UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORTS OF SMALL BUSINESS ISSUERS
[X] Quarterly report pursuant section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000
[ ] Transition report pursuant section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number
e-Auction Global Trading Inc.
-----------------------------
(Exact name of small business issuer as specified in its charter)
Nevada
------
(State or other jurisdiction)
Pending
-------
(IRS Employer of incorporation or organization Identification No.)
220 King Street, West Suite 200 Toronto, Ontario, M5M 1K4 Canada.
-----------------------------------------------------------------------
(Address of principal executive offices)
416-644-4725
------------
(Issuer's telephone number)
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes...X...No........
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes......No....X....
Applicable only to corporate issuers
As of October 11, 2000 there were 65,745,915 shares of the Registrant's common
stock outstanding.
Transitional Small Business Disclosure Format (check one);
Yes......No....X....
<PAGE>
E-AUCTION GLOBAL TRADING INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements 2
Consolidated Balance Sheets at March 31, 2000 and March 31, 1999 3
Consolidated Statements of Operations and Deficit for the three months ended March 31, 5
2000 and 1999
Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations 21
Part II. Other Information 23
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 25
</TABLE>
1
<PAGE>
ITEM 1. Financial Statements
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
(IN U.S. FUNDS)
2
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED BALANCE SHEET - MARCH 31, 2000
(UNAUDITED)
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
2000 1999
$ $
(NOTE 17)
-------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and short-term deposits 3,557,616 1
Accounts receivable 973,982 -
Due from Ventures North Investment Partners (NOTE 7) 2,594 -
Inventory 181,385 -
Work in progress 298,365 -
Prepaid expenses 58,174 -
--------- -----------
5,072,116 1
CAPITAL ASSETS (NOTE 4) 695,743 34,247
OTHER ASSETS 27,198 -
GOODWILL (NOTE 5) 6,904,159 -
----------------------------------------------------------------------------------------------------------------------
12,699,216 34,248
======================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED BALANCE SHEET - MARCH 31, 2000
(UNAUDITED)
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
2000 1999
$ $
(NOTE 17)
----------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable and accruals 1,676,203 84,247
Short term loan 54,651 -
Due to Ventures North Investment Partners (NOTE 7) - 82,477
Deferred revenue (NOTE 6) 471,522 -
Current portion of long-term debt (NOTE 8) 49,561 -
Current portion of obligations under capital lease (NOTE 9) 13,369 -
---------- ----------
2,265,306 166,724
LONG-TERM DEBT (NOTE 8) 175,140 -
OBLIGATIONS UNDER CAPITAL LEASE (NOTE 9) 27,723 -
---------- ----------
2,468,169 166,724
---------- ----------
REDEEMABLE COMMON STOCK (NOTES 5 AND 10) 3,636,364 -
---------- ----------
NON-CONTROLLING INTEREST (NOTE 12) 877,449 -
---------- ----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (NOTE 10) 60,573 1
CONTRIBUTED SURPLUS (NOTE 10) 9,071,943 -
DEFICIT (3,415,282) (132,477)
---------- ----------
5,717,234 (132,476)
----------------------------------------------------------------------------------------------------------------------
12,699,216 34,248
======================================================================================================================
</TABLE>
CONTINGENCIES (NOTE 15)
SEE ACCOMPANYING NOTES
4
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
JAN. 1 TO JAN. 1 TO
MAR. 31, MAR. 31,
2000 1999
$ $
(NOTE 17)
--------------------------------------------------------------------------------------------------------------------
<S> <C>
REVENUE 1,028,836 -
COST OF GOODS SOLD 717,688
--------- -------
GROSS MARGIN 311,148 -
EXPENSES
Salaries and benefits 480,059 64,909
Legal 54,458 5,716
Sales, general and administrative 194,129 61,852
Depreciation and amortization 384,332 -
Interest on long-term debt 7,566 -
Interest income (10,437) -
Belgian taxes 2,944 -
--------- -------
1,113,051 132,477
--------- -------
LOSS BEFORE NON-CONTROLLING INTEREST (801,903) (132,477)
NON-CONTROLLING INTEREST (NOTE 12) 41,053 -
--------- -------
NET LOSS (760,850) (132,477)
RETAINED EARNINGS (DEFICIT), beginning of period (2,654,432) -
--------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT), end of period (3,415,282) (132,477)
=======================================================================================================================
EARNINGS (LOSS) PER SHARE (0.01) (0.01)
=======================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
JAN. 1 TO JAN. 1 TO
MAR. 31, MAR. 31,
2000 1999
$ $
(NOTE 17)
--------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
<S> <C> <C>
Net loss (760,850) (132,477)
Add items not affecting cash
Depreciation and amortization 384,332 -
Non-controlling interest (41,053) -
-------- --------
(417,571) (132,477)
Net changes in non-cash operating accounts
Accounts receivable (244,853) -
Inventory 111,504 -
Work in progress (298,365) -
Prepaid expenses (14,859) -
Accounts payable 126,864 84,247
Short-term loan 39,181 -
Deferred revenue (111,090) -
-------- --------
(809,189) (48,230)
-------- --------
FINANCING ACTIVITIES
Due to related parties (863,387) 82,477
Issuance of share capital 2,920,966 -
Long-term debt 224,701 -
Capital lease obligations 41,092 -
Non-controlling interest 918,502 -
-------- --------
3,241,874 82,477
-------- --------
INVESTING ACTIVITIES
Purchase of capital assets (54,463) (34,247)
Purchase of Schelfhout (3,000,000) -
-------- --------
(3,054,463) (34,247)
-------- --------
INCREASE (DECREASE) IN CASH (621,778) -
CASH, beginning of period 4,179,394 1
--------------------------------------------------------------------------------------------------------------------
CASH, end of period 3,557,616 1
====================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
6
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS
--------------------------------------------------------------------------------
The Company is an e-business services provider to perishable commodity
marketplaces. Through its subsidiaries, the Company is focused on the
installation and maintenance of clock and cooling systems for internet
auction halls. To date, the Company continues to focus on streamlining
and increasing the capabilities of electronic commerce processing for
internet auction halls.
--------------------------------------------------------------------------------
2. ORGANIZATION AND BASIS OF PRESENTATION
--------------------------------------------------------------------------------
a) Reverse takeover
Pursuant to a Share Exchange Agreement dated February 26, 1999,
e-Auction Global Trading Inc. (formerly Kazari International Inc.)
("Nevada"), a Nevada company, acquired 100% of the issued and
outstanding shares of e-Auction Global Trading Inc., ("Barbados"),
a Barbados company, for the issuance of 34,500,000 common shares.
As a result of the transaction, control of the Company passed to
Barbados. Accordingly, the share exchange has been accounted for as
a reverse takeover of Nevada by Barbados.
Application of reverse takeover accounting results in the
following:
i) The consolidated financial statements of the combined entity are
issued under the name of the legal parent, e-Auction Global
Trading Inc. (formerly Kazari International Inc.), but are
considered to be a continuation of the financial affairs of the
legal subsidiary (Barbados).
ii)As Barbados is deemed to be the acquirer for accounting
purposes, its assets and liabilities are included in the
consolidated financial statements of the continuing entity at
their carrying value.
iii)The 34,500,000 shares issued are deemed to be issued on April
30, 1998, the date of incorporation of Barbados.
b) Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries: Aucxis N.V. (formerly
e-Auction Belgium N.V.), and their wholly owned subsidiary;
Schelfhout Computer Systemen N.V., and their 99% owned subsidiary
SDL Invest N.V.; e-Auction Global Trading Inc. (Barbados) and their
wholly owned subsidiary Aucxis Corp. (formerly e-Auction Global
Trading Inc. (Canada)); and the Company's 50.01% interest in
e-Auction Australasia Limited.
7
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
a) Foreign currency translation
The Company's functional currencies are Euros, Australian dollars,
and U.S. dollars; and its reporting currency are U.S. dollars. The
Company follows SFAS 52 where all foreign currency transactions
are translated using the exchange rate in effect at the date of
the transaction. At each balance sheet date, recorded balances
denominated in a currency other than U.S. dollars are adjusted to
reflect the period end exchange rate.
b) Loss per common share
The weighted average number of shares used for calculating loss
per share is 58,856,990 (1999 - 17,970,000).
c) Measurement uncertainty
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant areas requiring the use of management
estimates relate to the determination of impairment of assets and
useful lives for depreciation and amortization. Financial results
as determined by actual events could differ from those estimates.
d) Financial instruments
The Company's financial instruments consist of cash, short term
deposits, accounts receivable, accounts payable, financial debts,
short-term loan, due to related parties, and obligations under
capital lease, the fair market value of which approximates their
carrying value.
e) Amortization
Amortization of capital assets and goodwill is provided at the
following annual rates:
Land and buildings Straight-line over 20 years
Software Straight-line over 5 years
Furniture and fixtures Straight-line over 5 to 15 years
Tools and equipment Straight-line over 3 to 5 years
Vehicles Straight-line over 5 years
Goodwill Straight-line over 5 years
f) Related party transactions
Related party transactions are recorded at their exchange amounts
which approximate fair market value.
8
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES - CONT'D
--------------------------------------------------------------------------------
g) Non-controlling interest
Non-controlling interest, as stated on the balance sheet,
represents the carrying value in the net assets of minority
shareholders of the Company's subsidiaries. The balance is
increased or decreased by the minority shareholders percentage of
the subsidiaries' earnings or losses during the period.
h) Income taxes
The Company would record a deferred tax asset subject to an
evaluation allowance where that asset is impaired or not expected
to be realized. At December 31, 1999 the Company had deferred tax
assets of approximately $1,194,494. The Company's valuation
allowance would be equal to the amount of the deferred tax assets.
Therefore, there have been no amounts booked in the accounts of
the Company.
i) Revenue recognition
The Company recognizes revenue from license fees upon the signing
of the specific agreement and the delivery of software to the
purchaser. Royalties are recognized in the period it is earned.
The Company follows the completed contract method for recognizing
revenues earned from clock and cooling systems installation. The
application is reasonable given majority of contracts are short
term in nature. Cost of sales relating to the clock and cooling
systems installation include only costs directly related to the
specific contracts. Revenue earned from maintenance contracts are
recognized on a straight line basis over the life of the contract.
j) Inventory and work in progress
Raw materials and consumables inventories are stated at the lower
of cost or market with cost being determined using the weighted
average method. Obsolete or defective inventories have been
reduced to net realizable value. Write-downs of inventories are
recorded on the basis of age and turnover of inventory according
to the judgment of management.
The work in progress includes only direct costs (i.e. raw materials
and labour costs).
9
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
4. CAPITAL ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
$ $
Accumulated
Cost Amortization Net Net
---- ------------ --- ---
<S> <C> <C> <C>
Land and buildings 483,916 12,192 471,724 -
Equipment and furniture 38,892 2,679 36,213 -
Software * 12,329 - 12,329 34,247
Vehicles 192,414 16,937 175,477 -
------- ------ ------- ------
727,551 31,808 695,743 34,247
======= ====== ======= ======
</TABLE>
* The software is currently not in use and therefore no amortization
has been claimed.
Included in vehicles are assets under capital lease with a cost of
$83,627. Accumulated amortization on these vehicles totals $994.
--------------------------------------------------------------------------------
5. ACQUISITION OF SHELFHOUT COMPUTER SYSTEMEN N.V.
--------------------------------------------------------------------------------
2000 1999
$ $
---- ----
Goodwill 7,267,159 -
Less: accumulated amortization 363,000 -
------- -------
6,904,159 -
========= =======
On January 7, 2000 the Company completed the purchase of 100% of the
issued and outstanding shares of Schelfhout Computer Systemen N.V.
("Schelfhout"). The acquisition has been accounted for using the purchase
method.
The following represents a summary of the acquisition of Schelfhout:
<TABLE>
<CAPTION>
$ $
----- -----
<S> <C>
Purchase price 7,636,364
Net tangible assets of Schelfhout acquired
Total assets 2,231,733
Less: Liabilities (1,862,528) 369,205
---------- ---------
Excess of purchase price over net tangible assets, being goodwill 7,267,159
=========
</TABLE>
10
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
5. ACQUISITION OF SHELFHOUT COMPUTER SYSTEMEN N.V. - CONT'D
--------------------------------------------------------------------------------
The purchase price is $7,636,364 and is to be paid as follows:
$
---
Refundable deposit 1,000,000 paid
Cash on closing 3,000,000 paid
Common shares at fair value
issued on closing (3,636,364) 3,636,364 issued
---------
7,636,364
=========
The 3,636,364 common shares are not free trading and are subject to a
timed release formula which allows for release of 454,545 shares on each
of the 6, 12, 18 and 24 month anniversary from the closing date and
606,061 shares on each of the 36, 48 and 60 month anniversary from the
closing date. If the Company's shares are not freely trading on any given
release date the equivalent cash is to be paid by the Company and the
shares returned to the treasury.
The 3,636,364 common shares issued to the vendors on closing has been
valued at $1 per share for accounting purposes; however, should the
Company decide to redeem the shares, the redemption price would be $1.65
per share.
As at October 2, 2000 the shares of the Company are not freely trading
and the Company has not advanced the required sum of $750,000 in lieu of
the release of 454,545 common shares per the purchase agreement.
--------------------------------------------------------------------------------
6. DEFERRED REVENUE
--------------------------------------------------------------------------------
2000 1999
$ $
Deferred revenue 471,522 -
======= =======
Deferred revenue relates to the Company's European operations of
installation of clock and cooling systems. (NOTE 3(I))
11
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
7. DUE (FROM) TO RELATED PARTIES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
$ $
Ventures North Investment Partners Inc. ("Ventures") (2,594) 82,477
====== ======
</TABLE>
The majority of the Company's operations during 1999 were funded by
Ventures. During the first quarter of 2000, Ventures converted
approximately $591,000 of debt owed by the Company into common shares at
a price of $0.50 per share. Ventures is related through significant
common shareholdings. The amounts advanced were non-interest bearing with
no fixed terms of repayment.
(NOTES 10(C) (III) AND 11)
--------------------------------------------------------------------------------
8. LONG-TERM DEBT
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
$ $
---- ----
<S> <C>
Various bank loans for automobile purchases bearing interest at
rates of 3.67% to 5.59%. Monthly payments of 3,404 euro. Due
dates extend to June 15, 2003 85,903 -
Bank loan with interest at 5.65% per annum. Monthly payments of
1,359 euro. Due December 25, 2007 95,658 -
Directors loan with interest at 5.65% per annum. Monthly payments of
446 euro. Due July 1, 2009 43,140 -
-------- ----- -
224,701 -
Less: current portion (49,561) -
-------- ----- -
175,140 -
======= ====== =
--------------------------------------------------------------------------------
9. OBLIGATIONS UNDER CAPITAL LEASE
--------------------------------------------------------------------------------
2000 1999
$ $
---- ----
Obligations under capital lease 41,092 -
Less: current portion (13,369) -
------- -------
27,723 -
======== =======
</TABLE>
12
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
9. OBLIGATIONS UNDER CAPITAL LEASE - CONT'D
--------------------------------------------------------------------------------
Future minimum payments due:
$
--
2001 16,016
2002 8,928
2003 8,928
2004 8,928
2005 744
------
43,544
Less: amount representing interest 2,452
------
41,092
======
--------------------------------------------------------------------------------
10. SHARE CAPITAL AND CONTRIBUTED SURPLUS
--------------------------------------------------------------------------------
a) Authorized - 250,000,000 common shares with a par value of $0.001
<TABLE>
<CAPTION>
NUMBER OF CONTRIBUTED TOTAL
SHARES $ SURPLUS $
------------- ------ ------------- -------
<S> <C> <C> <C>
b) Issued - balance, beginning of period 39,820,000 39,820 (39,819) -
---------- ------ --------- ---------
Private placement (iii) 16,591,815 16,592 8,279,315 8,295,907
Commission 327,878 328 163,612 163,940
Less: issue costs and commission (327,332) (327,332)
Millenium advisors (iv) 197,219 197 999,803 1,000,000
Schelfhout Acquisition (v) 3,636,364 3,636 3,632,728 3,636,364
---------- ------ --------- ---------
20,753,276 20,753 12,748,126 12,768,879
---------- ------ --------- ---------
60,573,276 60,573 12,708,307 12,768,880
Less: allocated to redeemable common stock - - (3,636,364) (3,636,364)
---------- ------ --------- ---------
Balance, end of period 60,573,276 60,573 9,071,943 9,132,516
========== ====== ========= =========
</TABLE>
13
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
IN U.S. FUNDS)
--------------------------------------------------------------------------------
10. SHARE CAPITAL AND CONTRIBUTED SURPLUS - CONT'D
--------------------------------------------------------------------------------
c) Share capital and contributed surplus since inception
<TABLE>
<CAPTION>
CONTRIBUTED SURPLUS
DATE ISSUED NUMBER OF SHARES $ $
----------- ---------------- - -------------------
<S> <C> <C> <C> <C>
April 30, 1998 (i) 34,500,000 34,500 (34,500)
February 26, 1999 (ii) 5,320,000 5,320 (5,319)
January 7, 2000 (iii) 16,919,693 16,920 8,115,595
January 7, 2000 (iv) 197,219 197 999,803
January 10, 2000 (v) 3,636,364 3,636 3,632,728
--------- ----- ---------
60,573,276 60,573 12,708,307
========== ====== ==========
</TABLE>
(i) For reverse takeover accounting purposes these shares have
been deemed to have been issued on April 30, 1998, the date of
incorporation of Barbados.
(ii) Shares issued by Nevada prior to the incorporation of
Barbados. For reverse takeover accounting purposes these have
been deemed to have been issued on February 26, 1999, the date
of the reverse takeover transaction.
(iii)On January 7, 2000 the Company completed a private placement
of 16,919,693 shares at $0.50/share. 7,625,916 of the shares
were issued to Ventures North Investment Partners Inc., a
company related through significant common shareholdings and
four companies related to them in exchange for the settlement
of the Company's debts with Millenium Advisors Inc. for
$1,000,000, with the shareholders loan for $2,200,000 plus
interest of $21,968 and a finders fee to the shareholder of
$200,000 and with Ventures North Investment Partners Inc. for
$591,260. The remaining shares were issued for cash.
(iv) On January 7, 2000 the Company issued 197,219 common shares
with a deemed value of $1million as financing and interest
fees in consideration for a loan of $1 million by Millennium
Advisors Inc..
(v) On January 10, 2000, the Company issued 3,636,364 common
shares to the former shareholders of Schelfhout as partial
consideration for the purchase by the Belgium subsidiary of
all the shares of Schelfhout. The deemed price per share for
accounting purpose was $1.00. As there are put provisions in
the purchase agreement the Company has recorded a portion of
the shares under the heading `Redeemable common stock'.
14
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
IN U.S. FUNDS)
--------------------------------------------------------------------------------
10. SHARE CAPITAL AND CONTRIBUTED SURPLUS - CONT'D
--------------------------------------------------------------------------------
d) Stock options
On March 1, 1999, and amended on March 13, 2000 the Company adopted
a stock option plan which reserved 9,000,000 shares. Vesting
requirements are determined by a Committee when the options are
granted. No options may be exercisable after 10 years. The exercise
price of an option may not be less than the fair market value on
the date of grant.
<TABLE>
<CAPTION>
DATE OF GRANT NUMBER EXERCISE PRICE EXPIRY DATE RESTRICTIONS
------------- ------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
March 1, 1999 1,000,000 $0.01 December 1, 2003 None
December 1, 1999 3,000,000 $0.85 December 1, 2009 None
December 1, 1999 50,000 $0.85 December 1, 2009 Vest over 3 years
January 20, 2000 300,000 $2.00 January 20, 2010 None
</TABLE>
The weighted average exercise price of the options is $1.58/share.
The weighted average grant date fair value of options granted during
the period is as follows:
- Exercise price equals fair market value $2.13
- Exercise price exceeds fair market value $0.18
- Exercise price less than fair market value $0.00
The Company has not recognized compensation expense for its
stock-based awards to employees. The following reflects proforma net
income and loss per share had the Company elected to adopt the fair
value approach of SFAS 123:
<TABLE>
<CAPTION>
2000 1999
$ $
---- ----
Net loss
<S> <C> <C>
As reported (760,850) (132,477)
Proforma (4,544,891) (3,022,777)
Basic and diluted loss per share
As reported (0.01) (0.07)
Proforma (0.08) (0.16)
The estimated fair value of each option granted is calculated using
the Black-Scholes option-pricing model. The weighted average
assumptions used in the model were as follows:
2000 1999
---- ----
Risk-free interest rate 6% 5%
Expected years until exercise 8 8
Expected stock volatility 36.85% 36.8%
Dividend yield 0% 0%
</TABLE>
15
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
11. RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
$ $
---- ----
<S> <C> <C>
Expenses paid on behalf of the Company and allocations of expenses charged
to the Company by companies with significant common
shareholdings and common directors 67,145 132,477
Financing fee paid to Millennium Advisors Inc., a company related through
a common director. Paid through the issuance of 197,219 common shares 1,000,000 -
A finders fee in connection with the shareholder's loan was paid to a
shareholder 200,000 -
Interest paid to shareholders 21,698 -
Management fees paid to a company controlled by two directors 119,000 -
</TABLE>
Included in accounts payable and accrued liabilities is $484,854 and
included in long-term debt is $43,140 owing to two directors of
Schelfhout.
--------------------------------------------------------------------------------
12. NON-CONTROLLING INTEREST
--------------------------------------------------------------------------------
The Company is the majority owner (50.01%) of e-Auction Australasia
Limited ("Australasia"). The non-controlling interest represents the
interest of the minority shareholders of Australasia as at March 31, 2000
as follows:
Non-controlling interest at acquisition $ 918,502
Less: share of current period earnings(loss) ( 41,053)
--------
Non-controlling interest, end of period $ 877,449
========
16
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
13. SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
a) On June 22, 2000 the Company completed a private placement of
4,072,639 shares at $1.842/share for gross proceeds of $7,500,000 to
ABN AMRO Capital Investments (Belgie) N.V.
b) On April 24, 2000 the Company granted 100,000 options with an
exercise price of $2.25/share and on May 2, 2000 the Company granted
1,825,000 options with an exercise price of $2.00/share.
c) On June 5, 2000 the Company entered into a pledge agreement to
purchase 100% of the issued and outstanding shares of Kwatrobox B.V.
("Kwatrobox") under the terms and conditions of the draft share
purchase agreement. The pledge agreement stipulated the purchase of
Kwatrobox was to be completed on or before August 31, 2000. The
completion date was extended to November 30, 2000 by both parties in
an agreement dated August 30, 2000. For the purpose of the payment
schedule, the parties agreed the closing date of the share purchase
agreement is deemed to be June 30, 2000. As at October 2, 2000 the
purchase is not yet complete.
In connection with the purchase agreement, the Company agreed to pay
the vendors 10,500,000 Dutch Guilders ($4,506,600 at the June 5, 2000
exchange rate or 0.4292). The purchase price is payable in cash and
common shares of the Company as follows:
Date Dutch Guilders Common Shares
June 5, 2000 750,000 (paid) 500,000 (issued)
June 5, 2001 2,250,000 450,000
June 5, 2002 1,000,000 150,000
The amounts paid and shares issued at June 5, 2000 are
non-refundable. Additionally, the Company is also committed to
issuing up to 200,000 common shares to the vendors subject to
Kwatrobox meeting performance requirements for a three-year period
commencing June 5, 2000. As at October 2, 2000 no shares have been
issued as the requirements have not been met.
17
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
14. CONTINGENCIES
--------------------------------------------------------------------------------
a) A shareholder derivative action was brought against the Company on
November 17, 1999 in the United States District Court against the
Company, its subsidiaries, two of its directors and several other
companies and individuals.
The action alleges Sanga International, Inc.'s ("Sanga") reputation
was damaged by the Defendants (i) engaging in conversion (ii)
engaging in fraud (iii) interfering with Sanga's prospective business
advantage (iv) breach of contract (v) violating California usury laws
and (vi) breach of fiduciary duty.
The plaintiff claims the defendants' actions have not only damaged
Sanga but also the plaintiff and the remaining shareholders of Sanga
by as much as $100 million dollars.
The Action was stayed on November 29, 1999 as a result of Sanga
filing for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court.
It is management's option that the likelihood of a material loss is
remote.
b) On February 7, 2000 a second action was brought against the Company,
its subsidiaries, two of its former directors, QFG Holdings Limited,
Ventures North International Inc. and several other individuals and
companies in the United States District Court.
The action alleges they breached their fiduciary duty to the
plaintiff, a shareholder of Sanga International Inc. The plaintiff
claims that the defendants' actions have damaged the plaintiff
totaling several millions of dollars.
Sanga International, Inc. has filed a motion seeking to intervene in
the lawsuit and is seeking to substitute itself as the real party
plaintiff.
It is management's option that the likelihood of a material loss is
remote.
18
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
15. SEGMENTED INFORMATION
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDUSTRY A
NORTH AMERICA
2000 1999
$ $
<S> <C>
Revenue outside the Company - -
Segmented operating loss (699,647) -
Identifiable assets 9,542,413 34,248
Capital expenditure 8,877 -
Amortization 363,216 -
INDUSTRY B
EUROPE
2000 1999
$ $
Revenue outside the Company 1,028,836 -
Segmented operating loss (20,134) -
Identifiable assets 2,276,338 -
Capital expenditure 35,637 -
Amortization 20,255 -
INDUSTRY C
AUSTRALIA
2000 1999
$ $
Revenue outside the Company - -
Segmented operating loss (41,069) -
Identifiable assets 880,465 -
Capital expenditure 47,033 -
Amortization 861 -
</TABLE>
19
<PAGE>
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
15. SEGMENTED INFORMATION - CONT'D
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL
2000 1999
$ $
---- ----
<S> <C>
Revenue outside the Company 1,028,836 -
Segmented operating loss (760,850) -
Identifiable assets 12,699,216 34,248
Capital expenditure 91,547 34,247
Amortization 384,332 -
</TABLE>
For the purpose of segmented information as presented above, goodwill
arising from the acquisitions of subsidiaries are included in the
identifiable assets of the geographic segments of the subsidiaries.
--------------------------------------------------------------------------------
16. SUPPLEMENTAL NON-CASH INFORMATION
--------------------------------------------------------------------------------
During the period the Company issued 3,636,364 common shares with a
deemed value of $3,636,364 in connection with the acquisition of
Schelfhout Computer Systemen N.V.
The Company also issued 8,026,456 common shares to a related party to
settle various debts totaling $4,013,228 and issued 327,878 shares with a
deemed value of $163,940 to pay commission on a private placement.
The Company acquired a vehicle with a cost of $42,362 through a capital
lease.
--------------------------------------------------------------------------------
17. COMPARATIVE FIGURES
--------------------------------------------------------------------------------
Comparative figures are for the period from January 1, 1999 to March 31,
1999 of e-Auction Global Trading Inc. Certain of the comparative figures
have been reclassified to conform to the current presentation. The
comparative figures were prepared by management.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
When used herein, the words "may", "will", "expect," anticipate,"
"continue," "estimate," "project," "intend", "plan" and similar expressions are
intended to identify forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended, regarding events, conditions and financial trends that may
affect the Company's future plans of operations, business strategy, operating
results and financial position. Forward-looking statements are not guarantees of
future performance and are subject to risks and significant uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors. The occurrence of any
unanticipated events may cause actual results to differ from those expressed or
implied by the forward-looking statements contained herein. You are cautioned
not to place undue reliance on these statements, which speak only as of the date
of this report.
OVERVIEW
The Company was incorporated in the State of Nevada on January 8, 1998
under the name Kazari International, Inc. On February 26, 1999, Kazari,
e-Auction Global Trading Inc. (Barbados) entered into a share exchange
agreement. Pursuant to the agreement, Kazari purchased e-Auction (Barbados)
shares on a one for one basis. Kazari had no viable business activities at the
time of the share exchange agreement. On June 10, 1999, Kazari amended its name
to e-Auction Global Trading Inc.
The Company currently has a wholly owned subsidiary, e-Auction
(Barbados), which in turn has one wholly owned subsidiary, Aucxis Corp.
(Canada). The Company also owns Aucxis Corp. (Belgium), directly, which in has
one wholly owned subsidiary, Schelfhout Computer Systemen N.V. ("Schelfhout"), a
Belgium company. The Company has a 50.01% ownership interest in e-Auction
Australasia Pay Limited, an Australian Company.
HIGHLIGHTS OF THE QUARTER
Revenue for the three (3) months ended March 31, 2000 was $1,028,836
compared to $0 for the three (3) months ended March 31, 1999. This increase in
revenue resulted from the Company's acquisition of Schelfhout Computer Systemen,
N.V. in January 2000. Schelfhout derives revenues from the development and
installation of clock systems, cooling installations and maintenance for auction
halls.
Net loss for the three (3) months ended March 31, 2000 was $760,850, as
compared to a loss of $132,477 in the corresponding three (3) month period in
1999. The increase in net loss is largely attributable to an increase in
salaries and benefits, in the aggregate amount of $415,150, and increases in
depreciation and amortization of $384,332. During the first three (3) months
21
<PAGE>
ended March 31, 2000 the Company added to its management team by hiring Dan
McKenzie, as its President and C.E.O.; Jeff Turner, as Vice President -
Marketing;; Thomas Jakubowski, as Vice President Business Development; and Paul
King, Managing Director Europe. The increase in depreciation and amortization
was attributable to the acquisition of Schelfhout and the amortization of
goodwill as a result of such acquisition.
LIQUIDITY AND CAPITAL RESOURCES
During the three (3) months ended March 31, 2000, the Company was
successful in raising additional capital and retiring outstanding debts of the
Company. This was accomplished, in part, by the issuance in January 2000 of
16,919,693 shares of the Company's common stock, resulting in gross proceeds to
the Company of $8,295,906 ($4,500,000 in new capital and $3,800,000 in
retirement of debt).
On January 10, 2000, the Company completed the acquisition of
Schelfhout Computer System N.V., a solutions provider for perishable commodity
(fish, flower, fruits and vegetables) auction houses. Schelfhout developed over
the course of 17 years 150 electronic trading systems for numerous selling
organizations all over the world. The Company believes that its hardware and
software can be adapted, without substantial cost of or time, to provide other
services to commodity auctions.
22
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
(a) A shareholder derivative action was brought on November 17, 1999 in
the United States District Court in California against the Company, its
subsidiaries, two of its directors and several other companies and individuals.
The proceeding alleges that the reputation of Sanga International,
Inc.'s ("Sanga") was damaged and that the defendants are liable for: (i)
engaging in conversion; (ii) engaging in fraud; (iii) interfering with Sanga's
prospective business advantage; (iv) breach of contract; (v) violating
California usury laws; and (vi) breach of fiduciary duty. The plaintiff claims
the defendants' actions have not only damaged Sanga but also the plaintiff and
the remaining shareholders of Sanga by as much as $100 million dollars.
The proceeding was stayed on November 29, 1999 as a result of Sanga
filing for Chapter 11 bankruptcy protection in the United States Bankruptcy
Court. It is management's opinion that the likelihood of a material loss is
remote.
(b) On February 7, 2000, a second proceeding was brought against the
Company, its subsidiaries, two of its former directors, QFG Holdings Limited,
Ventures North International Inc. and several other individuals and companies in
the United States District Court.
The proceeding alleges defendants breached their respective fiduciary
duties to the plaintiff, a shareholder of Sanga International Inc. The plaintiff
claims that the defendants' actions have damaged the plaintiff in the sum of
several million dollars. It is management's opinion that the likelihood of a
material loss is remote.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 13, 1999, in consideration for a loan of $1 million from
Millennium Advisors Inc. to the Company, Millennium received 197,219 common
shares of the Company, having a deemed value of $1,000,000, as a financing and
interest fee. The deemed price of the shares was based on the weighted average
closing price over the five (5) trading days immediately preceding the date the
loan was granted. The Company issued these shares in January 2000 to Millennium
Advisors Inc., which is a non-US person. In connection with the above issuance,
the Company relied on the exemption from registration afforded by Section 4(2)
of the Securities Act of 1933, as amended (the "Act"), as transactions by an
issuer not involving any public offering, and Regulation S promulgated under the
Act, as an off-shore transaction with a non-U.S. person ("Regulation S").
On January 7, 2000, the Company issued 8,965,899 special warrants to
various non-US purchasers. Each special warrant entitled the holder thereof to
acquire one (1) share of the Company's common stock for no additional
consideration. The holders of the special warrants
23
<PAGE>
exercised their special warrants immediately following their issuance, pursuant
to which exercise the Company issued an aggregate of 8,965,899 shares of its
common stock to such holders. The offering of the special warrants and the
issuance of the shares of common stock of the Company resulting from the
subsequent exercise of the special warrants were made in reliance of the
exemption from registration afforded by Section 4(2) of the Act and Regulation S
with respet to off-shore transactions to non-U.S. purchasers. Each such
purchaser certified that it (i) was not a U.S. person, (ii) was not acquiring
the securities for the account or benefit of any U.S. person, (iii) was an
accredited investor and (iv) had the requisite sophistication. Each such
purchaser further agreed not to resell the securities other than in compliance
with Regulation S. The purchase price for the special warrants was US$0.50,
resulting in approximately $4,482,948 in new capital to the Company.
In connection with the foregoing, the Company issued an additional
327,878 shares of its common stock to various non-U.S. entities as commissions.
The issue price of the common shares used to pay the commissions was $0.50, for
a deemed value of $163,939. The issuance of such additional shares of the
Company's common stock was also made in reliance of Section 4(2) of the Act and
Regulation S.
During the first quarter of the fiscal year 2000, the Company settled
various outstanding liabilities by issuing an aggregate of 7,625,916 shares of
its common stock. The issuance price for the common stock was US$0.50 per share
and the Company retired approximately $3,812,958 in outstanding liabilities. All
of the recepients of these shares were non-US persons, having the requisite
knowledge and experience in financial and business matters to evaluate the
merits and risks of the receipt of the Company's securities in lieu of repayment
in cash. In issuing these securities, the Company relied on the exemption from
registration afforded by Section 4(2) of the Act and Regulation S.
On January 10, 2000, the Company issued 3,636,364 shares of its common
stock to the former shareholders of Schelfhout Computer Systemen, N.V., as
partial consideration for the purchase by the Company's Belgium subsidiary of
all of the outstanding shares of capital stock of Schelfhout. For accounting
purposes, the purchase price per share was deemed to be $1.00. There was no cash
paid for the shares by Schelfhout. The offering was made in an off-shore
transaction to foreign individual purchasers who each certified that they (i)
were not U.S. persons; (ii) were not acquiring the securities for the account or
benefit of any U.S. person, (iii) were an accredited or sophisticated purchaser;
and (iv) would resell the securities only in compliance with Regulation S. The
Company further believes that the stockholders of Schelfhout had knowledge and
experience in financial and business matters which allowed them to evaluate the
merits and risks of the receipt of these securities and that they were
knowledgeable about the Company's operations and financial condition. The
issuance of shares of the Company's common stock for and in consideration for
all of the outstanding capital stock of Shelfhout was made in reliance of the
exemption afforded by Section 4(2) of the Act and Regulation S, as transactions
by an issuer not involving any public offering to non-US persons in an off-shore
transaction.
24
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted for a vote of securities holders during
the three months ended March 31, 2000.
Item 6. Exhibits And Reports On Form 8-K
EXHIBIT # EXHIBIT NAME
--------- ------------
Exhibit 27 Financial Data Schedule
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
Date: October 11, 2000 e-Auction Global Trading Inc.
By: /s/ David W.A. Hackett
---------------------------------------
David W.A. Hackett.
Chief Financial Officer
(duly authorized officer)
25
