: (i) amended our Articles of Incorporation to increase our
authorized share capital to 250,000,000 shares of common stock and (ii) effected
a 5-for-1 forward split of our common shares, increasing our total issued and
outstanding share capital from 12,250,000 to 61,250,000 common shares.
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On August 24, 1999, we acquired all the issued and outstanding common shares of
Able Auctions (1991) Ltd., a British Columbia corporation engaged in the
business of auctioning used equipment, office furnishings and equipment, and
other merchandise, from Dexton Technologies Corporation, a British Columbia
corporation. As a result of our acquisition of Able Auctions (1991), we acquired
all of the assets and business operations of Able Auctions (1991), as a going
concern, in consideration of shares of our common stock and cash. See "Our
Acquisition of Able Auctions (1991)." On August 24, 1999, we also completed a
unit private placement to raise proceeds of $3,500,980. See "Recent Sales of
Unregistered Securities."
On September 2 1999, we: (i) amended our Articles of Incorporation to reduce our
authorized capital to 50,000,000 common shares and (ii) reverse split our issued
and outstanding common shares on a 1-for-4 basis, reducing our issued and
outstanding share capital to 18,250,001 shares.
Effective September 20, 1999, we hired all of the employees and acquired all of
the business assets of Ross Auctioneers & Appraisers Ltd., a British Columbia
based auction company, for 60,000 shares of our common stock with a fair market
value of approximately $175,000. See "Our Acquisition of Ross Auctioneers."
Effective February 29, 2000, we hired the founder, Harlan Moore, and acquired
all of the business assets of Falcon Trading, Inc., a Washington based auction
company, for 53,405 shares of our common stock with a fair market value of
approximately $360,804. See "Our Acquisition of Falcon Trading."
On February 18, 2000, we signed a letter of intent to acquire the assets of
Ehli's Commercial/Industrial Auctions, Inc., a Seattle based liquidator of
automobiles and industrial equipment, for $600,000 cash and 63,163 shares of our
common stock with a fair market value of approximately $500,000. See "Our
Acquisition of Ehli's Auctions." We anticipate we will complete our acquisition
of Ehli's Commercial/Industrial Auctions, Inc. in late April 2000.
Effective March 20, 2000, we acquired the business assets of Mesler's Auction
House of Scottsdale, LLC, and real estate and a building from C&C Capital
Investment, Inc., an affiliate of Mesler's. Mesler's is an Arizona based company
that auctions antiques and other furniture and equipment. We paid $255,000 cash
and issued 30,625 shares of our common stock with a fair market value of
approximately $245,000 for the Mesler's assets; and $1,200,000 cash,
$1,056,110.53 by assumption of a wrap-around promissory note and a wrap-around
deed of trust and assignment of rents, and issued 155,486 shares of our common
stock with a fair market value of approximately $1,245,000 for the property. See
"Our Acquisition of Mesler's Auction House."
Our current corporate organization structure is as follows:
Ableauctions.com, Inc.
Organizational Chart
Ableauctions.com, Inc.
(a Florida corporation)
- --------------------------------------------------------------------------------
Able Auctions (1991) Ltd. Ableauctions.com
(a British Columbia corporation) (Washington), Inc.
(a Washington corporation)
- ------------------------------- -------------------------------------------
Ross Auctioneers Mesler's Auction Falcon Trading
(Operating Division) House (Operating (Operating Division)
Division)
We have not been subject to any bankruptcy, receivership or other similar
proceeding.
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Acquisitions
Our Acquisition of Able Auctions (1991)
On August 24, 1999, we acquired all of the issued and outstanding shares of Able
Auctions (1991) Ltd. pursuant to a share purchase agreement dated July 9, 1999,
as amended, among us, Able Auctions (1991), and Dexton Technologies Corporation,
a British Columbia corporation and the sole shareholder of Able Auctions (1991).
Able Auctions (1991) and Dexton Technologies were dealing at arm's length to us.
Under the terms of the share purchase agreement:
(a) We completed a private placement of 1,094,057 units at the price of
$3.20 per unit for proceeds of $3,500,980. Each unit consisted of one
share of common stock and one-half of one non-transferable share
purchase warrant. Each whole share purchase warrant is exercisable to
acquire one additional share of our common stock at a price of $3.20
until August 24, 2000, and thereafter at a price of $4.00 until August
24, 2001. See "Recent Sales of Unregistered Securities."
(b) We issued 1,843,444 shares of our common stock and paid $1,050,000 to
Dexton for all of the issued and outstanding shares of common stock of
Able Auctions (1991) and to pay debt owed by Able Auctions (1991) to
Dexton, including $385,000 in liabilities owed by Able Auctions (1991)
for advances and accounts payable related to products and services
provided to Able Auctions, $56,000 in other expenses paid by Dexton on
behalf of Able Auctions (1991), including $5,600 in legal fees related
to trademark services, $3,500 paid to Allaire Corporation for web site
development, $1,400 for insurance expenses, $12,000 for web site
development work performed by Dexton and $32,200 for computer server
equipment, and other expenses of $8,995.
(c) We appointed Abdul Ladha as our President and a director and Jeremy
Dodd, the Vice President of Operations of Able Auctions (1991), as our
Secretary and Treasurer.
(d) We commenced the development and testing of technology, software, and
systems to launch our Ableauctions.com web site.
(e) We filed a Form 10-SB registration statement with the SEC to register
our common stock under the Securities Exchange Act of 1934, as
amended. We became a reporting issuer effective January 12, 2000.
Our Acquisition of Ross Auctioneers
On October 18, 1999, Able Auctions (1991) hired all of the employees and
purchased the assets of Ross Auctioneers & Appraisers Ltd. as a going concern,
pursuant to an asset purchase agreement dated September 20, 1999 among Ross
Auctioneers, Able Auctions (1991), and us. The terms of the acquisition were
negotiated at arm's length. Ross Auctioneers was engaged in the business of the
auction of tools, vehicles, industrial equipment, government surplus equipment,
and police seized goods in the Lower Mainland of British Columbia. The purchase
price for the assets of Ross Auctioneers was $168,000 (Cdn$250,000) plus
applicable taxes, which was paid by the issuance of 60,000 shares of our common
stock at the deemed price of $2.80 (Cdn$4.16) per share. See "Recent Sales of
Unregistered Securities."
In addition, Able Auctions (1991), under a separate asset purchase agreement
dated as of September 20, 1999 with John Carrier dba LJM Computer Resources,
purchased the web site located at www.bcbids.com, including all associated
intellectual property rights and software technology, for the cash purchase
price of $26,500 (Cdn$38,000) plus applicable taxes. Able Auctions (1991) also
purchased the domain name "bcbids.com" from Ronald H. Smallwood for the purchase
price of $140 (Cdn$200) plus applicable taxes.
Our Acquisition of Falcon Trading
On February 29, 2000, Ableauctions.com (Washington) hired the founder, Harlan
Moore, and purchased the assets of Falcon Trading, Inc. as a going concern,
pursuant to an agreement and plan of reorganization dated February 1, 2000 among
Falcon Trading, Ableauctions.com (Washington), and us. Falcon Trading was a
computer and
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electronics liquidator operating in Redmond, Washington. The purchase price for
the assets of Falcon Trading was $360,805, which was paid by the issuance of
53,405 shares of our common stock at the deemed price of $6.756 per share.
See "Recent Sales of Unregistered Securities."
Our Acquisition of Mesler's Auction House
On March 20, 2000, Ableauctions.com (Washington) purchased the assets of
Mesler's Auction House of Scottsdale, LLC as a going concern, pursuant to an
asset purchase agreement dated March 20, 2000 among Mesler's, Ableauctions.com
(Washington), and us. Mesler's was an auctioneer of antiques and other furniture
and equipment operating in Scottsdale, Arizona. The purchase price for the
Mesler's assets was $500,000, of which $255,000 was paid in cash and the balance
of $245,000 was paid by the issuance of 30,625 shares of our common stock at the
deemed price of $8.00 per share. See "Recent Sales of Unregistered Securities."
Also on March 20, 2000, Ableauctions.com (Washington) purchased from C&C Capital
Investment, Inc., an affiliate of Mesler's, a real estate property and a 50,000
square foot building, pursuant to a purchase and sale agreement dated March 20,
2000 among C&C and Ableauctions.com (Washington). The purchase price of
$3,500,000 for the real estate and building was paid as to $1,200,000 cash,
$1,056,110.53 by assumption of a wrap-around promissory note and a wrap-around
deed of trust and assignment of rents for the benefit of Lewis, Hollander
Scottsdale, a California limited partnership, and the balance of approximately
$1,245,000 by the issuance of 155,486 shares of our common stock at the deemed
price of $8.00 per share. See "Recent Sales of Unregistered Securities."
Our Proposed Acquisition of Ehli's Auctions
Ableauctions.com (Washington) has agreed to purchase, subject to certain closing
conditions, the assets of Ehli's Commercial/Industrial Auctions, Inc. as a going
concern, pursuant to a binding letter of intent dated February 18, 2000 between
Ehli's Auctions and us. Ehli's Auctions is a Seattle based liquidator of
automobiles and industrial equipment. The purchase price for the assets of
Ehli's Auctions will be $1,100,000, $600,000 of which will be paid in cash and
the balance of $500,000 by the issuance of 63,163 shares of our common stock at
the deemed price of $7.916 per share.
Material Agreements Related to Our Business
In addition to the agreements described above and in "Business/Strategic
Affiliates", the following material agreements relate to our business:
Dexton Technologies Corporation - Management Agreement: Under a consulting
agreement dated August 24, 1999, Able Auctions (1991) engaged Dexton
Technologies to provide consulting services for one year in connection with
the development of Able Auctions' business and Internet strategy. In
consideration of Dexton's services, Able Auctions paid to Dexton a fee of
$240,000. Abdul Ladha, a director, President, and Chief Executive Officer
of Ableauctions.com, and Barrett Sleeman, a director of Ableauctions.com,
are also directors and officers of Dexton Technologies Corporation. Mr.
Ladha is also the controlling shareholder of Dexton. See "Certain
Relationships and Related Transactions - Consulting Agreement with Dexton
Technologies Corporation."
European Investor Services Ltd. - European Media Relations Agreement: In
October 1999, we engaged European Investor Services Ltd. ("EIS") to provide
investor relations and financial media relations services (primarily in
Europe) for a six-month term in consideration of $5,000 per month plus
reimbursement of certain out-of-pocket expenses. We also agreed to pay EIS
the daily fee of $4,000 for each European presentation to qualified
investors conducted on our behalf. The initial term of the agreement with
EIS has been extended for a further six-month term from April 1, 2000 to
September 30, 2000.
Compass Investment Management Limited - Corporate Finance Advisory
Agreement: In March 2000, we engaged Compass Investment Management Limited
("Compass"), an associate company of EIS, as corporate finance adviser to
our Board of Directors in respect of arranging and coordinating proposed
financings and other finance and investor relations services. We agreed to
pay to Compass a commission of 7.5% on the first US$10 million, and 4%
thereafter in respect of all funds raised by us from investors
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introduced to us directly by Compass. We also agreed to pay to Compass/EIS
a commission according to the above scale in respect of any subsequent
funding raised by us, during the two year period following the date of
termination of the agreement, from investors introduced to us directly by
Compass/EIS during the term of the agreement. This fee does not apply where
the introduction is to an investment bank or broker with a view to
completing a public offering of our securities.
KCSA Public Relations Worldwide - Public and Investor Relations Agreement:
In February 2000, we engaged KCSA Public Relations Worldwide of New York to
provide us with public and investor relations and corporate and marketing
communications services for an initial term of six months. We agreed to pay
to KCSA the monthly fee of $16,000, which provides us with 100 hours of
KCSA's professional services. Any additional time spent by KCSA on our
behalf will be billed at the hourly rate of $165. We also agreed to
reimburse KCSA for out-of-pocket expenses plus an agency charge of 20% for
certain expenses, with any individual expenditure over $500 requiring our
approval. KCSA has also agreed to use its best efforts to arrange
financings with institutional and/or individual investors. If KCSA is able
to arrange a financing, we have agreed to pay to KCSA a commission of 5% on
the first $1 million raised, 4% on the second $1 million raised, 3% on the
third $1 million raised, 2% on the fourth $1 million raised, and 1% on the
fifth $1 million raised and on any additional funds raised thereafter. The
financing arrangement may be terminated on 30 days notice, and the entire
agreement may be terminated on 60 days written notice.
Risk Factors
We are in the process of developing a web site designed to broadcast over the
Internet auctions conducted at our brick-and-mortar auction houses and to allow
visitors to our web site to place bids at these auctions. Our business is
subject to a number of risks as outlined below. An investment in our securities
is speculative in nature and involves a high degree of risk. You should read
this registration statement carefully and consider the following risk factors.
Our ability to meet our business projections through December 31, 2000 may
depend on our ability to raise additional operating capital in the amount of $10
million or more during 2000
We anticipate that we may need to seek additional capital in the amount of $10
million or more in the first half of 2000 to fully fund our operating and
capital budget requirements through the second half of 2000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." We
cannot assure you that any additional financing would be available or, if
available, that it would be available on terms acceptable to us. See "Note
Regarding Forward Looking Statements." Furthermore, any issuance of additional
securities may result in dilution to the then existing shareholders. If adequate
funds are not available, we will lack sufficient capital to pursue our business
plan fully, which will have a material adverse effect on our ability to meet our
business projections.
We have a limited operating history and a history of losses
Before our acquisition of Able Auctions (1991) Ltd., we had no material business
or results of operation. We incurred a net loss of $1,379,492 during 1999. We
anticipate that we will continue to incur losses at least through fiscal 2000.
We do not believe that we will generate sufficient revenues to support our
planned activities in fiscal 2000 because of our projected development and
marketing costs and costs related to our expansion strategy. See "Plan of
Operation" and "Summary of Operating Budget." In the foreseeable future, we
believe that these expenses will increase our net losses, and we cannot assure
you that we will ever be profitable.
As of December 31, 1999, we had current assets of $827,829 and current
liabilities of $338,622. Our working capital position at December 31, 1999 was
$489,207. We anticipate raising additional capital through sales of our equity
and/or debt; however, we cannot assure you that we will be able to obtain
adequate financing to support our planned activities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Because we have recently begun operations, it is difficult to evaluate our
business and our prospects. Our revenue and income potential is unproven and our
business model is still emerging. We cannot assure you that we will
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attract consignors or bidders to use our web site or generate significant
revenues in the future. We cannot guarantee that we will ever establish a
sizeable market share or achieve commercial success.
Our success depends on the services of our key officers, Abdul Ladha, our
President and Chief Executive Officer, N.H. (Nosh) Vellani, our Chief Financial
Officer, and Jeremy Dodd, the Vice-President of Operations of our subsidiary,
and our ability to attract and maintain qualified, experienced personnel
Our future success will depend on Abdul Ladha, our President and Chief Executive
Officer, N.H. (Nosh) Vellani, our Chief Financial Officer, and Jeremy Dodd, the
Vice-President of Operations of Able Auctions (1991) and our Secretary and
Treasurer. Abdul Ladha is also President of Dexton Technologies Corporation, and
we anticipate that he will spend 75% of his business time managing our company.
We also rely heavily on Mr. Dodd to manage our auction operations and we intend
to hire additional personnel or consultants to assist us in developing and
implementing our technology and business plan. Mr. Vellani will dedicate his
time to our business on a full time basis, and we intend to rely on him to
assist us in developing our financial and business strategies. We also rely on
consultants and advisors who are not employees, including KCSA Public Relations
Worldwide, our investor relations advisor.
The loss of key personnel could have an adverse effect on our operations. We do
not maintain insurance to cover losses that may result from the death of any of
our key personnel. Competition for qualified employees is intense, and an
inability to attract, retain, and motivate additional, highly skilled personnel
required for expansion of operations and development of technologies could
adversely affect our business, financial condition, and results of operations.
Our ability to retain existing personnel and attract new personnel may also be
adversely affected by our financial situation. We cannot assure you that we will
be able to retain our existing personnel or attract additional, qualified
persons when required and on acceptable terms.
We may be required to sell additional common stock or parties may exercise
options and warrants that would cause dilution of your shares
The number of shares of our outstanding common stock held by affiliates is large
relative to the trading volume of the common stock. Any substantial sale of our
common stock or even the possibility of such sales occurring may have an adverse
effect on the market price of the common stock.
As of March 31, 2000, we had outstanding warrants to purchase 547,029 shares of
our common stock at the price of $3.20 per share until August 24, 2000 and
thereafter at the price of $4.00 per share until August 24, 2001, and 1,000,000
shares of our common stock at the price of $5.00 per share until February 25,
2001 and thereafter at the price of $6.00 per share until February 25, 2002.
We have reserved up to an additional 3,000,000 shares of common stock for
issuance upon exercise of options under our incentive stock option plan. On
October 14, 1999, we granted options to acquire up to 812,500 shares of our
common stock at the price of $3.20 per share to directors, officers, employees,
and consultants, of which 762,500 options were granted under the plan. On
January 18, 2000, we granted options to acquire up to 102,500 shares of our
common stock at the price of $5.00 per share to officers and employees, all of
which options were granted under the plan. Finally, on February 29, 2000, we
granted options to one officer to acquire 75,000 shares of our common stock at
the price of $6.756 per share, and 30,000 shares of our common stock at the
price of $8.00 per share.
Holders of warrants and options are likely to exercise them when, in all
likelihood, we could obtain additional capital on terms more favorable than
those provided by the options and warrants. Further, while our warrants and
options are outstanding, our ability to obtain additional financing on favorable
terms may be adversely affected.
Our executive officers and directors beneficially own or control a large number
of shares of our common stock and may influence all matters submitted to a vote
of our shareholders
Our executive officers and directors (and their affiliates), as a group
beneficially own 8,764,994 shares on a fully diluted basis or approximately
43.02% of our common stock, and together have the ability to influence matters
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submitted to our stockholders for approval. See "Security Ownership of Certain
Beneficial Owners and Management."
Accordingly, such concentration of ownership may have the effect of delaying,
deferring, or preventing a change in control of our company; impede a merger,
consolidation, takeover, or other business combination involving our company; or
discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our company, which in turn could have an adverse
effect on the market price of our company's common stock.
Investors may not be able to secure foreign enforcement of civil liabilities
against our management
All of our directors and officers (except for Harlan Moore, our Vice-President
of Operations for Washington State) are residents of Canada. Consequently, it
may be difficult for United States investors to effect service of process within
the United States on those directors or officers, or to realize in the United
States on judgments of United States courts predicated on civil liabilities
under the United States Securities Exchange Act of 1934, as amended. A judgment
of a U.S. court predicated solely on such civil liabilities would probably be
enforceable in Canada by a Canadian court if the U.S. court in which the
judgment was obtained had jurisdiction, as determined by the Canadian court, in
the matter. There is substantial doubt whether an original action could be
brought successfully in Canada against any of those persons or Ableauctions.com,
Inc. predicated solely on such civil liabilities.
The e-commerce industry is highly competitive, and we cannot assure you that we
will be able to compete effectively
The market for broadcasting auctions over the Internet is new, rapidly evolving,
and intensely competitive. The market for live video-fed auctions is even newer,
and we expect competition to intensify further in the future. Our direct
competitors will include Livebid.com, owned by Amazon.com, and other web sites
that broadcast live auctions. We will also compete with various online auction
services, including eBay; Onsale Exchange, a division of Onsale, Inc.; Auction
Universe, a Times-Mirror company; Excite, Inc.; and a number of other small
services, including those that serve specialty markets. We will also compete
with business-to-consumer online auction services such as Onsale, First Auction,
Zauction, and Surplus Auction.
We face potential competition from a number of large online communities and
services that have expertise in developing online commerce and in facilitating
online person-to-person interaction. Certain of these potential competitors,
including Amazon.com, America Online, Inc., Microsoft Corporation, and Yahoo!
Inc., currently offer a variety of business-to-consumer trading and classified
advertisement services and certain of these companies may introduce live
auctions to their large user populations. We believe that the principal
competitive factors in the online auctions market are volume and selection of
goods, population of buyers, customer service, reliability of delivery and
payment by users, brand recognition, web site convenience and accessibility,
price, quality of search tools, and system reliability. Many of our current and
potential competitors have longer operating histories, larger customer bases,
greater brand recognition, and significantly greater financial, marketing,
technical, and other resources than us.
Certain of our competitors with other revenue sources may be able to devote
greater resources to marketing and promotional campaigns, adopt more aggressive
pricing policies, and devote substantially more resources to web site and
systems development than us or may try to attract traffic by offering services
for free. We cannot assure you that we will be able to compete successfully
against current and future competitors. Further, as a strategic response to
changes in the competitive environment, we may, from time to time, make certain
pricing, service, or marketing decisions that could have a material adverse
effect on our business, results of operations, and financial condition.
If we are unable to successfully develop a network of brick-and-mortar auction
houses, we are unlikely to become profitable
Our business strategy is to grow through acquisitions of or strategic
affiliations with auction companies in a number of North American markets.
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Although we believe that we have an adequate infrastructure to implement our
growth strategy, there can be no assurance that our current management,
personnel, and corporate infrastructure will be adequate to manage future
growth, if any. In addition, to the extent the success of our strategy is
contingent on making further acquisitions of or entering into strategic
affiliations with auction companies, we cannot assure you that we will be able
to identify and enter into agreements with auction houses on terms favorable to
us. We also cannot guarantee that we will be able to integrate such acquisitions
or affiliations successfully into our company without substantial costs, delays,
or other operational or financial problems. Further, acquisitions and expansion
into new markets involve a number of special risks, including possible adverse
effects on our operating results, diversion of management's attention, failure
to retain key acquired personnel, risks associated with unanticipated events or
liabilities, and amortization of acquired intangible assets, some or all of
which could have a material adverse effect on our business, financial condition
and results of operations. In addition, competition in the acquisition market is
intense, and prices paid for auction houses have increased in recent years.
To the extent we are required to write down goodwill associated with our
acquisitions due to a decline in the value of such acquired businesses, such
write-down could have a material adverse effect on our operating results.
We may finance future acquisitions and expansions through the incurrence of
additional bank indebtedness, the utilization of cash from operations, the
issuance of common stock or other securities, or any combination thereof. If our
common stock does not maintain a sufficient market value, or potential
acquisition candidates are otherwise unwilling to accept our common stock or
other securities as part of the consideration for the sale of their businesses,
we may be required to use more of our cash resources or incur substantial debt
in order to finance future acquisitions. If we do not have sufficient cash
resources, our ability to make acquisitions could be limited unless we are able
to obtain additional capital through debt or equity financings. There can be no
assurance that we will be able to obtain the financing we will need in the
future on terms we deem acceptable, if at all.
If we are unable to achieve a significant number of visitors and successfully
facilitate transactions, we may be unable to generate sufficient revenues to
earn a profit
The success of our Ableauctions.com web site may be dependent on achieving
significant market acceptance of our web site by consumers. We anticipate that
this point will be reached when 10,000 visitors visit our web site regularly and
facilitate 1,000 or more transactions per day. Our Ableauctions.com web site has
not been tested and we anticipate that we will have very limited market
acceptance until our brand name is established. Internet e-commerce is in the
early stage of development, and our business concept of offering an Internet
solution for holding auctions has not been tested.
Our competitors and potential competitors may offer more cost-effective
merchandising solutions than us, which could damage our business and our ability
to successfully launch our web site. Our failure to attract visitors,
successfully complete transactions, and develop an adequate auction house base
will seriously harm our business and our ability to earn a profit.
Due to the emerging nature of Internet commerce, we are unable to forecast our
expenses and revenues accurately, and if our expenses exceed our revenues, we
may never become profitable
As a result of the emerging nature of the Internet, including Internet-based
advertising, services, and electronic commerce, we are unable to forecast our
expenses and revenues accurately. We believe that due primarily to the
relatively brief time the Internet has been available to the general public,
there are several uncertainties related to the successful operation of any form
of Internet-based business. Our current and future estimated expense levels are
based largely on our estimates of future revenues and may increase considerably.
Few, if any, of our operating expenses can be quickly or easily reduced, such as
the laying off of personnel or reducing our commitment to our consultants and
service providers, in a manner that would not cause a material adverse effect to
our business, financial condition, and operating results. In addition, we may be
unable to adjust spending in a timely manner to compensate for any unexpected
expenditures, and a shortfall in actual revenues as compared to estimated
revenues would have an immediate material adverse effect on our business,
financial condition, and operating results.
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We have capacity constraints and system development risks that could damage our
customer relations or inhibit our possible growth, and we may need to expand our
management systems and controls quickly
Our success and our ability to provide high quality customer service largely
depends on the efficient and uninterrupted operation of our computer and
communications systems and the computers and communication systems of third
party vendors in order to accommodate any significant numbers or increases in
the numbers of consumers and businesses using our services. Our success also
depends on us and our vendors' abilities to rapidly expand
transaction-processing systems and network infrastructure without any systems
interruptions in order to accommodate any significant increases in use of our
service.
We intend to rely on Compaq to provide us with DISA technology; Allaire
Corporation to assist us with our software application development and to assist
us with server maintenance and software upgrades; Cybercash to provide third
party credit card processing services; and any other third parties we may hire
in the future to assist us in expanding our technological capacity, our
transaction-processing systems, and network infrastructure as we grow. We cannot
assure you that the vendors we have selected and will select in the future will
be capable of accommodating any significant number or increases in the number of
consumer and auction houses using our services. Such failures will have a
material adverse affect on our business and results of operations. We may
experience periodic systems interruptions and down time caused by traffic to our
web site and technical difficulties, which may cause customer dissatisfaction
and may adversely affect our results of operations. Limitations of our and our
vendors' technology infrastructure may prevent us from maximizing our business
opportunities.
Changing technology may render our equipment, software, and programming obsolete
or irrelevant
The market for Internet-based products and services is characterized by rapid
technological developments, frequent new product introductions, and evolving
industry standards. The emerging character of these products and services and
their rapid evolution will require that we continually improve the performance,
features, and reliability of our Internet-based products and services,
particularly in response to competitive offerings. We cannot guarantee that we
will be successful in responding quickly, cost effectively, and sufficiently to
these developments. In addition, the widespread adoption of new Internet
technologies or standards could require substantial expenditures by us to modify
or adapt our Internet sites and services and could fundamentally affect the
character, viability, and frequency of Internet-based advertising, either of
which could have a material adverse effect on our business, financial condition,
and operating results. In addition, new Internet-based products, services, or
enhancements offered by us may contain design flaws or other defects that could
require costly modifications or result in a loss of consumer confidence, either
of which could have a material adverse effect on our business, financial
condition, and operating results.
We depend on third parties for uninterrupted Internet access and may be harmed
by the loss of any such service
We rely on Telus Advanced Communications, an Internet service provider located
in the Lower Mainland of British Columbia, for uninterrupted Internet access. We
have not entered into a definitive agreement for such services. Our business is
dependent on uninterrupted Internet access and the loss of such services may
have a material adverse effect on our business, financial condition, and
operating results. We cannot assure you that we would be able to obtain such
services from other third parties in the event of the loss of any of such
services.
If we cannot protect our Internet domain name, our ability to conduct our
operations may be impeded
We anticipate that the Internet domain name "ableauctions.com" will be an
extremely important part of our business and the business of our subsidiaries.
Governmental agencies and their designees generally regulate the acquisition and
maintenance of domain names. The regulation of domain names in the United States
and in foreign countries may be subject to change in the near future. Governing
bodies may establish additional top-level domains, appoint additional domain
name registrars, or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in all
countries in which we conduct business. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we may be unable to prevent third
parties from acquiring domain names that are similar to, infringe on, or
otherwise decrease the value of our trademarks and other proprietary rights.
Third
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parties have acquired domain names that include "auctions" or variations thereof
both in the United States and elsewhere.
Our business may be subject to government regulation and legal uncertainties
that may increase the costs of operating our web site or limit our ability to
generate revenues
We are subject to the same federal, state, and local laws as other companies
conducting business on the Internet. Today there are relatively few laws
specifically directed towards online services. However, due to the increasing
popularity and use of the Internet and online services, it is possible that laws
and regulations will be adopted with respect to the Internet or online services.
These laws and regulations could cover issues such as online contracts, user
privacy, freedom of expression, pricing, fraud, content and quality of products
and services, taxation, advertising, intellectual property rights, and
information security. Applicability to the Internet of existing laws governing
issues such as property ownership, copyrights and other intellectual property
issues, taxation, libel, obscenity, and personal privacy is uncertain. In
addition, numerous states have regulations regarding the manner in which
auctions may be conducted and the liability of auctioneers in conducting such
auctions.
Due to the global nature of the Internet, it is possible that the governments of
other states and foreign countries might attempt to regulate our transmissions
or prosecute us for violations of their laws. We might unintentionally violate
such laws. Such laws may be modified, or new laws may be enacted, in the future.
Any such development could damage our business.
Our business may be subject to sales and other taxes, which may cause
administrative difficulties and increase our cost of operations
We will collect applicable sales and other similar taxes on goods sold on our
web site. One or more states may seek to impose additional sales tax collection
obligations on companies such as ours that engage in or facilitate online
commerce. Several proposals have been made at the state and local level that
would impose additional taxes on the sale of goods and services through the
Internet. These proposals, if adopted, could substantially impair the growth of
electronic commerce and could diminish our opportunity to derive financial
benefit from our activities. The U.S. federal government recently enacted
legislation prohibiting states or other local authorities from imposing new
taxes on Internet commerce for a period of three years ending October 21, 2001.
This tax moratorium will last only for a limited period and does not prohibit
states or the Internal Revenue Service from collecting taxes on our income, if
any, or from collecting taxes that are due under existing tax rules. A
successful assertion by one or more states or any foreign country that we should
collect sales or other taxes on the exchange of merchandise on our system could
harm our business and adversely affect our results of operations.
Seasonality and potential fluctuations in results of operating may cause cash
shortfalls materially affecting our results of operations
As a result of our limited operating history and the emerging nature of the
markets in which we compete, it is difficult for us to forecast our revenues or
earnings accurately. In addition, we have no backlog and a significant portion
of our net revenues for a particular quarter are derived from auctions that are
listed and completed during that quarter. Our current and future expense levels
are based largely on our investment plans and estimates of future revenues and
are, to a large extent, fixed.
We may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall in revenues
relative to our planned expenditures would have an immediate adverse effect on
our business, results of operations and financial condition. Further, as a
strategic response to changes in the competitive environment, we may from time
to time make certain pricing, service or marketing decisions that could have a
material adverse effect on our business, results of operations, and financial
condition.
Based on management's experience in the auction industry, our discussions with
other companies, and public disclosures by our competitors, we believe that our
results of operations will be somewhat seasonal in nature, with fewer auctions
listed around the Thanksgiving and Christmas holidays in the fourth quarter than
at other times of the year.
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Our limited operating history, however, makes it difficult to fully assess the
impact of these seasonal factors or whether or not our business is susceptible
to cyclical fluctuations in the U.S. and Canadian economies. There can be no
assurance that seasonal or cyclical variations in our operations will not become
more pronounced over time or that they will not materially adversely affect
results of operations in the future. Moreover, consumer "fads" and other changes
in consumer trends may cause significant fluctuations in our operating results
from one quarter to the next.
Due to the foregoing factors, our quarterly revenues and operating results are
difficult to forecast. We believe that period-to-period comparisons of our
operating results may not be meaningful and should not be relied on as an
indication of future performance. In addition, it is likely that in one or more
future quarters our operating results will fall below the expectations of
securities analysts and investors. In that event, the trading price of our
common stock would almost certainly be materially adversely affected.
Broker-dealers may be discouraged from effecting transactions in our shares
because they are considered penny stocks and are subject to the penny stock
rules
Rules 15g-1 through 15g-9 promulgated under the Securities and Exchange Act of
1934, as amended, impose sales practice and disclosure requirements on NASD
brokers-dealers who make a market in "a penny stock." A penny stock generally
includes any non-NASDAQ equity security that has a market price of less than
$5.00 per share. Our shares are quoted on the National Association of Securities
Dealer's Over-the-Counter Bulletin Board (OTCBB) and the high and low closing
price of our shares during 1999 ranged from $5.00 (high) to $1.00 (low), and the
price of our shares on December 31, 1999 was $5.00. If the price of our shares
fall below $5.00, our shares would be considered a penny stock. The additional
sales practice and disclosure requirements imposed on brokers-dealers may
discourage broker-dealers from effecting transactions in our shares, which could
severely limit the market liquidity of the shares and impede the sale of our
shares in the secondary market.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or an "accredited investor" (generally, an
individual with net worth in excess of $1,000,000 or an annual income exceeding
$200,000, or $300,000 together with his or her spouse) must make a special
suitability determination for the purchaser and must receive the purchaser's
written consent to the transaction before the sale, unless the broker-dealer or
the transaction is otherwise exempt. In addition, the penny stock regulations
require the broker-dealer to deliver, before any transaction involving a penny
stock, a disclosure schedule prepared by the SEC relating to the penny stock
market, unless the broker-dealer or the transaction is otherwise exempt. A
broker-dealer is also required to disclose commissions payable to the
broker-dealer and the registered representative and current quotations for the
securities. Finally, a broker-dealer is required to send monthly statements
disclosing recent price information with respect to the penny stock held in a
customer's account and information with respect to the limited market in penny
stocks.
Item 2. Description of Property
We currently lease, through our subsidiary Able Auctions (1991), our principal
business office comprising 15,000 square feet at 1963 Lougheed Highway,
Coquitlam, British Columbia, Canada, pursuant to a lease that expires on
December 1, 2001. The monthly payments under the lease are $5,600 (Cdn$8,000)
plus goods and services tax. The lease may be terminated on one month's notice.
We have subleased approximately 22,000 square feet of warehouse and office space
at 8303 129th Street, Surrey, British Columbia, Canada, for the term commencing
January 1, 2000 to January 31, 2002 at the monthly rent of $7,350 (Cdn$10,500)
plus goods and services tax.
We have leased approximately 1,360 square feet of warehouse and office space at
15444 Bel-Red Road, Redmond, Washington, on a month-to-month basis for $1,200
per month. We are seeking a new leasehold premises in Redmond or Seattle,
Washington.
25
<PAGE>
We have leased approximately 13,000 square feet of warehouse and office space at
800 East 3rd Avenue, San Mateo, California. There are two years remaining under
the lease and the monthly rent is $12,000.
We lease our corporate office space at 3112 Boundary Road, Burnaby, British
Columbia, Canada, from Derango Resources Inc., a private company wholly owned by
our President, Abdul Ladha, and his wife, Hanifa Ladha. The term of the lease
commenced September 1, 1999 and continues until August 31, 2004. The annual
basic rent is approximately $20,000 (Cdn$27,991.12), payable in equal monthly
installments of approximately $1,667 (Cdn$2,332.60).
We own, through our subsidiary, Ableauctions.com (Washington), a commercial
property located at 7303 East Earl Drive, Scottsdale, Arizona, which includes a
50,000 square foot building. We acquired the property on March 20, 2000 pursuant
to a purchase and sale agreement between Ableauctions.com (Washington) and C&C
Capital Investment, Inc., in consideration of $1,200,000 in cash, $1,056,110.53
by the assumption of a wrap-around promissory note and a wrap-around deed of
trust and assignment of rents, and 1,243,889.47 by the issuance of 155,486
shares of our common stock at the deemed price of $8.00 per share, for a total
purchase price of $3,500,000.
Neither we nor our subsidiaries presently own or lease any other property or
real estate.
Item 3. Legal Proceedings
Four actions have been brought in Surrey, British Columbia Small Claims Court
against Able Auctions (1991) Ltd. by Sangat S. Rehal, Surinder K. Rehal, Paulie
Bhambra and Nikki Panasara, each in the amount of approximately $7,000
(Cdn$10,000) for alleged conversion of personal property by Able Auctions. These
actions have not yet been set for trial. We believe these claims are without
merit and we intend to vigorously defend against them.
Other than the foregoing, to the best of our knowledge, we are not subject to
any active or pending legal proceedings or claims against us or any of our
properties. However, from time to time, we may become subject to claims and
litigation generally associated with any business venture.
Item 4. Submission of Matters to a Vote of Security Holders
By consent resolutions dated as of October 14, 1999, a majority of our common
stockholders approved our 1999 stock option plan (the "Plan") and the form of
stock option agreement appended to the Plan. Under the Plan, an aggregate
3,000,000 shares of our common stock are reserved for issuance to eligible
recipients of Incentive Stock Options and Non-Qualified Stock Options (as those
terms are defined in the Plan). A Notice that the Plan was approved by a
majority of our common stockholders was provided to the other stockholders who
did not sign the consent resolutions approving the Plan.
No other meetings of security holders were held during the fourth quarter of our
fiscal year ended December 31, 1999.
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<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Our common stock trades on the OTCBB under the symbol "ABLC". The OTCBB
constitutes a limited and sporadic trading market and does not constitute an
"established trading market". See "Risk Factors - An established public trading
market for our securities does not exist." The range of high and low bid prices
per share for our common stock for each quarter during the period from July 21,
1999 through March 31, 2000, as published by the OTCBB is set forth below. The
quotations merely reflect the prices at which transactions were proposed, and do
not necessarily represent actual transactions. Prices do not include retail
markup, markdown, or commissions and may not represent actual transactions. The
trading prices have been adjusted to give effect to the four-for-one stock
dividend effective July 20, 1999, the five-for-one forward stock split effective
August 9, 1999, and the one-for-four reverse split effective September 2, 1999.
Quarterly Common Stock Price Ranges
Quarter Ended 1999
------------- --------------------------
High Low
---- ---
September 30 $4.00 $1.00
December 31 $5.00 $1.5625
Quarter Ended 2000
------------- --------------------------
High Low
---- ---
March 31 $9.875 $4.4688
There were 19 record holders of our common stock as of March 31, 2000.
We have not paid dividends on our common stock since our inception. Dividends on
common stock are within the discretion of the Board of Directors and are payable
from profits or capital legally available for that purpose. It is our current
policy to retain any future earnings to finance the operations and growth of our
business. Accordingly, we do not anticipate paying any dividends on common stock
in the foreseeable future.
Recent Sales of Unregistered Securities
Since August 24, 1999, Ableauctions.com has issued and sold the following
securities. All information has been adjusted to give effect to the four-for-one
stock dividend effective July 20, 1999, the five-for-one forward stock split
effective August 9, 1999, and the one-for-four reverse split effective September
2, 1999.
1. On August 24, 1999, we completed a private placement of 1,094,057
units at the price of $3.20 per unit to one person for proceeds of
$3,500,980. Each unit consisted of one share of common stock and
one-half of one non-transferable share purchase warrant. Each whole
warrant is exercisable to acquire one additional share of our common
stock at a price of $3.20 until August 24, 2000, and thereafter at a
price of $4.00 until August 24, 2001. The issuance of the shares was
exempt from registration in reliance on Rule 506 under Regulation D
promulgated under the Securities Act of 1933, as amended.
2. On August 24, 1999, we issued 1,843,444 shares of our common stock to
Dexton Technologies Corporation in partial consideration for all of
the issued and outstanding shares of common stock of Able Auctions
(1991). The issuance of the shares was exempt from registration
pursuant to Rule 506 under Regulation D promulgated under the
Securities Act of 1933, as amended.
3. On October 18, 1999, we issued 60,000 shares of our common stock at
the deemed price of $2.80 (Cdn$4.16) per share to Ross Auctioneers &
Appraisers Ltd. in consideration for the business assets of Ross
Auctioneers. The issuance of the shares was exempt from registration
pursuant to Regulation S promulgated under the Securities Act of 1933,
as amended.
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<PAGE>
4. On February 25, 2000, we completed a private placement of 1,000,000
units at the price of $5.00 per unit to two persons for proceeds of
$5,000,000. Each unit consisted of one share of common stock and one
non-transferable share purchase warrant. Each warrant is exercisable
to acquire one additional share of our common stock at a price of
$5.00 until February 25, 2001, and thereafter at a price of $6.00
until February 25, 2002. The issuance of the shares was exempt from
registration pursuant to Rule 506 under Regulation D and Regulation S
promulgated under the Securities Act of 1933, as amended.
5. On February 29, 2000, we issued 53,405 shares of our common stock at
the deemed price of $6.756 per share per share to Falcon Trading, Inc.
in consideration for the business assets of Falcon Trading. The
issuance of the shares was exempt from registration pursuant to Rule
506 under Regulation D promulgated under the Securities Act of 1933,
as amended.
6. On March 20, 2000, we issued 30,625 shares of our common stock at the
deemed price of $8.00 per share to Mesler's Auction House of
Scottsdale, LLC. in partial consideration for the business assets of
Mesler's. The issuance of the shares was exempt from registration
pursuant to Rule 506 under Regulation D promulgated under the
Securities Act of 1933, as amended.
7. On March 20, 2000, we issued 155,486 shares of our common stock at the
deemed price of $8.00 per share to C&C Capital Investment, Inc. in
partial consideration for a real estate property and building. The
issuance of the shares was exempt from registration pursuant to Rule
506 under Regulation D promulgated under the Securities Act of 1933,
as amended.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Plan of Operation
Our plan of operation is based on the operating history of Able Auctions (1991)
Ltd., our experience in the industry, our discussions with third parties, the
SEC filings of our competitors and the decisions of our management. Set out
below is a summary of our plan of operation and operating budget for the next
fiscal year ending December 31, 2000.
Generate revenues through auctions and increase our volume of sales by
increasing the number of live auctions at our existing locations
We will continue to operate auctions at our 4 locations in Surrey and Coquitlam,
British Columbia; Redmond, Washington; and Scottsdale, Arizona. We intend to
increase the number of auctions we currently hold from two to four per month,
per auction house, beginning in January 2000. See "Description of Business - Our
Business Strategy."
Increase revenues by broadcasting our auctions on the Internet and by selling
merchandise on our web site
We launched our web site for public viewing in September 1999 and broadcasted
our first live auction in January 2000. We are in the process of further
refining the technologies related to broadcasting live auctions on our web site.
Visitors to our web site may also purchase items from our Retail Store and bid
on items in our Silent Auction.
Initially, we intend to host live auctions alternating between our locations in
British Columbia, Washington, and Arizona. We may add auctions of other auction
houses if we acquire additional auction locations or if we develop strategic
affiliations with other auction houses to broadcast their auctions.
Continue research and development to improve our web site and auction
broadcasting technologies
We plan to continue our research and development efforts by improving our web
site and auction broadcasting technologies. We are in the process of refining
our live auction broadcasting technologies and intend to develop software and
systems that will allow us to improve graphical presentations, the speed of our
bidding process, the
28
<PAGE>
preview of merchandise and the method of registering bidders. We anticipate that
we will spend approximately $750,000 on research and development efforts during
fiscal 2000. See "Description of Business - Research and Development."
Install the live broadcast technology at regional auction sites
We plan to install live broadcast technology at all of our auction locations. We
estimate the costs of installing broadcast equipment will be approximately
$125,000 to $150,000 per location.
Commence geographic expansion program by acquiring or entering into strategic
affiliations with auction companies
We intend to broadcast the auctions of auction companies in a variety of
locations throughout North America. We have begun to acquire other auction
companies. See "Acquisitions." Our management will continue to identify possible
auction companies to approach regarding acquisition by us or potential strategic
relationships.
We expect the focus of our geographic expansion will be in Ontario, Canada;
Seattle; New York and Southern California. See "Our Business Strategy."
Install the computer server hardware in Vancouver, San Jose, and New York
We installed 40 servers in the first phase of our hardware and software
implementation program in our British Columbia location in December 1999. We
intend to install additional servers as traffic on our web site increases. We
may also install secondary servers in San Jose, Arizona and in New York during
2000. Our multi-server networking strategy is designed to allow visitors to our
auction sites to have timely response time to effectively bid for items at our
live auctions without bandwidth restrictions.
Hire additional key personnel
We plan to hire personnel and employ consultants with Internet e-commerce
experience to complement our current management who are experienced in the
auction industry. We anticipate adding up to 15 new employees with e-commerce,
software development, and software maintenance experience during 2000.
Summary of Operating and Capital Budget
Set forth below are our estimated cash operating and capital budgets for
operations, technology purchases, research and development and implementing our
expansion strategy for the fiscal year ending December 31, 2000:
Marketing $ 5,000,000
Ongoing research and development 750,000
Expansion of inventories 3,000,000
Servers and operating systems 1,250,000
Geographic expansion 5,000,000
------------------
Required Capital: $15,000,000
Our operating and capital budget for the fiscal year ending December 31, 2000 is
estimated to be approximately $15 million. As of March 31, 2000, we had
approximately $2,745,000 in working capital. We anticipate that we have
sufficient working capital to finance our plan of operations through June 2000;
however, we will be required to raise additional capital during the second
quarter 2000 to meet our anticipated cash needs and to fund our plan of
operation through December 31, 2000. See "Liquidity and Capital Resources." We
cannot assure you that our actual expenditures for that period will not exceed
our estimated operating budget. Actual expenditures will depend on a number of
factors, some of which are beyond our control, including, among other things,
the availability of financing on acceptable terms, acquisition and/or expansion
costs, reliability of the assumptions of management in estimating cost and
timing, certain economic factors, the timing related to development of our
technology and launch of our web site and cost associated with operating our
auctions.
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<PAGE>
We will be required to raise additional capital during the second quarter 2000
to meet our anticipated cash needs. If we are unable to raise additional
financing on acceptable terms, we may be forced to delay the implementation of
certain portions of our plan of operation, which may adversely affect our
business and results of operations. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Liquidity and Capital
Resources."
Management's Discussion and Analysis
The information contained in this Management's Discussion and Analysis contains
"forward looking statements." Actual results may materially differ from those
projected in the forward looking statements as a result of certain risks and
uncertainties set out in this report. See "Note Regarding Forward Looking
Statements."
Although management believes that the assumptions made and expectations
reflected in the forward looking statements are reasonable, there is no
assurance that the underlying assumptions will, in fact, prove to be correct or
that actual future results will not be different from the expectations expressed
in this registration statement.
Our actual results could differ materially from the results projected in the
forward-looking statements as a result of our ability to:
o achieve the objectives of our business strategy;
o accelerate or defer operating expenses;
o achieve revenue from our operations; and
o hire new personnel,
and other factors set forth under "Risk Factors" in this registration statement.
The following discussion is qualified by the more complete financial information
contained in our audited financial statements for the year ended December 31,
1999.
Our financial statements have been prepared in accordance with United States
generally accepted accounting principles.
The following discussion of our results of operations should be read in
conjunction with our audited financial statements and the related notes included
in this annual report. Able Auctions (1991) Ltd.'s results of operations prior
to our acquisition of Able Auctions (1991) on August 24, 1999 are not included
in our consolidated financial statements.
Overview
We were incorporated in the State of Florida on September 30, 1996 under the
name "J.B. Financial Services, Inc.
On August 24, 1999, we acquired all of the issued and outstanding shares of Able
Auctions (1991) Ltd. pursuant to a share purchase agreement with Dexton
Technologies Corporation, the sole shareholder of Able Auctions (1991) at that
time. See "Acquisitions - Our Acquisition of Able Auctions (1991)."
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<PAGE>
On our acquisition of Able Auctions (1991), we acquired all of the assets and
the auction business of Able Auctions (1991). We also undertook the process of
designing, building and testing an Internet based e-commerce web site to
broadcast auctions over the Internet. We launched our web site for public
viewing in December 1999, and conducted our first live broadcast of an action on
our web site in January, 2000.
We are an early stage company and our principal activity to date has been the
acquisition of all the issued and outstanding shares of Able Auctions (1991)
Ltd, and the business assets and employees of Ross Auctioneers & Appraisers Ltd.
both in British Columbia, Canada. Subsequent to the year, we acquired the
business assets and hired the employees of Falcon Trading, Inc. in Washington
State, and Mesler's Auction House in Arizona. Before these acquisitions, we were
a shell company with no material revenues, expenses, assets or liabilities.
We believe that our historic spending levels and the historic spending levels of
Able Auctions (1991), Ross Auctioneers, Falcon Trading, and Mesler's Auction
House are not indicative of future spending levels because we are entering a
period in which we will increase spending on research and development,
marketing, staffing and other general operating expenses. For these reasons, we
believe our expenses, losses, and deficit accumulated during the development
stage will increase significantly before we generate material revenues or
profits from our operations. In the absence of additional funding, there is
substantial doubt about our ability to continue as a going concern for a
reasonable period of time as set forth in the audited financial statements and
related notes included in this registration statement.
Our Results of Operations
Fiscal Year Ended December 31, 1999, Compared to the Fiscal Year Ended December
31, 1998
We acquired Able Auctions (1991) on August 24, 1999. During the year ended
December 31, 1999, we had revenues of $898,450 attributable to the business
operations of our wholly owned Canadian subsidiary Able Auctions (1991) during
the period from August 24, 1999 to December 31, 1999. Our operating expenses
during 1999 were $1,673,900, including accounting and legal fees of $76,057
incurred primarily in connection with our filing of a registration statement on
Form 10-SB and the acquisition of AbleAuctions (1991) Ltd; advertising and
promotion expenses of $119,004 for promoting our auction business and web site;
depreciation and amortization expenses of $195,288; investor relations and
corporate development expenses of $400,731 related to our financing efforts; and
salaries and management fees of $549,048. Our net losses for the period were
$1,339,492 or $0.10 per share. During the year ended December 31, 1998, we were
a shell company with no revenues from operations, $944 in expenses, and a net
operating losses of $944.
We anticipate net operating losses to increase for the foreseeable future as a
result of our planned efforts to expand and diversify our auction business and
anticipated development costs related to our web site. We anticipate costs
related to consulting and management fees, salaries, rent, marketing and
promotion, and general overhead to increase during 2000.
In addition, we anticipate that our general and administrative expenses will
also significantly increase as a result of the growth in our research,
development, testing and business development programs. The actual levels of
research and development, administrative and general corporate expenditures are
dependent on the cash resources available to us.
Liquidity and Capital Resources
On August 24, 1999, we completed the acquisition of Able Auctions (1991) and
raised $3,500,980 in capital through a private placement, of which we paid a
$852,971 loan payable in our acquisition of Able Auctions (1991) and $13,961 due
to a shareholder. Through December 31, 1999, we used cash of $1,491,057 in
operating activities and $1,229,313 in investing activities, including a
$702,526 net investment in Able Auctions (1991) and $526,787 in capital assets
related primarily to our auction business and Internet technologies.
Our net working capital position at December 31, 1999 was $489,207. Our working
capital included accounts receivable of $267,805, inventory of $486,572 and
prepaid expenses of $73,452. We had outstanding accounts payable of $338,622
including cheques issued in excess of amounts on deposit. Long term liabilities
were Nil at December 31, 1999. We believe that our working capital in addition
to the $5,000,000 equity financing in February 2000 will be sufficient to
satisfy our cash requirements through to June 2000. Our working capital position
at March 31, 2000 was approximately $2,745,000.
Our operating and capital budget for the year ending December 31, 2000 is
approximately $15 million, to be used primarily for expenses related to the
acquisition of new auction facilities, expansion of our inventories, continually
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developing and upgrading our technologies, launching a marketing campaign in the
United States and Canada, and purchasing additional servers and operating
systems.
Outlook
We have entered a period of rapid expansion and growth. In their independent
auditor's report dated March 24, 2000, Davidson & Co., expressed doubt about our
ability to continue as a going concern due to our lack of working capital for
our planned business activities. In February 2000, we successfully raised $5
million. We anticipate we will be required to raise an additional $10 million to
adequately fund our entire operating and capital budget for the year 2000. See
"Summary of Operating and Capital Budget."
We intend to meet our cash requirements through revenues generated from our
operations and private or public placements of our equity or debt. We are
currently seeking such financing by presenting our business plan to merchant and
investment banks, fund managers and investment advisors. We cannot assure you
that we will successfully raise any additional financing on acceptable terms, if
at all, and our failure to meet our cash requirements will force us to abandon
some of our plans of operation, sell some of our assets or certain business
operations or liquidate our business, all of which will have a material adverse
effect on our business and results of operations.
We cannot assure you that our actual expenditures for this period will not
exceed our estimated operating and capital budget. Actual expenditures will
depend on a number of factors, some of which are beyond our control, including,
among other things, timing of our web site launch, the revenues from our auction
operations, the success of our geographical expansion, the availability of
financing on acceptable terms, reliability of the assumptions of management in
estimating cost and timing, costs related to the development of our web site and
technologies, economic conditions and competitive factors in the auction
industry. See "Plan of Operation" and "Summary of Operating Budget."
Recent Financing
Our business activities and operations have been funded to date through issuance
of shares of our common stock in the following transactions:
<TABLE>
Summary of Transactions
-----------------------
Number of Total Price Of
Shares Shares ($)
------------------ ----------------
<S> <C> <C>
Balance as of December 31, 1998 6,250,000 6,250
Issued for consulting and professional services 9,062,500 9,450
Issued in consideration for Able Auctions (1991) Ltd. 1,843,444 73,738
Issued for cash at $3.20 per share(1) 1,094,057 3,500,980
Issued as consideration for the assets of Ross Auctioneers & 60,000 168,000
Appraisers Ltd.
Issued for cash at $5.00 per share(2) 1,000,000 5,000,000
Issued as consideration for the assets of Falcon Trading, Inc. 53,405 360,804
Issued as partial consideration for the assets of Mesler's Auction 30,625 245,000
House of Scottsdale, LLC(3)
Issued as partial consideration for certain assets of C&C Capital 155,486 1,243,889
Investment, Inc.
------------------ ----------------
TOTAL 19,549,517(4) 10,608,111
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) We issued units consisting of one common share and one-half of a common
share purchase warrant. Each full warrant is exercisable to acquire an
additional common share at $3.20 until August 24, 2000 and at $4.00 until
August 24, 2001.
(2) We issued units consisting of one common share and one common share
purchase warrant. Each warrant is exercisable to acquire an additional
common share at $5.00 until February 25, 2001 and at $6.00 until February
25, 2002.
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<PAGE>
(3) We also issued a common share purchase warrant entitling Mesler's to
purchase 150,000 common shares at $8.00 per share until March 20, 2001. (4)
As at March 31, 2000.
Year 2000 Compliance
The Year 2000 issue arises with the change in century and the potential
inability of information systems to correctly "rollover" dates to the new
century. To save on computer storage space, many systems were originally
programmed with a two-digit century (i.e., December 31, 1999 would appear as
12/31/99), assuming that all years would be part of the 20th century.
On January 1, 2000, systems with this programming will default to 01/01/1900
instead of 01/01/2000, and calculations using or reporting the date will not be
correct and errors will arise (the "Year 2000 issue"). To prevent this from
occurring, information systems need to be updated to ensure they recognize dates
during and after the year 2000.
The potential exists that we and our subsidiary are exposed to a risk that
certain aspects of their businesses will fail or suffer impairment as a result
of internally operated or externally contracted hardware or software systems and
services not being able to correctly "rollover" dates to the new century. The
risk stems from our reliance on certain hardware, software, and services to
carry out the daily operations of our proposed respective businesses.
On January 3, 2000, we conducted tests of our systems for Year 2000 compliance.
Based on our tests, we believe our systems and the systems of our third-party
vendors and service providers are Year 2000 compliant. We intend to continue to
monitor our systems for Year 2000 compliance, and in the event that we incur
expenses associated with resolving Year 2000 compliance issues that arise, we
intend to expense the operating costs as they are incurred and capitalize the
capital costs as they are incurred. We do not expect to incur any major
operating or capital expenditures that would have a material impact on our
financial condition or results of operations.
Quantitative and Qualitative Disclosures About Market Risks
Our financial results are quantified in U.S. dollars and a majority of our
obligations and expenditures with respect to our operations are incurred in U.S.
dollars. A majority of our revenues are derived from the business operations of
our wholly-owned subsidiary, Able Auctions (1991) Ltd., whose primary business
operations are conducted in British Columbia, Canada and in Canadian dollars.
Although we do not believe we currently have any materially significant market
risks relating to our operations resulting from foreign exchange rates, if we
enter into financing or other business arrangements denominated in currency
other than the U.S. dollar or the Canadian dollar, variations in the exchange
rate may give rise to foreign exchange gains or losses that may be significant.
We currently have no material long-term debt obligations. We do not use
financial instruments for trading purposes and we are not a party to any
leverage derivatives. In the event we experience substantial growth in the
future, our business and results of operations may be materially effected by
changes in interest rates and certain other credit risk associated with its
operations.
Item 7. Financial Statements
Reference is made to the financial statements, the reports thereon, the notes
thereto, and supplementary data commencing at page F-1 of this Form 10-KSB,
which financial statements, reports, notes, and data are incorporated herein by
reference.
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Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
On July 31, 1999, we dismissed Barry L. Friedman, P.C. as our auditor and
appointed Davidson and Company, Chartered Accountants, of Vancouver, British
Columbia, Canada. Barry L. Friedman, P.C. did not resign or decline to stand for
reappointment.
Barry L. Friedman, P.C. has not been associated with any of our financial
statements subsequent to the audit report by Barry L. Friedman, P.C. dated
November 10, 1998. The change in independent auditors was effective for the
fiscal year ended December 31, 1998, was approved by our Board of Directors, and
was not due to any disagreement between the Company and Barry L. Friedman, P.C.
on any matter of accounting principles or practices, financial statement
disclosures, or auditing scope or procedure. Our financial statements for the
fiscal year ended December 31, 1998 contain no adverse opinion or disclaimer of
opinion and have not been qualified or modified as to uncertainty, audit scope,
or accounting opinion.
During the period prior to and preceding the change in independent auditors,
there were no disagreements with Barry L. Friedman, P.C. on any matter of
accounting principles or practices, financial statement disclosures, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
Barry L. Friedman, P.C. would have caused them to make reference thereto in
their report on our financial statements for the period. We have authorized
Barry L. Friedman, P.C. to respond fully to any subject matter of any potential
disagreement with respect to our financial statements.
We have not been advised by Barry L. Friedman, P.C. or our current auditors,
Davidson and Company, Chartered Accountants, of any of the following:
(a) lack of internal controls necessary for us to develop reliable
financial statements;
(b) any information that has come to the attention of our auditors that
has led them to no longer be able to rely on management's
representations or that has made them unwilling to be associated with
the financial statements prepared by management;
(c) any need to expand significantly the scope of our auditors' audit or
information that has come to our auditors' attention during the two
financial years prior to and preceding the change in our independent
auditors that, if further investigated, would:
(i) materially impact the fairness or reliability of the previously
issued audit report or the financial statements issued or
covering that period; or
(ii) cause our auditors to become unwilling to rely on management's
representations or that has made them unwilling to be associated
with our financial statements, or due to the replacement of Barry
L. Friedman, P.C. or any other reason, our auditors did not so
expand the scope of the audit or conduct such further
investigation; and
(d) any information that has come to the attention of our auditors that
has led them to conclude that such information materially impacts the
fairness or reliability of the audit reports or the financial
statements issued covering the two financial years prior to and
preceding the change in our independent auditors (including
information that, unless resolved, to the satisfaction of such
auditors, would prevent it from rendering an unqualified audit report
on those financial statements) and due to the replacement of Barry L.
Friedman, P.C. or any other reason, any issue has not been resolved to
such auditors' satisfaction prior to Barry L. Friedman, P.C.
replacement.
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
The information set forth under the caption "Election of Directors", "Executive
Officers", and "Section 16(a) Beneficial Ownership Reporting Compliance" in
Ableauctions.com's definitive Proxy Statement for its 2000 Annual Meeting of
Shareholders, expected to be filed with the Securities and Exchange Commission
on Schedule 14A on or before April 28, 2000 is incorporated herein by reference.
Item 10. Executive Compensation
The information set forth under the captions "Executive Compensation and Other
Information" and "Compensation of Directors" in the Proxy Statement is
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the captions "Securities Ownership of Certain
Beneficial Owners" and "Securities Ownership of Management" in the Proxy
Statement to be filed with the Securities and Exchange Commission on Schedule
14A on or before April 26, 2000 is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
The information set forth under the caption "Certain Relationships and Related
Transactions between Management and the Company" in the Proxy Statement to be
filed with the Securities and Exchange Commission on Schedule 14A on or before
April 26, 2000 is incorporated herein by reference.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
- ------ -----------
2.1(1) Share Purchase Agreement dated July 9, 1999 among Dexton
Technologies Corporation, Able Auctions (1991) Ltd., and
Ableauctions.com, Inc., as amended by Addendum dated August
16, 1999.
2.4(1) Agreement and Plan of Reorganization dated February 1, 2000
among Falcon Trading, Inc., Ableauctions.com (Washington),
Inc., and Ableauctions.com, Inc.
2.5(3) Asset Purchase Agreement dated March 20, 2000 among Mesler's
Auction House of Scottsdale, LLC, Ableauctions.com
(Washington), Inc., and Ableauctions.com, Inc.
2.6(3) Purchase and Sale Agreement dated March 20, 2000 between C&C
Capital Investment, Inc. and Ableauctions.com (Washington),
Inc.
3.1(1) Articles of Incorporation, as amended (incorporated by
reference to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 of the
Registrant's Registration Statement on Form 10-SB).
3.2(2) Bylaws (Incorporated by reference to Exhibit 3.6 of the
Registrant's Registration Statement on Form 10-SB.
10.1(1) 1999 Stock Option Plan with Form of Option Agreement
(Incorporated by reference to Exhibit 4.2 of the
Registrant's Registration Statement on Form S-8.
10.2(1) Form of Stock Option Agreement
35
<PAGE>
Exhibit
Number Description
- ------ -----------
10.3(1) Share Purchase Agreement dated April 1, 1998 among Jeremy
Dodd, Dexton Technologies Corporation, and Able Auctions
(1991) Ltd.
10.4(1) Share Purchase Agreement dated July 9, 1999 among Dexton
Technologies Corporation, Able Auctions (1991) Ltd., and
Ableauctions.com, Inc., as amended by Addendum dated August
16, 1999
10.5(1) Contribution Agreement dated July 15, 1999 between Douglas
McLeod and Ableauctions.com, Inc. (then J.B. Financial
Services, Inc.) regarding Mr. McLeod's contribution of
8,000,000 shares of common stock to the Company's treasury
10.6(1) Asset Purchase Agreement dated September 20, 1999 among Ross
Auctioneers & Appraisers Ltd., Able Auctions (1991) Ltd.,
and Ableauctions.com, Inc.
10.7(1) Asset Purchase Agreement dated September 20, 1999 between
John Carrier dba LJM Computer Resources and Able Auctions
(1991) Ltd. regarding the web site located at
www.bcbids.com.
10.8(1) Bill of Sale dated September 20, 1999 between Ronald H.
Smallwood and Able Auctions (1991) Ltd. regarding the domain
name "bcbids.com".
10.9(1) Employment Agreement dated September 20, 1999 between Able
Auctions (1991) Ltd. and Richie Smallwood.
10.10(1) Subscription Agreement dated July 20, 1999 between
Ableauctions.com, Inc. and Silicon Capital Corp.
10.11(1) Consulting Agreement dated August 24, 1999 between Able
Auctions (1991) Ltd. and Dexton Technologies Corporation
10.12(1) Investor Relations Agreement dated September 15, 1999
between Ableauctions.com, Inc. and North Star Communications
Inc.
10.13(1) Investor Relations Agreement dated October 1, 1999 between
Ableauctions.com, Inc. and European Investor Services Ltd.
10.14(1) Lease Agreement dated September 1, 1999 between Derango
Resources Inc. and Ableauctions.com, Inc.
10.15(1) Sublease dated August 22, 1999 between HGP Glass Industries
of Canada Inc. and Ableauctions.com, Inc.
10.16(2) Proposal by Compaq Computer and accepted by Dexton
Technologies Corporation dated September 1999, for
installation of Distributed Internet Server Array (DISA).
10.17(2) Internet Business Services Agreement by and between Telus
Advanced Communications and Dexton Technologies Corporation
dated September 14, 1999.
10.18 Investor Relations Agreement dated February 3, 2000 between
Ableauctions.com, Inc. and KCSA Public Relations Worldwide
21.1 Subsidiaries of the Registrant.
23.1(1) Consent of Barry L. Friedman.
23.2 Consent of Davidson and Company.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
- ---------------------
(1) Previously filed on November 13, 1999 on Form 10-SB.
(2) Previously filed on December 30, 1999 on Form 10-SB/A.
(3) Previously filed on April 4, 2000 on Form 8-K.
(b) Reports on Form 8-K
1. A Current Report on Form 8-K was filed on April 4, 2000.
36
<PAGE>
SIGNATURES
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Abdul Lahda and N.H. Vellani, as his true and
lawful attorney-in-fact and agent with full power of substitution and
substitution, for him and in his name, place, and stead, in any and all
capacities, to sign any or all amendments to this Registration Statement on Form
10-KSB and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, grant unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
foregoing as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: April 11, 2000
/s/ Abdul Ladha
----------------------------------------
Abdul Ladha, President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Abdul Ladha Chairman of the Board, Chief April 11, 2000
- -------------------------- Executive Officer and
Abdul Ladha Director (Principal Executive
Officer)
/s/ N.H. (Nosh) Vellani Chief Financial Officer April 11, 2000
- -------------------------- (Principal Financial Officer
N.H. (Nosh) Vellani and Accounting Officer)
/s/ Barrett Sleeman
- -------------------------- Director April 11, 2000
Barrett Sleeman
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
A Partnership of
Incorporated Professionals
DAVIDSON & COMPANY=========Chartered Accountants================================
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
Ableauctions.com, Inc.
(formerly J.B. Financial Services, Inc.)
We have audited the accompanying consolidated balance sheets of
Ableauctions.com, Inc. (formerly J.B. Financial Services, Inc.) as at December
31, 1999 and 1998 and the related consolidated statements of operations,
comprehensive loss, changes in stockholders' equity and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
of the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ableauctions.com,
Inc. (formerly J.B. Financial Services, Inc.) as at December 31, 1999 and 1998
and the results of its operations, changes in stockholders' equity and its cash
flows for the years then ended in conformity with generally accepted accounting
principles of the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that Ableauctions.com, Inc. (formerly J.B. Financial Services, Inc.) will
continue as a going concern. As discussed in Note 2 to the financial statements,
unless the Company attains future profitable operations and/or obtains
additional financing, there is substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regards to these matters are
discussed in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Davidson & Company
Vancouver, Canada Chartered Accountants
March 24, 2000
A Member of Accounting Group International
==========================================
Suite 1270, Stock Exchange Tower, 609 Granville Street, P.O. Box 10372,
Pacific Centre, Vancouver, B.C., Canada V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31
================================================================================
<TABLE>
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Accounts receivable - trade $ 96,790 $ -
Accounts receivable - other 171,015 -
Inventory 486,572 -
Prepaid expenses 73,452 -
-------------- ------------
Total current assets 827,829 -
Trademark 12,151 -
Capital assets (Note 6) 1,170,859 -
Web site development costs (Note 7) 95,805 -
Goodwill (Note 8) 655,155 -
-------------- ------------
Total assets $ 2,761,799 $ -
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Bank indebtedness $ 60,916 $ -
Accounts payable and accrued liabilities 277,706 944
-------------- ------------
Total current liabilities 338,622 944
-------------- ------------
Stockholders' equity (Note 1)
Capital stock
Authorized
62,500,000 common shares with a par value of $0.001
Issued and outstanding
December 31, 1998 - 6,250,000 common shares
with a par value of $0.001
December 31, 1999 - 18,310,001 common shares
with a par value of $0.001 18,310 6,250
Additional paid-in capital 3,740,108 -
Deficit (1,346,686) (7,194)
Accumulated other comprehensive income 11,445 -
-------------- ------------
Total stockholders' equity 2,423,177 (944)
-------------- ------------
Total liabilities and stockholders' equity $ 2,761,799 $ -
===============================================================================================================
</TABLE>
Subsequent events (Note 14)
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
================================================================================
<TABLE>
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUE
Sales $ 829,755 $ -
Commissions 68,695 -
-------------- ------------
898,450 -
COST OF GOODS SOLD 582,346 -
-------------- ------------
GROSS PROFIT 316,104 -
-------------- ------------
OPERATING EXPENSES
Accounting and legal fees 76,057 -
Advertising and promotion 119,014 -
Amortization of goodwill 11,972 -
Automobile 46,196 -
Bad debt 36,011 -
Commission 39,625 -
Consulting fees 45,966 -
Depreciation and amortization 195,288 -
Investor relations and shareholder information 400,731 -
Management fees 238,278 -
Office and miscellaneous 61,179 944
Rent and utilities 73,695 -
Salaries and benefits 310,770 -
Telephone 19,118 -
-------------- ------------
1,673,900 944
-------------- ------------
Loss before other items (1,357,796) (944)
-------------- ------------
OTHER ITEMS
Interest income 22,871 -
Foreign exchange loss (4,567) -
-------------- ------------
18,304 -
-------------- ------------
Loss for the year $ (1,339,492) $ (944)
=============================================================================================================
Basic and diluted loss per share $ (0.10) $ 0.00
=============================================================================================================
Weighted average number of shares of common stock outstanding 13,228,082 6,250,000
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEAR ENDED DECEMBER 31
================================================================================
<TABLE>
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss $ (1,339,492) $ -
Other comprehensive income, net of tax:
Foreign currency translation adjustments 11,445 -
-------------- ------------
Consolidated comprehensive loss $ (1,328,047) $ -
=============================================================================================================
Basic and diluted comprehensive loss per share $ (0.10) $ 0.00
=============================================================================================================
Weighted average number of shares outstanding 13,228,082 6,250,000
============================================================================================== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
Accumulated
Common Stock Additional Other Total
---------------- --------------- Paid-in Comprehensive Stockholders'
Shares Amount Capital Income Deficit Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997 6,250,000 $ 6,250 $ - $ - $ (6,250) $ -
Loss for the year - - - - (944) (944)
-------------- -------------- -------------- -------------- -------------- --------------
Balance, December 31,
1998 6,250,000 6,250 - - (7,194) (944)
Common stock issued
for cash 1,094,057 1,094 3,499,886 - - 3,500,980
Common stock issued
for acquisition of
Able Auctions
(1991) Ltd. 1,843,444 1,843 71,895 - - 73,738
Common stock issued
for services 53,750,000 53,750 (45,150) - - 8,600
Common stock issued
for services 5,312,500 5,313 (4,463) - - 850
Return of shares to
treasury for
cancellation (50,000,000) (50,000) 50,000 - - -
Common stock issued
for assets of Ross
Auctioneers 60,000 60 167,940 - - 168,000
Translation adjustment - - - 11,445 - 11,445
Loss for the year - - - - (1,339,492) (1,339,492)
-------------- -------------- -------------- -------------- -------------- --------------
Balance, December 31,
1999 18,310,001 $ 18,310 $ 3,740,108 $ 11,445 $ (1,346,686) $ 2,423,177
========================= ================ =============== ================ ================ =============== ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
================================================================================
<TABLE>
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year $ (1,339,492) $ (944)
Items not affecting cash:
Amortization of goodwill 11,972 -
Bad debt 36,011
Consulting fees 9,450 -
Depreciation and amortization 195,288 -
Other (8,622) -
Changes in non-cash working capital items:
Increase in accounts receivable (271,378) -
Increase in inventory (239,597) -
Increase in prepaid expenses (37,338) -
Increase in accounts payable and accrued liabilities 166,610 944
Increase (decrease) in due to related parties (13,961) -
-------------- ------------
Net cash used in operating activities (1,491,057) -
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 3,500,980 -
Loan payable (852,971) -
-------------- ------------
Net cash provided by financing activities 2,648,009 -
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary, net of cash acquired (702,526) -
Capital assets (451,130) -
Trademark (5,704) -
Web site development costs (69,953) -
-------------- ------------
Net cash used in investing activities (1,229,313) -
-------------- ------------
Change in cash and cash equivalents for the year (72,361) -
Effect of exchange rates on cash 11,445 -
Cash and cash equivalents, beginning of year - -
-------------- ------------
Cash and cash equivalents, end of year $ (60,916) $ -
==========================================================================================================
As represented by:
Excess of cheques issued over deposits $ (117,818) $ -
Short-term deposit 56,902 -
-------------- ------------
$ (60,916) $ -
==========================================================================================================
</TABLE>
Supplemental disclosures with respect to cash flows (Note 9)
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized on September 30, 1996, under the laws of the
State of Florida, as J.B. Financial Services, Inc.
On October 1, 1996, the Company issued 5,000 shares with a par value of $1
for services received in the amount of $5,000.
On September 2, 1998, the State of Florida approved the Company's restated
Articles of Incorporation, which increased its capitalization from 6,500
common shares to 50,000,000 common shares. The par value was changed from
$1 par to $0.001.
On September 2, 1998, the Company forward split its common stock 200:1,
thus increasing the number of outstanding common stock shares from 5,000
shares to 1,000,000 shares.
On March 26, 1999, the Company issued 53,750,000 shares at a deemed value
of $8,600 as payment of fees for services received.
On April 12, 1999, the Company issued 5,312,500 shares at a deemed value of
$850 as payment of fees for services received.
On July 19, 1999, an Article of Amendment was filed with the State of
Florida for the change of the Company's name from J.B. Financial Services,
Inc. to Ableauctions.com, Inc.
On July 19, 1999, the Company received from a shareholder 50,000,000 shares
which were previously issued for services rendered, and returned these
shares to treasury for cancellation.
On July 20, 1999, the Company authorized a 5:1 stock split, effected in the
form of a dividend, increasing the shares issued and outstanding from
2,450,000 to 12,250,000.
On July 21, 1999, the Company authorized a 5:1 forward share split
increasing the shares issued and outstanding from 12,250,000 to 61,250,000
and the authorized shares to 250,000,000.
On August 24, 1999, the Company issued 1,094,057 shares of common stock
under Rule 504 of Regulation D of the Securities Act of 1993 for total
proceeds of $3,500,980.
Effective September 5, 1999, the Company effected a 4:1 reverse stock
split. Following consolidation, the issued and outstanding common shares of
the Company was 18,250,000, with a par value of $0.001 and the authorized
share capital is 62,500,000 common shares with a par value of $0.001 per
share.
On October 18, 1999, the Company issued 60,000 shares of common stock at a
deemed value of $168,000 to purchase the assets of Ross Auctioneers &
Appraisers Ltd.
The Company is a high-tech business-to-business and consumer auctioneer
that conducts its auctions live and simultaneously broadcasts them over the
Internet. The Company liquidates a broad range of computers, electronics,
office equipment, furniture and industrial equipment that it acquires
through bankruptcies, insolvencies and defaults.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
2. GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in
the normal course of business. However, the company is in the process of
expansion and its operating expenses and start-up costs exceed its
revenues. Without realization of additional capital, it would be unlikely
for the Company to continue as a going concern. It is management's plan to
seek additional capital through equity financing.
========================================================================
1999 1998
-------------------------------------------------------- ---------------
Deficit $ (1,346,686) $ (7,194)
Working capital (deficiency) 489,207 (944)
========================================================================
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
These consolidated financial statements include the accounts of
Ableauctions.com, Inc. (formerly J.B. Financial Services, Inc.) and its
wholly owned subsidiary, Able Auctions (1991) Ltd. from the date of its
acquisition on August 24, 1999. All significant inter-company balances and
transactions have been eliminated on consolidation.
Foreign currency translation
The Company accounts for foreign currency transactions and translation of
foreign currency financial statements under Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52").
Transaction amounts denominated in foreign currencies are translated at
exchange rates prevailing at transaction dates. Carrying values of monetary
assets and liabilities are adjusted at each balance sheet date to reflect
the exchange rate at that date. Non-monetary assets and liabilities are
translated at the exchange rate on the original transaction date. Gains and
losses from restatement of foreign currency monetary and non-monetary
assets and liabilities are included in income. Revenues and expenses are
translated at the rates of exchange prevailing on the dates such items are
recognized in earnings.
Financial statements of the Company's Canadian subsidiary, Able Auctions
(1991) Ltd. are translated into U.S. dollars using the exchange rate at the
balance sheet date for assets and liabilities. The functional currency of
Able Auctions (1991) Ltd. is the local currency, the Canadian dollar.
Translation adjustments, if necessary, are recorded as a separate component
of Stockholders' Equity.
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 period. Actual results could differ from these estimates.
Cash and cash equivalents
The Company considers all investments with a maturity of three months or
less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost and net realizable value.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Software development
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.
Capital assets and depreciation
Capital assets are recorded at cost less accumulated depreciation. The cost
of capital assets is depreciated using the declining balance method at the
following rates:
Computer equipment 30%
Computer software 30%
Furniture and fixtures 20%
Equipment 30%
Trailers and trucks 20%
Vehicles 30%
Leasehold improvements are depreciated using the straight-line method over
a period of 10 years.
Revenue recognition
The Company generally earns revenues from its auction activities either
through consignment sales, or through sales of inventory purchased by the
Company. For consignment sales, the Company earns auction fees charged to
consignees, and buyer's premiums charged to purchasers, determined as a
percentage of the sale price. For inventory sales, the Company earns a
profit or incurs a loss on the sale, to the extent the purchase price
exceeds or is less than the purchase price paid for such inventory.
For each type of auction revenue, an invoice is rendered to the purchaser,
and revenue is recognized by the Company, at the date of the auction. The
auction purchase creates a legal obligation upon the purchaser to take
possession of, and pay for the merchandise. This obligation generally
provides the Company with reasonable assurance of collection of the sale
proceeds, from which the Company's earnings are derived, including the fees
from consignees and purchasers, as well as resale profits.
Trademarks
The cost of the trademark acquired is being amortized on a straight-line
basis over its life of fifteen years.
Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at dates of acquisition and is being
amortized on a straight-line basis over 20 years.
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.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
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 in the year. Diluted earnings per share takes into
consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares.
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 expenses (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.
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.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued Statement 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.
Reporting on costs of start-up activities
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") which provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998 with initial
adoption reported as the cumulative effect of a change in accounting
principle. The adoption of SOP-98-5 by the Company during the year had no
effect on its financial statements.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
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.
4. CAPITAL STOCK
Stock split and dividend
a) On September 2, 1998, the Company implemented a 200:1 forward stock
split. On July 20, 1999, the Company effected a stock dividend of four
shares for every one share of record. On July 21, 1999, the Company
implemented a 5:1 forward stock split and on September 5, 1999, the
Company implemented a 4:1 reverse stock split. The consolidated
statements of changes in stockholders' equity have been restated to
give retroactive recognition of the stock splits and stock dividend
for all periods presented by reclassifying from common stock to
additional paid-in capital the par value of consolidated shares
arising from the splits and stock dividend. In addition, all
references to number of shares and per share amounts of common stock
have been restated to reflect the stock splits.
b) On March 26, 1999, the Company issued 53,750,000 shares at a deemed
value of $8,600 as payment of fees for services received.
c) On April 12, 1999, the Company issued 5,312,500 shares at a deemed
value of $850 as payment of fees for services received.
d) On July 19, 1999, the Company received from a shareholder 50,000,000
shares which were previously issued for services rendered, and
returned these shares to treasury for cancellation.
e) During the year, the Company completed a private placement whereby it
issued 1,094,057 post consolidation units at a price of $3.20 per unit
for total consideration in the amount of $3,500,980. Each unit
consists of one restricted common share and half of a share purchase
warrant. Each whole warrant will entitle the holder to purchase an
additional restricted common share at a price of $3.20 per share until
August 24, 2000 and at $4.00 per share until August 24, 2001.
f) On October 18, 1999, the Company issued 60,000 shares at a deemed
value of $168,000 for the purchase of assets of Ross Auctioneers &
Appraisers Ltd.
5. WARRANTS
As at December 31, 1999, he Company has 547,029 warrants outstanding. Each
warrant will entitle the holder to purchase a restricted common share at a
price of $3.20 per share until August 24, 2000 and at a price of $4.00 per
share until August 24, 2001.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
6. CAPITAL ASSETS
<TABLE>
====================================================================================================================
Net Book Value
Accumulated ----------------- ----------------
Cost Depreciation 1999 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Computer equipment $ 994,538 $ 150,825 $ 843,713 $ -
Computer software 130,040 21,056 108,984 -
Furniture and fixtures 13,734 6,950 6,784 -
Leasehold improvements 15,004 750 14,254 -
Equipment 168,000 6,300 161,700 -
Trailers and trucks 4,751 1,520 3,231 -
Vehicles 41,142 8,949 32,193 -
--------------- --------------- --------------- --------------
$ 1,367,209 $ 196,350 $ 1,170,859 $ -
===================================================================================================================
</TABLE>
7. WEB SITE DEVELOPMENT COSTS
Web site development costs of $95,805 (net of amortization costs of
$10,645) (December 31, 1998 - $Nil) is comprised of hardware and software
costs incurred by the Company in developing its web site. The Company's
amortization policy concerning these costs is to amortize the costs over a
period of five years commencing from the date of operations.
8. BUSINESS COMBINATION
During the year, the Company entered into an acquisition agreement whereby
the Company acquired all the outstanding shares of Able Auctions (1991)
Ltd. ("Able"). The Company issued 1,843,444 of its common shares at a
deemed value of $73,738 and paid $545,305 to acquire the shares of Able.
The Company also paid an additional $504,695 for shareholders' loans.
The total purchase price of $1,123,738 has been allocated as follows:
Cash $ 347,474
Accounts receivable 140,982
Inventory 215,194
Prepaid expenses 36,114
Capital assets 780,551
Goodwill 667,127
Accounts payable and accrued liabilities (136,863)
Loan payable (878,377)
Obligation under capital lease (48,464)
--------------
$ 1,123,738
Goodwill will be amortized on a straight-line basis over a 20 year period.
During the year, the Company amortized $11,972 of goodwill, leaving a
balance of $655,155 at December 31, 1999.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
9. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
=========================================================================
1999 1998
-------------------------------------------------------------------------
Cash paid for income taxes $ - $ -
Cash paid for interest - -
=========================================================================
The following non-cash operating, investing and financing transactions
occurred during the year ended December 31, 1999:
a) The Company issued 9,062,500 common shares, at a deemed value of
$9,450, for consulting services received.
b) The Company issued 1,843,444 shares at a deemed value of $73,738, for
the purchase of Able Auctions (1991) Ltd.
c) The Company issued 60,000 shares of common stock at a deemed value of
$168,000 to purchase the assets of Ross Auctioneers & Appraisers Ltd.
There were no non-cash operating, investing and financing transactions
during the year ended December 31, 1998.
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
Total comprehensive loss for the year ended December 31, 1999, and the year
ended December 31, 1998 was $1,328,047 and $Nil, respectively. The only
item included in other comprehensive loss is foreign currency translation
adjustments in the amounts of $11,445 for the year ended December 31, 1999
and $Nil for the year ended December 31, 1998.
<TABLE>
============================================================================ =================
Foreign Accumulated
Currency Other
Translation Comprehensive
Adjustment Income
- ---------------------------------------------------------------------------- -----------------
<S> <C> <C>
Beginning balance, December 31, 1998 $ - $ -
Current period change 11,445 11,445
---------------- ----------------
Ending balance, December 31, 1999 $ 11,445 $ 11,445
============================================================================ =================
</TABLE>
11. INCOME TAXES
The Company's total deferred tax asset is as follows:
===========================================================================
1999 1998
---------------------------------------------------------------------------
Net operating loss carryforward $ 610,361 $ 2,445
Valuation allowance (610,361) (2,445)
------------- ------------
$ - $ -
===========================================================================
The Company has a net operating loss carryforward of approximately
$1,300,000 which expires in the year 2006. The Company provided a full
valuation allowance on the deferred tax asset because of the uncertainty
regarding realizability.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
12. 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.
13. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, the following related party
transactions occurred:
a) The Company purchased computer equipment, software and web site
development costs in the amount of $469,940, from a company controlled
by a director of the Company.
b) The Company paid $238,278 in management fees to a company controlled
by a director of the Company.
c) The Company issued 5,312,500 common shares with a deemed value of $850
for consulting services to a company controlled by a former director
of the Company.
d) Included in accounts payable is an amount of $237,849, which is
payable to a company controlled by a director of the Company.
e) The Company issued 1,843,444 common shares, which is approximately 10%
of the total shares outstanding as at December 31, 1999, to a Company
controlled by a director of the Company for the acquisition of Able
Auctions (1991) Ltd.
There were no related party transactions for the year ended December 31,
1998.
14. SUBSEQUENT EVENTS
Subsequent to December 31, 1999, the Company completed the following
transactions:
a) The Company completed a private placement of 1,000,000 units at a
price of $5.00 per unit for total proceeds of $5,000,000. Each unit
consists of one share of common stock and one non-transferable share
purchase warrant. Each warrant entitles the holder to purchase one
additional share of common stock at a price of $5.00 until February
25, 2001 and at a price of $6.00 until February 25, 2002.
b) The Company, through its wholly owned subsidiary, acquired all of the
business assets of Falcon Trading, Inc. ("Falcon") for a purchase
price of $360,805, which was paid by issuing 53,405 shares of common
stock of the Company at a deemed price of $6.756 per share. In
addition, the Company granted stock options to purchase an aggregate
of 105,000 shares of common stock for five years, with 75,000 of the
options exercisable at $6.756 per share and the remaining 30,000
options exercisable at $8.00 per share, subject to vesting criteria.
c) The Company signed a binding letter of intent to purchase Mesler's
Auction House ("Mesler's") of Scottsdale, Arizona. Under the letter of
intent, the Company has agreed to purchase Mesler's assets for
$500,000, which will be payable by $255,000 in cash and by issuing
30,625 (issued) shares of the Company. The Company has also agreed to
purchase real estate and a building from Mesler's for $3,500,000,
which will be paid by $1,200,000 in cash, $1,050,000 by assuming a
mortgage on the property, and by issuing shares of the Company for the
balance at a deemed price of $8.00 per share. The Company has issued
155,486 shares of common stock, pursuant to the above obligation. In
addition, the Company will purchase the inventory of Mesler's for
$450,000 in cash. On closing, the Company will grant to Mesler's an
option to purchase 150,000 shares of common stock at the price of
$8.00 per share for a term to be determined by the Company's Board of
Directors.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
14. SUBSEQUENT EVENTS (cont'd.....)
d) The Company has signed a Letter of Intent to acquire Ehli's Auctions
for $1,100,000, which will be payable by $600,000 in cash and the
balance of $500,000 by issuing 63,163 shares of the Company's common
stock at a deemed price of $7.916 per share. On closing, the Company
will grant stock options to purchase 40,000 shares of common stock of
the Company at the market price per share at the time of closing,
subject to performance based vesting criteria.
e) The Company granted 102,500 stock options at a price of $5.00 per
common stock, exercisable to January 18, 2005.
15. 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 standard.
Following is a summary of the status of the plan during 1999 and 1998:
<TABLE>
==========================================================================================
Weighted
Average
Number Exercise
of Shares Price
------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1997 and 1998 - $ -
Granted 812,500 $ 3.20
Forfeited - $ -
Exercised - $ -
------------
Outstanding at December 31, 1999 812,500 $ 3.20
==========================================================================================
</TABLE>
Following is a summary of the status of options outstanding at December 31,
1999:
<TABLE>
Outstanding Options Exercisable Options
------------------------------------------ ------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Number Life Price Number Price
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.20 812,500 4.79 $ 3.20 652,500 $ 3.20
=======================================================================================================
</TABLE>
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
15. STOCK BASED COMPENSATION EXPENSE (cont'd.....)
Compensation
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:
===========================================================================
1999 1998
---------------------------------------------------------------------------
Net loss
As reported $ (1,339,492) $ (944)
============== ==============
Pro forma $ (2,968,281) $ (944)
============== ==============
Basic and diluted loss per share
As reported $ (0.10) $ -
============== ==============
Pro forma $ (0.22) $ -
===========================================================================
The fair value of each option granted is estimated using the Black Scholes
Model. The assumptions used in calculating fair value are as follows:
========================================================================
1999 1998
------------------------------------------------------------------------
Risk-free interest rate 6.014% -
Expected life of the options 2 years -
Expected volatility 193% -
Expected dividend yield - -
========================================================================
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------ -----------
2.1(1) Share Purchase Agreement dated July 9, 1999 among Dexton
Technologies Corporation, Able Auctions (1991) Ltd., and
Ableauctions.com, Inc., as amended by Addendum dated August
16, 1999.
2.4(1) Agreement and Plan of Reorganization dated February 1, 2000
among Falcon Trading, Inc., Ableauctions.com (Washington),
Inc., and Ableauctions.com, Inc.
2.5(3) Asset Purchase Agreement dated March 20, 2000 among Mesler's
Auction House of Scottsdale, LLC, Ableauctions.com
(Washington), Inc., and Ableauctions.com, Inc.
2.6(3) Purchase and Sale Agreement dated March 20, 2000 between C&C
Capital Investment, Inc. and Ableauctions.com (Washington),
Inc.
3.1(1) Articles of Incorporation, as amended (incorporated by
reference to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5 of the
Registrant's Registration Statement on Form 10-SB).
3.2(2) Bylaws (Incorporated by reference to Exhibit 3.6 of the
Registrant's Registration Statement on Form 10-SB.
10.1(1) 1999 Stock Option Plan with Form of Option Agreement
(Incorporated by reference to Exhibit 4.2 of the
Registrant's Registration Statement on Form S-8.
10.2(1) Form of Stock Option Agreement
10.3(1) Share Purchase Agreement dated April 1, 1998 among Jeremy
Dodd, Dexton Technologies Corporation, and Able Auctions
(1991) Ltd.
10.4(1) Share Purchase Agreement dated July 9, 1999 among Dexton
Technologies Corporation, Able Auctions (1991) Ltd., and
Ableauctions.com, Inc., as amended by Addendum dated August
16, 1999
10.5(1) Contribution Agreement dated July 15, 1999 between Douglas
McLeod and Ableauctions.com, Inc. (then J.B. Financial
Services, Inc.) regarding Mr. McLeod's contribution of
8,000,000 shares of common stock to the Company's treasury
10.6(1) Asset Purchase Agreement dated September 20, 1999 among Ross
Auctioneers & Appraisers Ltd., Able Auctions (1991) Ltd.,
and Ableauctions.com, Inc.
10.7(1) Asset Purchase Agreement dated September 20, 1999 between
John Carrier dba LJM Computer Resources and Able Auctions
(1991) Ltd. regarding the web site located at
www.bcbids.com.
10.8(1) Bill of Sale dated September 20, 1999 between Ronald H.
Smallwood and Able Auctions (1991) Ltd. regarding the domain
name "bcbids.com".
10.9(1) Employment Agreement dated September 20, 1999 between Able
Auctions (1991) Ltd. and Richie Smallwood.
10.10(1) Subscription Agreement dated July 20, 1999 between
Ableauctions.com, Inc. and Silicon Capital Corp.
<PAGE>
Exhibit
Number Description
- ------ -----------
10.11(1) Consulting Agreement dated August 24, 1999 between Able
Auctions (1991) Ltd. and Dexton Technologies Corporation
10.12(1) Investor Relations Agreement dated September 15, 1999
between Ableauctions.com, Inc. and North Star Communications
Inc.
10.13(1) Investor Relations Agreement dated October 1, 1999 between
Ableauctions.com, Inc. and European Investor Services Ltd.
10.14(1) Lease Agreement dated September 1, 1999 between Derango
Resources Inc. and Ableauctions.com, Inc.
10.15(1) Sublease dated August 22, 1999 between HGP Glass Industries
of Canada Inc. and Ableauctions.com, Inc.
10.16(2) Proposal by Compaq Computer and accepted by Dexton
Technologies Corporation dated September 1999, for
installation of Distributed Internet Server Array (DISA).
10.17(2) Internet Business Services Agreement by and between Telus
Advanced Communications and Dexton Technologies Corporation
dated September 14, 1999.
10.18 Investor Relations Agreement dated February 3, 2000 between
Ableauctions.com, Inc. and KCSA Public Relations Worldwide
21.1 Subsidiaries of the Registrant.
23.1(1) Consent of Barry L. Friedman.
23.2 Consent of Davidson and Company.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
- ---------------------
(1) Previously filed on November 13, 1999 on Form 10-SB.
(2) Previously filed on December 30, 1999 on Form 10-SB/A.
(3) Previously filed on April 4, 2000 on Form 8-K.
EXHIBIT 10.18
KCSA PUBLIC RELATIONS WORLDWIDE
800 Second Avenue
New York, NY 10017
Tel: 212 682-6300
Fax: 212 697-0910
February 3, 2000
Mr. Abdul Ladha
President and CEO
Mr. John D. Welsh
Able(TM)Auctions
3112 Boundary Road
Burnaby, B.C. V5M 4A2
CANADA
Dear Abdul and John:
We at KCSA are extremely pleased that Able Auctions has selected KCSA Public
Relations Worldwide as its investor relations counsel.
This letter, when signed by you, will confirm that Able Auctions has retained
KCSA Public Relations Worldwide as investor relations counsel commencing
February 1, 2000. For our services, our monthly minimum fee will be $16,000,
which will entitle the Company to up to 100 monthly hours of the professional
services of KCSA. All incremental hours - estimated in advance and with client
approval - will be billed at the rate of $165 per hour. Any unused hours during
the course of a month will be "banked" and utilized during the next month. The
first two months' payment (February 1 - March 31, 2000) ($32,000) is due and
payable with the return of this signed agreement.
The agreement will be for an initial period of six months. All future monthly
fees will be billed on the first of each month, commencing April 1, 2000, and
are payable in ten days.
It is mutually agreed that any individual out-of-pocket expenses such as
BusinessWire distribution, messengers, air courier, clipping service, offset and
mass mailings will be rebilled to Able Auctions with the standard agency charge
of 20 percent. Telephone, Xerox, postage, travel and editorial lunches will be
rebilled without markup. All individual expenditures over $500.00 will be
expended only after client approval.
As part of its contracted services, KCSA will make its best efforts to arrange
directly or indirectly a financing with institutional and/or individual
investors on behalf of Able Auctions. Should KCSA obtain this financing, KCSA
will be compensated under the Lehman Standard which is 5% of the first $1
million raised; 4% of the second $1 million raised; 3% of the third $1 million
raised; 2% of the fourth $1 million raised; and 1% of the fifth $1 million and
any
<PAGE>
Mr. Abdul Ladha
Mr. John D. Welsh
February 3, 2000
Page 2
additional funds raised. KCSA will receive full payment upon the closing of the
transaction and will reduce the payment by one-half of the sum of any
professional fees, excluding out-of-pocket expenses, it has earned up to the
closing of the transaction. At the discretion of Able, the $8,000 per month fee
for financing may be terminated upon 30 days notice. The entire agreement may be
terminated upon 60 days written notice.
To the extent Able Auctions desires to take advantage of the services of our
full-service graphic design and corporate identity division, monies due for the
preparation and production of collateral materials such as brochures, annual
reports, reprints and corporate identity and name change explorations, must be
paid one half of estimated budget at presentation of finished comprehensive and
one half at presentation of mechanicals.
Able Auctions agrees to indemnify and hold harmless KCSA Public Relations
Worldwide from and against all losses, claims, damages, expenses or liabilities
which we may incur based on information, representations, reports or data you
furnish us, to the extent that such material is furnished, prepared, approved
and/or just used by us. Similarly, KCSA Public Relations Worldwide agrees to
indemnify and hold harmless Able Auctions from and against all losses, claims,
expenses or liabilities which Able Auctions may incur based on the misuse of
information, representations, reports or data you furnish us.
Once again, we are pleased to have the opportunity to serve you, and you have
the assurance of our very best efforts.
Cordially,
KCSA PUBLIC RELATIONS WORLDWIDE
By: /s/ Leslie A. Schupak
------------------------------------
Leslie A. Schupak
Managing Partner
AGREED AND ACCEPTED
ABLE AUCTIONS
By: /s/ Abdul Ladha
----------------------------
Title:
----------------------------
2
EXHIBIT 21.1
ABLE AUCTIONS (1991) LTD., A BRITISH COLUMBIA CORPORATION
ABLEAUCTIONS.COM (WASHINGTON), INC., A WASHINGTON CORPORATION
EXHIBIT 23.1
A Partnership of
Incorporated Professionals
DAVIDSON & COMPANY=========Chartered Accountants================================
CONSENT OF DAVIDSON & COMPANY, INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference to the Registration
Statement on Form S-8 (Registration Number 333-32740) of our report dated March
24, 2000 on our audits of the consolidated financial statements of
AbleAuctions.com, Inc. and its subsidiaries as of December 31, 1998 and 1999,
which report is included in the Annual Report on Form 10-KSB of
AbleAuctions.com, Inc. for the year ended December 31, 1999.
/s/ Davidson & Company
Vancouver, Canada Chartered Accountants
April 11, 2000
A Member of Accounting Group International
==========================================
Suite 1270, Stock Exchange Tower, 609 Granville Street, P.O. Box 10372,
Pacific Centre, Vancouver, B.C., Canada V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> (60,916)
<SECURITIES> 0
<RECEIVABLES> 267,805
<ALLOWANCES> 0
<INVENTORY> 486,572
<CURRENT-ASSETS> 827,829
<PP&E> 0
<DEPRECIATION> 195,288
<TOTAL-ASSETS> 2,761,799
<CURRENT-LIABILITIES> 338,622
<BONDS> 0
0
0
<COMMON> 8,310
<OTHER-SE> 2,393,422
<TOTAL-LIABILITY-AND-EQUITY> 2,761,799
<SALES> 829,755
<TOTAL-REVENUES> 898,450
<CGS> 582,346
<TOTAL-COSTS> 1,673,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18,304)
<INCOME-PRETAX> (1,339,492)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,339,492)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
