================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------------
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the six month period ended June 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ___________________.
Commission file number 000-28179
ABLEAUCTIONS.COM, INC.
(Exact name of small business issuer in its charter)
Florida Not applicable
------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7303 East Earll Drive
Scottsdale, Arizona
85251
(Address of principal executive offices)
(602) 224-3731
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of outstanding common shares, no par value, of the Registrant
at June 30, 2000 was 20,874,579
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<PAGE>
ABLEAUCTIONS.COM, INC.
INDEX TO THE FORM 10-QSB
For the quarterly period ended June 30, 2000
<TABLE>
Page
----
<S> <C>
Part I - FINANCIAL INFORMATION ......................................................................1
ITEM 1. FINANCIAL STATEMENTS ....................................................................1
Consolidated Balance Sheets..............................................................1
Consolidated Statements of Operations....................................................2
Consolidated Statements of Comprehensive Loss............................................3
Consolidated Statements of Changes in Stockholder's Equity ..............................4
Consolidated Statements of Cash Flows....................................................5
Notes to the Consolidated Financial Statements...........................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...............................................................16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...............................22
Part II - OTHER INFORMATION .........................................................................23
ITEM 1. LEGAL PROCEEDINGS ......................................................................23
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...............................................23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ........................................................23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................24
ITEM 5. OTHER INFORMATION.......................................................................24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................24
SIGNATURES
</TABLE>
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
==============================================================================================================================
June 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 3,885,762 $ -
Accounts receivable - trade 529,244 96,790
Accounts receivable - other 4,446 171,015
Inventory 1,271,198 486,572
Prepaid expenses 230,860 73,452
--------------- ---------------
Total current assets 5,921,510 827,829
Trademark 10,975 12,151
Capital assets (Note 3) 5,011,665 1,170,859
Web site development costs (Note 4) 109,821 95,805
Goodwill 2,547,182 655,155
--------------- ---------------
Total assets $ 13,601,153 $ 2,761,799
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Bank indebtedness $ - $ 60,916
Accounts payable and accrued liabilities 433,170 277,706
Promissory note - current (Note 6) 8,594 -
--------------- --------------
Total current liabilities 441,764 338,622
Promissory note (Note 6) 1,042,273 -
--------------- --------------
1,484,037 338,622
--------------- ---------------
Stockholders' equity
Capital stock (Note 7)
Authorized
62,500,000 common shares with a par value of $0.001
Issued and outstanding
June 30, 2000 -20,874,579 common shares with a par value of $0.001 20,874 18,310
December 31, 1999 - 18,310,001 common shares with a par value of $0.001
Additional paid-in capital 16,185,277 3,740,108
Deficit (4,074,870) (1,346,686)
Accumulated other comprehensive income (loss) (14,165) 11,445
--------------- ---------------
Total stockholders' equity 12,117,116 2,423,177
--------------- ---------------
Total liabilities and stockholders' equity $ 13,601,153 $ 2,761,799
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
==============================================================================================================================
Three Month Three Month Six Month Six Month
Period Ended Period Ended Period Ended Period Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Sales $ 3,036,462 $ - $ 3,904,153 $ -
Commissions 313,816 - 546,252 -
-------------- -------------- -------------- -------------
3,350,278 - 4,450,405 -
COST OF GOODS SOLD 2,673,167 - 3,487,918 -
-------------- -------------- -------------- -------------
GROSS PROFIT 677,111 - 962,487 -
-------------- -------------- -------------- -------------
OPERATING EXPENSES
Accounting and legal fees 108,031 - 224,044 -
Advertising and promotion 190,364 - 344,652 -
Amortization of goodwill 19,086 - 33,778 -
Automobile 8,014 - 23,362 -
Bad debt (recovery) 12,059 - 8,363 -
Commission 101,899 - 117,952 -
Consulting fees 257,510 145,000 338,764 145,000
Depreciation and amortization 131,952 - 237,560 -
Insurance 33,051 - 33,051 -
Investor relations and shareholder information 109,815 349 376,386 349
Licenses and permits 12,004 - 26,358 -
Management fees 18,657 - 20,264 -
Office and miscellaneous 111,498 - 174,411 -
Rent and utilities 229,727 - 415,062 -
Repairs and maintenance 40,509 - 64,571 -
Salaries and benefits 564,674 - 860,743 -
Stock based compensation expense 17,033 17,033 -
Telephone 80,816 - 105,502 -
Travel and entertainment 160,958 - 276,563 -
-------------- -------------- -------------- -------------
2,207,657 145,349 3,698,419 145,349
-------------- -------------- -------------- --------------
Loss before other items (1,530,546) (145,349) (2,735,932) (145,349)
-------------- -------------- -------------- --------------
OTHER ITEMS
Interest income 8,447 - 22,890 -
Foreign exchange (loss) 13,893 - (15,142) -
-------------- -------------- -------------- -------------
22,340 - 7,748 -
-------------- -------------- -------------- -------------
Loss for the period $ (1,508,206) $ (145,349) $ (2,728,184) $ (145,349)
==============================================================================================================================
Basic and diluted loss per share $ (0.07) $ (0.01) $ (0.14) $ (0.01)
==============================================================================================================================
Weighted average number of shares outstanding 20,405,250 14,722,222 19,096,349 10,607,735
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
<TABLE>
=============================================================================================================================
Three Month Three Month Six Month Six Month
Period Ended Period Ended Period Ended Period Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss for the period $ (1,508,206) $ (145,349) $ (2,728,184) $ (145,349)
Other comprehensive income, net of tax:
Foreign currency translation adjustments (76,793) - (14,165) -
-------------- -------------- -------------- -------------
Consolidated comprehensive loss $ (1,584,999) $ (145,349) $ (2,742,349) $ (145,349)
=============================================================================================================================
Basic and diluted comprehensive loss per share $ (0.08) $ (0.01) $ (0.14) $ (0.01)
=============================================================================================================================
Weighted average number of shares outstanding 20,405,250 14,722,222 19,096,349 10,607,735
=============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
==============================================================================================================================
Accumulated
Common Stock Additional Other Total
------------------------- Paid-in Comprehensive Stockholders'
Shares Amount Capital Income Deficit Equity
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 6,250,000 $ 6,250 $ - $ - $ (7,194) $ (944)
Common stock issued for cash 1,094,057 1,094 3,499,886 - - 3,500,980
Common stock issued for
acquisition of Able
Auctions (1991) Ltd. 1,843,444 1,843 71,895 - - 73,738
Common stock issued for
services 53,750,000 53,750 (45,150) - - 8,600
Common stock issued for
services 5,312,500 5,313 (4,463) - - 850
Return of shares to treasury
for cancellation (50,000,000) (50,000) 50,000 - - -
Common stock issued for
assets of Ross Auctioneers 60,000 60 167,940 - - 168,000
Translation adjustment - - - 11,445 - 11,445
Loss for the year - - - - (1,339,492) (1,339,492)
------------ ------------ ------------- ------------- ------------- -------------
Balance, December 31, 1999 18,310,001 18,310 3,740,108 11,445 (1,346,686) 2,423,177
Private placements 2,210,240 2,210 11,048,990 - - 11,051,200
Share issuance costs - - (1,147,670) - - (1,147,670)
Common stock issued for
acquisition of building 155,486 155 1,243,733 - - 1,243,888
Common stock issued for
acquisition of assets of
Falcon Trading Inc. 53,405 53 360,752 - - 360,805
Common stock issued for
acquisition of assets of
Messler's Auction House 30,625 31 244,969 - - 245,000
Common stock issued for
acquisition of assets of
Auctions West 10,000 10 69,990 - - 70,000
Common stock issued for
acquisition of assets of
Ehli Auctions 50,000 50 349,950 - - 350,000
Common stock issued for
acquisition of rights to
trade-mark 4,822 5 34,472 - - 34,477
Stock based compensation 50,000 50 222,950 - - 223,000
expense
Translation adjustment - - - (25,610) - (25,610)
Stock based compensation - - 17,033 - - 17,033
expense
Loss for the period - - - - (2,728,184) (2,728,184)
------------ ------------ ------------- ------------- ------------- -------------
Balance, June 30, 2000 20,874,579 $ 20,874 $ 16,185,277 $ (14,165) $ (4,074,870) $ 12,117,116
=============================== =============== ============== =============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTH PERIOD ENDED JUNE 30
<TABLE>
==============================================================================================================================
Three Month Six Month Six Month
Period Ended Period Ended Period Ended
June 30, June 30, June 30,
2000 2000 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $ (1,508,206) $ (2,728,184) $ (145,349)
Items not affecting cash:
Amortization of goodwill 19,086 33,778 -
Depreciation and amortization 131,952 237,560 -
Consulting fees - - 145,000
Stock based compensation expense 17,033 17,033 -
Changes in non-cash working capital items:
Increase in accounts receivable 6,831 (265,885) -
Increase in inventory 55,419 (784,626) -
Increase in prepaid expenses (149,525) (157,408) -
Increase in accounts payable and accrued liabilities (390,788) 155,464 349
--------------- --------------- ---------------
Net cash used in operating activities (1,818,198) (3,492,268) -
--------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 6,274,200 11,274,200 -
Share issuance costs (847,670) (1,147,670) -
--------------- --------------- --------------
Net cash provided by financing activities 5,426,530 10,126,530 -
--------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital assets (226,353) (1,789,724) -
Web site development costs (23,470) (23,470) -
Acquisition of investment (900,000) (900,000) -
--------------- --------------- --------------
Net cash used in investing activities (1,149,823) (2,713,194) -
--------------- --------------- --------------
Change in cash and cash equivalents for the period 2,458,509 3,921,068 -
Effect of exchange rates on cash (25,573) 25,610 -
Cash and cash equivalents, beginning of period 1,452,826 (60,916) -
--------------- --------------- --------------
Cash and cash equivalents, end of period $ 3,885,762 $ 3,885,762 $ -
==============================================================================================================================
</TABLE>
Supplemental disclosures with respect to cash flows (Note 9)
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
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 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.
The Company is a high-tech business-to-business and consumer auctioneer
that conducts its auctions live and simultaneously broadcasts them over the
Internet. The Company liquidates a broad range of computers, electronics,
office equipment, furniture and industrial equipment that it acquires
through bankruptcies, insolvencies and defaults.
2. SIGNIFICANT ACCOUNTING POLICIES
Generally accepted accounting principles
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position, results of operations, comprehensive loss, changes in
stockholders' equity and cash flows at June 30, 2000 and for the period
then ended have been made. These financial statements should be read in
conjunction with the audited financial statements of the Company for the
year ended December 31, 1999. The results of operations for the period
ended June 30, 2000 are not necessarily indicative of the results to be
expected for the year ending December 31, 2000.
Principles of consolidation
These consolidated financial statements include the accounts of
Ableauctions.com, Inc. (formerly J.B. Financial Services, Inc.) and its
wholly owned subsidiaries, Able Auctions (1991) Ltd. and Ableauctions.com
(Washington) Inc. All significant inter-company balances and transactions
have been eliminated on consolidation.
Foreign currency translation
The Company accounts for foreign currency transactions and translation of
foreign currency financial statements under Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52").
Transaction amounts denominated in foreign currencies are translated at
exchange rates prevailing at transaction dates. Carrying values of monetary
assets and liabilities are adjusted at each balance sheet date to reflect
the exchange rate at that date. Non-monetary assets and liabilities are
translated at the exchange rate on the original transaction date. Gains and
losses from restatement of foreign currency monetary and non-monetary
assets and liabilities are included in income. Revenues and expenses are
translated at the rates of exchange prevailing on the dates such items are
recognized in earnings.
Financial statements of the Company's Canadian subsidiary, Able Auctions
(1991) Ltd. are translated into U.S. dollars using the exchange rate at the
balance sheet date for assets and liabilities. The functional currency of
Able Auctions (1991) Ltd. is the local currency, the Canadian dollar.
Translation adjustments, if necessary, are recorded as a separate component
of Stockholders' Equity.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the period. Actual results could differ from these estimates.
Cash and cash equivalents
The Company considers all investments with a maturity of three months or
less to be cash equivalents.
6
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Inventory
Inventory is stated at the lower of cost and net realizable value.
Software development
The Company has adopted Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", as its accounting policy for internally developed computer
software costs. Under SOP 98-1, computer software costs incurred in the
preliminary development stage are expensed as incurred. Computer software
costs incurred during the application development stage are capitalized and
amortized over the software's estimated useful life.
Capital assets and depreciation
Capital assets are recorded at cost less accumulated depreciation. The cost
of capital assets is depreciated using the declining balance method at the
following rates:
Building 4%
Computer equipment 30%
Computer software 30%
Furniture and fixtures 20%
Equipment 30%
Vehicles 30%
Leasehold improvements are depreciated using the straight-line method over
a period of 10 years.
Revenue recognition
The Company generally earns revenues from its auction activities either
through consignment sales, or through sales of inventory purchased by the
Company. For consignment sales, the Company earns auction fees charged to
consignees, and buyer's premiums charged to purchasers, determined as a
percentage of the sale price. For inventory sales, the Company earns a
profit or incurs a loss on the sale, to the extent the purchase price
exceeds or is less than the purchase price paid for such inventory.
For each type of auction revenue, an invoice is rendered to the purchaser,
and revenue is recognized by the Company, at the date of the auction. The
auction purchase creates a legal obligation upon the purchaser to take
possession of, and pay for the merchandise. This obligation generally
provides the Company with reasonable assurance of collection of the sale
proceeds, from which the Company's earnings are derived, including the fees
from consignees and purchasers, as well as resale profits.
Trademarks
The cost of the trademark acquired is being amortized on a straight-line
basis over its life of fifteen years.
Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at dates of acquisition and is being
amortized on a straight-line basis over periods of 10-20 years.
7
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Advertising costs
The Company recognizes advertising expenses in accordance with Statement of
Position 98-7, "Reporting on Advertising Costs". As such, the Company
expenses the cost of communicating advertising in the period in which the
advertising space or airtime is used.
Loss per share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). Under SFAS 128, basic and diluted earnings per share are to be
presented. Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding in the period. Diluted earnings per share takes into
consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares.
Income taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". A deferred tax
asset or liability is recorded for all temporary differences between
financial and tax reporting and net operating loss carryforwards. Deferred
tax expense (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee is required to
pay for the stock.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes
accounting and reporting standards for derivative instruments and for
hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. In June 1999, the FASB issued SFAS 137
to defer the effective date of SFAS 133 to fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not anticipate that the
adoption of the statement will have a significant impact on its financial
statements.
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.
8
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
3. CAPITAL ASSETS
<TABLE>
================================================================================================
Net Book Value
--------------------------------
Accumulated June 30, December 31,
Cost Depreciation 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Building $ 1,395,000 $ 18,600 $ 1,376,400 $ -
Computer equipment 1,004,422 272,976 731,446 843,713
Computer software 150,317 11,274 139,043 108,984
Furniture and fixtures 285,373 26,096 259,277 6,784
Land 2,105,000 - 2,105,000 -
Leasehold improvements 240,529 8,349 232,180 14,254
Equipment 168,000 30,556 137,444 161,700
Vehicles 46,951 16,076 30,875 35,424
--------------- --------------- --------------- ---------------
$ 5,395,592 $ 383,927 $ 5,011,665 1,170,859
================================================================================================
</TABLE>
4. WEB SITE DEVELOPMENT COSTS
Web site development costs of $109,821 (net of amortization costs of
$24,638) (December 31, 1999 - $95,805) is comprised of hardware and
software costs incurred by the Company in developing its web site. The
Company's amortization policy concerning these costs is to amortize the
costs over a period of five years commencing from the date of operations.
5. BUSINESS COMBINATION
During the year ended December 31, 1999, the Company entered into an
acquisition agreement whereby the Company acquired of all the outstanding
shares of Able Auctions (1991) Ltd. ("Able"). The Company issued 1,843,444
of its common shares at a deemed value of $73,738 and paid $545,305 to
acquire the shares of Able. The Company also paid an additional $504,695
for shareholders' loans.
The total purchase price of $1,123,738 has been allocated as follows:
Cash $ 347,474
Accounts receivable 140,982
Inventory 215,194
Prepaid expenses 36,114
Capital assets 780,551
Goodwill 667,127
Accounts payable and accrued liabilities (136,863)
Loan payable (878,377)
Obligation under capital lease (48,464)
-------------
$ 1,123,738
Goodwill is amortized on a straight-line basis over a 20 year period.
During the period, the Company amortized $16,678 of goodwill, leaving a
balance of $638,477 at June 30, 2000.
9
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
6. PROMISSORY NOTE
<TABLE>
==================================================================================================================
June 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Promissory note, interest at 9% per annum, repayment at $8,569 per
month including principal and interest, secured by mortgage over
land and building, due July 24, 2028. $ 1,050,867 $ -
Less: Current portion 8,594 -
--------------- --------------
$ 1,042,273 $ -
==================================================================================================================
</TABLE>
7. CAPITAL STOCK
a) On September 2, 1998, the Company implemented a 200:1 forward stock
split. On July 20, 1999, the Company effected a stock dividend of four
shares for every one share of record. On July 21, 1999, the Company
implemented a 5:1 forward stock split and on September 5, 1999, the
Company implemented a 4:1 reverse stock split. The consolidated
statements of changes in stockholders' equity have been restated to
give retroactive recognition of the stock splits and stock dividend
for all periods presented by reclassifying from common stock to
additional paid-in capital the par value of consolidated shares
arising from the splits and stock dividend. In addition, all
references to number of shares and per share amounts of common stock
have been restated to reflect the stock splits.
b) On March 26, 1999, the Company issued 53,750,000 shares at a deemed
value of $8,600 as payment of fees for services received.
c) On April 12, 1999, the Company issued 5,312,500 shares at a deemed
value of $850 as payment of fees for services received.
d) On July 19, 1999, the Company received from a shareholder 50,000,000
shares which were previously issued for services rendered, and
returned these shares to treasury for cancellation.
e) On August 24, 1999, the Company completed a private placement whereby
it issued 1,094,057 post consolidation units at a price of $3.20 per
unit for total consideration in the amount of $3,500,980. Each unit
consists of one restricted common share and half of a share purchase
warrant. Each whole warrant will entitle the holder to purchase an
additional restricted common share at a price of $3.20 per share until
August 24, 2000 and at $4.00 per share until August 24, 2001.
f) On October 18, 1999, the Company issued 60,000 shares at a deemed
value of $168,000 for the purchase of assets of Ross Auctioneers &
Appraisers Ltd.
g) On March 25, 2000, the Company completed a private placement of
1,000,000 units at a price of $5.00 per unit for total proceeds of
$4,700,000, net of issuance costs of $300,000. Each unit consists of
one share of common stock and one non-transferable share purchase
warrant. Each warrant entitles the holder to purchase one additional
share of common stock at a price of $5.00 until March 25, 2001 and at
a price of $6.00 until March 25, 2002.
10
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
7. CAPITAL STOCK (cont'd.....)
h) On March 29, 2000, the Company issued 53,405 shares of common stock at
a deemed value of $360,805 to purchase the assets of Falcon Trading
Inc.
i) On March 20, 2000, the Company issued 155,486 shares of common stock
at a deemed value of $1,243,888, for the purchase of a building in
Scottsdale, Arizona.
j) On March 20, 2000, the Company issued 30,625 shares of common stock at
a deemed value of $245,000 to purchase the assets of Mesler's Auction
House, and a non-transferable warrant entitling the holder to purchase
150,000 shares of common stock at a price of $8.00 until March 20,
2001.
k) On April 21, 2000, the Company paid cash of $31,493 and issued 4,822
shares of common stock at a deemed value of $34,477 to acquire rights
to a trademark from Simon Fraser University.
l) On May 2, 2000, the Company completed a private placement of 1,210,240
units at a price of $5.00 per unit for total proceeds of $5,203,440,
net of issuance costs of $847,670. Each unit consists of one share of
common stock and one non-transferable share purchase warrant. Each
warrant entitles the holder to purchase one additional share of common
stock at a price of $6.00 until May 2, 2001.
m) On May 23, 2000, the Company issued 10,000 shares of common stock at a
deemed value of $70,000 to purchase the assets of Auctions West.
n) On May 25, 2000, the Company paid cash of $900,000 and issued 50,000
shares of common stock at a deemed value of $350,000 to purchase the
assets of Ehli's Commercial/Industrial Auctions Inc.
o) During the six month period ended June 30, 2000, stock options
totaling 50,000 shares of common stock were exercised for proceeds of
$223,000.
8. STOCK OPTIONS AND WARRANTS
The following stock options were outstanding at June 30, 2000:
===================================================================
Number Exercise
of Shares Price Expiry Date
-------------------------------------------------------------------
787,500 $ 3.20 October 14,2004
47,500 5.00 January 18, 2005
30,000 8.00 February 28, 2005
75,000 6.76 February 28, 2005
50,000 7.15 May 15, 2005
35,000 6.53 May 16, 2005
80,000 6.53 May 16, 2010
===================================================================
11
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
8. STOCK OPTIONS AND WARRANTS (cont'd.....)
The following warrants were outstanding at June 30, 2000:
===================================================================
Number Exercise
of Shares Price Expiry Date
-------------------------------------------------------------------
547,029 $ 3.20 August 24, 2000
then at 4.00 August 24, 2001
1,000,000 5.00 March 25, 2001
then at 6.00 March 25, 2002
150,000 8.00 March 20, 2001
1,210,240 6.00 April 28, 2001
===================================================================
9. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
========================================================================
June 30, December 31,
2000 1999
------------------------------------------------------------------------
Cash paid for income taxes $ - $ -
Cash paid for interest 35,294 -
========================================================================
The following non-cash operating, investing and financing transactions
occurred during the six month period ended June 30, 2000:
a) The Company issued 53,405 shares of common stock at a deemed value of
$360,805 to purchase the assets of Falcon Trading Inc.
b) The Company issued 155,486 shares of common stock at a deemed value of
$1,243,888 for the purchase of a building and land in Scottsdale,
Arizona.
c) The Company issued 30,625 shares of common stock at a deemed value of
$245,000 to purchase the assets of Mesler's Auction House.
d) The Company assumed a promissory note in the amount of $1,046,358 for
the purchase of a building and land in Scottsdale, Arizona.
e) On May 23, 2000, the Company issued 10,000 shares of common stock at a
deemed value of $70,000 to purchase the assets of Auctions West.
f) On May 25, 2000, the Company issued 50,000 shares of common stock at a
deemed value of $350,000 to purchase the assets of Ehli's
Commercial/Industrial Auctions Inc.
g) On April 21, 2000, the Company issued 4,822 shares of common stock at
a deemed value of $34,477 to acquire rights to a trademark from Simon
Fraser University.
Therewere no non-cash operating, investing and financing transactions
during the six month period ended June 30, 1999.
12
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
Total comprehensive loss for the six month periods ended June 30, 2000 and
1999 were $2,725,316 and $145,349, respectively. The only item included in
other comprehensive loss is foreign currency translation adjustments in the
amounts of $(14,165) for the six month period ended June 30, 2000 and $Nil
for the six month period ended June 30, 1999.
<TABLE>
================================================================================================
Foreign Accumulated
Currency Other
Translation Comprehensive
Adjustment Income
------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1998 and June 30, 1999 $ - $ -
================= =================
Balance, December 31, 1999 $ 11,445 $ 11,445
Current period change (25,610) (25,610)
---------------- ----------------
Balance, June 30, 2000 $ (14,165) $ (14,165)
================================================================================================
</TABLE>
11. INCOME TAXES
The Company's total deferred tax asset is as follows:
<TABLE>
=================================================================================================
June 30, June 30,
2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Tax benefit relating to net operating loss carryforwards $ 1,385,456 $ 610,361
Valuation allowance (1,385,456) (610,361)
--------------- ---------------
$ - $ -
=================================================================================================
</TABLE>
12. DUE TO RELATED PARTIES
During the six month period ended June 30, 2000, the Company paid $27,474
in consulting fees to a company controlled by a director.
13
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
13. STOCK BASED COMPENSATION EXPENSE
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". Accordingly, compensation cost for stock options is
measured as the excess, if any, of quoted market price of the Company's
stock at the date of grant over the option price. There were compensation
costs of $246,950 incurred based on options granted in 2000. These costs
will be recognized over a period of three years, which is the average
vesting period of options.
During the six month period ended June 30, 2000, stock based compensation
expense of $17,033 was accrued.
Following is a summary of the status of the plan during 2000 and 1999:
<TABLE>
===================================================================================================
Weighted
Average
Number Exercise
of Shares Price
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1998 and June 30, 1999 - $ -
============= =============
Outstanding at December 31, 1999 812,500 $ 3.20
-------------
Granted 372,500 6.35
Forfeited (30,000) 4.40
Exercised (50,000) 4.46
-------------
-
292,500
-------------
Outstanding at June 30, 2000 1,105,000 $ 4.17
===================================================================================================
Weighted average fair value of options granted during the period $ 5.05
===================================================================================================
</TABLE>
Following is a summary of the status of options outstanding at June 30,
2000:
<TABLE>
======================================================================================================
Outstanding Options Exercisable Options
------------------------------------ ---------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Number Life Price Number Price
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3.20 787,500 4.29 $ 3.20 654,166 $ 3.20
5.00 47,500 4.55 5.00 47,500 5.00
8.00 30,000 4.66 8.00 - 8.00
6.76 75,000 4.66 6.76 - 6.76
7.15 50,000 4.87 7.15 - 7.15
6.53 35,000 4.88 6.53 - 6.53
6.53 80,000 9.88 6.53 - 6.53
======================================================================================================
</TABLE>
14
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
13. STOCK BASED COMPENSATION EXPENSE (cont'd.....)
Compensation
Had compensation cost been recognized on the basis of fair value pursuant
to Statement of Financial Accounting Standards No. 123, net loss and loss
per share would have been adjusted as follows:
<TABLE>
=============================================================================================================
Three Month Three Month Six Month Six Month
Period Ended Period Ended Period Ended Period Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Loss for the period
As reported $ (1,508,206) $ (145,349) $ (2,728,184) $ (145,349)
================ ================= ================ =================
Pro forma $ (1,675,644) $ (145,349) $ (2,895,622) $ (145,349)
================ ================= ================ =================
Basic and diluted loss per share
As reported $ (0.07) $ (0.01) $ (0.14) $ (0.01)
================ ================= ================ =================
Pro forma $ (0.08) $ (0.01) $ (0.15) $ (0.01)
=============================================================================================================
</TABLE>
The fair value of each option granted is estimated using the Black Scholes
Model. The assumptions used in calculating fair value are as follows:
======================================================================
2000 1999
----------------------------------------------------------------------
Risk-free interest rate 6.54% -
Expected life of the options 2 years -
Expected volatility 221.73% -
Expected dividend yield - -
======================================================================
15
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Certain statements and information contained in this Form constitute
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results or achievements of the Company to be materially different from any
future results or achievements of the Company 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 Company's
ability to obtain financing on acceptable terms; competition in the auction
industry; market acceptance of live auction broadcasts on the Internet; the
Company's ability to manage growth and integrate the operations of acquired
auction houses; risks of technological change; the Company's dependence on key
personnel; the Company's dependence on marketing relationships with auction
houses and third party suppliers; the Company's ability to protect its
intellectual property rights; government regulation of Internet commerce and the
auction industry; economic factors affecting the sales of auction merchandise;
dependence on continued growth in use of the Internet; risk of technological
change; capacity and systems disruptions; uncertainty regarding infringing
intellectual property rights of others and the other risks and uncertainties
detailed in the Company's Securities and Exchange Commission filings, including
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999.
The Company's management has included projections and estimates in this
annual report, which are based primarily on management's assessment of the
Company'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.
"We", "our", "us" and the "Company" refer to Ableauctions.com, Inc.
Overview
We were incorporated in the State of Florida on September 30, 1996 under the
name "J.B. Financial Services, Inc."
On August 24, 1999, we acquired all of the issued and outstanding shares of Able
Auctions (1991) Ltd. pursuant to a share purchase agreement with Dexton
Technologies Corporation, the sole shareholder of Able Auctions (1991) at that
time.
Upon our acquisition of Able Auctions (1991), we undertook the business of
conducting auctions and the process of designing, building and testing an
Internet based e-commerce web site to broadcast auctions over the Internet. We
conducted our first live broadcast of an auction on our web site in January
2000. We currently broadcast approximately 20% of our auctions over the
Internet.
We are an early stage company. Our principal activity during 1999 was to acquire
all the issued and outstanding shares of Able Auctions (1991) Ltd. and the
business assets and employees of Ross Auctioneers & Appraisers Ltd., both in
British Columbia, Canada. During 2000, we began to expand our auction business
by acquiring other brick-and-mortar auction companies. In the first quarter of
2000, we acquired the assets of Falcon Trading, a regional auction company
located in Redmond, Washington, and the assets of Mesler's Auction House, an
auction house located in Scottsdale, Arizona. We also acquired related real
estate and a 50,000 square foot building from an affiliate of Mesler's. In the
second quarter, we acquired all of the issued and outstanding shares of Ehli's
Commercial/Industrial Auctions, Inc. in Washington State and acquired the
business assets and hired the employees of Auctions West in British Columbia,
Canada.
16
<PAGE>
Subsequent to June 30, 2000, we acquired Johnston's Surplus Office Systems Ltd.,
a liquidator of office systems in British Columbia with annual sales of
approximately $2 million in 1999.
Our Business
We are engaged in the business of auctioning a broad range of merchandise and
equipment through our "brick-and-mortar" auction houses, over the Internet and
by broadcasting some of our live auctions on our web site at
www.ableauctions.com. We operate our business through our wholly owned
subsidiaries, Able Auctions (1991) Ltd. and Johnston's Surplus Office Systems
Ltd. in Canada, and Ableauctions.com (Washington), Inc. and Ehli's
Commercial/Industrial Auctions, Inc. in the United States.
We auction merchandise and equipment from a variety of industries including:
antique, bakery, broadcasting, chemical, construction, dairy, electronics,
energy, food processing, foundry, furniture, high-technology, machine tool,
metal fabrication, office, paper, pharmaceutical, plastic, printing, restaurant,
textile, and others. Our auctions are open to the public. Our typical auction
draws approximately 500 bidders in person and offers on average approximately
1,200 items or lots of merchandise and equipment for auction. In auctions that
we broadcast, our physical "brick-and-mortar" auction audiences are integrated
with our Web-based online auction audiences, and our online customers are able
to bid on and buy merchandise at our live auctions. Bidders are generally
businesses and commercial purchasers. We generally earn gross profit margins
ranging from 20% to 55% on the sale of goods at our physical auctions. We cannot
assure you that we will attain any particular level of gross profit margins or
that we will achieve profitability.
Plan of Operation
Our plan of operation is based on the operating history of our subsidiaries, our
experience in the industry, our discussions with third parties and the decisions
of our management. Set out below is a summary of our plan of operation and
operating and capital budget for the next two quarters of our fiscal year ending
December 31, 2000.
Generate revenues through auctions and increase our volume of sales by
increasing the number of live auctions at our existing locations.
We will continue to operate auctions at our six locations in Surrey and
Coquitlam, British Columbia; Redmond and Tacoma, Washington; San Mateo,
California; and Scottsdale, Arizona. We intend to increase the number of
auctions we currently hold from one to two per month to four per month at each
auction house. We expect to increase the frequency of our auctions during the
second half of 2000.
Increase revenues by broadcasting our auctions on the Internet and by selling
merchandise on our web site
We are in the process of further refining the technologies related to
broadcasting live auctions on our web site. Visitors to our web site may also
purchase items from our Retail Store and bid on items in our Silent Auction.
Initially, we intend to host live auctions alternating between our locations in
British Columbia, Washington, and Arizona. We increase the number of auctions we
broadcast over the Internet if we acquire additional auction locations or if we
develop strategic affiliations with other auction houses to broadcast their
auctions.
17
<PAGE>
Continue research and development to improve our web site and auction
broadcasting technologies
We plan to continue our research and development efforts by improving our web
site and auction broadcasting technologies. We are in the process of refining
our live auction broadcasting technologies and intend to develop software and
systems that will allow us to improve graphical presentations, the speed of our
bidding process, the preview of merchandise and the method of registering
bidders. We budgeted $750,000 for research and development efforts during fiscal
2000. During the first six months of 2000, we spent approximately $500,000 on
research and development.
Install the live broadcast technology at regional auction sites
We plan to install live broadcast technology at all of our auction locations. We
estimate the costs of installing broadcast equipment will be approximately
$125,000 to $150,000 per location.
Commence geographic expansion program by acquiring or entering into strategic
affiliations with auction companies
We intend to broadcast the auctions of auction companies in a variety of
locations throughout North America. We have acquired auction and liquidation
companies in Washington State, Arizona and British Columbia. We are negotiating
to acquire auction houses in Boise, Idaho, Seattle, Washington and British
Columbia, Canada. We anticipate that we will acquire these auction houses during
the third or fourth quarter of 2000, provided adequate financing is available.
Our management will continue to identify possible auction companies to approach
regarding acquisition by us or potential strategic relationships. There can be
no assurance that such financing will be available or that we will complete the
proposed acquisitions as anticipated.
Hire additional key personnel
At June 30, 2000, we employed 98 personnel, including 65 auctioneers and auction
personnel, 12 personnel that provide software development services, 5 management
personnel and 16 administrative 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 auctioneer,
e-commerce, software development, and/or software maintenance experience during
the second half of 2000.
Summary of Operating and Capital Budget
Our operating and capital budget for the second half of our fiscal year ending
December 31, 2000 is estimated to be approximately $12 million, including $5.5
million related to completing the acquisition of auction houses located in
Boise, Idaho, Seattle, Washington and British Columbia, Canada. We will require
approximately $8 million in additional financing to complete these acquisitions.
If we do not complete the acquisitions, we anticipate that we currently have
sufficient working capital to finance our plan of operations through to
September 2000. See "Liquidity and Capital Resources." We cannot assure you that
our actual expenditures for that period will not exceed our estimated operating
budget. Actual expenditures will depend on a number of factors, some of which
are beyond our control, including, among other things, the availability of
financing on acceptable terms, acquisition and/or expansion costs, reliability
of our assumptions in estimating costs, certain economic factors, the timing
related to development of our technology and launch of our web site and cost
associated with operating our auctions.
18
<PAGE>
Management's Discussion and Analysis
The following discussion on our results of operations should be read in
conjunction with our unaudited interim consolidated financial statements and the
related notes for the three months ended June 30, 2000. Our financial statements
have been prepared in accordance with United States generally accepted
accounting principles.
Results of Operations
Three months ended June 30, 2000 compared to the corresponding period in 1999.
Revenues. We were not in operations during 1999 until we acquired Able Auctions
(1991) Ltd on August 24, 1999. During the three months ended June 30, 2000, we
had revenues of $3,350,278, including $3,036,462 from the sale of goods and
$313,816 from commissions generated from the sale of consigned merchandise. We
anticipate that revenues will increase during the third quarter of 2000, as a
result of realizing a full quarter of revenues from the operations of Ehli's
Commercial/Industrial Auctions, Inc. and Auctions West, and of our recent
acquisition of Johnston's Surplus Office Systems Ltd., which occurred in July
2000.
Sales of goods consisted of 90.63% of our revenues. We anticipate that revenues
from the sales of goods will increase as a percentage of revenues, as we plan to
conduct a greater number of auctions using inventory we purchase in buy-out
situations, which generally result in higher gross profit margins.
Operating Expenses. Our operating expenses continue to reflect start up costs
associated with our business, our acquisition, growth strategy and the start up
and maintenance costs relating to our Web business. Operating expenses were
$2,207,657 for the quarter ended June 30, 2000.
Personnel and consulting expenses related to salaries and benefits ($564,674),
consulting fees ($257,510), management fees ($18,657) and stock based
compensation ($17,033) accounted for $857,874 or 38.86% of our operating
expenses for the three-month period ended June 30, 2000. We anticipate that such
personnel and consulting expenses will increase as (i) we hire additional
personnel for the auction houses we have or plan to acquire, (ii) we expand our
operations and (iii) we increase the frequency and number of auctions that we
conduct. As we have only recently completed the acquisitions of Ehli's
Commercial/Industrial Auctions, Inc., Auctions West and Johnston's Surplus
Office Systems Ltd., we anticipate that personnel and consulting expenses as a
percentage of operating expenses may increase until we are able to determine the
efficient level of staffing for these auction houses.
During for the three month period ended June 30, 2000, advertising and promotion
expenses of $190,364 consisted of 8.62% of our operating expenses. We anticipate
promotion expenses will increase during the third quarter of 2000 as we increase
promotional and marketing efforts to promote our auction houses and the number
of auctions will increase.
General overhead expenses related to rent and utilities ($229,727), telephone
($80,816), travel ($160,958), repairs and maintenance ($40,509), automotive
($8,014), insurance ($33,051) and office expenses ($111,498) totalled $664,573
or 30.01% of our total operating expenses and 19.84% of our total revenue. We
anticipate that overhead as a percentage of operating expenses and total revenue
will decrease in future periods beginning in 2001 as we achieve certain
economies from our operations. The overall level of general overhead expenses in
dollars is expected to increase as we expand our operations.
Professional fees of $108,031 during the three month period ended June 30, 2000
consisted of legal and accounting expenses related to completing our Securities
Exchange Act of 1934 reports, professional fees associated with the preparation
of our listing application for the American Stock Exchange and professional fees
associated with our acquisitions and financings. Professional fees are expected
to remain steady in the third quarter ending September 30, 2000.
19
<PAGE>
Depreciation and amortization expense was $151,038 for the three month period
ended June 30, 2000.
Gross Profit. Cost of goods sold were $2,673,167 for the three month period
ended June 30, 2000. Gross profits were $677,111 or 20.21%. We believe that
gross profits will increase in the third quarter ending September 30, 2000, as
we anticipate that our revenues will increase and we intend to conduct auctions
of inventory buy outs, which typically result in higher gross profit margins.
Net Loss. We had a net loss of $1,508,206 or $0.07 per share for the quarter
ended June 30, 2000. The net loss is attributable to costs associated with our
growth, start-up costs and the costs of developing our business and
technologies.
We anticipate net operating losses to increase for the foreseeable future as a
result of our planned efforts to expand and diversify our auction business in
addition to anticipated development costs related to our web site. We also
expect costs related to consulting and management fees, salaries, rent,
marketing and promotion, and general overhead to increase during 2000.
Six months ended June 30, 2000 compared to the corresponding period in 1999.
Revenues. During the six month period ended June 30, 2000, we had revenues of
$4,450,405, including $3,904,153 from the sale of goods and $546,252 from
commissions generated from the sale of consigned merchandise. We anticipate that
revenues will increase during the third quarter of 2000, as a result of
realizing a full quarter of revenues from the operations of Ehli's
Commercial/Industrial Auctions, Inc. and Auctions West, and of our recent
acquisition of Johnston's Surplus Office Systems Ltd., which occurred in July
2000.
Sales of goods consisted of 87.73% of our revenues. We anticipate that revenues
from the sales of goods will increase as a percentage of revenues, as we plan to
conduct a greater number of auctions using inventory we purchase in buy-out
situations, which generally result in higher gross profit margins.
Operating Expenses. Our operating expenses continue to reflect start up costs
associated with our business, our acquisition, growth strategy and the start up
and maintenance costs relating to our Web business. Operating expenses were
$3,698,419 for the six month period ended June 30, 2000.
Personnel and consulting expenses related to salaries and benefits ($860,743),
consulting fees ($338,764), management fees ($20,264) and stock based
compensation ($17,033) accounted for $1,236,804 or 33.44% of our operating
expenses for the six month period ended June 30, 2000. We anticipate that such
personnel and consulting expenses will increase as (i) we hire additional
personnel for the auction houses we have or plan to acquire, (ii) we expand our
operations and (iii) we increase the frequency and number of auctions that we
conduct. As we have only recently completed the acquisitions of Ehli's
Commercial/Industrial Auctions, Inc., Auctions West and Johnston's Surplus
Office Systems Ltd., we anticipate that personnel and consulting expenses as a
percentage of operating expenses may increase until we are able to determine the
efficient level of staffing for these auction houses.
During for the six month period ended June 30, 2000, advertising and promotion
expenses of $344,652 consisted of 9.32% of our operating expenses. We anticipate
promotion expenses will increase during the third and fourth quarters of 2000 as
we increase promotional and marketing efforts to promote our auction houses and
the number of auctions will increase.
General overhead expenses related to rent and utilities ($415,062), telephone
($105,502), travel ($276,563), repairs and maintenance ($64,571), automotive
($23,362), insurance ($33,051) and office expenses ($174,411) totalled
$1,092,522 or 29.54% of our total operating expenses during the six month period
ended June 30, 2000. We anticipate that overhead as a percentage of operating
expenses and total revenue will decrease in future periods beginning in 2001as
we achieve certain economies from our operations. The overall level of general
overhead expenses in dollars is expected to increase as we expand our
operations.
20
<PAGE>
Professional fees of $224,044 during the six month period ended June 30, 2000,
consisted of legal and accounting expenses related to completing our Securities
Exchange Act of 1934 reports, professional fees associated with the preparation
of our listing application for the American Stock Exchange and professional fees
associated with our acquisitions and financings. Professional fees are expected
to remain steady in the third quarter ending September 30, 2000.
Depreciation and amortization expense was $271,338 for the six month period
ended June 30, 2000.
Gross Profit. Cost of goods sold were $3,487,918 for the six month period ended
June 30, 2000. Gross profits were $962,487 or 21.63%. We believe that gross
profits will increase in the third quarter ending September 30, 2000, as we
anticipate that our revenues will increase and we intend to conduct auctions of
inventory buy outs, which typically result in higher gross profit margins.
Net Loss. We had a net loss of $2,728,184 or $0.14 per share for the six month
period ended June 30, 2000. The net loss is attributable to costs associated
with our growth, start-up costs and the costs of developing our business and
technologies.
We anticipate net operating losses to increase for the foreseeable future as a
result of our planned efforts to expand and diversify our auction business in
addition to anticipated development costs related to our web site. We also
expect costs related to consulting and management fees, salaries, rent,
marketing and promotion, and general overhead to increase during 2000.
In addition, we anticipate that our general and administrative expenses may also
significantly increase as a result of the growth in our research, development,
testing and business development programs. The actual levels of research and
development, administrative and general corporate expenditures are dependent on
the cash resources available to us.
Liquidity and Capital Resources
Our working capital position at June 30, 2000 was $5,479,746. We had cash and
cash equivalents of $3,885,762; accounts receivables of $533,690; inventory of
$1,271,198; and prepaid expenses of $230,860 at June 30, 2000. We anticipate
that trade accounts receivables and inventory may increase during the third and
fourth quarters of 2000 as we increase the number and frequency of our auctions
and as we expand our business operations. Cash flow for operating activities
required $3,492,268 during the six month period ended June 30, 2000. We
anticipate that we will continue to use cash for operating activities of
approximately $600,000 per month through the remainder of 2000. This amount may
increase substantially if we complete additional acquisitions during the third
and fourth quarters of 2000, and may continue to increase until we are able to
generate positive cash flow from our business.
Cash flow for investing activities required $2,713,194, relating primarily to
the cash component of our acquisition of Mesler's in Arizona that included an
acquisition of a large building. Cash flow for investing is expected to increase
in the third and fourth quarters as a result of our planned acquisitions of
addition auction and liquidation businesses.
Net cash flow from financing activities were $10,126,530 from a private
placement of 2,210,240 units at $5 per unit, after deducting finance fees.
Our operating and capital budget for the second half of the year ending December
31, 2000 is approximately $12 million, to be used primarily for working capital
and 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.
21
<PAGE>
Outlook
We have entered a period of rapid expansion and growth. In their independent
auditor's report dated March 24, 2000, Davidson & Company, expressed doubt about
our ability to continue as a going concern due to our lack of working capital
for our planned business activities. In February 2000, we successfully raised $5
million and a further $6 million in April 2000 for net proceeds of $10.1
million. We anticipate we will be required to raise an additional $8 million to
adequately fund our entire operating and capital budget for the year 2000. See
"Summary of Operating and Capital Budget."
We intend to meet our cash requirements through revenues generated from our
operations and private or public placements of our equity or debt. We are
currently seeking such financing by presenting our business plan to merchant and
investment banks, fund managers and investment advisors. We cannot assure you
that we will successfully raise any additional financing on acceptable terms, if
at all, and our failure to meet our cash requirements will force us to abandon
some of our plans of operation, sell some of our assets or certain business
operations or liquidate our business, all of which will have a material adverse
effect on our business and results of operations.
We cannot assure you that our actual expenditures for this period will not
exceed our estimated operating and capital budget. Actual expenditures will
depend on a number of factors, some of which are beyond our control, including,
among other things, timing of our web site launch, the revenues from our auction
operations, the success of our geographical expansion, the availability of
financing on acceptable terms, reliability of the assumptions of management in
estimating cost and timing, costs related to the development of our web site and
technologies, economic conditions and competitive factors in the auction
industry. See "Plan of Operation" and "Summary of Operating and Capital Budget."
Subsequent Events
On June 29, 2000, the Company's Common Stock began trading on the American Stock
Exchange under the symbol "AAC".
On July 31, 2000, the Company acquired Johnston's Surplus Office Systems Ltd., a
company incorporated under the laws of British Columbia, for the following
consideration:
(a) $500,000 in cash; and
(b) 68,182 shares of common stock.
The shares were issued to non-U.S. Persons outside the United States in reliance
upon an exemption from registration under Regulation S of the Securities Act of
1933, as amended.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company believes that it does not have any material exposure to interest or
commodity risks. The Company is exposed to economic and political changes in
international markets where the Company competes, such as inflation rates,
recession, foreign ownership restrictions, domestic and foreign government
spending, budgetary and trade policies and other external factors over which the
Company has no control.
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. In the past the majority of our revenues were derived from the business
operations of our wholly-owned subsidiary, Able Auctions (1991) Ltd., whose
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
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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 affected by
changes in interest rates and certain other credit risk associated with its
operations.
Part II - OTHER INFORMATION
ITEM 1. Legal Proceedings
As of the date hereof, there is no material litigation pending against the
Company. From time to time, the Company is a party to litigation and claims
incidental to the ordinary course of our business. While the results of
litigation and claims cannot be predicted with certainty, we believe that the
final outcome of such matters will not have a material adverse effect on our
business, financial condition, results of operations and cash flows.
ITEM 2. CHANGES IN SECURITIES
a) Sales of Unregistered Securities
During the three month period ended June 30, 2000, the Company completed the
following sales of unregistered securities:
On April 21, 2000, the Company issued 4,822 shares of common stock to Simon
Fraser University to acquire rights to certain trademarks. The shares were
issued outside the United States pursuant to an exemption from registration
under Regulation S of the Securities Act of 1933, as amended.
On May 2, 2000, the Company completed a private placement of 1,210,240
units at a price of $5.00 per unit for total proceeds of $5,203,440, net of
issuance costs of $847,670. Each unit consists of one share of common stock
and one non-transferable share purchase warrant. Each warrant entitles the
holder to purchase one additional share of common stock at a price of $6.00
until May 2, 2001. The units were issued outside the United States pursuant
to an exemption from registration under Regulation S of the Securities Act
of 1933, as amended.
On May 23, 2000, the Company issued 10,000 shares of common stock to Robert
Kavanagh, a non-U.S. Person as partial consideration in the acquisition of
the assets of Auctions West Sales Corporation. All offers and sales took
place outside of the United States pursuant to an exemption from
registration under Regulation S of the Securities Act of 1933, as amended.
On May 25, 2000, the Company issued 50,000 shares of common stock to
purchase the shares of Ehli's Commercial/Industrial Auctions Inc. The
issuance of the shares was exempt from registration pursuant to Rule 506
under Regulation D promulgated under the Securities Act of 1933, as
amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule
b) Reports on Form 8-K
Form 8-K filed on April 4, 2000 in connection with the Company's acquisition of
Mesler's Auction House of Scottsdale, LLC.
Form 8-K filed on June 9, 2000 in connection with the Company's acquisition of
Ehli's Commercial/Industrial Auctions, Inc.
Form 8-K/A filed on August 10, 2000 in connection with the Company's acquisition
of Ehli's Commercial/Industrial Auctions, Inc. containing the following
financial statements:
Audited Financial Statements of Ehli's Commercial/Industrial Auctions, Inc.
Together With Auditors' Report as at December 31, 1999.
Auditors' Report
Balance Sheet
Statements of Operations
Statement of Changes in Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements
Unaudited Financial Statements of Ehli's Commercial/Industrial Auctions,
Inc. dated March 31, 2000.
Balance Sheet
Statements of Operations
Statement of Changes in Stockholders' Equity
Statement of Cash Flows
Notes to Financial Statements
Pro Forma Financial Information.
Unaudited Pro Forma Consolidated Financial Statements of Ableauctions.com,
Inc. and Ehli's Commercial/Industrial Auctions, Inc. dated March 31, 2000.
Pro Forma Consolidated Balance Sheet
Pro Forma Consolidated Statements of Operations
Pro Forma Consolidated Statement of Stockholders' Equity
Pro Forma Consolidated Statement of Cash Flows
Notes to Pro Forma Consolidated Financial Statements
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABLEAUCTIONS.COM, INC.
Date: August 22, 2000 By: /s/ Abdul Ladha
--------------------------------------
Name: Abdul Ladha
Title: President & Chief Executive Officer
(Principal Executive Officer)
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EXHIBIT INDEX
Exhibit
Number Description
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27.1 Financial Data Schedule
