================================================================================
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 September 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 September 30, 2000 was 20,976,661
================================================================================
<PAGE>
ABLEAUCTIONS.COM, INC.
INDEX TO THE FORM 10-QSB
For the quarterly period ended September 30, 2000
<TABLE>
Page
----
<S> <C>
Part I - FINANCIAL INFORMATION ......................................................................1
ITEM 1. FINANCIAL STATEMENTS ....................................................................1
Consolidated Balance Statements..........................................................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...............................................................19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...............................25
ITEM 4. SUBSEQUENT EVENTS.......................................................................26
Part II - OTHER INFORMATION .........................................................................27
ITEM 1. LEGAL PROCEEDINGS ......................................................................27
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS...............................................27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ........................................................27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................27
ITEM 5. OTHER INFORMATION.......................................................................27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................................................27
SIGNATURES...........................................................................................28
</TABLE>
i
<PAGE>
Part I - Financial Information
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED BALANCE STATEMENTS
(Unaudited)
================================================================================
<TABLE>
September 30, December 31,
2000 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 1,636,688 $ -
Accounts receivable - trade 2,016,517 96,790
Accounts receivable - other 70,323 171,015
Inventory 1,574,905 486,572
Prepaid expenses 249,857 73,452
--------------- ---------------
Total current assets 5,548,290 827,829
Trademark 10,603 12,151
Capital assets (Note 3) 5,042,821 1,170,859
Web site development costs (Note 4) 84,952 95,805
Goodwill 3,247,730 655,155
--------------- ---------------
Total assets $ 13,934,396 $ 2,761,799
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Bank indebtedness $ $ 60,916
Accounts payable and accrued liabilities 1,503,717 277,706
Promissory note - current (Note 6) 9,377 -
--------------- --------------
Total current liabilities 1,513,094 338,622
Promissory note (Note 6) 1,039,605 -
--------- --------------
2,552,699 338,622
--------- ---------------
Stockholders' equity
Capital stock (Note 7)
Authorized
62,500,000 common shares with a par value of $0.001
Issued and outstanding
September 30, 2000 -20,976,661 common shares
with a par value of $0.001 20,976 18,310
December 31, 1999 - 18,310,001 common shares
with a par value of $0.001
Additional paid-in capital 16,902,218 3,740,108
Deficit (5,541,498) (1,346,686)
Accumulated other comprehensive income (loss) 1 11,445
--------------- ---------------
Total stockholders' equity 11,381,697 2,423,177
--------------- ---------------
Total liabilities and stockholders' equity $ 13,934,396 $ 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 Nine Month Nine Month
Period Ended Period Ended Period Ended Period Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Sales $ 4,826,247 $ 207,936 $ 8,730,400 $ 207,936
Commissions 466,931 1,013,183
------------ ------------ ------------ ------------
5,293,178 207,936 9,743,583 207,936
COST OF GOODS SOLD 4,139,607 139,998 7,627,525 139,998
------------ ------------ ------------ ------------
GROSS PROFIT 1,153,571 67,938 2,116,058 67,938
------------ ------------ ------------ ------------
OPERATING EXPENSES
Accounting and legal fees 113,586 0 337,630 0
Advertising and promotion 337,254 9,644 681,906 9,644
Amortization of goodwill 38,573 0 72,351 0
Automobile 21,755 652 45,117 652
Bad debt (recovery) 40,409 0 48,772 0
Commission 91,539 0 209,491 0
Consulting fees 34,710 60,244 373,474 69,694
Depreciation 176,888 0 414,448 0
Insurance 42,455 2,622 75,506 2,622
Investor relations and shareholder information 19,101 4,880 395,487 5,229
Licenses and permits 18,147 0 44,505 0
Management fees (4,361) 241,926 15,903 241,926
Office and miscellaneous 122,705 22,976 297,116 22,976
Rent and utilities 198,978 17,356 614,040 17,356
Repairs and maintenance 68,755 1,814 133,326 1,814
Salaries and benefits 1,061,554 51,621 1,922,297 51,621
Stock based compensation expense 17,033 0 34,066 0
Telephone 61,096 3,246 166,598 3,246
Travel and entertainment 132,419 106,175 408,982 106,175
------------ ------------ ------------ ------------
2,592,596 523,156 6,291,015 532,955
------------ ------------ ------------ ------------
Loss before other items (1,439,025) (455,218) (4,174,957) (465,017)
------------ ------------ ------------ ------------
OTHER ITEMS
Interest income 31,927 (11,115) 54,817 (11,115)
Foreign exchange loss (59,530) (18,292) (74,672) (18,292)
------------ ------------ ------------ ------------
(27,603) (29,407) (19,855) (29,407)
------------ ------------ ------------ ------------
Loss for the period $ (1,466,628) $ (425,811) $ (4,194,812) $ (435,610)
=======================================================================================================================
Basic and diluted loss per share $ (.07) $ (.03) $ (.22) $ (.03)
=======================================================================================================================
Weighted average number of shares outstanding 20,939,952 16,525,816 19,420,250 12,547,390
=======================================================================================================================
</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 Nine Month Nine Month
Period Ended Period Ended Period Ended Period Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss for the period $ (1,466,628) $ (425,811) $ (4,194,812) $ (435,610)
Other comprehensive income, net of tax:
Foreign currency translation adjustments 14,166 20,205 1 20,205
Consolidated comprehensive loss $ (1,452,462) $ (405,606) $ (4,194,811) $ (415,405)
===========================================================================================================================
Basic and diluted comprehensive loss per share $ (.07) $ (.03) $ (.22) $ (.03)
===========================================================================================================================
Weighted average number of shares outstanding 20,939,952 16,525,816 19,420,250 12,547,390
===========================================================================================================================
</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
Mesler'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
Common stock issued for
acquisition of Johnston's
Surplus Office Systems 68,182 68 513,342 513,410
Common stock issued for
acquisition of
Warex Supply Ltd. 6,900 7 55,193 55,200
Stock options excercised 77,000 77 354,323 - - 354,400
Translation adjustment - - - (11,444) - (11,444)
Stock based compensation - - 34,066 - - 34,066
Expense
Loss for the period - - - - (4,194,812) (4,194,812)
------------ ------------ ------------ ------------ ------------- -------------
Balance, September 30, 2000 20,976,661 $ 20,976 $16,902,218 $ 1 $(5,541,498) $ 11,381,697
================================================================================================================================
</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)
================================================================================
<TABLE>
====================================================================================================================
Three Month Nine Month Nine Month
Period Ended Period Ended Period Ended
September 30, September 30, September 30,
2000 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $ (1,466,628) $ (4,194,812) $ (435,610)
Items not affecting cash:
Amortization of goodwill 38,573 72,351
Depreciation and amortization 176,888 414,448
Consulting fees 9,450
Stock based compensation expense 17,033 34,066
Changes in non-cash working capital items:
Increase in accounts receivable (1,553,150) (1,819,035) (168,004)
Increase in inventory (303,707) (1,088,333) (125,870)
Increase in prepaid expenses (18,997) (176,405) (14,750)
Increase in accounts payable and accrued liabilities 1,070,547 1,226,011 312,950
-------------- -------------- --------------
Net cash used in operating activities (2,039,441) (5,531,709) (421,834)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 0 11,274,200 3,500,980
Share issuance costs 0 (1,147,670)
Due to Shareholder
(13,961)
Loan Payable (789,338)
Net cash provided by financing activities 0 10,126,530 2,697,681
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital assets (175,083) (1,996,737) (428,846)
Web site development costs 24,980 10,964
Acquisition of investment 0 (900,000) (702,526)
-------------- -------------- --------------
Net cash used in investing activities (150,103) (2,885,773) (1,131,372)
-------------- -------------- --------------
Change in cash and cash equivalents for the period (2,189,544) 1,709,048 1,144,475
Effect of exchange rates on cash (59,530) (11,444) 20,205
Cash and cash equivalents, beginning of period 3,885,762 (60,916) 0
-------------- -------------- --------------
Cash and cash equivalents, end of period $ 1,636,688 $ 1,636,688 $ 1,164,680
====================================================================================================================
</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)
SEPTEMBER 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 September 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.
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., Ableauctions.com
(Washington) Inc., Johnston's Surplus Office Systems Ltd., Warex Supply
Ltd. and Jarvis Industries Ltd. 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 subsidiaries, Able Auctions
(1991) Ltd., Johnston's Surplus Office Systems Ltd., Warex Supply Ltd., and
Jarvis Industries Ltd. are translated into U.S. dollars using the exchange
rate at the balance sheet date for assets and liabilities. The functional
currency of these subsidiaries, 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)
SEPTEMBER 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 20%
Vehicles 30%
Leasehold improvements are depreciated using the straight-line method over
a period of 10 years.
Revenue recognition
The Company generally earns revenues from its auction activities either
through consignment sales, or through sales of inventory purchased by the
Company. For consignment sales, the Company earns auction fees charged to
consignees, and buyer's premiums charged to purchasers, determined as a
percentage of the sale price. For inventory sales, the Company earns a
profit or incurs a loss on the sale, to the extent the purchase price
exceeds or is less than the purchase price paid for such inventory.
For each type of auction revenue, an invoice is rendered to the purchaser,
and revenue is recognized by the Company, at the date of the auction. The
auction purchase creates a legal obligation upon the purchaser to take
possession of, and pay for the merchandise. This obligation generally
provides the Company with reasonable assurance of collection of the sale
proceeds, from which the Company's earnings are derived, including the fees
from consignees and purchasers, as well as resale profits.
Trademarks
The cost of the trademark acquired is being amortized on a straight-line
basis over its life of fifteen years.
Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at dates of acquisition and is being
amortized on a straight-line basis over periods of 10-20 years.
7
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 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)
SEPTEMBER 30, 2000
================================================================================
3. CAPITAL ASSETS
<TABLE>
===============================================================================================
Net Book Value
---------------------------------
Accumulated September 30, December 31,
Cost Depreciation 2000 1999
--------------------------------------------=----------------=----------------=---------------
<S> <C> <C> <C> <C>
Building $ 1,395,000 $ 32,550 $ 1,362,450 $ -
Computer equipment 1,015,929 342,638 673,291 843,713
Computer software 148,625 49,266 99,359 108,984
Furniture and fixtures 350,245 69,162 281,083 6,784
Land 2,105,000 2,105,000 -
Leasehold improvements 382,439 29,930 352,509 14,254
Equipment 168,000 40,864 127,136 161,700
Vehicles 83,243 41,248 41,995 35,424
------------- ------------ ------------- ------------
$ 5,648,481 $ 605,659 $ 5,042,821 $ 1,170,859
===============================================================================================
</TABLE>
4. WEB SITE DEVELOPMENT COSTS
Web site development costs of $84,952 (net of amortization costs of
$49,788) (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:
9
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
================================================================================
5. BUSINESS COMBINATION (cont'd...)
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 $25,017 of goodwill, leaving a
balance of $630,138 at September 30, 2000.
On July 27, 2000, the Company entered into an acquisition agreement whereby
they purchased the outstanding shares of Johnston's Surplus Office Systems.
The Company issued 68,182 shares of common stock at a deemed value of
$513,410 and paid $332,558 cash.
The total purchase price of $845,968 has been allocated as follows:
Cash $ 50,480
Accounts receivable 597,750
Inventory 429,265
Prepaid expenses 1,145
Capital assets 143,838
Goodwill 525,787
Accounts payable and accrued liabilities (587,750)
Loan payable (314,547)
----------------
$ 845,968
Goodwill is amortized on a straight-line basis over a 20 year period.
During the period, the Company amortized $4,382 of goodwill, leaving a
balance of $521,405 at September 30, 2000.
On July 31, 2000, the Company entered into an acquisition agreement whereby
they purchased the outstanding shares of Warex Supply Ltd. The Company
issued 6,900 shares of common stock at a deemed value of $55,200 and paid
$146,810 in cash.
The total purchase price of $202,010 has been allocated as follows:
Accounts receivable 26,736
Inventory 227,089
Prepaid expenses 2,761
Capital assets 13,342
Accounts payable and accrued liabilities (67,918)
-------------
$ 202,010
10
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
================================================================================
5. BUSINESS COMBINATION (cont'd...)
On July 31, 2000, the Company entered into an acquisition agreement whereby
they purchased the outstanding shares of Jarvis Industries Ltd. The Company
paid $290,800 in cash.
The total purchase price of $290,800 has been allocated as follows:
Accounts receivable 38,704
Inventory 35,580
Prepaid expenses 3,183
Goodwill 213,333
------------
$ 290,800
Goodwill is amortized on a straight-line basis over a 20 year period.
During the period, the Company amortized $1,778 goodwill, leaving a balance
of $211,555 at September 30, 2000.
6. PROMISSORY NOTE
<TABLE>
===========================================================================================================
September 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. $ 1,048,982 $ -
Less: Current portion 9,377 -
-------------- -------------
$ 1,039,605 $ -
===========================================================================================================
</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 August 9, 1999, the Company
implemented a 5:1 forward stock split and on September 2, 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.
11
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
================================================================================
7. CAPITAL STOCK (cont'd...)
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 $4.00 per share until
August 24, 2001.
f) On August 24, 1999, the Company issued 1,843,444 shares in partial
consideration for the purchase of the issued and outstanding shares of
Able Auctions (1991) Ltd.
g) 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.
h) On February 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.
i) On February 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.
j) 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.
k) 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 Ltd., 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.
l) On April 18, 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.
m) On April 28, 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.
n) On May 25, 2000, the Company issued 10,000 shares of common stock at a
deemed value of $70,000 to purchase the assets of Auctions West Ltd.
12
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
================================================================================
7. CAPITAL STOCK (cont'd...)
o) On May 16, 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.
p) On July 26, 2000, the Company paid cash of $332,358 and issued 68,182
shares of common stock at a deemed value of $513,410 to purchase the
assets of Johnston's Surplus Office Systems.
q) On September 27, 2000, the Company paid cash of $146,810 and issued
6,900 shares of common stock at a deemed value of $55,200 to purchase
the assets of Warex Supply Ltd.
r) On September 27, 2000, the Company paid cash of $290,800 to purchase
the assets of Jarvis Industries Ltd.
s) During the nine month period ended September 30, 2000, stock options
totaling 77,000 shares of common stock were exercised for proceeds of
$354,400.
8. STOCK OPTIONS AND WARRANTS
The following stock options were outstanding at September 30, 2000:
=======================================================================
Number Exercise
of Shares Price Expiry Date
-----------------------------------------------------------------------
788,000 $ 3.20 October 14, 2004
22,500 5.00 January 18, 2005
30,000 8.00 February 28, 2005
75,000 6.756 February 28, 2005
50,000 7.15 May 15, 2005
20,000 6.525 May 16, 2005
80,000 6.525 May 16, 2010
75,000 7.00 August 1, 2003
120,000 7.00 August 1, 2004
15,000 8.50 August 1, 2005
112,000 8.66 July 26, 2005
=======================================================================
The following warrants were outstanding at September 30, 2000:
=======================================================================
Number Exercise
of Shares Price Expiry Date
-----------------------------------------------------------------------
547,029 At 4.00 August 24, 2001
1,000,000 5.00 February 25, 2001
then at 6.00 February 25, 2002
150,000 8.00 March 20, 2001
1,210,240 6.00 April 28, 2001
=======================================================================
13
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
================================================================================
9. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
============================================================================
September 30, December 31,
2000 1999
----------------------------------------------------------------------------
Cash paid for income taxes $ - $ -
Cash paid for interest 46,663 -
============================================================================
The following non-cash operating, investing and financing transactions
occurred during the nine month period ended September 30, 2000:
a) On February 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.
b) 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 and
land in Scottsdale, Arizona.
c) 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.
d) On March 20, 2000, 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 April 18, 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.
f) On May 5, 2000, the Company issued 10,000 shares of common stock at a
deemed value of $70,000 to purchase the assets of Auctions West.
g) On May 16, 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.
h) On July 26, 2000, the Company issued 68,182 shares of common stock at
a deemed value of $513,410 to purchase the assets of Johnston's
Surplus Office Systems.
i) On September 27 2000, the Company issued 6,900 shares of common stock
at a deemed value of $55,200 to purchase the assets of Warex Supply
Ltd.
There were no non-cash operating, investing and financing transactions
during the nine month period ended September 30, 2000.
14
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
================================================================================
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
Total comprehensive loss for the nine month periods ended September 30,
2000 and 1999 were $4,194,812 and $435,610 respectively. The only item
included in other comprehensive loss is foreign currency translation
adjustments in the amounts of $1 for the nine month period ended September
30, 2000 and $20,205 for the nine month period ended September 30, 1999.
<TABLE>
===================================================================================================
Foreign Accumulated
Currency Other
Translation Comprehensive
Adjustment Income
---------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1998 and September 30, 1999 $ - $ -
============== =============
Balance, December 31, 1999 $ 11,445 $ 11,445
Current period change (11,444) (11,444)
-------------- -------------
Balance, September 30, 2000 $ 1 $ 1
===================================================================================================
</TABLE>
11. INCOME TAXES
The Company's total deferred tax asset is as follows:
<TABLE>
===============================================================================================
September 30, September 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>
15
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
================================================================================
12. DUE TO RELATED PARTIES
During the nine-month period ended September 30, 2000 there were the
following related party transactions:
1) The Company paid $27,474 in consulting fees to a company controlled by
a director.
2) The Company paid $81,183 in rent and $134,898 for leasehold
improvements to a company controlled by a director.
3) The Company paid $25,789 for Internet Web development costs to a
company controlled by a director.
4) The Company sold $52,854 in products to a company controlled by a
director.
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 nine month period ended September 30, 2000, stock based
compensation expense of $34,066 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 September 30, 1999 - $ -
=========== ============
Outstanding at December 31, 1999 812,500 $ 3.20
-----------
Granted 679,500 6.95
Forfeited (40,000) 5.69
Exercised (77,000) 4.60
-----------
562,500
Outstanding at September 30, 2000 1,375,000
$ 4.94
=====================================================================================================
Weighted average fair value of options granted during the period $ 5.38
=====================================================================================================
</TABLE>
16
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
================================================================================
Following is a summary of the status of options outstanding at September 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>
$ 3.20 788,000 4.04 $3.20 654,166 $3.20
5.00 22,500 4.30 5.00 47,500 5.00
8.00 30,000 4.41 8.00 - 8.00
6.756 75,000 4.41 6.76 - 6.76
7.15 50,000 4.62 7.15 - 7.15
6.525 20,000 4.63 6.53 - 6.53
6.525 80,000 4.63 6.53 - 6.53
7.00 75,000 2.83 7.00 7.00
7.00 120,000 3.83 7.00 7.00
8.50 15,000 4.41 8.50 8.50
8.66 112,000 4.40 8.66 8.66
=====================================================================================================================
</TABLE>
13. STOCK BASED COMPENSATION EXPENSE
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 Nine Month Nine Month
Period Ended Period Ended Period Ended Period Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loss for the period
As reported $ (1,466,628) $ (425,811) $ (4,194,812) $ (435,610)
============= ============== ============== =============
Pro forma $ (1,586,906) $ $ (4,315,090) $
============= ============== ============== =============
Basic and diluted loss per share
As reported $ (.07) $ (.03) $ (.22) $ (.03)
============= ============== ============== =============
Pro forma $ (.08) $ (.03) $ (.22) $ (.03)
====================================================================================================================
</TABLE>
17
<PAGE>
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
SEPTEMBER 30, 2000
================================================================================
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 - -
==============================================================================
18
<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. In the third quarter, 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. In the third quarter, we also
19
<PAGE>
acquired Jarvis Industries Ltd., a British Columbia based commercial auctioneer
specializing in bankruptcies and insolvencies, and Warex Supply Ltd. a British
Columbia based firm in the business of buying, selling, and renting warehouse
racking and material handling equipment.
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., Johnston's Surplus Office Systems Ltd.,
Jarvis Industries Ltd. and Warex Supply Ltd. in Canada; and Ableauctions.com
(Washington), Inc.; Ehli's Commercial/Industrial Auctions, Inc. and Surplus
Office Systems, LLC 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 other merchandise. 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 on our web site, 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 30% 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 final quarter 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 between one and two per month to four per month at each
auction house. We expect to increase the frequency of our auctions during the
fourth quarter 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.
We currently host live auctions in our locations in British Columbia,
Washington and Arizona. We intend to increase the number of auctions we
broadcast over the Internet at our existing locations and to broadcast live
auctions at additional auction locations that we may acquire or auctions of
other third-party houses that we may develop strategic affiliations with in the
future.
20
<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 nine months of 2000, we spent approximately
$625,000 on research and development.
Install the live broadcast technology at regional auction sites
We currently have live broadcast technology installed in our auction
locations at Surrey and Coquitlam. We plan to install live broadcast technology
in all of our auction locations during the fourth quarter of 2000. We estimate
the costs of installing broadcast equipment is 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 expand our business to other locations in North America by
acquiring auction houses and by entering into strategic relationships with
third- party auction houses to broadcast their auctions on our web site for
fees. We acquired auction and liquidation companies in the states of Washington
and Arizona and British Columbia. We are negotiating to acquire auction houses
in Boise, Idaho and Seattle, Washington. We anticipate that we will acquire
these auction houses during the fourth quarter of 2000 or the first quarter of
2001, provided that adequate financing is available. Our management team intends
to continue to identify possible auction companies to acquire in the future.
There can be no assurance that adequate financing will be available to complete
any proposed acquisitions on acceptable terms, if at all, or that we will
complete any proposed acquisitions as anticipated.
Hire additional key personnel
At September 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 compliment our current management who are experienced in the
auction industry. We anticipate adding up to 5 new employees with auctioneer,
e-commerce, software development, and/or software maintenance experience during
the final quarter of 2000.
Summary of Operating Budget
Our operating budget for the final quarter of our fiscal year ending
December 31, 2000 is estimated to be approximately $1.8 million. We anticipate
that we currently have sufficient working capital to finance our plan of
operations through to March 2001. 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.
21
<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 September 30, 2000. Our financial
statements have been prepared in accordance with United States generally
accepted accounting principles.
Results of Operations
Three months ended September 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 September
30, 2000, we had revenues of $5,293,178, including $4,826,247 from the sale of
goods and $466,931 from commissions generated from the sale of consigned
merchandise. We anticipate that revenues will increase during the fourth quarter
of 2000, as a result of increasing the number of auctions we intend to conduct
and the effect of realizing a full quarter of revenues from the acquisition of
Johnston's Surplus Office Systems Ltd., Jarvis Industries Ltd. and Warex Supply
Ltd., each of which were acquired during the third quarter of 2000.
Sales of goods were 91.18% 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 acquisitions, our growth strategy and
the start up and maintenance costs relating to our Web business. Operating
expenses were $2,592,596 for the quarter ended September 30, 2000.
Personnel and consulting expenses related to salaries and benefits
($1,061,554), consulting and management fees ($30,349) and non-cash stock based
compensation ($17,033) accounted for $1,108,936 or 42.80% of our operating
expenses for the three-month period ended September 30, 2000. We anticipate that
such personnel and consulting expenses will increase as (i) we hire additional
personnel for our existing auction houses and auctions houses we 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 Johnston's Surplus Office Systems Ltd., Jarvis Industries Ltd.
and Warex Supply 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 the three-month period ended September 30, 2000, advertising and
promotion expenses of $337,254 consisted of 13.0% of our operating expenses. We
anticipate promotion expenses will increase during the fourth quarter of 2000 as
we increase promotional and marketing efforts to promote our web site and
auction houses and we increase the number of auctions we conduct.
General overhead expenses related to rent and utilities ($198,978),
telephone ($61,096), travel ($132,419), repairs and maintenance ($68,755),
automotive ($21,755), insurance ($42,455) and office expenses ($122,705)
totalled $648,163 or 25.00% of our total operating expenses and 12.20% 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 $113,586 during the three-month period ended September
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 American Stock Exchange filings, and professional fees
associated with our acquisitions and financings. Professional fees are expected
to remain steady in the fourth quarter ending December 31, 2000.
22
<PAGE>
Depreciation and amortization expense was $215,461 for the three-month
period ended September 30, 2000.
Gross Profit. Cost of goods sold were $4,139,607 for the three-month period
ended September 30, 2000. Gross profits were $1,153,571 or 21.8% of total
revenue. We believe that gross profits will increase in the fourth quarter
ending December 31, 2000, as we intend to conduct an increased number of
auctions of inventory buy outs, which typically result in higher gross profit
margins.
Net Loss. We had a net loss of $1,466,628 or $0.07 per share for the
quarter ended September 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 the fourth
quarter of 2000.
Nine months ended September 30, 2000 compared to the corresponding period in
1999.
Revenues. During the nine month period ended September 30, 2000, we had
revenues of $9,743,583, including $8,730,400 from the sale of goods and
$1,013,183 from commissions generated from the sale of consigned merchandise. We
anticipate that revenues on a quarterly basis will increase during the fourth
quarter of 2000, as a result of increasing the number of auctions we intend to
conduct and the effect of realizing a full quarter of revenues from the
acquisition of Johnston's Surplus Office Systems Ltd., Jarvis Industries Ltd.
and Warex Supply Ltd., which were acquired during the third quarter of 2000.
Sales of goods consisted of 89.60% 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 and liquidation 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 $6,291,015 for the nine-month period ended September 30, 2000.
Personnel and consulting expenses related to salaries and benefits
($1,922,297), consulting and management fees ($389,377) and non-cash stock based
compensation ($34,066) accounted for $2,345,740 or 37.30% of our operating
expenses for the nine-month period ended September 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 Johnston's
Surplus Office Systems Ltd., Jarvis Industries Ltd. and Warex Supply 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 the nine-month period ended September 30, 2000, advertising and
promotion expenses of $681,906 consisted of 10.80% of our operating expenses. We
anticipate promotion expenses will increase on a quarterly basis during the
fourth quarter of 2000, as we increase promotional and marketing efforts to
promote our web site and auction houses and we increase the number of auctions
we conduct.
General overhead expenses related to rent and utilities ($614,040),
telephone ($166,598), travel ($408,982), repairs and maintenance ($133,326),
automotive ($45,117), insurance ($75,506) and office expenses ($297,116)
totalled $1,740,685 or 27.70% of our total operating expenses during the nine
month period ended September 30, 2000. 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
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operations. The overall level of general overhead expenses in dollars is
expected to increase as we expand our operations.
Professional fees of $337,630 during the nine-month period ended September
30, 2000, consisted of legal and accounting expenses related to the preparation
and filing of a registration statement on Form S-1 under the Security Act of
1933, preparation of our Securities Exchange Act of 1934, as amended, reports,
professional fees associated with the preparation of our listing application for
our American Stock Exchange listing and related filings, and professional fees
associated with our acquisitions and financings. Professional fees are expected
to remain steady on a quarterly basis in the fourth quarter ending December 31,
2000.
Depreciation and amortization expense was $486,799 for the nine-month
period ended September 30, 2000.
Gross Profit. Cost of goods sold were $7,627,525 for the nine-month period
ended September 30, 2000. Gross profits were $2,116,058 or 21.7% of total
revenue. We believe that gross profits as a percentage of total revenue will
increase in the fourth quarter ending December 31, 2000, as we intend to conduct
a greater number of auctions consisting of inventory buy outs and liquidations,
which typically result in higher gross profit margins.
Net Loss. We had a net loss of $4,194,812 or $0.22 per share for the
nine-month period ended September 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 the remainder
of 2000 and into 2001.
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 September 30, 2000 was $4,035,196. We had
cash and cash equivalents of $1,636,688; accounts receivables of $2,086,840;
inventory of $1,574,905; and prepaid expenses of $249,857 . We anticipate that
trade accounts receivables and inventory may increase during the fourth quarter
of 2000 as we increase the number and frequency of our auctions and as we expand
our business operations. Cash flow used for operating activities required
$5,531,709 during the nine month period ended September 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 fourth quarter
of 2000, and may continue to increase until we are able to generate positive
cash flow from our business.
Cash flow for investing activities during the nine-month period ended
September 30, 2000 required $2,885,773, 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 fourth
quarter as a result of our planned acquisitions of addition auction and
liquidation businesses.
Net cash flow from financing activities during the nine-month period ended
September 30, 2000, were $10,126,530 from two private placements of an aggregate
of 2,210,240 units at $5 per unit, after deducting finance fees and costs of
$1,147,670.
Our operating budget for the fourth quarter of the year ending December 31,
2000 is approximately $1.8 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
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our technologies, launching a marketing campaign in the United States and
Canada, and purchasing additional servers and operating systems.
Management is in the process of seeking additional financing through the
issuance of equity or debt to fund our working capital requirements and the
capital requirements for our proposed acquisitions. See "Outlook." There can be
no assurance that such funds will be available on acceptable terms, if at all.
Outlook
We have entered a period of rapid expansion and growth. In February 2000,
we successfully raised $5 million and a further $6 million in April 2000 for net
proceeds of $10.1 million. We intend to complete additional acquisitions in
Boise, Idaho and Seattle, Washington during the fourth quarter of 2000 or the
first quarter of 2001, subject to obtaining additional financing. We anticipate
that we will be required to raise an additional $8 to $10 million to adequately
fund our planned acquisitions and to satisfy our operating and capital budget
for the first half of 2001. In the event we are unable to obtain additional
financing, we intend to concentrate our resources on our existing operations. We
believe we have sufficient working capital to fund our operations through March
31, 2001. 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 financing to complete the proposed acquisitions 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 development, 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."
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 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.
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ITEM 4: SUBSEQUENT EVENTS
On October 19, 2000, we filed a registration statement on Form S-1 to
register for resale 5,514,154 shares of common stock 3,968,126 of which were
issued and outstanding and 1,547,026 of which were acquirable upon the exercise
of warrants by selling shareholders. The table below sets forth the selling
shareholders.
Name and Address of Selling Securityholder Number of Shares
------------------------------------------ ----------------
Silicon Capital Corp.(1) 1,641,085(2)
Wayaca No. 31-C, P.O. Box 651
Oranjestad, Aruba
Jaragua Limited(3) 1,600,000(4)
P.O. Box N7755, Shirley House
50 Shirley Street
Hamilton, Bermuda HM 11
Triumph Management Limited(5) 400,000(6)
P.O. Box CB13004
Nassau, Bahamas
Mesler's Auction House of Scottsdale, LLC(7) 30,625
2425 E. Camelback Road
Suite 975
Phoenix, Arizona 85016-4215
Dexton Technologies Corporation(8) 1,843,444
3112 Boundary Road
Burnaby, British Columbia V5M 4A2
-----------
TOTAL 5,515,154
---------------
(1) The control persons of Silicon Capital Corp. are Rene Hussy, President and
director, and Bruno Bolliger.
(2) Includes (a) 1,094,057 shares of common stock owned of record directly; and
(b) warrant exercisable to acquire 547,028 shares of common stock.
(3) The control persons of Jaragua Limited are: Barbara Baptista, sole
shareholder; Marco Montanari, director and President; Shakira Sands,
director and Secretary; and Wendy Johnson, director and Treasurer.
(4) Includes (a) 800,000 shares of common stock owned of record directly; and
(b) warrant exercisable to acquire 800,000 shares of common stock.
(5) Desmond Holdings Ltd. is the sole director and executive officer of Triumph
Management Ltd. Kenneth Taves is the sole director, officer beneficial
owner of Desmond Holdings Ltd. and the beneficial owner of Triumph
Management Ltd.
(6) Includes (a) 200,000 shares of common stock owned of record directly; and
(b) warrant exercisable to acquire 200,000 shares of common stock.
(7) F&F Capital Investment, Inc. and Stockbridge Realty Investor - Arizona,
Inc. are the sole members of Mesler's Auction House of Scottsdale, L.L.C.
(8) Dexton Technologies Corporation is a reporting company in British Columbia
and Alberta, Canada whose shares trade on the Canadian Venture Exchange and
which has common directors and officers with our company.
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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 September 30, 2000, the Company
completed the following sales of unregistered securities:
On July 26, 2000, the Company issued 68,182 shares of common stock as
partial consideration to purchase the assets of Johnston's Surplus Office
Systems. 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 September 27, 2000, the Company issued 6,900 shares of common stock as
partial consideration to purchase the assets of Warex Supply Ltd. 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule
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b) Reports on Form 8-K
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
Form 8-K filed on August 14, 2000 in connection with the Company's
acquisition of Johnston's Surplus Office Systems Limited.
Form 8-K filed on November 13, 2000 in connection with our change of
independent auditor.
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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: November 14, 2000 By: /s/ Abdul Ladha
-----------------------------------
Name: Abdul Ladha
Title: President & Chief Executive Officer
(Principal Executive Officer)
By: /s/ Ron Miller
-----------------------------------
Name: Ron Miller
Title: Chief Financial Officer (Principal
Financial Officer)
29
