UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
ABLEAUCTIONS.COM, INC.
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(Exact name of registrant as specified 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 V3K 3T8
Coquitlam, British Columbia Canada
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number: (604) 521 2253
Securities to be registered under Section 12(b) of the Act:
None None
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Title of each class to be Name of each exchange on
so registered which each class is to be registered
Securities to be registered under Section 12(g) of the Act:
Common Shares, Par Value $0.001 Per Share
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(Title of Class)
Not Applicable
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(Title of Class)
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TABLE OF CONTENTS
PART I
NOTE REGARDING FORWARD LOOKING STATEMENTS......................................1
Item 1. Description of Business...............................................2
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation..........................................................36
Item 3. Description of Property..............................................49
Item 4. Security Ownership of Certain Beneficial Owners and Management.......50
Item 5. Directors, Executive Officers, Promoters and Control Persons.........52
Item 6. Executive Compensation...............................................57
Item 7. Certain Relationships and Related Transactions.......................61
Item 8. Description of Securities............................................64
PART II
Item 1. Market Price of and Dividends on Registrant's Common Equity
and Related Stockholder Matters.....................................65
Item 2. Legal Proceedings....................................................65
Item 3. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.................................................66
Item 4. Recent Sales of Unregistered Securities..............................67
Item 5. Indemnification of Directors and Officers............................69
PART F/S
Item 1. Index to Exhbits......................................................2
Item 2. Description of Exhibits...............................................4
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PART I
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; Year 2000 compliance risks and the other risks and
uncertainties described under "Description of Business - Risk Factors" in this
registration statement. Certain of the forward looking statements contained in
this registration statement 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
registration statement 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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Item 1. Description of Business.
General Overview
We, Ableauctions.com, Inc., are a Florida corporation engaged in the business of
auctioning, through our wholly owned subsidiary, Able Auctions (1991) Ltd., a
broad range of merchandise. We acquired Able Auctions (1991) on August 24, 1999.
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).
Prior to our acquisition of Able Auctions (1991), we were a shell company with
no material revenues, expenses, assets or liabilities in 1997 and a loss of
$5,000 in 1996 resulting from expenses related to our formation and
organization.
Able Auctions (1991) has operated two auction houses in the Lower Mainland of
British Columbia, Canada since 1991. We auction merchandise and equipment from a
variety of industries including: bakery, broadcasting, chemical, construction,
dairy, electronics, energy, food processing, foundry, high-technology, machine
tool, metal fabrication, office, paper, pharmaceutical, plastic, printing,
restaurant, textile and others. Our auctions are open to the public. 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 intend to broadcast our live auctions on our web site at
www.ableauctions.com. We anticipate that our physical "brick-and-mortar" auction
audiences will be integrated with our Web-based online auction audiences, and
our online customers will be able to bid on and buy merchandise at our live
auctions. We cannot assure you that we will attain any particular level of gross
profit margins or that we will achieve profitability.
Able Auctions (1991) had modest profits during its fiscal year ended March 31,
1999 and the twelve month period ended March 31, 1998. We acquired Able Auctions
(1991) on August 24, 1999. On a pro forma basis, which gives effect to our
acquisition of Able Auctions (1991) as if it occurred on January 1, 1999 (the
beginning of our fiscal year), we had a consolidated operating loss of
approximately $900,000, of which approximately $650,000 was attributable to the
operations of Able Auctions (1991). These losses during the nine month period
ended September 30, 1999 resulted from our efforts to develop technologies and
to implement our plan to broadcast live auctions over the Internet. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
We launched our web site for public viewing in December 1999 and are testing our
broadcasting software and web site. We are in the process of refining the
technologies related to broadcasting live auctions on our web site, and we
intend to broadcast our first live auction during the first quarter 2000. We
anticipate that visitors to our web site will be able to purchase items from our
Retail Store and bid on items in our Silent Auction beginning in late January
2000.
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We believe we can increase the gross revenues and the profitability of our
existing auction operations by expanding the scope of our auction audience
through the capabilities of the Internet.
Our long term growth strategy is to expand our business by:
* increasing our auction revenues by broadcasting our auctions on our
web site;
* entering into strategic relationships with other auction houses to
offer our Internet broadcasting technology on a transaction fee basis;
* acquiring additional auction houses in strategic geographic locations
throughout North America; and
* integrating other revenue generating business on our web site, such
as:
(a) silent auctions,
(b) charity auctions and
(c) specialty e-commerce retail stores.
We have limited experience in the e-commerce industry and have never broadcast
an auction over the Internet. We intend to rely on Abdul Ladha, our President,
Richard Miller, our Vice President of Corporate Development, and Dexton
Technologies Corporation, a corporation controlled by Mr. Lahda, to assist us in
developing our web site and the technologies related to broadcasting auctions
over the Internet. See "Directors, Executive Officers, Promoters and Controlling
Persons." Mr. Ladha has seven years of Internet experience and one year of
e-commerce experience, developing and marketing Internet software and systems
for commercial applications at Dexton Technologies. We cannot assure you that we
will successfully develop the technologies to broadcast live auctions over the
Internet on a timely basis, if at all.
We intend to compete in two highly competitive industries: (i) the auction
industry and (ii) the Internet commerce industry. Many of our competitors have
substantially greater financial, technical and other resources than us. Our
experience has been limited to the physical brick-and-mortar auction business,
and there are several competitors in the auction business that have established
businesses and reputations in the geographic locations that we may enter in the
future. In addition, several web-based competitors already have established
auction web sites, brand names, user loyalty and strategic relationships with
sellers and consignors of merchandise, all of which create a competitive
advantage over us. We have only begun the process of developing the technology
to broadcast auctions on our web site and we cannot assure you that we will
successfully complete development as planned or that our Internet concept of
accepting bids over the Internet will be successful. We cannot guarantee that we
will be able to compete effectively or that we will ever generate sufficient
revenues from our operations to make our business commercially viable.
We may expand our auction business by acquiring existing auction companies. We
have recently hired all of the employees and acquired all of the assets of Ross
Auctioneers, a small regional auction company, located in the Lower Mainland of
British Columbia, Canada. We cannot assure you that we will successfully
integrate the Ross Auctioneers personnel and assets into our business.
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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:
* 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;
* We intend to implement an Internet strategy, which will require us to
dedicate a significant amount of our resources to developing the
technologies and systems to launch our web site; * We intend to incur
significant marketing costs to market our auction houses and our web
site;
* 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;
* We anticipate that we will incur increased inventory costs as we
expand our auction business; and
* 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 $14 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." In their independent auditor's report
dated September 9, 1999, Davidson & Co., our auditors, expressed substantial
doubt about our ability to continue as a going concern due to our lack of
working capital for our planned business activities. We estimate that our
minimum cash requirement to remove this going concern risk for the period from
October 1, 1999 through September 30, 2000 is approximately $4 million to
continue our auction operations and to maintain our web site. If we are only
able to raise this minimum cash requirement, we will reduce our planned expenses
related to expanding our physical auction business into new geographical areas,
purchasing additional servers and operating systems and launching our marketing
campaign throughout the United States and Canada. 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 such financing may
include, among other things:
* the revenues and profits generated from our operations;
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* 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;
* the market acceptance of our Ableauctions.com web site by buyers of
auction merchandise;
* traffic on our web site and purchases made through our web site;
* our ability to obtain merchandise and consignments of merchandise for
our auctions; and
* 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 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 complete any 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.
Our typical auction draws approximately 500 bidders and offers on average
approximately 1200 items or lots of merchandise and equipment for auction.
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
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(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 to 6.5
million in 2002 from 1.2 million in 1998. 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:
* Event-based live auctions: Bidders participate in live auctions
transmitted over the Internet in real-time. Users register to qualify
as bidders to participate prior to the time of the auction and bid for
merchandise auctioned at physical auctions. Online bidders typically
bid against bidders present at the physical auctions.
* 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.
* 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.
* 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.
* 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.
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Our Growth Strategy
Our growth strategy is to expand the geographic scope of our business through
the following growth and expansion strategies:
* Increasing the geographic reach of our existing auction business by
broadcasting our auctions live on our web site;
* Expanding our auction business and operations by acquiring existing
brick-and-mortar auction houses; o Building an Internet e-commerce
site for live auctions by broadcasting our auctions live and entering
into strategic relationships with existing brick-and-mortar auction
houses to broadcast auctions live on our web site; and
* Generating revenues from silent auctions, charity auctions and
specialty e-commerce stores on our web site.
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 currently attract customers to our auctions through marketing efforts and our
reputation in the markets we serve.
Competition
We intend to compete in two distinct markets: the industrial auction market and
the online auction market.
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 strategy is to
grow through expanding into new geographic markets by acquiring brick-and-mortar
auction houses, marketing our auctions on our web site, and increasing income
from operations in our existing market strategy. This strategy is intended to
allow us to become a leading real-time Internet auctioneer and allow us 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 Ableauctions.com web site. We believe this will allow us to generate
a greater volume of traffic
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and interest to our web site and sales through our auctions. We launched our web
site for public viewing in December 1999 and are in the process of testing the
technologies related to broadcasting live auctions on our web site. Our initial
plan to broadcast a live auction on our web site in December 1999 was delayed to
further refine our broadcast technologies. We plan to conduct our first Internet
auction in the first quarter of 2000.
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; Ritche 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; and several independent auctioneers.
We believe that the principal competitive factors in the auction market are:
* reputation;
* customer service;
* the ability to provide the customer with a variety of merchandise at
an exceptional value, commission pricing and structure; and
* 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 centres 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.
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 prior to 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
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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, which 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 offer 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 site 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 site of our competitors:
* Live Broadcast. We intend to broadcast live auctions from physical
auction sites over the Internet in real time that will allow visitors
to our web site to compete against bidders attending the live auction;
* Quality Sound and Video. We intend to develop technology that will
provide quality video and sound to visitors and that will allow
bidders to respond immediately to the auctioneers calls;
* Commercial Goods. We intend to broadcast some live auctions that
feature merchandise and equipment targeted at business or commercial
buyers.
* 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.
* 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.
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* 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 our physical based auction houses will benefit by
allowing 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.
Our Auctions Operations
We conduct physical auctions from our auction houses located in British
Columbia. 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 15% of the hammer price.
Generally, we conduct approximately two auctions at each of our three locations
per month. We auction 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 earn receive revenues from auctioning merchandise we purchase and sell
at our auctions. Our average gross revenues during 1998 from each auction was
approximately $80,000. 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 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
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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 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 paid by us for such
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 maintaining maximum liquidity.
We also generate revenues by purchasing merchandise from a variety of sources
and reselling 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 prior to 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 we advance generally does not exceed 50% of our estimated
value of the property when sold at auction.
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Our Operating Strategy
We believe 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
upon 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 in order 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 prior to
the auction, and generally allow bidders to preview merchandise on the day
before the auction. We also offer access to third party financing and access to
trucking and freight forwarding at the auction venue. We intend to allow bidders
the opportunity to preview merchandise on our web site prior to auction.
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
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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 7-21 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.
In the future, 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.
Our Growth Strategy
Our growth strategy is to grow by increasing sales volumes for our existing
operations and possibly by acquiring reputable auction companies in selected
North American locations. We have recently hired all of the employees and
acquired all of the assets of Ross Auctioneers, a local auction company in the
Lower Mainland of British Columbia, Canada, as part of our growth strategy. See
"Our Acquisition of Ross Auctioneers."
We may acquire additional auction companies during 2000. We have identified
prospective targets in Seattle and Toronto, 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:
* Owner-operated business
* Minimum $2 million in sales
* Need to be profitable
* At least 5 years in business
* Holds 2 or more auctions per month
* 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
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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.
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 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 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.
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 prior
to 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 expected to be able to see the
auction in progress and follow the lots of merchandise as they are being sold.
They will be able to bid simultaneously with those attending in person and
update bids at their convenience. We intend to post bids received from the
Internet on large screen monitors. Unlike eBay, Bid.com or other web sites, we
will offer every item on an unreserved basis, meaning there is no minimum bid
for the merchandise we auction. Every item we auction will be physically present
at the time of the auction and sold to the highest bidder.
Our Ableauctions.com site is expected to allow visitors to register, to 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 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:
* Computers and Electronics
* Jewelry
* Specialty Items
* Lingerie
* Antiques
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* 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.
We launched our web site for public viewing in December 1999 and are in the
process of testing and refining our technology to broadcast live auctions over
the Internet. We anticipate that we will broadcast our first live auction in the
first quarter of 2000, and that visitors to our web site will be able to bid on
merchandise offered in our Silent Auctions and Charity Auctions and purchase
merchandise from our Retail Store in the first quarter at that time.
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 yellow page ads. 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 our other merchandise offerings.
We generally promote individual auctions using direct mail brochures, newspaper
ads, trade magazine ads, 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.
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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:
* Compaq installed a custom designed Distributed Internet Server Array
(DISA) on December 14, 1999. 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. See "Material Agreements Related to Our Business." We
currently are in the process of negotiating the terms of a definitive
agreement related to additional technical support and maintenance
services.
* 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. See "Material
Agreements Related to Our Business." 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 first quarter of
2000.
* Telus Advanced Communications 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. See "Material Agreements Related
to Our Business."
* 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
first quarter of 2000.
* 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
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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. Several of the arrangements were made
through Dexton Technologies, a company controlled by Mr. Ladha, our President,
and we believe may have been on terms that were more favorable than we would
have negotiated independently. See "Material Agreements Related to Our
Business." 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. In the event we are unable to maintain
these relationships, we will be required to enter relationships with other
providers of such services, and we may experience delays in completing the
development of our live auction broadcasting services or disruptions of our web
site services. Such 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!, 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. We have
not begun to enter into such arrangements and do not anticipate we will do so
until after we complete the successful broadcast of a live auction on our web
site in the first quarter 2000.
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 September 30, 1999, we had spent approximately $500,000 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 $675,000 on research and development
efforts during the period from October 1, 1999 through September 30, 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:
* A two-way symmetric multiprocessing (SMP) configuration of
400-megahertz (MHz) Intel Pentium II processors.
* 512-megabyte, 100 MHz SDRAM.
* Integrated dual Ultra Wide SCSI controller.
* Two PCI buses in master/slave configuration.
* Integrated remote console and other advanced manageability features.
* 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.
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* Each node delivers excellent processor-memory bandwidth (450 megabytes
(MB) per second) on the STREAMS benchmark.
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:
* 2 Video Cameras
* 4 Digital Cameras
* Wireless 900 MHz transmitters
* ISDN or ADSL lines
* 1 Video Server, 6 notebook checkout stations, 3 notebook proxy bidding
stations
* Local network and server
The fixed cost to implement each web site is expected to cost $125,000-$150,000.
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.
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"Ableauctions" and "Ableauctions.com" are our trademarks, which we intend to
register under Canadian and U.S. trademark laws in the first quarter of 2000. We
have not submitted an application to register these trademarks. 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
We currently employ 15 employees and 3 consultants. In addition to management,
we employ auction staff, sales people, administrative staff, and development and
technical personnel. 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
over 30 in the first quarter of 2000.
Development of the Business to Date
Since July 1, 1999, we have completed the following in implementing our business
plan:
* Acquired Able Auctions (1991) Ltd. on August 24, 1999
* Developed the Ableauctions.com business plan and marketing strategy.
* Begun developing the Ableauctions.com web site and the proprietary
technology for broadcasting live auctions.
* Designed and installed the pilot server configurations that will
accommodate a high volume of Internet traffic.
* Secured strategic relationships with Allaire Corporation, Compaq
Computer, Telus Advanced Communications and eBay.
* Retained key management and staff with experience in the auction
business and e-commerce.
* Designed a marketing program to publicize the Ableauctions.com brand
and web site.
* Hired the employee and acquired all of the assets of Ross Auctioneers.
* Launched our web site for initial public viewing.
* Began testing and refining our live auction broadcasting technologies
and our website systems.
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.
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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.
Effective July 19, 1999, Douglas McLeod, a promoter and former director of
Ableacutions.com, Inc., contributed back to the Company 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. See "Recent Sales of
Unregistered Securities."
On July 19, 1999, we amended our Articles of Incorporation to change our name to
"Ableauctions.com, Inc." On July 20, 1999, we entered into an agreement to
acquire 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. See "Our Acquisition
of Able (1991)." As a result of our acquisition of Able (1991), we acquired all
of the assets and business operations of Able (1991), as a going concern, on
August 24, 1999.
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
12,125,000 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.
In September 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 18,250,000 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 the fair
market value of approximately $175,000. See "Our Acquisition of Ross
Auctioneers."
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Our current corporate organization structure is as follows:
Ableauctions.com, Inc.
Organizational Chart
----------------------------------------
Ableauctions.com, Inc.
(a Florida corporation)
----------------------------------------
----------------------------------------
Able Auctions (1991) Ltd.
(a British Columbia corporation)
----------------------------------------
----------------------------------------
Ross Auctioneers & Appraisers
(Operating Division)
----------------------------------------
We have not been subject to any bankruptcy, receivership or other similar
proceeding.
Our Acquisition of Able Auctions (1991)
On July 20, 1999, we agreed to acquire all of the issued and outstanding share
capital of Able Auctions (1991) Ltd. pursuant to a share purchase agreement
among us, Able Auctions (1991), and Dexton Technologies Corporation, a British
Columbia corporation and formerly the sole shareholder of Able Auctions (1991).
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 to us 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 per share until
August 24, 2000, and thereafter at a price of $4.00 per share until August
24, 2001. See "Recent Sales of Unregistered Securities."
(b) We issued 1,843,444 shares of our common stock and paid $1,027,333 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.
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(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 in the development and testing of technology, software and
systems to launch our Ableauctions.com web site.
(e) We filed this Form 10-SB registration statement with the SEC to register
our common stock under the Securities Exchange Act of 1934, as amended.
Dexton was represented by separate legal counsel and the terms of the share
purchase agreement were negotiated at arm's length.
Our Acquisition of Ross Auctioneers
On September 20, 1999, Able Auctions (1991) agreed to hire all of the employees
and to purchase all of the property, assets and undertaking of Ross Auctioneers
& Appraisers Ltd., pursuant to an asset purchase agreement among Ross
Auctioneers, Able Auctions (1991) and us. Ross Auctioneers was engaged in the
business of the auction of tools, vehicles, industrial equipment, government
surplus equipment, and police seized goods. The purchase price for the assets of
Ross Auctioneers was $175,000 (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 (1991) also purchased
the domain name "bcbids.com" from Ronald H.
Smallwood for the purchase price of $140 (Cdn$200) plus applicable taxes.
These transactions all closed on October 18, 1999. Ross Auctioneers was
represented by separate legal counsel and the terms of the acquisition were
negotiated at arm's length.
Material Agreements Related to Our Business
In addition to the agreements described above, the following material agreements
relate to our business:
Compaq Computer - DISA Agreement: Pursuant to proposal by Compaq and
accepted by Dexton Technologies Corporation in September 1999, Compaq
installed a custom designed Distributed Internet Server Array (DISA) on
December 14, 1999. Under the terms of the agreement, Compaq installed
our DISA system 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 have no formal written agreement with
Compaq to provide us
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these services, and we are in the process of negotiating the terms of a
definitive agreement related to these services.
Allaire Corporation - Server Software: Pursuant to service order dated
October 31, 1999, by and between Compaq and Dexton Technologies,
Allaire Corporation provided us with load-balanced server software for
our web site applications 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 and intend to enter into a formal written agreement for
additional software and development services in the first quarter of
2000.
Telus Advanced Communications - Internet Access: Pursuant to an
Internet Business Services Agreement by and 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. We paid a $3,500 set up fee and pay monthly
fees of approximately $4,500 per server for such services. We currently
do not have a written agreement with Telus. We anticipate that we may
enter into an Internet access agreement with Telus in the first quarter
of 2000, although we have not begun negotiations with respect to such
an agreement.
Dexton Technologies Corporation - Management Agreement: Under a
consulting agreement dated August 24, 1999, Able Auctions (1991) Ltd.
has 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
has paid to Dexton a fee of $240,000. Abdul Ladha, a director,
President, and Chief Executive Officer of the Company, and Barrett
Sleeman, a director of the Company, 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."
NorthStar Communications, Inc. - Investor Relations Agreement: We have
engaged North Star Communications, Inc. to provide investor relations
services pursuant to a six month consulting agreement dated September
15, 1999. We agreed to pay North Star $40,000 per month plus
out-of-pocket expenses for the term of the agreement. We have advanced
to North Star $160,000 towards the out-of-pocket expenses.
European Investor Services Ltd. - European Media Relations Agreement:
In October, 1999, we engaged European Investor Services Ltd. ("EIS")
to provide invest 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.
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The arrangements made with Compaq Computer, Allaire Corporation and Telus
Advanced Communications were made through Dexton Technologies, a company
controlled by Mr. Ladha, our President. 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 we may
have received our systems and services on terms that were more favorable than we
could have negotiated independently.
We cannot assure you that we will be able to maintain our relationships with
these third parties. Several of the arrangements were made through Dexton
Technologies, a company controlled by Mr. Ladha, our President, and may have
been on terms that were more favorable than we would have negotiated
independently. We cannot assure you that we will be able to maintain our
relationship with Dexton or that we will enter into any future agreements with
third parties for future services or products on acceptable terms, if at all. In
the event we are unable to maintain these relationships, we may experience
delays in completing the development of our live auction broadcasting services
or disruptions of our web site services. Such delays and/or disruptions may have
a material adverse affect on our business and results of operations.
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 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 September 2000 may depend
on our ability to raise additional operating capital in the amount of $14
million or more during 2000
We anticipate that we may need to seek additional capital in the amount of $14
million or more in the first quarter of 2000 to fully fund our operating budget
requirements through the second quarter 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 upon our ability to meet our business
projections.
We have a limited operating history and a history of losses, which makes our
ability to continue as a going concern questionable
Prior to our acquisition of Able Auctions (1991) Ltd., we had no material
business or results of operation. We incurred net losses since our inception in
September 1996, and Able Auctions (1991) had a history of only modest profits
prior to its fiscal year ended March 31, 1999. Based on pro forma financing
statements, which give effect to our acquisition of Able Auctions (1991)
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for the financial periods, the fiscal year ended December 31, 1998 and the nine
month interim financial period ended September 30, 1999, we incurred pro forma
consolidated net losses of $298,520 and $915,265, respectively. We anticipate
that we will continue to incur loses at least through 2000. We do not believe
that we will generate sufficient revenues to support our operations in fiscal
1999 or 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 September 30, 1999, we had current assets of $1,865,595, of which
$1,164,680 was in cash and cash equivalents. We had current liabilities of
$574,300, of which $375,836 were accounts payable and $150,000 were loans
payable. Our working capital position at September 30, 1999 was $1,337,172, and
we do not anticipate it will improve until we can generate revenues from our
operations to cover our expenses or until we raise additional capital. 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 operations. 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 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, Richard Miller, our Vice President of
Corporate Development, 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, Richard Miller, our Vice President of Corporate Development, 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 only spend 50% of his business time managing our Company. As such, we
intend to 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. Miller and Nosh Vellani
will dedicate 100% of their business time to our business, and we intend to rely
on Mr. Miller to assist us in developing our marketing and business strategies
and Mr. Vellani to assist us in capital raising activities. We also rely upon
consultants and advisors who are not employees, including North Star
Communications, Inc., 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
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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 November 30, 1999, we had outstanding warrants to purchase an aggregate of
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.
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 962,500 shares of our
common stock at the price of $3.20 per share to directors, officers, employees,
and consultants, of which 812,500 options were granted under the plan, as more
particularly described under "Executive Compensation - Stock Option Plan".
Holders of such 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 8,713,194 shares or approximately 45.67% of our common stock,
and together have the ability to influence matters 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.
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Investors may not be able to secure foreign enforcement of civil liabilities
against our management
All of our directors and officers are residents of Canada. Consequently, it may
be difficult for United States investors to effect service of process within the
United States upon those directors or officers, or to realize in the United
States upon judgments of United States courts predicated upon civil liabilities
under the United States Securities Exchange Act of 1934, as amended. A judgment
of a U.S. court predicated solely upon 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 such persons or Ableauctions.com,
Inc. predicated solely upon 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.
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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.
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 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. In the
event that 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 upon 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.
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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 should 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 which 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.
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 upon 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
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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 upon or
otherwise decrease the value of our trademarks and other proprietary rights.
Third parties have
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acquired domain names that include "auctions" or variations thereof both in the
United States and elsewhere.
We may encounter significant costs should our software fail to meet Year 2000
compliance requirements
The "Year 2000" issue concerns the potential exposures related to the automated
generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the applicable year of business transactions. We
have completed our review of the potential impact of Year 2000 issues and do not
anticipate any significant costs, problems or uncertainties associated with
becoming Year 2000 compliant. Our failure or failure of our software providers
to adequately address the Year 2000 issue could result in misstatement of
reported financial information or otherwise adversely affect our business
operations. See "Financial Information - Year 2000 Compliance."
Our Ableauctions.com 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 brick-and-mortar auction houses are subject to regulatory review under state
and federal laws governing auctions and auctioneers
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
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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.
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
Ableauctions.com 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 its 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 upon 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 such event, the trading price of our
common stock would almost certainly be materially adversely affected.
We do not intend to declare dividends, which may lower the market value of our
shares
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not expect to pay any dividends in the foreseeable future.
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 OTCBB and the high and low closing
price of our shares during the third quarter of 1999 ranged from $4.00 (high) to
$1.00 (low), and the price of our shares on December 21, 1999 was $5.21. 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 upon
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 prior to sale, unless the broker-dealer or
the transaction is otherwise exempt. In addition, the penny stock regulations
require the broker-dealer to deliver, prior to 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
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respect to the penny stock held in a customer's account and information with
respect to the limited market in penny stocks.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
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
four fiscal quarters ending September 30, 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 three locations in British Columbia,
Canada. 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 Growth Strategy."
Increase revenues by broadcasting our auctions on the Internet and by selling
merchandise on our web site
We are beta testing our software and web site, and launched our web site for
public viewing in December 1999. We are in the process of refining the
technologies related to broadcasting live auctions on our web site, and we
intend to broadcast our first live auction during the first quarter 2000. We
anticipate that visitors to our web site will be able to purchase items from our
Retail Store and bid on items in our Silent Auction beginning in late January
2000.
Initially, we intend host live auctions alternating between our Surrey and
Vancouver, British Columbia locations. 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.
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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 testing 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 preview of merchandise and the method of registering
bidders. We anticipate that we will spend approximately $675,000 on research and
development efforts during the period from October 1, 1999 through September 30,
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 may also acquire auction companies. Our
management will start 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 Seattle, New York,
the San Francisco Bay Area, Southern California, Texas, Atlanta, and Chicago.
See "Our Acquisition 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 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.
37
<PAGE>
Summary of Operating Budget
Set forth below are our estimated cash operating budgets for operations,
technology purchases, research and development and implementing our expansion
strategy for the four fiscal quarters ending September 30, 2000:
Marketing $ 1,125,000
Ongoing research and development 675,000
Expansion of inventories 3,000,000
Servers and operating systems 1,200,000
Geographic expansion 7,500,000
Legal and professional fees 100,000
Additional working capital to fund ongoing obligations 1,400,000
-----------
Required Capital: $15,000,000
The Company's operating budget for the period beginning October 1, 1999 through
September 30, 2000 is estimated to be approximately $15 million. We anticipate
that we have sufficient working capital to finance our plan of operations
through January 31, 2000; however, we will be required to raise additional
capital during the first quarter 2000 to meet our anticipated cash needs and to
fund our plan of operation through September 30, 2000. See "Liquidity and
Capital Resources." We cannot assure you that our actual expenditures for such
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.
We will be required to raise additional capital during the first 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."
Selected Financial Data
The following table sets forth selected financial data regarding our
consolidated operating results and financial position. The data has been derived
from our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States or
US GAAP. The following selected financial data is qualified in our entirety by,
and should be read in conjunction with, the consolidated financial statements
and notes thereto included elsewhere in this registration statement. The pro
forma financial data are provided for comparative purposes only and are not
necessarily indicative of results that would have been achieved if the
transactions reflected therein had been effected at the beginning of the period
for which pro forma information is presented or of the results expected for any
subsequent period. The pro forma financial information is unaudited and has been
prepared by management from
38
<PAGE>
the audited financial statements of Ableauctions.com, Inc. (formerly J.B.
Financial Services, Inc.) for the year ended December 31, 1998; the unaudited
consolidated financial statements of Ableauctions.com, Inc. for the nine month
period ended September 30, 1999; and the unaudited financial statements of Able
Auctions (1991) Ltd. for its fiscal year ended March 31, 1999.
<TABLE>
SUMMARY FINANCIAL DATA
Nine Months Ended Fiscal
September 30, Years Ended December 31,
--------------------------------------------------------------------------
September 30,
Statement of Operations Data: 1999 1999 1998 1996 (date of
Pro Forma Consolidated Pro Forma 1998 1997 incorporation)
Consolidated (unaudited) Consolidated non- non- December
(unaudited)(2) (3) (unaudited)(1) Consolidated Consolidated 31, 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................. $1,648,283 $207,936 $1,160,953 $ -- $ -- $ --
Costs of Goods Sold................. 971,180 123,875 619,158 -- -- --
Operating Expenses.................. 1,486,912 549,078 838,255 944 -- 5,000
Operating income (loss)............. (809,809) (465,017) (296,460) (944) -- (5,000)
Net income (loss) for the period.... (779,714) (435,610) (298,520) -- -- --
Net income (loss) per share......... (0.06) (0.03) (0.04) -- -- --
</TABLE>
<TABLE>
Balance Sheet Data:
At December 31,
At September 30, 1999 ------------------------------------------------
Consolidated 1998 1997
(unaudited)(2)(3) non-Consolidated non-Consolidated
--------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Cash and cash equivalents.............. $ 1,164,680 $ nil $ nil
Working Capital (deficit).............. 1,335,172 (944) nil
Total Assets........................... 3,742,119 nil nil
Total Liabilities...................... 574,300 944 nil
Shareholders' Equity................... 3,167,819 (944) nil
Long-term Obligations.................. 43,877 nil nil
- ------------------------------
</TABLE>
(1) Gives effect to the business combination with Able Auctions (1991) Ltd. as
if it had occurred on January 1, 1998.
(2) Gives effect to the business combination with Able Auctions (1991) Ltd. as
if it had occurred on January 1, 1999.
(3) Consolidated financial statements including Ableauctions.com, Inc. and its
wholly-owned subsidiary Able Auctions (1991) Ltd., acquired on August 24,
1999.
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
39
<PAGE>
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:
* achieve the objectives of our business strategy;
* accelerate or defer operating expenses;
* achieve revenue from our operations; and
* 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 for the year ended
December 31, 1998; our unaudited consolidated financial statements for the nine
month period ended September 30, 1999; and our unaudited pro forma consolidated
financial statements for the year ended December 31, 1998 and for the nine month
period ended September 30, 1999. The pro forma financial data are provided for
comparative purposes only and are not necessarily indicative of results that
would have been achieved if the transactions reflected therein had been effected
at the beginning of the period for which pro forma information is presented or
of the results expected for any subsequent period.
Our financial statements have been prepared in accordance with United States
generally accepted accounting principles. The financial statements of Able
Auctions (1991) Ltd. were prepared in accordance with Canadian generally
accepted accounting principles. See "Able Auctions (1991) Ltd.'s Results of
Operations." We believe that there is no material difference between Canadian
GAAP and U.S. GAAP as applied to the financial results reported in this
registration statement.
The following discussion of our results of operations should be read in
conjunction with our audited financial statements and the related notes, the
discussion of Able Auctions (1991) Ltd.'s results of operations discussed below
and the financial statements of Able Auctions (1991) Ltd. and the related notes
included in this registration statement. Able Auctions (1991) Ltd.'s results of
operations prior to our acquisition of Able Auctions (1991) Ltd. 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.
40
<PAGE>
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) Ltd. at
that time. See "Our Acquisition of Able Auctions (1991)."
Upon our acquisition of Able Auctions (1991) Ltd., we acquired all of the assets
and the auction business of Able Auctions (1991) Ltd. 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 have been testing the technologies to broadcast our
live auctions on our web site. Our initial plan to broadcast a live auction on
our web site in December 1999 was delayed to further refine our broadcast
technologies. We expect to conduct our first live broadcast of an action on our
web in the first quarter 2000. We anticipate our web site will also feature
silent auctions, charity auctions and a retail store.
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. Prior to our acquisition of Able Auctions (1991), we were a shell company
with no material revenues, expenses, assets or liabilities in 1997 and a loss of
$5,000 in 1996 resulting from expenses related to our formation and
organization. We only recently acquired Able Auctions (1991) Ltd., and we cannot
assure you that we will attain any particular level of revenues or that we will
achieve profitability.
We believe that our historic spending levels and the historic spending levels of
Able Auctions (1991) Ltd. 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
Nine Month Period Ended September 30, 1999, Compared to the Nine Month Period
Ended September 30, 1998
We acquired Able Auction (1991) Ltd. on August 24, 1999. During the nine month
period ended September 30, 1999, we had revenues of $207,936 attributable to the
business operations of Able Auctions (1991) during the period from August 24,
1999 to September 30, 1999. Our operating expenses during the nine-month period
ended September 30, 1999 were $684,628 and our net losses for the period were
$571,160 or $0.03 per share. During the nine month period ended September 30,
1998, we were a shell company with no revenues from operations, no expenses, and
no net operating losses.
We anticipate net operating losses to increase for the foreseeable future as a
result of our aggressive 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,
41
<PAGE>
salaries, rent, marketing and promotion, and general overhead to increase during
the remainder of 1999 and into 2000.
Year Ended December 31, 1998, Compared to Year Ended December 31, 1997; Period
from September 30, 1996 (inception) to December 31, 1996
We were organized in September 30, 1996, and remained inactive until August 24,
1999, when we acquired all of the issued and outstanding shares of Able Auctions
(1991) Ltd.
We had no revenues from operations and no material expenses, assets or
liabilities during the years ended December 31, 1997 and December 31, 1998.
During the period from September 30, 1996 (inception) to December 31, 1996, we
incurred expenses of $5,000 related to our incorporation and organization, and
had a loss of $5,000.
We incurred expenses and a net loss of $944 for the year ended December 31,
1998, compared to no expenses or losses for the year ended December 31, 1997.
We anticipate that the level of spending will increase significantly in future
periods as we undertake activities related to implementing our business plan and
the development of our web site. 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.
Able Auctions (1991) Ltd.'s Results of Operations
Able Auctions (1991) was incorporated in 1991. Dexton Technologies Corporation
acquired Able Auctions (1991) on April 1, 1998, and Able Auctions (1991) changed
its year end from November 30 to March 31. On August 24, 1999, we acquired all
of the assets and the auction business of Able Auctions (1991) Ltd. from Dexton
Technologies Corporation. Able Auctions (1991)'s last completed fiscal year was
March 31, 1999.
Set forth below are Able Auctions (1991)'s results of operations for (i) the six
month period beginning April 1, 1999 to September 30, 1999 and the same period
in 1998 based on the financial results presented in the unaudited financial
statements prepared by management dated September 30, 1999 and 1998; and (ii)
the fiscal year ended March 31, 1999 based on the audited financial statements
of Able Auctions (1991) dated March 31, 1999 and the twelve month period ended
March 31, 1998 based on the unaudited financial statements for Able Auctions
(1991) Ltd. dated March 31, 1998. The financial statements of Able Auctions
(1991) Ltd. were prepared in accordance with Canadian generally accepted
accounting principles. We believe that there is no material difference between
Canadian GAAP and U.S. GAAP as applied to the financial results reported in this
registration statement. Note 10 of Able Auctions (1991)'s financial statements
filed with our Form 10-SB registration statement describe the material
differences between Canadian GAAP and U.S. GAAP as applied to Able Auctions
(1991)'s financial statements. The results of operations have been converted to
U.S. dollars based upon the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York for the relevant periods. The following table sets out
the exchange rates for one Canadian dollar ("Cdn$")
42
<PAGE>
expressed in terms of one United States dollar ("US$") in effect at the end of
the following periods, and the average exchange rates (based on the average of
the exchange rates on the last day of each month in such periods) and the range
of high and low exchange rates for such periods.
U.S. Dollars Per Canadian Dollar
--------------------------------------------------
Six Month Period
Year Ended March 31, Ended September 30,
------------------- --------------------------
1999 1998 1999 1998
--------- --------- ----------- ---------
End of period 1.5092 1.4219 1.4695 1.5262
Average for the period 1.5086 1.4063 1.4812 1.4952
High for the period 1.5770 1.4637 1.5135 1.5770
Low for the period 1.4175 1.3690 1.4512 1.4175
Exchange rates are based upon the noon buying rate in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York. The noon rate of exchange on January 10, 2000 as
reported by the United States Federal Reserve Bank of New York for the
conversion of Canadian dollars into United States dollars was US$0.6864 (US$1.00
= Cdn$1.4568).
Six Month Period Ended September 30, 1999 Compared to Six Month Period Ended
September 30, 1998
Able Auctions (1991) had revenues of $1,135,123 (Cdn$1,702,684) for the six
month period beginning April 1, 1999 to September 30, 1999, compared to revenues
of $627,919 (Cdn$941,878) for the same period in 1998 resulting from its
increased marketing efforts and auction activities. Able Auctions (1991) had
gross profits of $398,891 (Cdn.$598,337) or 35.14% for the six month period
ended September 30, 1999, compared to $306,635 (Cdn.$459,953) or 48.83% for the
same period in 1998 resulting from Able Acutions (1991) accepting lower margin
consignments as part of aggressive efforts to expand and diversify its auction
business and market its business to consignors and bidders. Able Auctions (1991)
had a net loss of $530,187 (Cdn$795,280) for the six month period ended
September 30, 1999, compared to a modest profit of $16,652 (Cdn$24,978),
resulting from lower gross profits and higher operating expenses during the 1999
period, compared to the same period in 1998.
Able Auctions (1991) had operating expenses of $929,078 (Cdn. $1,393,617) for
the six month period beginning April 1, 1999 to September 30, 1999, compared to
$289,983 (Cdn. $434,975) for the six month period ended September 30, 1998, a
220% increase resulting from increases in its marketing and operating
activities. Able Auction (1991)'s substantive operating expenses for the six
month period ended September 30, 1999 compared to 1998 included: management fees
and salaries expenses of $504,143 (Cdn. $756,214) for six month period in 1999
43
<PAGE>
compared to $94,121 (Cdn. $141,181) in 1998; office expense of $39,737 (Cdn.
$59,606) for 1999 compared to $9,707 (Cdn. $14,561) in 1998, repairs and
maintenance expenses of $8,851 (Cdn.$13,276) for 1999 compared to $3,355 (Cdn.
$5,033) in 1998, rent and utilities expenses of $86,175 (Cdn.$129,262) for 1999
compared to $54,749 (Cdn. $82,123) in 1998; and telephone expenses of $18,125
(Cdn.$27,188) for 1999 compared to $14,876 (Cdn. $22,314) in 1998. Able Auction
(1991)'s freight and brokerage expense was $47,003 (Cdn.$70,505) the six month
period beginning April 1, 1999 to September 30, 1999, compared to $38,308
(Cdn.$57,462) resulting from increased volume of auction activity during the
1999 period. Marketing-related expenses for the period included advertising and
promotion expenses of $46,245 (Cdn.$69,368) during the six month period ended
September 30, 1999, compared to $28,897 (Cdn.$43,346) during the same period in
1998, and travel and entertainment expenses of $18,125 (Cdn.$27,188) during the
six month period ended September 30, 1999, compared to $3,355 (Cdn.$5,033)
during the same period in 1998. Able Auctions (1991) incurred bank charges of
$29,126 (Cdn.$43,689) during the six month period ended September 30, 1999,
compared to $9,825 (Cdn.$14,737) during the same period in 1998.
Although we believe that many of the expenses incurred by Able Auctions (1991)
during the six month period beginning April 1, 1999 to September 30, 1999 are of
a non-recurring nature, we anticipate that expenses related to our overall
business will increase due to expenses associated with developing our web site
technologies and expanding our presence in the markets we serve.
During the six month period beginning April 1, 1999 to September 30, 1999, Able
Auction (1991)'s gross profit margin was 35.14%, which was lower than expected
due to Able Auction (1991)'s efforts to increase its auction revenue base by
accepting lower margin consignment sales. We anticipate that our gross profit
margin will rise to approximately 45% in future periods, as we anticipate
accepting consignments providing for higher gross profit margins.
Year Ended March 31, 1999 Compared to Twelve Month Period Ended March 31, 1998
Able Auctions (1991) had revenues of $1,649,776 (Cdn. $2,474,665) for fiscal
year ended March 31, 1999, compared to revenues of $1,063,183 (Cdn. $1,594,775)
for the twelve month period ended March 31, 1998 as a result of increased
marketing and auction activity. Able Auctions (1991)'s gross profit margin
increased from $368,117 (Cdn. $552,176) during fiscal year ended March 31, 1998
to $680,057 (Cdn. $1,020,085) during the twelve month period ended March 31,
1999 resulting from an increase in revenues from its operations. Able Auctions
(1991)'s gross profit margin was approximately 41% for fiscal year ended March
31, 1999, compared to approximately 35% during the same twelve month period
ended March 31, 1998, due to Able Auction (1991)'s efforts to increase its
auction revenue base in 1999 by accepting lower margin consignment sales.
Able Auctions (1991) had total operating expenses of $546,456 (Cdn.$819,685) for
fiscal year ended March 31, 1999 compared to $361,642 (Cdn. $542,463) for the
twelve month period ended March 31, 1998, a 51% increase resulting from
increases in its marketing and operating activities. Able Auction (1991) had a
profit of $67,426 (Cdn. $101,139) for fiscal year ended March 31, 1999, compared
to profit of $6,058 (Cdn. $9,087) for the twelve month period ended March 31,
1998, an increase of approximately 1013% resulting from increased expenses
related
44
<PAGE>
to expansion of our marketing efforts. Able Auctions (1991)'s operating expenses
for fiscal year ended March 31, 1999, compared to the twelve month period ended
March 31, 1998 included: management fees and salary expenses of $213,941
(Cdn.$320,912) for 1999, compared to $151,857 (Cdn.$227,786) in 1998;
advertising and promotion expenses of $87,683 (Cdn.$131,524) for 1999, compared
to $41,797 (Cdn.$62,695) in 1998; office expense of $23,728 (Cdn.$35,592) for
1999, compared to $9,035 (Cdn.$13,552) in 1998; rent and utilities expenses of
$124,441 (Cdn.$186,662) for 1999, compared to $85,211 (Cdn.$127,816) in 1998;
telephone expenses of $30,719 (Cdn.$46,078) for 1999, compared to $14,071
(Cdn.$21,107) in 1998; repairs and maintenance expenses of $4,833 (Cdn.$7,250)
for 1999, compared to $2,201 (Cdn.$3,302) in 1998; and automobile expenses of
$9,734 (Cdn.$14,601) for 1999, compared to $6,393 (Cdn.$9,589) in 1998. Able
Auctions (1991) incurred bank charges and interest expense of $12,266
(Cdn.$18,324) during the fiscal year ended March 31, 1999 compared to $13,509
(Cdn.$20,264) for the same period in 1998. These increases are related to the
company's efforts to increase its sales volume and the increase in
administrative costs related to increased auction activities during the twelve
month period ended March 31, 1999.
Able Auctions (1991)'s net profit after taxes increased to $67,426 (Cdn.
$101,139) for the fiscal year ended March 31, 1999 from $6,058 (Cdn. $9,087) for
the twelve month period ended March 31, 1998 resulting from an increase in
revenues during the fiscal year ended March 31, 1999, compared to March 31,
1998.
Liquidity and Capital Resources
On August 24, 1999, we completed the acquisition of Able Auctions (1991), and we
raised $3,500,980 in capital through a private placement, of which we paid a
$789,338 loan payable in our acquisition of Able Auctions (1991) Ltd. and
$13,961 due to a shareholder. Through September 20, 1999, we used cash of
$421,834 in operating activities and $1,131,372 in investing activities,
including a $702,526 net investment in Able Auctions (1991) Ltd. and $428,846 in
capital assets related primarily to capital investments in our auction business
and Internet technologies.
Our cash position at September 30, 1999 was $1,164,680, and we had accounts
receivable of $308,987, inventory of $341,064 and prepaid expenses of $50,864.
We had outstanding accounts payable of $375,836, current obligations under
capital leases of $4,587 and loans payable of $150,000 at September 30, 1999. We
also anticipate that we will incur legal and accounting expenses of
approximately $25,000 related to the filing of our Form 10-SB registration
statement, which we anticipate we will pay out of our working capital. Our
working capital position was $1,335,172 on September 30, 1999. We believe our
working capital will be sufficient to satisfy our cash requirements through to
January 31, 2000.
Our operating budget for the period beginning October 1, 1999 through September
30, 2000 is approximately $15 million, of which approximately 70% is anticipated
to be used primarily for expenses related to the acquisition of new auction
facilities, expansion of our inventories, continually developing and upgrading
our technologies, launching a marketing campaign in the United States and
Canada, and purchasing additional servers and operating systems. This will
45
<PAGE>
require us to raise approximately an additional $14 million to fund our full
operating budget. In their independent auditor's report dated September 9, 1999,
Davidson & Co., our auditors, expressed substantial doubt about our ability to
continue as a going concern due to our lack of working capital for our planned
business activities. We estimate that our minimum cash requirement to remove
this going concern risk for the period from October 1, 1999 through September
30, 2000 is approximately $4 million, primarily for expenses related to
maintaining the operation of our auction business and our web site. These
minimum cash requirements do not include the costs we have included in our
operating budget related to acquisition of new auction facilities, expansion of
our inventories or launching our full marketing campaign throughout the United
States and Canada. See "Summary of Operating 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 our plan of operation, sell our
assets or our business operation 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 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 Shares Total Price of
Shares ($)
-------------------- --------------------
<S> <C> <C>
Balance as of August 26, 1998 6,250,000 5,000
Issued for consulting and professional services 9,062,500 145,000
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.
=========================================
TOTAL 18,310,001(2) 3,892,718
=========================================
</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 per share until August 24, 2000 and at
$4.00 per share until August 24, 2001.
(2) As at December 22, 1999.
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<PAGE>
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.
The exposure may result from, amongst other things, the use of computers,
general software, and servers for office purposes and data storage; connections
to and use of the services of Internet service providers and telephone companies
for office purposes and customer and investor relations; the software underlying
the operation of the web site and the online business operations; and our
servers.
We have only been operating and developing our Internet business during the last
3 months and the office hardware, administrative general software, custom
developed special purpose software, servers, and services of Internet service
providers and telephone companies have been acquired during this period. To
date, Able Auctions (1991) Ltd. has spent approximately $50,000 replacing
computer hardware, software and other systems related to its auction business
for the purposes of Year 2000 compliance. Our management believes this aspect of
our business is Year 2000 compliant.
In the past several months we have consulted with suppliers of our hardware,
software, and services, and we believe their systems that we intend, directly or
indirectly, to use in our respective businesses are Year 2000 compliant. Our due
diligence also included an evaluation of supplier provided technology and the
implementation of new policies to require our suppliers to confirm that they
have disclosed and will correct Year 2000 compliance issues. We have received
oral or written confirmation from all of our third party providers that their
systems are Year 2000 compliant. Although we are relying primarily on systems,
which we have assurances from vendors to be Year 2000 compliant, we may have to
replace, upgrade, or re-program certain systems to ensure that all interfacing
technology will be Year 2000 compliant when running jointly.
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
47
<PAGE>
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 3. Description of Property.
We currently lease, through our subsidiary, 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 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).
Neither we nor our subsidiary presently own or lease any other property or real
estate.
48
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information concerning the number of
shares of our common stock owned beneficially as of November 30, 1999 by: (i)
each person (including any group) known to us to own more than 5% of any class
of our voting securities, (ii) each of our directors and named executive
officers, and (iii) directors and executive officers as a group. Unless
otherwise indicated, the shareholders listed possess sole voting and investment
power with respect to the shares shown.
<TABLE>
- -------------------- ------------------------------------------------ -------------------------- --------------------
Title of Class Name and Address of Beneficial Owner Amount and Nature of Percentage of
Beneficial Ownership Class(1)
- -------------------- ------------------------------------------------ -------------------------- --------------------
<S> <C> <C> <C>
Common Stock Khatidja Shariff 6,093,750 33.28%
P.O. Box 40382
Nairobi, Kenya
- -------------------- ------------------------------------------------ -------------------------- --------------------
Common Stock Douglas McLeod 3,750,000 20.48%
688-6 Ishikawa
Fujisawa City, Kanagawa Japan
252-0815
- -------------------- ------------------------------------------------ -------------------------- --------------------
Common Stock Dexton Technologies Corporation 1,843,444(3) 10.07%
3112 Boundary Road,
Burnaby, British Columbia Canada
V5M 4A2
- -------------------- ------------------------------------------------ -------------------------- --------------------
Common Stock Janus Industries Inc. 1,281,250(4) 7.0%
#3 Henville Building, St. Charles
Nevis, West Indies
- -------------------- ------------------------------------------------ -------------------------- --------------------
Common Stock Trans Mutual Growth, Inc 1,250,000(5) 6.83%
P.O. Box 1159-GT
Buckingham Square, West Bay Road
Georgetown, Grand Cayman
- -------------------- ------------------------------------------------ -------------------------- --------------------
Common Stock Silicon Capital Corp. 1,641,086(2)(6) 8.70%(2)
Leeward Highway
Providenciales, Turks & Caicos Island
British West Indies
- -------------------- ------------------------------------------------ -------------------------- --------------------
Common Stock Abdul Ladha 8,437,194(3) 44.85%(3)
1963 Lougheed Hgwy.
Coquitlam, B.C. Canada
V3N 4W1
- -------------------- ------------------------------------------------ -------------------------- --------------------
Common Stock Barrett Sleeman 50,000(7) 0.26%(7)
1963 Lougheed Hgwy.
Coquitlam, B.C. Canada
V3N 4W1
- -------------------- ------------------------------------------------ -------------------------- --------------------
</TABLE>
49
<PAGE>
<TABLE>
- -------------------- ------------------------------------------------ -------------------------- --------------------
Title of Class Name and Address of Beneficial Owner Amount and Nature of Percentage of
Beneficial Ownership Class(1)
- -------------------- ------------------------------------------------ -------------------------- --------------------
<S> <C> <C> <C>
Common Stock Jeremy Dodd 200,000(7) 1.04%(7)
1963 Lougheed Hgwy.
Coquitlam, B.C. Canada
V3N 4W1
- -------------------- ------------------------------------------------ -------------------------- --------------------
Common Stock Richard K. Miller 10,000(7) 0.05%(7)
1963 Lougheed Hgwy.
Coquitlam, B.C. Canada
V3N 4W1
- -------------------- ------------------------------------------------ -------------------------- --------------------
Common Stock Jerry Bleet 16,000(8) 0.08%(8)
1963 Lougheed Hgwy.
Coquitlam, B.C. Canada
V3N 4W1
- -------------------- ------------------------------------------------ -------------------------- --------------------
Common Stock Officers and Directors as a Group 8,713,194(9) 45.67%(9)
- -------------------- ------------------------------------------------ -------------------------- --------------------
</TABLE>
(1) Based on an aggregate 18,310,001 shares issued and outstanding as of
December 22, 1999.
(2) Includes 547,029 shares of common stock that may be acquired pursuant to
the exercise of 547,029 share purchase warrants within 60 days of November
30, 1999.
(3) Mr. Ladha was granted stock options exercisable to acquire 500,000 shares
of our commons stock within 60 days of November 30, 1999. Mr. Ladha is a
controlling shareholder of Dexton Technologies Corporation, which owns
1,843,444 shares of our common stock. Khatidja Shariff is Mr. Ladha's
sister and owns 6,093,750 shares of our common stock. Mr. Ladha is the
beneficial owner of the shares of the 500,000 shares underlying his stock
options, the 1,843,444 shares owned by Dexton Technologies Corporation and
the 6,093,750 Khatidja Shariff.
(4) Kenneth Taves is a controlling shareholder of Janus Industries and is the
beneficial owner of these shares.
(5) Robert Montgomery is a controlling shareholder of Trans Mutual Growth Inc.
and is the beneficial owner of these shares.
(6) Bruno Bolliger is a controlling shareholder of Silicon Capital Corp., and
is the beneficial owner of these shares.
(7) Consisting of shares of common stock that may be acquired on the exercise
of incentive stock options, at an exercise price of $3.20 per share until
October 14, 2004.
(8) Consisting of 16,000 shares beneficially owned by Mr. Bleet, including
10,000 shares, which may be immediately acquired upon the exercise of
incentive stock options.
(9) Consisting of 8,437,194 shares beneficially owned by Abdul Ladha, our
President, which includes options immediately exercisable to acquire
500,000 and 1,843,444 shares owned by Dexton Technologies Corporation, a
company controlled by Mr. Ladha; 200,000 shares which may be immediately
acquired by Jeremy Dodd, the Vice-President of Operations of our
subsidiary, upon the exercise of incentive stock options; 50,000 shares
which may be immediately acquired by Barrett Sleeman, one of our directors,
upon the exercise of incentive stock options; 10,000 shares which may be
immediately acquired by Richard K. Miller, our Vice-President, Finance and
Corporate Development, upon the exercise of incentive stock options; and
16,000 shares beneficially owned by Jerry Bleet, our Vice-President,
Merchandising & Logistics, of which 10,000 shares may be immediately
acquired upon the exercise of incentive stock options. See "Executive
Compensation."
Security Ownership of Management
We are not aware of any arrangement that might result in a change in control in
the future.
50
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons.
Directors and Officers
All of our directors are elected annually by the shareholders and hold office
until the next annual general meeting of shareholders or until their successors
are duly elected and qualified, unless they sooner resign or cease to be
directors in accordance with our Articles and By-laws.
Our next regular meeting will be held on January 21, 2000. Our executive
officers are appointed by and serve at the pleasure of our Board of Directors.
As at December 22, 1999, the following persons were our directors, executive
officers and/or promoters:
51
<PAGE>
<TABLE>
Name and present office held Director, officer Principal occupation and
or promoter since if not at present an
elected director, occupation
during the preceding five years
- ---------------------------- ------------------ -------------------------------
<S> <C> <C>
Abdul Ladha, Director, President, August 24, 1999 President, Dexton Technologies Corporation
and Able Auctions (1991) Ltd.
Barrett Sleeman, Director August 24, 1999 President, Omicron Technologies Inc.; director of
a number of publicly traded companies
N.H. (Nosh) Vellani, Chief Financial December 1, 1999 Certified Management Accountant; Consulting Chief
Officer Financial Officer of Chai Na Ta Corp 1999; Chief
Financial Officer & Secretary of Aber Resource
Ltd from 1997 to 1999; Vice President,
Finance and CFO of Viceroy Resource Corporation
from 1991 to 1997
Jeremy Dodd, Secretary and Treasurer, August 24, 1999 Former owner and operator and current employee and
Vice-President of Operations of Able officer of Able Auctions (1991) Ltd.
Auctions (1991)
Richard K. Miller, Vice-President, September 15, 1999 Business and marketing professional;
Corporate Development Vice-President of Orion Technologies Inc. from
1997 to 1999
Jerry Bleet, Vice-President, Merchandising September 15, 1999 Retail executive; Vice-President, Retail Stores,
& Logistics of London Drugs from 1977 to 1996
Douglas McLeod, Promoter(1) March 1999 Internet Consultant - Director Pawnbroker.com,
Inc. from May 1999 to October 1999; Blue Zone
Entertainment Inc. from May 1999 to present;
President of Eriko Internet, Inc. from April 1999
to October 1999; President, Secretary and
Treasurer of Ableauctions.com, Inc. from July 1999
to August 1999; independent consultant from 1995
to present.
</TABLE>
(1) Douglas McLeod served as an officer and director of Ableauctions.com, Inc.
from July 1999 to August 1999.
The following is a brief biography of each of the Company's directors and
executive officers:
Abdul Ladha, Director, President, and CEO - Age 36
Abdul Ladha, our President and CEO and a Director since August 24, 1997, has
served as President of Able Auctions (1991) since April 1, 1998. Mr. Ladha holds
an honors degree in Electrical Engineering and Mathematics from the University
of British Columbia. In 1985, after completing his academic term at UBC and the
Tri-University Meson Facility (TRIUMF), a nuclear physics research laboratory,
he founded Dexton Enterprises Inc., the operating subsidiary of Dexton
Technologies Corporation, a company listed on the Canadian Venture Exchange. In
1997, Dexton Technologies acquired Able Auctions (1991) Ltd., BDL's Software
Alley Ltd., and ANO Office Automation. Dexton Technologies is engaged in the
business of the marketing
52
<PAGE>
and sale of personal computer hardware and network systems to corporate and
retail customers as well as computer training and after-sales upgrade and
support services.
Mr. Ladha is the Executive Director of CITA - The Canadian Institute for
Technological Advancement, a nonprofit organization dedicated to developing
Canada's technological entrepreneurs sponsored by the UBC, Simon Fraser
University, the World Trade Centre, Ernst & Young, and some 60 corporations and
institutions.
Barrett E.G. Sleeman, P.Eng., Director - Age 59
Mr. Sleeman, a director of the company since August 24, 1999, is a professional
engineer and the President. From May 1988 to present, Mr. Sleeman has served as
President and a director of Omicron Technologies Inc., whose focus is on the
acquisition, research and development, and marketing of leading edge
technologies for the aerospace, telecommunications, defense, and consumer
electronics industries, as well as Internet-based business concepts, since May
1988. Mr. Sleeman also serves as a director of the following publicly traded
companies: Dexton Technologies Corporation (since April 1997); Industrial
Mineral Park Mining Corporation, a graphite property development company (since
February 1999); and Java Group Inc., currently an oil and gas company (since
November 1997). Mr. Sleeman was also President (October 1996 to October 1997)
and a director (August 1996 to October 1997) of White Hawk Ventures Inc., and
President (August 1995 to April 1997) and a director (March 1995 to January
1998) of Redex Gold Inc., both mining exploration companies.
N.H. (Nosh) Vellani, Chief Financial Officer - Age 41
N.H. (Nosh) Vellani, Age 41, is a Certified Management Accountant and has nearly
20 years of business accounting, management and executive finance experience.
Prior to joining us, Mr. Vellani was a Consulting Chief Financial Officer with
Toronto Stock Exchange (TSE) listed Chai Na Ta Corp, the largest North American
Ginseng grower in the world. Previously was Chief Financial Officer & Secretary
of TSE and NASDAQ listed Aber Resource Ltd, from 1997 to 1999, a development
stage diamond company. From 1991 to 1997, Mr. Vellani served as Vice President,
Finance and CFO with TSE listed Viceroy Resource Corporation, a multi mine gold
producer. Since 1980, Mr. Vellani has also held various positions with other
public companies, including Pan Atlas Energy Inc, a mid tier oil & gas producer,
Channel Resources Ltd, Oro Belle Resources Ltd. and Granges Inc.
Jeremy Dodd, Vice-President of Operations - Age 32
Jeremy Dodd, our Secretary and Treasurer since September 15, 1999, began his
career with Able Auctions Liquidators Limited in 1986. Five years later, he
bought the company and formed Able Auctions (1991) Ltd., where he served as
President from November 1993 to April 1998 and Secretary and a director from
July 1991 to April 1998. In March 1998, he sold Able Auctions (1991) Ltd. to
Dexton Technologies Corporation and has directed Able Auctions (1991)'s
operations and its transition to becoming an Internet broadcaster of auctions.
Mr. Dodd was appointed Vice President of Operations of Able Auctions (1991) Ltd.
on August 24, 1999. Mr.
53
<PAGE>
Dodd is an auctioneer and bailiff by trade and has conducted over 1,000 live
auctions from Montreal to San Francisco.
Richard K. Miller, Vice-President, Corporate Development - Age 40
Richard K. Miller, our Vice President of Corporate Development since September
15, 1999, has a Bachelor of Commerce from the University of Alberta and a Master
of Business Administration from the Ivey Business School. He is an experienced
business and marketing professional with over 16 years experience in high
technology, e-commerce and payment technology, primarily working with emerging
growth companies.
Mr. Miller was a Senior Account Manager with Rydex Industries Corporation, the
world's leading marine communications software vendor, from 1994 to 1996, and
served as the Vice President, Marketing & Product Management, of Orion
Technologies Inc., an international e-commerce company, from 1997 to 1999.
Jerry Bleet, Vice-President, Merchandising & Logistics - Age 55
Jerry Bleet, our Vice-President of Merchandising and Logistics, received a
Bachelor of Commerce degree from the University of Manitoba. For over 30 years,
Mr. Bleet has been a retail executive with major Canadian retailers and
department stores.
Mr. Bleet served as Vice President, Retail Stores of London Drugs for 18 years
from 1977 to 1996. Mr. Bleet was a key member of the executive management team
that expanded the company from 10 stores in 1977 to 49 stores with over $900
million in annual revenues. Since leaving London Drugs in 1996, Mr. Bleet has
been an independent consultant to retail organizations.
Douglas McLeod, Promoter - Age 39
Douglas McLeod served as our President from June 1999 to August 1999, and as
Secretary and a director from June 1999 to September 1999. Mr. McLeod has spent
the last five years as an Internet consultant and is the President, Founder and
Promoter of Eriko Internet Inc. Mr. McLeod attended York University in Toronto,
Ontario from 1992 to 1995 under the University's Bachelor of Arts program. Mr.
McLeod also serves as a director of Ableauctions.com Inc., an Internet provider
of auctions services for retail auction houses, since May 1999 and a director of
Blue Zone International, Inc., a provider of high speed Internet services for
businesses since June 1999.
Other Information
Members of the Board of Directors are elected by our shareholders. Our Board of
Directors meets periodically to review significant developments affecting our
company and to act on matters requiring Board approval. Although the Board of
Directors delegates many matters to others, it reserves certain powers and
functions to itself. This committee is directed to review the scope, cost, and
results of the independent audit of our books and records, the results of the
54
<PAGE>
annual audit with management, and the adequacy of our accounting, financial, and
operating controls; to recommend annually to the Board of Directors the
selection of the independent auditors; to consider proposals made by the
Registrant's independent auditors for consulting work; and to report to the
Board of Directors, when so requested, on any accounting or financial matters.
None of our directors or executive officers is a party to any arrangement or
understanding with any other person pursuant to which that person was elected as
a director or officer of the company.
None of our directors or executive officers has any family relationship with any
other director or officer.
None of our officers or directors have been, in the past five years,: (1)
involved in bankruptcy proceedings; (2) subject to criminal proceedings or
convicted of a criminal act; (3) subject to any order, judgment or decree
entered by any court limiting in any way his or her involvement in any type of
business, securities or banking activities; or (4) subject to any order for
violation of federal or state securities laws or commodities laws.
Item 6. Executive Compensation.
The following table contains information concerning the annual compensation and
long-term compensation to named executive officers during the last three fiscal
years ended December 31, 1998, 1997, and 1996 and the fiscal year ending
December 31, 1999.
<TABLE>
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
- --------------------------------- ---------------------------------- --------------------------------------- ------------
Awards Pay-outs
- ---------------------- ---------- ---------- ----------- ----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name and Principal Year Salary Bonus ($) Other Restricted Securities LTIP All Other
Position Ended(1) ($) Annual Stock Underlying Payouts Compen-
Compen- Award(s) Options/ sation ($)
sation($) ($) SARs (#)
- ---------------------- ---------- ---------- ----------- ----------- ------------- ------------- ----------- ------------
DOUGLAS McLEOD(2) 1999 Nil Nil Nil Nil Nil/Nil Nil Nil
President
ABDUL LADHA(3) 1999 Nil Nil Nil Nil 500,000/Nil Nil Nil
President
</TABLE>
55
<PAGE>
<TABLE>
Annual Compensation Long-Term Compensation
- --------------------------------- ---------------------------------- --------------------------------------- ------------
Awards Pay-outs
- ---------------------- ---------- ---------- ----------- ----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JEREMY DODD(4) 1999 55,555 66,666 Nil Nil 200,000/Nil Nil Nil
Vice-President of
Operations of Able
Auctions (1991)
- ---------------------- ---------- ---------- ----------- ----------- ------------- ------------- ----------- ------------
</TABLE>
(1) Year ended December 31.
(2) President of the Company from June 22, 1999 to August 24, 1999.
(3) President of Able Auctions (1991) Ltd. from April 1, 1998 to present.
President of the Company from August 24, 1999 to present.
(4) Founder and President of Able Auctions to April 1, 1998. Currently, an
employee and Vice-President of Operations of Able Auctions (1991) Ltd. and
Secretary and Treasurer of the Company from August 24, 1999 to present.
Our directors do not receive any stated salary for their services as directors
or members of committees of the Board of Directors, but by resolution of the
Board, a fixed fee and expenses of attendance may be allowed for attendance at
each meeting. Directors may also serve the Company in other capacities as an
officer, agent, or otherwise, and may receive compensation for their services in
that other capacity.
Employment and Consulting Agreements
Under an employment agreement dated April 1, 1998, Able Auctions (1991),
employed Jeremy Dodd, our Secretary and Treasurer, to manage its auction
operation and to serve as an officer of Able Auctions (1991). Able Auctions
(1991) agreed to pay Mr. Dodd a monthly fee of $3,000, increasing by 2.4% on
each anniversary of the agreement. This employment agreement was replaced
effective September 1, 1999 by a verbal agreement whereby Able Auctions employs
Mr. Dodd for an annual salary of $105,000.
We currently have no other employment, consulting, or other service contracts or
arrangements between us or our subsidiary and our directors and/or executive
officers.
Stock Options
No stock options/SARs were granted to or exercised by named executive officers
during the fiscal year ended December 31, 1998.
See "Executive Compensation - Stock Option Plan" for details of stock options
granted to the Company's directors, executive officers, and consultants during
the current fiscal year ended December 31, 1999.
Stock Option Plan
On October 14, 1999, a majority of our shareholders approved the 1999 Stock
Option Plan (the "Option Plan") as approved by the Board of Directors on October
14, 1999. The Option Plan provides for the grant of incentive and non-qualified
options to purchase up to three million (3,000,000) shares of our common stock
to our officers, directors, employees and other qualified persons as the Plan
Administrator (which currently is the Board of Directors) may select. The
56
<PAGE>
Plan is intended to help attract and retain key Company employees and such other
persons as the Plan Administrator may select and to give such persons an equity
incentive to achieve the objectives of our shareholders.
Incentive stock options may be granted to any individual who, at the time the
option is granted, is an employee of the Company or any related corporation.
Non-qualified stock options may be granted to employees and to such other
persons as the Plan Administrator may select. The Plan Administrator fixes the
exercise price for options in the exercise of its sole discretion, subject to
certain minimum exercise prices in the case of Incentive Stock Options. The
exercise price may be paid in cash, certified check or cashier's check. Options
will not be exercisable until they vest according to a vesting schedule
specified by the Plan Administrator at the time of grant of the option.
Options are non-transferable except by will or the laws of descent and
distribution. With certain exceptions, vested but unexercised options terminate
upon the earlier of: (i) the expiration of the option term specified by the Plan
Administrator at the date of grant (generally ten years; or, with respect to
Incentive Stock options granted to greater-than ten percent shareholders, a
maximum of five years); or (ii) the date of an employee optionee's termination
of employment or contractual relationship with the Company or any related
corporation for cause; (iii) the expiration of three months from the date of an
optionee's termination of employment or contractual relationship with the
Company or any related corporation for any reason, other than cause, death or
disability; and (iv) the expiration of one year from the date of death of an
optionee or cessation of an optionee's employment or contractual relationship by
death or disability. Unless accelerated in accordance with the Plan, unvested
options terminate immediately upon termination of employment of the optionee by
the Company for any reason whatsoever, including death or disability.
On October 14, 1999, we granted stock options to the following officers,
directors, employees, consultants and other service providers:
<TABLE>
- ------------------------------------------------- --------------------------- --------------------------------------
Name of Optionee and Position Number of Options Vesting Schedule
- ------------------------------------------------- --------------------------- --------------------------------------
<S> <C> <C>
Abdul Ladha, President & CEO 500,000 100% on grant
Barrett Sleeman, Director 50,000 100% on grant date
Jeremy Dodd, Vice-President of Operations of 200,000 25% on grant date and 25% each year
Subsidiary thereafter
Richard K. Miller, Vice-President, Finance and 10,000 100% on grant date
Corporate Development
Jerry Bleet, Vice-President, Marketing and 10,000 100% on grant date
Logistics
Richie Smallwood, Employee of Able Auctions 15,000 one-third on grant date and
(1991) Ltd. one-third each year thereafter
Linda Wingrove, Employee of Able Auctions 5,000 100% on grant date
(1991) Ltd.
</TABLE>
57
<PAGE>
<TABLE>
- ------------------------------------------------- --------------------------- --------------------------------------
Name of Optionee and Position Number of Options Vesting Schedule
- ------------------------------------------------- --------------------------- --------------------------------------
<S> <C> <C>
Fred Ramos, Employee of Able Auctions (1991) 5,000 100% on grant date
Ltd.
Jabeel Janmohamed, Employee of Able Auctions 5,000 100% on grant date
(1991) Ltd.
Paul Piotrowski, Employee of Able Auctions 5,000 100% on grant date
(1991) Ltd.
Matt Seeney, Employee of Able Auctions (1991) 5,000 100% on grant date
Ltd.
Bill Johnson, Employee of Able Auctions (1991) 2,500 100% on grant date
Ltd.
Total 812,500
</TABLE>
These options are exercisable at the price of $3.20 per share until October 14,
2004 or one month after the optionee ceases to serve the Company.
No share purchase options were exercised by our officers, directors and
employees up to October 22, 1999 of the current fiscal year ended December 31,
1999.
Item 7. Certain Relationships and Related Transactions.
Employment Agreements
See "Executive Compensation - Employment and Consulting Agreements" for
particulars regarding Mr. Dodd's employment agreement.
58
<PAGE>
Contribution Agreement
On July 15, 1999, our Board of Directors agreed to accept the contribution from
Douglas McLeod, a former director of our company, of 50,000,000 (post-share
splits/consolidation)1 shares of common stock in consideration of $100. Mr.
McLeod contributed these shares to the Company to facilitate our acquisition of
Able Auctions (1991) and to improve our ability to raise capital. The shares
were returned to our treasury effective July 19, 1999, and the Company's total
issued capital was thereby reduced by 50,000,000 shares (post-share
splits/consolidation).1 These shares were originally issued at par value
($0.001) to Allied Capital as compensation for consulting services related to
strategic management and planning on March 26, 1999. At the time these shares
were issued, we were a shell company with no material business or assets, and
there was no material market for our common stock.
Acquisition of Able Auctions (1991)
On August 24, 1999, we issued 1,843,444 shares of our common stock, which
represents 10.07% of the Company's issued capital as of October 22, 1999, and we
paid $1,027,333 to Dexton Technologies Corporation 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 (1991), $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. We estimated
the fair market value of the shares of Able Auctions (1991), based on a
valuation report prepared by an independent appraiser, to be approximately at
March 31, 1999 $530,000 (Cdn.$794,500). At the time these shares were issued, we
were a shell company with no material business or assets, and there was no
material market for our common stock. Dexton is a Canadian corporation who is a
reporting company under British Columbia securities law and whose common shares
trade on the Canadian Venture Exchange. Abdul Ladha, our President, is also the
President and controlling shareholder of Dexton. Dexton acquired all the issued
and outstanding common shares of Able (1991) from Jeremy Dodd, Vice-President of
Operations of Able (1991), on April 1, 1998 in consideration of the purchase
price
- -----------------------------
1 On September 2, 1998, we amended our Articles of Incorporation to effect a
split of our issued and outstanding share capital on a 200 shares for one share
basis. Prior to the share split, we had 5,000 shares of issued and outstanding
shares of common stock, with a par value of $1.00 and after giving effect to the
share split, such shares were automatically reclassified and changed into
1,000,000 fully-paid and non-assessable shares of common stock, with a par value
of $0.001.
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
12,125,000 shares of common stock outstanding.
On August 9, 1999 we effected a five shares for one share forward split of our
common shares increasing the total issued share capital from 12,250,000 to
61,250,000.
In September 1999, we amended our Articles of Incorporation to reduce our
authorized capital to 50,000,000 common shares and consolidate our issued and
outstanding common shares by one new share for four old shares. Following the
consolidation, the issued and outstanding common shares of the company was
18,250,000 shares. See "History of Our Corporation."
59
<PAGE>
of Cdn.$275,000. See "Description of Business - Our Acquisition of Able (1991)"
herein for more particulars.
Consulting Agreement with Dexton Technologies Corporation
Effective August 24, 1999, Able Auctions (1991) entered into a consulting
agreement with Dexton Technologies Corporation, which is owned by Abdul Ladha,
our President and Chief Executive Officer. Pursuant to the consulting agreement,
Dexton agreed to provide Able Auctions (1991) with consulting services with
respect to:
* Management and administration of our auction operations;
* Management and administration of our electronic commerce operations;
* Marketing strategies and program administration;
* Developing banner advertising programs, URL link arrangements and
other revenue generation opportunities;
* Identifying potential strategic business opportunities; and
* Strategic corporate development and structuring.
Able Auctions (1991) agreed to pay Dexton consulting fees totaling $240,000 in
consideration for such services. We paid this fee in full on September 15, 1999.
The consulting agreement terminates on August 24, 2000.
Certain Transactions with Dexton
In connection with our acquisition of Able Auctions (1991), we agreed to repay
Dexton approximately $385,000 in liabilities owed by Able Auctions (1991) to
Dexton related to expenses paid by Dexton on behalf of Able Auctions (1991),
computer hardware and software, and other liabilities. We also agreed to repay
Dexton approximately $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.
Since our acquisition of Able Auctions (1991), we purchased approximately
$385,000 in computer hardware and software from Dexton, including approximately
$335,000 in computer hardware and servers and $50,000 in computer software.
Dexton charged us 15% above invoice price for these purchases. We believe that
the purchase price paid for such equipment was at fair market value.
60
<PAGE>
Lease Agreement
We lease our corporate office space from Derango Resources Inc., a private
company wholly owned by our President and CEO, Abdul Ladha, and his wife, Hanifa
Ladha. See "Properties."
Management Fee Paid to Jeremy Dodd
In connection with our acquisition of Able Auctions (1991), we agreed to pay
Jeremy Dodd, our Secretary and Treasurer, a bonus of approximately $70,000 owed
by Able Auctions (1991) to Mr. Dodd for services provided prior to August 24,
1999. Dexton paid this bonus on behalf of Able Auctions (1991) to Mr. Dodd in
April 1999. We have not yet reimbursed Dexton.
We believe that the relationships described above are no less favorable to us
than the terms we would otherwise negotiate with independent third parties at
arm's length.
Except for relationships and transactions that we have disclosed in this and
other sections of this registration statement such as (a) the ownership of our
securities and (b) the compensation described herein, to our knowledge, none of
our directors, executive officers, holders of 10% of our outstanding shares of
common stock, or any associate or affiliate of such person, have had a material
interest, direct or indirect, since our inception or in any proposed transaction
which may materially affect us.
Item 8. Description of Securities.
Our authorized capital consists of 50,000,000 common shares with a par value of
$0.001 per share. At December 22, 1999, there were 18,310,001 shares of common
stock issued and outstanding.
All shares of common stock are of the same class and have the same rights,
preferences and limitations. Holders of shares of common stock are entitled to
receive dividends in cash, property, or shares when and if dividends are
declared by our Board of Directors out of funds legally available therefor.
There are no limitations on the payment of dividends. A quorum for a general
meeting of shareholders is one shareholder entitled to attend and vote at the
meeting who may be represented by proxy and other proper authority, holding at
least a majority of the outstanding shares of common stock. Holders of shares of
common stock are entitled to one vote per share of common stock. Upon any
liquidation, dissolution, or winding up of our business, if any, after payment
or provision for payment of all of our debts, obligations, or liabilities, the
proceeds will be distributed to the holders of shares of common stock. There are
no pre-emptive rights, subscription rights, conversion rights, and redemption
provisions relating to the shares of common stock and none of the shares of
common stock carry any liability for further calls.
The rights of holders of shares of common stock may not be modified other than
by vote of majority of the shares of common stock voting on the modification.
Because a quorum for a general meeting of shareholders can exist with one
shareholder (or proxyholder) personally
61
<PAGE>
present, the rights of holders of shares of common stock may be modified by less
than a majority of the issued shares of common stock.
PART II
Item 1. Market Price of and Dividends on Registrant's Common Equity and Related
Stockholder Matters.
On November 27, 1998, our common stock was approved for trading on the OTCBB
under the symbol "JBFL". There was no material market for our common shares
prior to March 31, 1999. Our trading symbol was changed to "ABLC" effective July
21, 1999. The following table sets forth, for the periods indicated, the range
of the high and low bid quotations (as reported by NASD). The bid quotations set
forth below reflect inter-dealer prices, without retail mark-up, mark-down, or
commission, and may not reflect actual transactions:
OTCBB
1999 High Low Volume
---- ---- --- ------
2nd Quarter(1) N/A N/A N/A
3rd Quarter $4.00 $1.00 9,254,300
(1) No trades of our shares took place on the OTCBB during the second quarter.
On December 21, 1999, the last reported sale price of our common stock reported
by the NASD was $5.20. As of December 21, 1999, there were 15 holders of record
of our common stock, including Cede & Co., which is a depositary trust firm
holding shares on behalf of brokerage firms and other financial institutions.
Cede & Co. was record holder of 3,072,750 share of our common stock. Beneficial
ownership of the shares held by Cede & Co.
cannot be determined from publicly available information.
We have not declared or paid any cash dividends on our common stock since our
inception, and our Board of Directors currently intends to retain all earnings
for use in the business for the foreseeable future. Any future payment of
dividends will depend upon our results of operations, financial condition, cash
requirements, and other factors deemed relevant by our Board of Directors.
Item 2. 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.
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<PAGE>
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 3. 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
63
<PAGE>
(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.
Item 4. Recent Sales of Unregistered Securities.
Pursuant to a resolution of the Board of Directors dated October 1, 1996, we
initially issued 6,250,000 (post-share splits/consolidation)1 shares of common
stock to founders of our company including 6,093,750 shares to James Bailey, our
former President, and 6,250 shares each to twenty-five other related persons (a
total of 156,250 shares): Janis Bailey, Joan Bailey, Paul Bailey, Tom Bailey,
Lisa Baldholm, Joseph Camilio, Patricia Cohen, Stephanie Cohen, Jessica Cohen,
Lousie Cunningham, Michael Derrick, David Disner, Nicole Johnson, Michael Lewis,
Eric Littman, Ezequial Lopez, John Lopez, Zene Lopez, Steven Park, Joe
Persichetti, Mary Saunders, Doug Ward, Pamela Wilkinson and Terra Wilkinson.
These shares were issued as founders' shares at par value, $0.001, for services
related to the formation of our company and services related to assisting us in
exploring and locating potential business opportunities. At the time these
shares were issued, we were a shell company with no material business or assets,
and there was no market for our common stock. The issuance of those shares was
exempt from registration under the provisions of Section 4(2) of the Securities
Act of 1933, as amended. The issuance of the shares did not involve a public
offering.
On March 26, 1999, we issued 53,750,000 (post-share splits/consolidation)1
shares of common stock in payment of consulting and professional services
related to strategic planning and management services to Allied Capital Corp., a
company controlled by Doug McLeod, our former President and a former director.
At the time these shares were issued, we were a shell company with no material
business or assets, and there was no material market for our common stock. We
issued the shares at par value, $0.001, for a deemed value of $8,600, based on
the value of the services rendered as negotiated by the parties at arms' length.
The issuance of the shares was exempt from registration under the provisions of
Section 4(2) of the Securities Act of 1933, as amended. The issuance of the
shares did not involve a public offering.
On April 12, 1999, we issued a total of 5,312,500 (post-share
splits/consolidation)1 shares of common stock in payment of consulting and
professional services to Eric Littman for legal services and Progressive General
Media Corp. for marketing services. At the time these shares were issued, we
were a shell company with no material business or assets, and there was no
64
<PAGE>
material market for our common stock. We issued the shares at a deemed value of
$850, based on the value of the services render as negotiated by the parties at
arms' length. The issuance of the shares was exempt from registration under the
provisions of Section 4(2) of the Securities Act of 1933, as amended. The
issuance of the shares did not involve a public offering.
On July 19, 1999, Douglas McLeod, a promoter and former director of
Ableacutions.com, Inc., contributed back to the Company 50,000,000 (post-share
splits/consolidation)1 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. The shares
were originally issued at par value as compensation for services to Allied
Capital as compensation for services on March 26, 1999.
Pursuant to a resolution of the Board of Directors dated July 20, 1999, we
issued 1,094,057 (post-share splits/consolidation)1 units to Silicon Capital
Corp., a company controlled by Bruno Bollinger, at the price of $3.20 per unit
to raise $3,500,980. Each unit consisted of one share of our common stock and
one-half non-transferable share purchase warrant. The shares and warrants were
issued on August 24, 1999. The offering was not underwritten. The sale was
exempt from registration in reliance upon Rule 506 under Regulation D
promulgated under the Securities Act of 1933, as amended. The issuance of the
shares did not involve a public offering.
In early June 1999, we began negotiations to acquire Able Auctions (1991) Ltd.
At the time the negotiations began there was no market for our shares. On June
20, 1999, we entered into a definitive agreement to acquire Able Auctions
(1991), subject to our ability to acquire financing to implement a business
strategy to broadcast live auctions over the Internet. On August 24, 1999, we
issued 1,843,444 (post-consolidation)1 shares of our common stock, which
represents 10.07% of the Company's issued capital as of October 22, 1999, and we
paid $1,027,333 to Dexton Technologies Corporation 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 (1991), $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. We estimated
the fair market value of the shares of Able Auctions (1991), based on a
valuation report prepared by an independent appraiser, to be approximately
$530,000 (Cdn.$794,500) at March 31, 1999. The shares were issued to Dexton
pursuant to an exemption from registration pursuant to Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended. The issuance of the
shares did not involve a public offering.
On October 18, 1999, the Company issued 60,000 shares of its common stock at the
deemed price of $2.80 per share to Ross Auctioneers & Appraisers Ltd., a
privately owned Canadian corporation incorporated under the laws of British
Columbia. The Company issued the shares to Ross Auctioneers, a non-U.S. person,
under an asset purchase agreement dated September 20, 1999. The market value of
our shares on September 20, 1999 was $2.80, the deemed price of the shares
issued to Ross Auctioneers. The terms of the purchase agreement and the
consideration paid to Ross Auctioneers was determined based on arms' length
negotiations between our
65
<PAGE>
management and Ross Auctioneers. We issued the shares pursuant to an exemption
from registration pursuant to Regulation S promulgated under the Securities Act
of 1933, as amended. See "Description of Business - Our Acquisition of Able
(1991)." No offer or sale was made in the United States and the issuance of the
shares did not involve a public offering.
Item 5. Indemnification of Directors and Officers.
Our Bylaws require us to indemnify to the fullest extent permitted by law each
person that is empowered by law to indemnify. Our Articles of Incorporation
require us to indemnify to the fullest extent permitted by Florida law, each
person that we have the power to indemnify.
Florida law permits a corporation, under specified circumstances, to indemnify
its directors, officers, employees or agents against expenses (including
attorney's fees), judgments, fines and amounts paid in settlements actually and
reasonably incurred by them in connection with any action, suit, or proceeding
brought by third parties by reason of the fact that they were or are directors,
officers, employees or agents of the corporation, if such directors, officers,
employees or agents acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reason to believe their
conduct was unlawful. In a derivative action, i.e. one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Our Articles of Incorporation and Bylaws also contain provisions stating that no
director shall be liable to us or any of our stockholders for monetary damages
for breach of fiduciary duty as a director, except with respect to (1) a breach
of the director's duty of loyalty to the corporation or its stockholders, (2)
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) liability under Florida law (for unlawful payment
of dividends, or unlawful stock purchases or redemptions) or (4) a transaction
from which the director derived an improper personal benefit. The intention of
the foregoing provisions is to eliminate the liability of our directors or our
stockholders to the fullest extent permitted Florida law.
66
<PAGE>
PART F/S
The following financial statements and related schedules are included in this
Item:
Unaudited Financial Statements of Ableauctions.com, Inc. (formerly J.B.
Financial Services, Inc.) for the Nine Month Period Ended September 30, 1999 and
1998, consisting of the following:
Unaudited Consolidated Balance Sheets as at September 30, 1999 and
1998;
Unaudited Consolidated Statements of Operations for the nine month
period ended September 30, 1999 and 1998;
Unaudited Consolidated Statements of Cash Flows for the nine month
period ended September 30, 1999 and 1998; and
Notes to Unaudited Consolidated Financial Statements.
Audited Financial Statements of J.B. Financial Services, Inc. (now
Ableauctions.com, Inc.) for the Fiscal Years Ended December 31, 1998 and 1997,
consisting of the following:
Auditors' Reports;
Consolidated Balance Sheets as at December 31, 1998 and 1997;
Consolidated Statements of Operations for the fiscal periods beginning
from inception (September 30, 1996) to December 31, 1996 and for the
fiscal years ended December 31, 1997 and 1998;
Consolidated Statements of Cash Flows for the fiscal periods beginning
from inception (September 30, 1996) to December 31, 1996 and for the
fiscal years ended December 31, 1997 and 1998; and
Notes to Consolidated Financial Statements.
Audited Financial Statements of Able Auctions (1991) Ltd. for the Fiscal Year
Ended March 31, 1999, consisting of the following:
Auditors' Report;
Balance Sheets as at March 31, 1999;
Statement of Earnings and Retained Earnings;
Statement of Changes in Cash Position; and
Notes to Financial Statements.
67
<PAGE>
Unaudited Financial Statements of Able Auctions (1991) Ltd. for the Twelve Month
Period Ended March 31, 1998, consisting of the following:
Balance Sheets as at March 31, 1998;
Statement of Earnings and Retained Earnings;
Statement of Changes in Cash Position; and
Notes to Financial Statements.
Unaudited Financial Statements of Able Auctions (1991) Ltd. for the Six Month
Periods Ended September 30, 1999 and September 30, 1998, consisting of the
following:
Balance Sheets as at September 30, 1999 and September 30, 1998;
Statement of Earnings and Retained Earnings;
Statement of Changes in Cash Position; and
Notes to Financial Statements.
Unaudited Pro Forma Consolidated Financial Statement for the nine month period
ended September 30, 1999 and year ended December 31, 1998.
68
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED BALANCE SHEETS
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
September 30, December 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,164,680 $ -
Accounts receivable 308,987 -
Inventory 341,064 -
Prepaid expenses 50,864 -
--------------- ---------------
1,865,595 -
Capital assets (Note 6) 1,116,661 -
Trademark 12,613 -
Website development costs (Note 7) 80,123 -
Goodwill (Note 8) 667,127 -
--------------- ---------------
$ 3,742,119 $ -
=============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 375,836 $ 944
Obligations under capital lease 4,587 -
Loans payable (Note 9) 150,000 -
--------------- ---------------
530,423 944
Obligations under capital lease 43,877 -
--------------- ---------------
574,300 944
--------------- ---------------
Stockholders' equity (Note 1)
Capital stock
Authorized
December 31, 1998 - 62,500,000 common shares with a par value of
$0.001 September 30, 1999 - 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
September 30, 1999 - 18,250,000 common shares with a par value of $0.001 18,250 6,250
Additional paid-in capital 3,572,168 -
Deficit (442,804) (7,194)
Accumulated other comprehensive income (Note 11) 20,205 -
--------------- ---------------
3,167,819 (944)
--------------- ---------------
$ 3,742,119 $ -
=============================================================================================================================
</TABLE>
Subsequent events (Note 13) On behalf of the Board:
Director
- --------------------------------------------
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
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
Three Month Three Month Nine Month Nine Month
Period Period Period Period
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ 207,936 $ - $ 207,936 $ -
COST OF SALES (123,875) - (123,875) -
--------------- --------------- --------------- ---------------
84,061 - 84,061 -
--------------- --------------- --------------- ---------------
EXPENSES
Advertising 7,843 - 7,843 -
Auction expenses 1,801 - 1,801 -
Auto 652 - 652 -
Consulting 17,244 - 26,694 -
Freight and brokerage 16,123 - 16,123 -
Insurance 2,622 - 2,622 -
Interest and bank charges 4,842 - 4,842 -
Management fees 241,926 - 241,926 -
Office and miscellaneous 18,134 - 18,134 -
Professional fees 43,000 - 43,000 -
Rent and utilities 17,356 - 17,356 -
Repairs and maintenance 1,814 - 1,814 -
Salaries and benefits 51,621 - 51,621 -
Shareholder information 2,404 - 2,404 -
Telephone 3,246 - 3,246 -
Transfer agent 2,476 - 2,825 -
Travel and entertainment 106,175 - 106,175 -
--------------- --------------- --------------- ---------------
539,279 - 549,078 -
--------------- --------------- --------------- ---------------
Loss before other items (455,218) - (465,017) -
--------------- --------------- --------------- ---------------
OTHER ITEMS
Interest income (11,115) - (11,115) -
Foreign exchange gain (18,292) - (18,292) -
--------------- --------------- --------------- ---------------
(29,407) - (29,407) -
--------------- --------------- --------------- ---------------
Loss for the period $ (425,811) $ - $ (435,610) $ -
============================================================================================================================
Basic and diluted loss per share $ (0.03) $ - $ (0.03) $ -
============================================================================================================================
Weighted average number of shares
outstanding 16,525,816 6,250,000 12,547,390 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
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
Three Month Three Month Nine Month Nine Month
Period Ended Period Ended Period Ended Period Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss $ (425,811) $ - $ (435,610) $ -
------------- -------------- ------------- -------------
Other comprehensive income, net of tax:
Foreign currency translation adjustments 20,205 - 20,205 -
------------- -------------- -------------- -------------
Consolidated comprehensive loss $ (405,606) $ - $ (415,405) $ -
============================================================================================================================
Basic and diluted loss per share $ (0.03) $ - $ (0.03) $ -
Weighted average number of shares outstanding 16,525,816 6,250,000 12,547,390 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 STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
Accumulated
Common Stock Additional Other Total
------------------------------- Paid-in Comprehensive Stockholders'
Shares Amount Capital Income Deficit Equity
- --------------------------- --------------- ---------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued
October 4, 1996 6,250,000 $ 6,250 $ - $ - $ (1,250) $ 5,000
Loss for the period - - - - (5,000) (5,000)
Balance,
December 31, 1996 6,250,000 6,250 - - (6,250) -
-------------- --------------- -------------- --------------- -------------- --------------
Loss for the year - - - - - -
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 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 (50,000,000) (50,000) 50,000 - - -
Private placement 1,094,056 1,094 3,499,886 - - 3,500,980
Acquisition of Able
Auctions (1991)
Ltd. 1,843,444 1,843 71,895 - - 73,738
Translation adjustment - - - 20,205 - 20,205
Loss for the period - - - - (435,610) (435,610)
-------------- --------------- -------------- --------------- -------------- ---------------
Balance, September 30,
1999 18,250,000 $ 18,250 $ 3,572,168 $ 20,205 $ (442,804) $ 3,167,819
=============================================================================================================================
</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
(Unaudited - Prepared by Management)
================================================================================
<TABLE>
Nine Month Nine Month
Period Ended Period Ended
September 30, September 30,
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED IN):
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $ (435,610) $ -
Item not affecting cash:
Consulting fees 9,450 -
Changes in non-cash working capital items:
Inventory (125,870) -
Accounts receivable (168,004) -
Prepaids (14,750) -
Accounts payable 312,950 -
--------------- --------------
Net cash used in operating activities (421,834) -
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan payable (789,338) -
Due to shareholder (13,961) -
Issuance of common shares 3,500,980 -
--------------- --------------
Net cash provided by financing activities 2,697,681 -
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in Able Auctions (1991) Ltd. net of cash received (702,526) -
Capital assets (428,846) -
--------------- --------------
Net cash used in investing activities (1,131,372) -
--------------- --------------
Change in cash for the period 1,144,475 -
Effect of exchange rates on cash 20,205 -
Cash and cash equivalents, beginning of period - -
--------------- --------------
Cash and cash equivalents, end of period $ 1,164,680 $ -
================================================================================================================
</TABLE>
Supplemental disclosure with respect to cash flows (Note 10)
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
SEPTEMBER 30, 1999
(Unaudited - Prepared by Management)
================================================================================
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 of common stock with a
par value of $1.00 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
$1.00 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.
On July 20, 1999, the Company authorized a stock dividend of four shares
for every one share of record, 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 4,376,225 (1,094,057 post reverse
stock split units) at a price of US$0.80 per unit for total consideration
of US$3,500,980, through a private placement.
Effective September 5, 1999, the Company effected a 4:1 reverse stock
split. Following consolidation, the issued and outstanding common shares of
the Company is 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.
In the opinion of management, the accompanying financial statements contain
all adjustments necessary (consisting only of normal recurring accruals) to
present fairly the financial information contained therein. These
statements do not include all disclosures required by generally accepted
accounting principles and should be read in conjunction with the audited
financial statements of the Company for the year ended December 31, 1998.
The results of operations for the period ended September 30, 1999 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1999.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited - Prepared by Management)
================================================================================
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. 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 financings.
<TABLE>
----------------------------------------------------------------------------------------
September 30, December 31,
1999 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
Deficit $ (442,804) $ (7,194)
Working capital (deficiency) 1,335,172 (944)
========================================================================================
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
These consolidated financial statements include Ableauctions.com, Inc. and
its wholly-owned subsidiary Able Auctions (1991) Ltd. All significant
inter-company balances and transactions have been eliminated upon
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.
Capital assets and amortization
Capital assets will be recorded at cost less accumulated amortization.
Amortization is being calculated using the declining balance method at
rates between 20% to 30% per annum.
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.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited - Prepared by Management)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
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
form 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 5 years.
Cash and cash equivalents
The Company considers all investments with a maturity of three months or
less to be cash equivalents.
Loss per share
Earnings per share are provided in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings Per Share". Due to the Company's
simple capital structure, with only common stock outstanding, only basic
loss per share is presented. Basic loss per share is computed by dividing
losses available to common stockholders by the weighted average number of
common shares outstanding during the period.
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.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited - Prepared by Management)
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Accounting for derivative instruments and hedging activities
In September 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 September 15, 1999. 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.
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 has 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.
e) During the period, 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 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.
5. WARRANTS
The 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
SEPTEMBER 30, 1999
(Unaudited - Prepared by Management)
================================================================================
6. CAPITAL ASSETS
<TABLE>
====================================================================================================================
Net Book Value
----------------------------------
(Audited)
Accumulated September 30, December 31,
Cost Amortization 1999 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Software $ 108,274 $ - $ 108,274 $ -
Vehicles 66,932 - 66,932 -
Computer 933,019 - 933,019 -
Trailers 3,782 - 3,782 -
Office furniture and equipment 4,654 - 4,654 -
--------------- ------------ ---------------- ------------
$ 1,116,661 $ - $ 1,116,661 $ -
====================================================================================================================
</TABLE>
7. WEBSITE DEVELOPMENT COSTS
Website development costs of $80,123 (December 31, 1998 - $Nil) is
comprised of hardware and software costs incurred by the Company in
developing its website. The Company's amortization policy concerning these
costs is to amortize the costs over a period of three years commencing from
the date of operations.
8. BUSINESS COMBINATION
During the period, the Company entered into an acquisition agreement
whereby the Company acquired all the outstanding shares of Able Auctions
(1991) Ltd. ("Able") and the assignment of certain trade accounts payable
of Able. The Company issued 1,843,444 of its common shares at a deemed
value of $73,738 and paid US$545,305 to acquire the shares of Able. The
Company also paid an additional US$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 735,654
Trademark 7,028
Website development costs 37,869
Goodwill 667,127
Accounts payable and accrued liabilities (136,863)
Loan payable (878,377)
Obligation under capital lease (48,464)
--------------
$ 1,123,738
9. LOANS
The loan is payable to a non-related party, and is
payable on demand and bears no interest. $ 50,000
The loan is payable to a non-related party, is due
October 31, 1999 and bears interest at 12% per
annum, compounded annually. 100,000
---------------
$ 150,000
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited - Prepared by Management)
================================================================================
10. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
<TABLE>
Period from
Incorporation
on
Nine Month Nine Month September 30,
Period ended Period ended 1996 to
September 30, September 30, September 30,
1999 1998 1999
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for income taxes $ - $ - $ -
Cash paid for interest $ - $ - $ -
===============================================================================================================
</TABLE>
During the nine month period ended September 30, 1999 the Company issued
9,062,500 common shares, at a deemed value of $9,450, for consulting
services received, and 1,843,444 shares at a deemed value of $73,738, for
the purchase of Able Auctions (1991) Ltd.
There were no non-cash operating investing and financing transactions
during the nine month period ended September 30, 1998.
11. ACCUMULATED OTHER COMPREHENSIVE INCOME
Total comprehensive loss for the nine month period ended September 30,
1999, and the nine month period ended September 30, 1998 was $(415,405) and
$(Nil), respectively. The only item included in other comprehensive loss is
foreign currency translation adjustments in the amounts of $20,205 for the
nine month period ended September 30, 1999 and $Nil for the nine month
period ended September 30, 1998.
<TABLE>
---------------------------------------------------------------------------------------------------------
Foreign Accumulated
Currency Other
Translation Comprehensive
Adjustment Income
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beginning balance, December 31, 1998 $ - $ -
Current - period change 20,205 20,205
---------------- ------------
Ending balance, September 30, 1999 $ 20,205 $ 20,205
==========================================================================================================
</TABLE>
12. RELATED PARTY TRANSACTIONS
During the nine month period ended September 30, 1999, the Company entered
into the following related party transactions:
a) Paid management fees to a company controlled by a director of the
Company in the amount of $241,926 (1998 - $Nil).
b) Purchased computer hardware and software from a company controlled by
a director of the Company in the amount of $550,000.
c) Issued a net amount of 3,750,000 common shares with a deemed value of
$8,600 for consulting services to a company controlled by a former
director of the Company.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited - Prepared by Management)
================================================================================
13. 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 incorrectly
recognize the year 2000 as some other date, resulting in errors. The
effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000 and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems
failure which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year
2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
14. SUBSEQUENT EVENTS
Subsequent to September 30, 1999, the Company completed the following
transactions:
a) On October 18, 1999, the Company, through its wholly owned subsidiary
Able Auctions (1991) Ltd. acquired all of the property, assets and
undertaking of Ross Auctioneers & Appraisers Ltd. pursuant to an asset
purchase agreement. The purchase price for the assets was $175,000
(CDN$250,000) plus applicable taxes, which was paid for by the
issuance of 60,000 shares of the Company's common stock at a deemed
price of $2.80 per share. The Company will account for the acquisition
of Ross Auctioneers & Appraisers Ltd. by accounting for the assets
acquired at their fair market value on the date of acquisition, under
the purchase method of accounting.
b) On October 18, 1999, the Company through its wholly owned subsidiary
Able Auctions (1991) Ltd. acquired from LJM Computer Resources, a
website located at www.bcbids.com, including all associated
intellectual property rights and software technology for the cash
purchase price of $26,600 (CDN$38,000) plus applicable taxes.
c) Able Auctions (1991) Ltd. acquired the domain name "bcbids.com" for
the purchase price of $140 (CDN$200) plus applicable taxes.
<PAGE>
J.B. FINANCIAL SERVICES, INC.
FINANCIAL STATEMENTS
(A Development Stage Company)
DECEMBER 31, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors
J.B. Financial Services, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of J.B. Financial Services, Inc.
as at December 31, 1998 and the related statements of operations, changes in
stockholders' equity and cash flows for the year then ended and the cumulative
amounts, from incorporation on September 30, 1996 to December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of J.B. Financial Services, Inc.
as at December 31, 1998 and the results of its operations, changes in
stockholders' equity and its cash flows for the year then ended and the
cumulative amounts, from incorporation on September 30, 1996 to December 31,
1998 in conformity with generally accepted accounting principles in the United
States of America.
The accompanying financial statements have been prepared assuming that 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.
The audited financial statements as at December 31, 1997 and for the year then
ended and the period from incorporation on September 30, 1996 to December 31,
1996 were audited by another auditor who expressed an opinion without
reservation on those statements in his audit report dated November 10, 1998.
/s/ Davidson & Company
Vancouver, Canada Chartered Accountants
September 9, 1999
(except as to Note 6
which is as of
December 20, 1999)
DAVIDSON & COMPANY
CHARTERED ACCOUNTANTS
Suite 1270, Stock Exchange Tower
609 Granville Street
Pacific Centre
Vancouver, B.C. V7Y 1G6
Canada
<PAGE>
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 896-0278
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors November 10, 1998
Progressive General Lumber Corp.
Orlando, Florida
I have audited the accompanying Balance Sheets of J.B. Financial Services
Inc., (A Development Stage Company), as of October 7, 1998, December 31, 1997,
and December 31, 1996, and the related statements of operations, stockholders'
equity and cash flows for the two years ended December 31, 1997, December 31,
1996, and the period January 1, 1998, to October 7, 1998, for the year ended
December 31, 1997 and the period September 30, 1996, (inception) to December 31,
1996. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of J.B. Financial Services,
Inc., (A Development Stage Company) as of October 7, 1998, December 31, 1997,
and December 31, 1996, and the results of its operations and cash flows for the
period ended January 1, 1998, to October 7, 1998, for the year ended December
31, 1997 , and the period September 30, 1996, (inception) to December 31, 1996,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, the Company has no established source of revenue. This
raises substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters are also described in Note 4. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Barry L. Friedman
- ----------------------------
Barry L. Friedman
Certified Public Accountant
<PAGE>
J.B. FINANCIAL SERVICES, INC.
(A Development Stage Company)
BALANCE SHEETS
AS AT DECEMBER 31
================================================================================
<TABLE>
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS $ - $ -
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 944 $ -
--------------- --------------
Stockholders' equity (Note 1)
Capital stock
Authorized
December 31, 1997 - 62,500,000 common shares with a par value of
$0.001 December 31, 1998 - 62,500,000 common shares with a par value
of $0.001
Issued and outstanding
December 31, 1997 - 6,250,000 common shares with a par value of $0.001
December 31, 1998 - 6,250,000 common shares with a par value of $0.001 6,250 6,250
Deficit accumulated during the development stage (7,194) (6,250)
--------------- ---------------
(944) -
--------------- --------------
$ - $ -
==============================================================================================================================
</TABLE>
Subsequent events (Note 6)
On behalf of the Board:
Director
- --------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
J.B. FINANCIAL SERVICES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
================================================================================
<TABLE>
Cumulative Period from
Amounts from Incorporation
Incorporation on
on September 30,
September 30, 1996
1996 to Year ended Year Ended to
December 31, December 31, December 31, December 31,
1998 1998 1997 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EXPENSES
General, selling and administrative $ (5,944) $ (944) $ - $ (5,000)
--------------- --------------- --------------- ---------------
Loss for the period $ (5,944) $ (944) $ - $ (5,000)
=============================================================================================================================
Basic and diluted loss per share $ $ 0.00 $ 0.00 $ 0.00
=============================================================================================================================
Weighted average number of shares
of common stock outstanding 6,250,000 6,250,000 6,250,000
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
J.B. FINANCIAL SERVICES, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
Deficit
Accumulated
Common Stock During the Total
--------------------------------- Development Shareholders'
Shares Amount Stage Equity
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock issued October 4, 1996 6,250,000 $ 6,250 $ (1,250) $ 5,000
Loss for the period - - (5,000) (5,000)
-------------- -------------- -------------- --------------
Balance, December 31, 1996 6,250,000 6,250 (6,250) -
Loss for the year - - - -
-------------- -------------- -------------- -------------
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)
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
J.B. FINANCIAL SERVICES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
Cumulative Period from
Amounts from Incorporation
Incorporation on
on September 30,
September 30, 1996
1996 to Year Ended Year Ended to
December 31, December 31, December 31, December 31,
1998 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Loss for the period $ (5,944) $ (944) $ - $ (5,000)
Changes in non-cash working capital items:
Increase in accounts payable 944 944 - -
--------------- --------------- --------------- --------------
Net cash used in operating activities (5,000) - - (5,000)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of common stock 5,000 - - 5,000
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
ACTIVITIES - - - -
--------------- --------------- --------------- --------------
Change in cash for the period - - - -
Cash, beginning of period - - - -
--------------- --------------- --------------- --------------
Cash, end of period $ - $ - $ - $ -
=============================================================================================================================
</TABLE>
Supplemental disclosure with respect to cash flows (Note 5)
The accompanying notes are an integral part of these financial statements.
<PAGE>
J.B. FINANCIAL SERVICES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
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. The Company currently
has no operations and, in accordance with SFAS #7, is considered a
development stage company.
On October 1, 1996, the Company issued 5,000 shares with a par value of
$1,000 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
$1.00 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 July 20, 1999, the Company authorized a stock dividend of four shares
for every one share of record and on July 21, 1999, the Company authorized
a 5:1 forward share split.
On September 5, 1999, the Company effected a 4:1 reverse stock split
retroactively increasing the number of shares issued and outstanding at
December 31, 1998 to 6,250,000.
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 has no current source
of revenue. 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 a merger with an existing operating
company.
<TABLE>
------------------------------------------------------------------------------------------------------
December 31, December 31,
1998 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deficit accumulated during the development stage $ (7,194) $ (6,250)
Working capital (deficiency) (944) -
======================================================================================================
</TABLE>
3. SIGNIFICANT ACCOUNTING POLICIES
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.
<PAGE>
J.B. FINANCIAL SERVICES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Loss per share
Earnings per share are provided in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings Per Share". Due to the Company's
simple capital structure, with only common stock outstanding, only basic
loss per share is presented. Basic loss per share is computed by dividing
losses available to common stockholders by the weighted average number of
common shares outstanding during the period.
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. 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 Company has not yet determined the effect that the adoption
of this statement will have on its financial statements.
Comprehensive income
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income". This statement
establishes rules for the reporting of comprehensive income and its
components. The adoption of SFAS 130 had no impact on total stockholders'
equity as of December 31, 1998.
Comparative figures
Certain comparative figures have been adjusted to conform to the current
year's presentation.
<PAGE>
J.B. FINANCIAL SERVICES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
4. CAPITAL STOCK
Stock split
On September 2, 1998, the Company implemented a 200:1 forward stock split.
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 (Note
6). The consolidated statements of changes in stockholders' equity has been
restated to give retroactive recognition of the stock splits for all
periods presented by reclassifying from common stock to additional paid-in
capital the par value of consolidated shares arising from the splits. In
addition, all references to number of shares and per share amounts of
common stock have been restated to reflect the stock splits.
5. SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
<TABLE>
--------------------------------------------------------------------------------------------------
Period from
Incorporation
on
September 30,
Year Ended Year Ended 1996 to
December 31, December 31, December 31,
1998 1997 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid for income taxes $ - $ - $ -
Cash paid for interest - - -
==================================================================================================
</TABLE>
There were no non-cash operating, investing and financing transactions
during the periods presented.
6. SUBSEQUENT EVENTS
The following transactions occurred subsequent to December 31, 1998:
i) On July 19, 1999, the Company changed its name from J.B.
Financial Services, Inc. to Ableauctions.com, Inc.
ii) 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.
iii) 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.
iv) On August 24, 1999, the Company issued 4,376,225 (1,094,057 post
reverse stock split (Note 6 (vi)) units at a price of US$0.80 per
unit for total consideration of US$3,500,980, through a private
placement. Each unit consists of one restricted common share and
1/2 of a share purchase warrant. Each whole warrant will entitle
the holder to purchase one additional restricted common share at
US$0.80 in the first year and at US$1.00 in the second year.
v) On July 20, 1999, the Company entered into an acquisition
agreement whereby the Company acquired all the outstanding shares
of Able Auctions (1991) Ltd. ("Able") and shareholders' loans.
The Company issued 7,373,775 (1,843,444 post reverse stock split
(Note 6 (vi))) common shares of the Company at a deemed value of
$73,738 and paid US$545,305 to acquire the shares of Able. The
Company also paid an additional US$504,695 for shareholders
loans. Completion of the acquisition is subject to approval by
the applicable regulatory authorities.
<PAGE>
J.B. FINANCIAL SERVICES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
================================================================================
6. SUBSEQUENT EVENTS (cont'd.....)
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 735,654
Trademark 7,028
Website development costs 37,869
Goodwill 667,127
Accounts payable and accrued liabilities (136,863)
Loan payable (878,377)
Obligation under capital lease (48,464)
--------------
$ 1,123,738
vi) Effective September 5, 1999, the Company effected a 4:1 reverse
stock split. Following consolidation, the issued and outstanding
common shares of the Company is 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.
7. 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 incorrectly
recognize the year 2000 as some other date, resulting in errors. The
effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000 and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems
failure which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year
2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
<PAGE>
ABLE AUCTIONS (1991) LTD.
FINANCIAL STATEMENTS
AS AT
MARCH 31, 1999
(Expressed in Canadian Dollars)
<PAGE>
ABLE AUCTIONS (1991) LTD.
FINANCIAL STATEMENTS
INDEX
AUDITORS' REPORT
BALANCE SHEET PAGE 1
STATEMENT OF EARNINGS AND RETAINED EARNINGS 2
STATEMENT OF CHANGES IN CASH POSITION 3
NOTES TO THE FINANCIAL STATEMENTS 4 - 5
<PAGE>
Shikaze Ralson
Chartered Accountants
Suite 1150 - 1188 West Georgia Street
Vancouver, B.C. V6E 4A2
Telephone (604) 669-4232
Facsimile (604) 669-1522
AUDITORS' REPORT
To the Director of Able Auctions (1991) Ltd.
We have audited the balance sheet of Able Auctions (1991) Ltd. as at March 31,
1999 and the statements of earnings and retained earnings and changes in cash
position for the year then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at March 31, 1999 and the
results of its operations and the changes in its cash position for the year then
ended in accordance with generally accepted accounting principles.
Vancouver, Canada "Shikaze Ralston"
June 29,1999 Chartered Accountants
<PAGE>
ABLE AUCTIONS (1991) LTD. 1.
BALANCE SHEET
MARCH 31, 1999
(Expressed in Canadian Dollars)
ASSETS
Current Assets
Cash $ 306,702
Term deposit 20,000
Accounts receivable (Note 6) 117,734
Inventory 184,149
Prepaid expenses 25,471
-------------
654,056
Capital Assets (Note 2) 36,057
-------------
$ 690,113
=============
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities (Note 6) $ 284,735
Taxes payable 92,700
Loan payable (Note 3) 20,497
-------------
397,932
Loans From Affiliated Companies (Note 4) 143,559
-------------
541,491
-------------
SHAREHOLDER'S EQUITY
Share Capital (Note 5) 100
Retained Earnings 148,522
-------------
148,622
-------------
$ 690,113
=============
Approved By The Director
"Abdul Ladha"
- ---------------------- Director
See accompanying notes to the financial statements
<PAGE>
ABLE AUCTIONS (1991) LTD. 2.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
FOR THE YEAR ENDED MARCH 31, 1999
(Expressed in Canadian Dollars)
Revenue $ 2,474,665
Cost Of Sales 1,454,580
-------------
Gross Profit 1,020,085
-------------
Expenses
Advertising and promotion 131,524
Amortization 7,365
Automobile 14,601
Bank charges and interest 18,324
Consulting 35,775
Insurance 3,279
Legal and accounting 12,323
Office 35,592
Rent and utilities 186,662
Repairs and maintenance 7,250
Telephone 46,078
Wages and benefits 320,912
-------------
819,685
-------------
Earnings From Operations 200,400
-------------
Loss on disposal of capital assets (6,561)
-------------
Net Earnings Before Taxes 193,839
Income Taxes 92,700
-------------
Net Earnings For The Year 101,139
Retained Earnings, Beginning Of Year 47,383
-------------
Retained Earnings, End Of Year $ 148,522
=============
See accompanying notes to the financial statements
<PAGE>
ABLE AUCTIONS (1991) LTD. 3.
STATEMENT OF CHANGES IN CASH POSITION
FOR THE YEAR ENDED MARCH 31, 1999
(Expressed in Canadian Dollars)
Cash Provided By (Used For)
Operating Activities
Net earnings for the year $ 101,139
Items not involving cash
Amortization 7,365
Loss on disposal of capital assets 6,561
-------------
115,065
Changes in non-cash working capital
Accounts receivable (89,452)
Inventory (164,149)
Prepaid expenses (25,471)
Accounts payable and accrued liabilities 205,120
Taxes payable 92,074
-------------
133,187
-------------
Investing Activities
Purchase of term deposits (20,000)
Purchase of capital assets (39,100)
Proceeds on disposition of capital assets 1,500
-------------
(191,579)
-------------
Financing Activities
Loan repayments (7,314)
Loans from affiliated companies 277,538
-------------
270,224
-------------
Increase In Cash 211,832
Cash, Beginning Of Year 94,870
-------------
Cash, End of year $ 306,702
=============
See accompanying notes to the financial statements
<PAGE>
ABLE AUCTIONS (1991) LTD. 4.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 1999
1. Significant Accounting Policies
a) Inventory
Inventory is stated at the lower of cost and net realizable value.
b) Capital Assets
Capital assets are recorded at cost and amortized using the following
annual rates: Furniture and fixtures 20% Declining Balance Vehicle 30%
Declining Balance
c) 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.
2. Capital Assets
<TABLE>
Accumulated
Cost Amortization Net
-------------- ------------- -------------
<S> <C> <C> <C>
Furniture and fixtures $ 11,636 8,814 $ 2,822
Vehicle 39,100 5,865 33,235
-------------- ------------- -------------
$ 50,736 $ 14,679 $ 36,057
============== ============= =============
</TABLE>
3. Loan Payable
A loan from an officer of the Company is non-interest bearing and has no
specific terms of repayment.
4. Loans from Affiliated Companies
A loan from the Company's parent company ($40,000) and a loan from a
company under common control ($103,559) are unsecured, non
interest-bearing, and have no specific terms of repayment.
5. Share Capital
a) Authorized: 5,000 Class A voting common shares without par value
5,000 Class B non-voting common shares without par value
b) Issued: 100 Class A shares $ 100
=============
<PAGE>
ABLE AUCTIONS (1991) LTD. 5.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 1999
6. Related Party Transactions
a) Included in account receivable are amounts totaling $3,506 due from
companies under common control.
b) Included in accounts payable and accrued liabilities are amounts
totaling $137,485 due to companies under common control.
7. Financial Instruments and Concentration of Risk
The carrying values of cash, term deposit, accounts receivable, payables,
loan payable, and loans from affiliated companies approximate their
respective fair values.
It is management's opinion that the company is not exposed to significant
interest, currency or credit risks arising from these financial
instruments.
8. 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. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the entity,
including those related to the efforts of customers, suppliers, or other
third parties will be fully resolved.
9. Subsequent Events
In April of 1999, the Company paid a bonus to an employee in the amount of
$100,000.
10. Differences Between Canadian and U.S. Generally Accepted Accounting
Principles.
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada, which differ in certain respects
from generally accepted accounting principles in the U.S.
The following supplemental information is provided in order to comply with
generally accepted accounting principles in the U.S.:
a) Disclosure With Respect to Cash Flows
-------------------------------------
Cash paid for income taxes $ 626
---------------
Cash paid for interest $ 4,684
---------------
b) Statement of Changes in Cash Position
-------------------------------------
Investments with a maturity greater than three months are not
considered to be cash equivalents.
<PAGE>
ABLE AUCTIONS (1991) LTD.
FINANCIAL STATEMENTS
AS AT
MARCH 31, 1998
( Unaudited - Prepared by Management )
( Expressed in Canadian Dollars )
<PAGE>
ABLE AUCTIONS (1991) LTD.
FINANCIAL STATEMENTS
(Unaudited - Prepared by Management )
INDEX
BALANCE SHEET PAGE 1
STATEMENT OF EARNINGS AND RETAINED EARNINGS 2
STATEMENT OF CHANGES IN CASH POSITION 3
NOTES TO THE FINANCIAL STATEMENTS 4 - 5
<PAGE>
ABLE AUCTIONS (1991) LTD. 1.
BALANCE SHEET
MARCH 31, 1998
Unaudited - Prepared by Management
(Expressed in Canadian Dollars)
ASSETS
Current Assets
Cash $ 94,870
Accounts receivable 28,282
Inventory 20,000
-------------
143,152
Capital Assets (Note 2) 12,383
-------------
$ 155,535
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities $ 79,615
Taxes payable 626
Loan from shareholder 27,811
-------------
108,052
-------------
SHAREHOLDER'S EQUITY
Share Capital (Note 3) 100
Retained Earnings 47,383
-------------
47,483
-------------
$ 155,535
=============
Approved By The Director
- ---------------------------- Director
See accompanying notes to the unaudited financial statements
<PAGE>
ABLE AUCTIONS (1991) LTD. 2.
STATEMENT OF EARNINGS AND RETAINED EARNINGS
FOR THE TWELVE MONTH PERIOD ENDED MARCH 31, 1998
Unaudited - Prepared by Management
(Expressed in Canadian Dollars)
Revenue $ 1,594,775
Cost Of Sales 1,042,599
-------------
Gross Profit 552,176
-------------
Expenses
Accounting and legal 24,848
Advertising and promotion 87,936
Amortization 5,096
Automobile 9,589
Bank charges and interest 20,264
Insurance 1,173
Office and miscellaneous 13,552
Rent and utilities 127,810
Repairs and maintenance 3,302
Telephone 21,107
Wages and benefits 227,786
-------------
542,463
-------------
Net Earnings Before Taxes 9,713
Income Taxes 626
-------------
Net Earnings For The Period 9,087
Retained Earnings, Beginning Of Period 38,296
-------------
Retained Earnings, End Of Period $ 47,383
=============
See accompanying notes to the unaudited financial statements
<PAGE>
ABLE AUCTIONS (1991) LTD. 3.
STATEMENT OF CHANGES IN CASH POSITION
FOR THE YEAR ENDED MARCH 31, 1998
Unaudited - Prepared by Management
(Expressed in Canadian Dollars)
Cash Provided By (Used For)
Operating Activities
Net earnings for the period $ 9,087
Item not involving cash
Amortization 5,096
-------------
14,183
Changes in non-cash working capital
Accounts receivable 1,718
Inventory (5,000)
Accounts payable and accrued liabilities (29,557)
Taxes payable 6,576
-------------
(12,080)
-------------
Financing Activities
Loan advances 14,347
-------------
Increase In Cash 2,267
Cash, Beginning Of Period 92,603
-------------
Cash, End Of Period $ 94,870
=============
<PAGE>
ABLE AUCTIONS (1991) LTD. 4.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 1998
Unaudited - Prepared by Management
1. Significant Accounting Policies
a) Inventory
Inventory is stated at the lower of cost and net realizable value.
b) Capital Assets
Capital assets are recorded at cost and amortized using the following
annual rates:
Furniture and fixtures 20% Declining Balance
Vehicle 30% Declining Balance
Computer hardware 30% Declining Balance
Computer software 100% Declining Balance
c) 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.
2. Capital Assets
<TABLE>
Accumulated
Cost Amortization Net
-------------- ------------- -------------
<S> <C> <C> <C>
Computer hardware $ 2,850 $ 2,419 $ 431
Computer software 2,687 2,323 364
Furniture and fixtures 11,636 8,109 3,527
Vehicle 15,087 7,026 8,061
-------------- ------------- -------------
$ 32,260 $ 19,877 $ 12,383
============== ============= =============
</TABLE>
<PAGE>
ABLE AUCTIONS (1991) LTD. 5.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED MARCH 31, 1998
Unaudited - Prepared by Management
3. Share Capital
a) Authorized: 5,000 Class A voting common shares without par value
5,000 Class B non-voting common shares without par value
b) Issued: 100 Class A shares $ 100
=============
4. Differences Between Canadian and U.S. Generally Accepted Accounting
Principles.
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada, which differ in certain respects
from generally accepted accounting principles in the U.S.
The following supplemental information is provided in order to comply with
generally accepted accounting principles in the U.S.:
Disclosure With Respect to Cash Flows
-------------------------------------
Cash paid for income taxes $ 6,450
-------------
<PAGE>
ABLE AUCTIONS (1991) LTD.
FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
SEPTEMBER 30, 1999
<PAGE>
ABLE AUCTIONS (1991) LTD.
BALANCE SHEETS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
================================================================================
<TABLE>
September 30, March 31,
1999 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash $ 195,010 $ 306,702
Short term investments 1,433,172 20,000
Accounts receivable (Note 6) 453,657 117,734
Inventory 500,754 184,149
Prepaid expenses 74,679 25,471
--------------- ---------------
2,657,272 654,056
Capital assets (Note 2) 1,639,496 36,057
Trademark 18,519 -
Website development costs (Note 3) 117,637 -
--------------- --------------
$ 4,432,924 $ 690,113
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities (Note 6) $ 1,283,609 $ 377,435
Loan payable (Note 4) - 20,497
--------------- ---------------
1,283,609 397,932
Loans payable to affiliated companies (Note 5) 3,724,818 143,559
Obligations under capital lease 71,155 -
--------------- --------------
5,079,582 541,491
--------------- ---------------
Stockholders' equity
Capital stock
Authorized
5,000 Class A voting common shares without par value
5,000 Class B non-voting common shares without par value
Issued and outstanding
100 Class A voting common shares 100 100
Retained earnings (deficit) (646,758) 148,522
--------------- ---------------
(646,658) 148,622
$ 4,432,924 $ 690,113
==================================================================================================================
</TABLE>
On behalf of the Board:
Director Director
- ------------------------------ ---------------------------------
The accompanying notes are an integral part
of these financial statements.
<PAGE>
ABLE AUCTIONS (1991) LTD.
STATEMENTS OF OPERATIONS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
================================================================================
<TABLE>
Three Month Three Month Six Month Six Month
Period Ended Period Ended Period Ended Period Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ 843,241 $ 421,488 $ 1,702,684 $ 941,878
COST OF SALES 632,092 172,632 1,104,347 481,925
--------------- --------------- --------------- ---------------
211,149 248,856 598,337 459,953
--------------- --------------- --------------- ---------------
EXPENSES
Advertising 34,297 12,716 69,368 43,346
Amortization - 4,089 586 8,379
Auction expenses 5,387 - 7,452 9,435
Auto 4,716 3,011 8,935 4,814
Consulting 7,500 9,000 12,954 13,500
Freight and brokerage 38,750 23,001 70,505 57,462
Insurance 3,850 1,255 10,832 3,206
Interest and bank charges 19,165 5,633 43,689 14,737
Management fees 355,200 - 455,200 -
Office and miscellaneous 51,427 11,871 59,606 14,561
Professional fees 5,500 1,865 6,752 9,851
Rent and utilities 60,198 52,132 129,262 82,123
Repairs and maintenance 6,218 3,830 13,276 5,033
Salaries and benefits 183,413 69,039 301,014 141,181
Shareholder information 149,269 - 149,269 -
Telephone 14,806 9,516 27,188 22,314
Travel and entertainment 20,174 4,986 27,729 5,033
--------------- --------------- --------------- ---------------
959,870 211,944 1,393,617 434,975
--------------- --------------- --------------- ---------------
Income (loss) before other item (748,721) 36,912 (795,280) 24,978
--------------- --------------- --------------- ---------------
OTHER ITEM
Loss on disposal of capital assets - (3,053) - (3,053)
--------------- --------------- --------------- ---------------
- (3,053) - (3,053)
--------------- --------------- --------------- ---------------
Income (loss) for the period (748,721) 33,859 (795,280) 21,925
Retained earnings, beginning of period 101,963 35,449 148,522 47,383
--------------- --------------- --------------- ---------------
Retained earnings (deficit), end of period $ (646,758) $ 69,308 $ (646,758) $ 69,308
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
ABLE AUCTIONS (1991) LTD.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
================================================================================
<TABLE>
Common Stock Retained Total
---------------------------------
Earnings Stockholders'
Shares Amount (Deficit) Equity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, November 30, 1997 100 $ 100 $ 8,724 $ 8,824
Income for the period - - 38,659 38,659
--------------- --------------- -------------- ---------------
Balance, March 31, 1998 100 100 47,383 47,483
Income for the period - - 101,139 101,139
--------------- --------------- -------------- ---------------
Balance, March 31, 1999 100 100 148,522 148,622
Loss for the period - - (795,280) (795,280)
--------------- --------------- -------------- ---------------
Balance, September 30, 1999 100 $ 100 $ (646,758) $ (646,658)
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part
of these financial statements.
<PAGE>
ABLE AUCTIONS (1991) LTD.
STATEMENTS OF CASH FLOWS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
================================================================================
<TABLE>
Six Month Six Month
Period Ended Period Ended
September 30, September 30,
1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) for the period $ (795,280) $ 21,925
Items not affecting cash:
Amortization 586 8,379
Loss on disposal of capital assets - 3,053
Changes in non-cash working capital items:
Increase in inventory (316,605) (148,335)
Increase in accounts receivables (335,923) (120,683)
(Increase) in prepaid expenses (49,208) -
Increase in accounts payable and accrued liabilities 906,174 74,321
Decrease in loans payable (20,497) (7,314)
--------------- ---------------
Net cash used in operating activities (610,753) (168,654)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan payable 3,581,259 140,000
Increase in obligations under capital lease 71,155 -
--------------- --------------
Net cash provided by financing activities 3,652,414 140,000
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of short-term investments (1,413,172) (20,000)
Acquisition of capital assets (1,740,181) (47,433)
Proceeds on disposition of capital assets - 1,500
--------------- ---------------
Net cash used in investing activities (3,153,353) (65,933)
--------------- ---------------
Change in cash position for the period (111,692) (94,587)
Cash and cash equivalents, beginning of period 306,702 94,870
--------------- ---------------
Cash and cash equivalents, end of period $ 195,010 $ 283
================================================================================================================
</TABLE>
Supplemental disclosure with respect to cash flows (Note 9)
The accompanying notes are an integral part
of these financial statements.
<PAGE>
ABLE AUCTIONS (1991) LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
SEPTEMBER 30, 1999
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Inventory
Inventory is stated at the lower of cost and net realizable value.
Capital assets
Capital assets are recorded at cost and amortized using the following
annual rates:
Furniture and fixtures 20% Declining balance
Vehicle 30% Declining balance
Computer equipment 30% Declining balance
Computer software 100% Declining balance
Trailers 30% Declining balance
Trademarks
The cost of the trademark acquired is being amortized on a straight-line
basis over its life of fifteen 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
form consignees and purchasers, as well as resale profits.
2. CAPITAL ASSETS
<TABLE>
=================================================================================================================
September 30, March 31,
1999 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Furniture and fixtures $ 15,837 $ 11,636
Vehicles 98,270 32,100
Computer equipment 1,372,721 -
Computer software 161,655 -
Trailers 7,000 7,000
-------------- ------------
1,655,483 50,736
Accumulated amortization (15,987) (14,679)
-------------- ------------
Net book value $ 1,639,496 $ 36,057
=================================================================================================================
</TABLE>
<PAGE>
ABLE AUCTIONS (1991) LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
SEPTEMBER 30, 1999
================================================================================
3. WEBSITE DEVELOPMENT COSTS
Website development costs of $117,637 (March 31, 1999 - $Nil) is comprised
of hardware and software costs incurred by the Company in developing its
website. The Company's amortization policy concerning these costs is to
amortize the costs over a period of three years commencing from the date of
operations.
4. LOAN PAYABLE
A loan from an officer of the Company is non-interest bearing and has no
specific terms of repayment.
5. LOANS PAYABLE TO AFFILIATED COMPANIES
A loan from the Company's parent company $3,724,818 (March 31, 1999 -
$40,000) and a loan from a company under common control $Nil (March 31,
1999 - $103,559) are unsecured, non interest-bearing, and have no specific
terms of repayment.
6. RELATED PARTY TRANSACTIONS
a) Included in accounts receivable are amounts totaling $Nil (March 31,
1999 - $3,506) due from companies under common control.
b) Included in accounts payable and accrued liabilities are amounts
totaling $1,112,413 (March 31, 1999 - $137,485) due to companies under
common control.
7. FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK
The carrying values of cash, term deposits, accounts receivable, inventory,
accounts payable and accrued liabilities, and loans payable to affiliated
companies approximate their respective fair values.
It is management's opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial
instruments.
8. 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 incorrectly
recognize the year 2000 as some other date, resulting in errors. The
effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000 and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems
failure which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year
2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
<PAGE>
ABLE AUCTIONS (1991) LTD.
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited - Prepared by Management)
(Expressed in Canadian Dollars)
SEPTEMBER 30, 1999
================================================================================
9. DIFFERENCE BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
These financial statements have been prepared in accordance with accounting
principles generally accepted in Canada, which differ in certain respects
from generally accepted accounting principles in the United States.
The following supplemental information is provided in order to comply with
generally accepted accounting principles in the United States:
1. Supplemental disclosure with respect to cash flows:
<TABLE>
============================================================================================
September 30, September 30,
1999 1998
--------------------------------------------------------------------------------------------
<S> <C> <C>
Cash paid for income taxes $ - $ 626
Cash paid for interest 541 3,206
============================================================================================
</TABLE>
2. Statement of changes in cash position:
Investments with a maturity greater than three months are not
considered to be cash equivalents.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
AND
ABLE AUCTIONS (1991) LTD.
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 1999
<PAGE>
ABLEAUCTIONS.COM, INC. (formerly J.B. Financial Services, Inc.)
AND
ABLE AUCTIONS (1991) LTD.
PRO-FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro-forma consolidated statements of operations for the
year ended December 31, 1998 and the nine month period ended September 30, 1999
(the "Pro-forma Financial Statements") of Ableauctions.com, Inc. (formerly J.B.
Financial Services, Inc.) (the "Company") give effect to the following
transactions as of the beginning of the periods indicated for purposes of the
statements of operations:
i) the acquisition by the Company of 100% of the outstanding capital
stock of Able Auctions (1991) Ltd.
The Pro-forma Financial Statements have been prepared by the Company based upon
the financial statements of the Company and Able Auctions (1991) Ltd. The
Pro-forma Financial Statements give effect to the acquisition under the purchase
method of accounting and to certain assumptions and adjustments described more
fully in the accompanying notes. These Pro-forma Financial Statements may not be
indicative of the results that actually would have occurred if the transactions
had been completed on the dates indicated or of the results which may be
obtained in the future. The Pro-forma Financial Statements should be read in
conjunction with the financial statements and notes thereto of the Company and
Able Auctions (1991) Ltd. included elsewhere in this Form 10-SB.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
================================================================================
<TABLE>
Able Pro-forma
Ableauctions Auctions Adjustments Pro-forma
.com, Inc. (1991) Ltd. (Note 2) Consolidated
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ - $ 1,648,283 $ - $ 1,648,283
COST OF GOODS SOLD - (971,180) - (971,180)
------------- -------------- ------------- --------------
- 677,103 - 677,103
------------- -------------- ------------- --------------
OPERATING EXPENSES
Accounting and legal fees 43,000 5,887 - 48,887
Advertising and promotion - 73,477 - 73,477
Amortization - 173,880 - 173,880
Amortization of trademark - 382 - 382
Amortization of goodwill - - 100,069 100,069
Amortization of website development costs - 6,385 - 6,385
Auction - 6,264 - 6,264
Automobile - 10,113 - 10,113
Bank charges - 43,419 - 43,419
Consulting fees 24,140 8,694 - 32,834
Freight and brokerage - 51,323 - 51,323
Management fees - 303,347 - 303,347
Office - 48,945 - 48,945
Insurance - 9,470 - 9,470
Repairs and maintenance - 18,729 - 18,729
Rent and utilities - 125,221 - 125,221
Salaries and benefits - 283,933 - 283,933
Shareholder information - - - 2,404
Telephone 2,404 26,593 - 26,593
Transfer agent 2,825 - - 2,825
Travel and entertainment - 118,412 - 118,412
------------- -------------- ------------- --------------
72,369 1,314,474 100,069 1,486,912
------------- -------------- ------------- --------------
Loss before other items (72,369) (637,371) (100,069) (809,809)
------------- -------------- ------------- --------------
OTHER ITEMS
Loss on disposal of capital asset - (4,559) - (4,559)
Interest income 15,792 570 - 16,362
Foreign exchange gain 18,292 - - 18,292
------------- -------------- ------------- --------------
34,084 (3,989) - 30,095
------------- -------------- ------------- --------------
Loss for the period $ (38,285) $ (641,360) $ (100,069) $ (779,714)
============================================================================================================================
Basic and diluted loss per share $ (0.01) $ - $ - $ (0.06)
============================================================================================================================
Weighted average number of shares outstanding 12,547,390 - 1,843,444 14,147,742
============================================================================================================================
</TABLE>
See notes to the pro-forma consolidated financial statements.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
================================================================================
<TABLE>
Able Pro-forma
Ableauctions Auctions Adjustments Pro-forma
.com, Inc. (1991) Ltd. (Note 2) Consolidated
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE $ - $ 1,160,953 $ - $ 1,160,953
COST OF GOODS SOLD - (619,158) - (619,158)
------------- --------------- -------------- ---------------
- 541,795 - 541,795
------------- --------------- -------------- ---------------
OPERATING EXPENSES
Accounting and legal fees 944 6,952 - 7,896
Advertising and promotion - 43,585 - 43,585
Amortization - 222,407 - 222,407
Amortization of goodwill - - 133,425 133,425
Amortization of trademark - 469 - 469
Amortization of website development costs - 7,574 - 7,574
Auction - 7,719 - 7,719
Automobile - 5,713 - 5,713
Bank charges - 13,275 - 13,275
Consulting fees - 2,163 - 2,163
Depreciation - 8,379 - 8,379
Freight and brokerage - 49,951 - 49,951
Office - 42,999 - 42,999
Repairs and maintenance - 802 - 802
Rent and utilities - 87,275 - 87,275
Salaries and benefits - 163,101 - 163,101
Telephone - 22,700 - 22,700
Transfer agent 349 - - 349
Travel and entertainment - 18,473 - 18,473
------------- --------------- -------------- ---------------
1,293 703,537 133,425 838,255
------------- --------------- -------------- ---------------
Income (loss) before other item (1,293) (161,742) (133,425) (296,460)
------------- --------------- -------------- ---------------
OTHER ITEM
Loss on disposal of capital asset - (2,060) - (2,060)
------------- --------------- -------------- ---------------
- (2,060) - (2,060)
------------- --------------- -------------- ---------------
Income (loss) for the year $ (1,293) $ (163,802) $ (133,425) $ (298,520)
==============================================================================================================================
Basic and diluted loss per share $ 0.00 $ - $ - $ (0.04)
==============================================================================================================================
Weighted average number of shares outstanding 6,250,000 - 1,843,444 8,093,444
=============================================================== ============== =============== =============== ===============
</TABLE>
See notes to the pro-forma consolidated financial statements.
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
================================================================================
1. BASIS OF PRESENTATION
Business combination of Ableauctions.com, Inc. (formerly J.B. Financial
Services, Inc.) ("Able") and Able Auctions (1991) Ltd. ("AA")
Effective August 24, 1999, a business combination occurred between Able and
AA, whereby Able legally acquired AA as a wholly-owned subsidiary. The
terms of the combination provided that the Company acquired all of the
common shares of AA as well as debt owing to a third party in exchange for
cash payment of US$1,000,000 and the Company issuing 1,843,444 common
shares at a deemed value of US$73,738.
2. PRO-FORMA FINANCIAL INFORMATION
Management has prepared and provided certain pro-forma interim consolidated
financial information to assist readers to understand the nature and effect
of the combination on the unaudited financial statements of Able and AA.
The pro-forma financial information is unaudited and has been prepared from
the audited financial statements of Able for the year ended December 31,
1998 and the unaudited financial statements of AA for the year ended March
31, 1999 and the unaudited interim consolidated financial statements of
Able and AA for the nine month period ended September 30, 1999.
Pro-forma statements of operations and loss per share:
The pro-forma consolidated statements of operations reflect a simple
combination of the results of operations of Able and AA for the year ended
December 31, 1998 and the nine month period ended September 30, 1999 and
includes the following:
i) the amortization of goodwill acquired in the amount of $667,127 over
five years. Amortization expense relating to goodwill, for the period
ended September 30, 1999 of $100,069 and $133,425 for the year ended
December 31, 1998 was calculated by taking a pro-rata portion of
expense for the period based on an amortization period of five years
at a rate of $133,425 per year;
ii) the impact on the calculation of pro-forma basic loss per share which
is based on the number of shares that would have been outstanding for
the period had the business combination taken place at the beginning
of the fiscal period.
The calculation of pro-forma weighted average shares outstanding at
December 31, 1998 and September 30, 1999 are as follows:
a) September 30, 1999
Weighted average shares outstanding
as at September 30, 1999 12,304,298
Shares issued for acquisition of
Able Auctions (1991) Ltd. 1,843,444
--------------
14,147,742
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
================================================================================
2. PRO-FORMA FINANCIAL INFORMATION (cont'd.....)
b) December 31, 1998
Weighted average shares outstanding
as at December 31, 1998 6,250,000
Shares issued for acquisition of
Able Auctions (1991) Ltd. 1,843,444
--------------
8,093,444
<PAGE>
PART III
Item 1. Index to Exhibits
The following exhibits are included in this Item:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
Exhibit Number Description Sequentially Number
Page
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1(1) Articles of Incorporation of J.B. Financial Services, Inc., dated
September 30, 1996
3.2(1) Articles of Amendment of J.B. Financial Services, Inc., dated
September 2, 1998
3.3(1) Articles of Amendment of J.B. Financial Services, Inc. changing
name to Ableauctions.com, Inc., dated July 19, 1999
3.4(1) Articles of Amendment of Ableauctions.com, Inc., dated August 9,
1999
3.5(1) Articles of Amendment of Ableauctions.com, Inc., dated September
2, 1999
3.6(1) Bylaws of J.B. Financial Services, Inc.
10.1(1) Form of Stock Option Plan
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.
</TABLE>
70
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------------
Exhibit Number Description Sequentially Number
Page
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
Proposal by Compaq Computer and accepted by Dexton Technologies
10.16(2) 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.
16.1 Letter dated January 11, 2000 from Barry L. Friedman, P.C. to
Ableauctions.com, Inc.
27.1 Financial Data Schedule
</TABLE>
(1) Previously filed on November 18, 1999.
(2) Previously filed on December 30, 1999.
71
<PAGE>
Item 2. Description of Exhibits
See Part III, Item 1.
72
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on our behalf by the
undersigned, thereunto duly authorized.
Date: January 11, 2000
/s/ Abdul Ladha
---------------------------------------------
Abdul Ladha, President
EXHIBIT 16.1
Barry L. Friedman, P.C.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 896-0278
Consent of Independent Auditors
The Board of Directors
Ableauctions.com, Inc.
(formerly J.B. Financial Services, Inc.)
1963 Lougheed Highway
Coquitlam, British Columbia
Canada V3K 3T8
United States Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We have reviewed the Form 10-SB registration statement (the "Form 10-SB") filed
by Ableauctions.com, Inc. (formerly J.B. Financial Services, Inc.) (the
"Company"), and agree with the statements disclosed by the Company under Item
14. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
We consent to the use of our report included herein and to the reference to our
firm in this registration statement on Form 10-SB.
/s/ Barry L. Friedman 1/11/00
-------------------------------- -------
Barry L. Friedman, P.C. Date
Las Vegas, Nevada
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,164,680
<SECURITIES> 0
<RECEIVABLES> 308,987
<ALLOWANCES> 0
<INVENTORY> 341,064
<CURRENT-ASSETS> 1,865,595
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,742,119
<CURRENT-LIABILITIES> 530,423
<BONDS> 0
0
0
<COMMON> 18,250
<OTHER-SE> 3,572,168
<TOTAL-LIABILITY-AND-EQUITY> 3,742,119
<SALES> 207,936
<TOTAL-REVENUES> 207,936
<CGS> 123,875
<TOTAL-COSTS> 549,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,115
<INCOME-PRETAX> (435,610)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (435,610)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
