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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/12g/A
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
e-Auction Global Trading Inc.
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(Name of Small Business Issuer in its Charter)
Nevada Pending
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
161 Bay Street, BCE Place, Suite 4700
Toronto, Ontario, Canada M5J 2S1
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(Address of principal executive offices) Postal Code
(416) 214-1587
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(Issuer's telephone number)
Securities to be registered pursuant to Section 12(b) of the Act:
None.
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001.
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TABLE OF CONTENTS
PART I
Item 1 - Description of Business
Item 2 - Plan of Operation
Item 3 - Description of Property
Item 4 - Security Ownership of Certain Beneficial Owners and Management
Item 5 - Directors, Executive Officers, Promoters and Control Persons
Item 6 - Executive Compensation
Item 7 - Certain Relationships and Related Transactions
Item 8 - Description of Securities
PART II
Item 1 - Market Price of and Dividends on the Registrant's Common
Equity and Other Stockholder Matters
Item 2 - Legal Proceedings
Item 3 - Changes in and Disagreements with Accountants
Item 4 - Recent Sales of Unregistered Securities
Item 5 - Indemnification of Directors and Officers
PART F/S
Financial Information
PART III
Item 1 - Index to Exhibits
Item 2 - Description of Exhibits
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
INTRODUCTORY STATEMENT
e-Auction Global Trading Inc. ("e-Auction") has elected to file this Form 10-SB
General Form for Registration of Securities of Small Business Issuers
("Registration Statement") on a voluntary basis in order to become a reporting
issuer under the SECURITIES EXCHANGE ACT OF 1934 (the "Act"). Pursuant to the
National Association of Securities Dealers, Inc.'s rules, in order for e-Auction
to continue its listing on the OTC Bulletin Board ("OTCBB"), e-Auction must
become a reporting issuer under the Act. On January 19, 2000, e-Auction's common
shares were delisted from quotation on the OTCBB due to the Company's inability
to become a reporting issuer prior to the deadline imposed by the National
Association of Securities Dealers, Inc. Prior to January 19, 2000, e-Auction's
common stock was quoted on the OTCBB under the symbol "EAUC". The Company's
common shares are currently quoted on the quotation system operated by the
National Quotation Bureau, LLC, known as the Pink Sheets, under the trading
symbol "EAUC".
This Registration Statement, including the information incorporated herein by
reference, contains forward-looking statements including statements regarding
e-Auction's business, growth strategies and anticipated trends in e-Auction's
business and demographics. These forward-looking statements are subject to a
number of risks and uncertainties, certain of which are beyond e-Auction's
control. Actual results could differ materially from the forward-looking
statements included herein as a result of factors described in this section
under the heading "Risk Factors".
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e-Auction was originally organized by the filing of articles of incorporation
(the "Articles of Incorporation") with the Secretary of State of the State of
Nevada on January 8, 1998 under the name "Kazari International, Inc."
("Kazari"). The Articles of Incorporation of Kazari authorized the issuance of
forty million (40,000,000) shares of common stock at a par value of $0.001 per
share.
On February 26, 1999, Kazari, e-Auction Global Trading Inc. (Barbados)
("e-Auction (Barbados)") and QFG Holdings Limited ("QFG"), on behalf of itself
and the other shareholders of e-Auction (Barbados) entered into a share exchange
agreement (the "Share Exchange Agreement"). At the time of the Share Exchange
Agreement, the thirty four million five hundred thousand (34,500,000) common
shares in the capital of e-Auction (Barbados) (the "e-Auction (Barbados)
Shares") were held by eleven shareholders, which represented all of the issued
and outstanding common shares in the capital of e-Auction (Barbados). At the
time of the acquisition transaction, no one shareholder held voting control of
e-Auction (Barbados). Pursuant to the terms of the Share Exchange Agreement,
Kazari purchased the e-Auction (Barbados) Shares in exchange for thirty four
million five hundred thousand (34,500,000) common shares in the capital of
Kazari being issued from treasury to the shareholders of e-Auction (Barbados) 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 articles of incorporation by filing a
Certificate of Amendment of Articles of Incorporation (the "Certificate") with
the Secretary of the State of Nevada, which Certificate amended Kazari's name to
"e-Auction Global Trading Inc." and increased the number of authorized shares of
common stock from forty million (40,000,000) shares of common stock, par value
$0.001 to two hundred and fifty million (250,000,000) shares of common stock,
par value $0.001.
e-Auction currently has a wholly owned subsidiary, e-Auction (Barbados), which
in turn has one wholly owned subsidiary, e-Auction Global Trading Inc. (Canada).
The Company has a 50.01% ownership interest in e-Auction Australasia Pty Ltd.,
an Australian Company. The Company also owns e-Auction Belgium N.V., directly,
which in has one wholly owned subsidiary, Schelfhout Computer Systemen N.V.
("Schelfhout"), a Belgium company. See "Business - Acquisition of Schelfhout".
BUSINESS ACTIVITIES OF E-AUCTION
With the acquisition of Schelfhout Computer System N.V., e-Auction is a company
with the principal objective to be a provider of real time, electronic auction
and related financial services to auctioneers selling commodities. e-Auction's
market strategy is to become a world leader in the electronic perishable
commodity auctions in the short term, and expand its world leadership into the
electronic commodity auctions in the longer term. The Company currently has the
knowledge, skills, equipment and software that is needed to provide electronic
services for perishable commodity auction businesses. However, the Company
currently has limited knowledge, skills, equipment and software that is needed
to provided electronic services for other commodity auction businesses. When it
was established in 1983, Schelfhout focused on two market sectors; (i) the
computerization of auctions; and (ii) automation for the preservation of
perishable products. As an ancillary to the auction system, a modular graphic
display panel was developed by Schelfhout in 1992 and added to the product
range.
Over the past 17 years, as a solutions provider for perishable commodity (fish,
flower, fruits and vegetables) auction houses, Schelfhout has developed over 150
electronic trading systems for numerous selling organizations all over the
world. Schelfhout delivers the tools to bring together supply and demand under
optimum conditions and thus create a better market situation. Because of its
experience in the marketing of perishable goods and the development of
customized hardware and software solutions in this niche market, Schelfhout
takes pride in its knowledge of the sector. The Company believes that its
hardware and software can be adapted, without substantial cost of or time, to
provide services to other commodity auctions.
According to Forrester Research Inc.(1) ("Forrester"), the on-line auction
market is divided into the following three categories; (i) commodity auctions;
(ii) independent auctions selling goods; and (iii) private auctions.
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(1) Forrester Research Inc., Business Trade & Technology Strategies, March 1998.
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e-Auction will specialize in commodity auctions, which Forrester estimates to
account for approximately 50% of the total value of business auction
transactions.
THE EMERGING ELECTRONIC AUCTION MARKET
The on-line auction model has emerged as a significant channel and electronic
commerce methodology in the business to consumer market ("B2C"), also referred
to as "Independent Auctions", with such companies as eBay, Onsale, uBid and
Bid.com currently providing such services.
However, according to Forrester, the real potential for electronic auctions lies
in the business to business market ("B2B") also referred to as "Commodity
Auctions". Forrester predicts the trade in Commodity Auctions will reach US$32.2
billion by the year 2002 versus only US$5.5 billion dollars for Independent)
Auctions.
e-Auction was founded to capitalize on the market opportunity to provide B2B
electronic auction services. On February 1, 1999, e-Auction (Barbados) acquired
the internet auctioning software, technology and other intellectual property
assets of Generated Solutions Ltd. ("GSL"). GSL's technology provides the
technology platform to allow electronic auction to occur effectively.
Previously, GSL had been providing its propriety internet auctioning technology
to a number of auction houses conducting electronic auctions. The purchase price
for GSL's technology was for $50,000 Cdn, payable in cash. In connection with
this asset purchase, management services agreement was entered into where $1,000
Cdn. per month would be paid to GSL. These fees will be expensed as consulting
fees when paid. Additionally on December 1, 1998, GSL received options to
acquire 80,000 common shares at $0.01 per share of e-Auction (Barbados). On
February 1, 1999, e-Auction (Barbados) acquired the licence rights previously
granted by GSL to National Electronic Marketing Inc. ("NEMI"). e-Auction
acquired the exclusive rights of NEMI to market GSL's internet auctioning
software outside of North America and NEMI'S non-exclusive North American
rights. The purchase price for the NEMI rights was $300 Cdn. paid by the grant
to NEMI by e-Auction (Barbados) of 30,000 options to purchase common shares of
e-Auction (Barbados) at an exercise price of $0.01. In connection with this
acquisition a consulting agreement was entered into where a company associated
with the vendor would be paid $5,000 Cdn. per month to be expensed as consulting
fees when paid. Additionally on December 1, 1998, NEMI received options to
acquire 65,000 common shares of e-Auction (Barbados) at $0.01 per share. Upon
the completion of the Share Exchange Agreement, e-Auction acquired the rights to
market and exploit the GSL and NEMI technologies from e-Auction (Barbados). GSL
and NEMI were and are third party arms-length unrelated companies from the
Company. E-Auction (Barbados) and Schelfhout were also arms-length unrelated
companies from the Company at the time of the entering into of contractual
relationships with the Company. e-Auction (Barbados) and Schelfhout are now
wholly-owned subsidiaries of e-Auction.
There are a number of components to the e-Auction/GSL trading platform, as
discussed below:
DYNAMIC TRADE SERVER(S)
These server applications are written in Java (and/or C++). They are the
multi-threaded engines that manage all dynamic trading (auctioning). They
support English and Dutch style auctioning as well as bid/offer and bid/ask
trading. They also support reverse or procurement auctions.
The servers communicate to the client through sockets, RMI (Remote Method
Invocation) and/or HTML pages (Java Server Pages). The C++ implementation of the
trade server must be hosted on a Windows NT platform. The Java implementations
of the trade servers are platform independent and may be hosted on any computer
platform that provides a Java Virtual Machine version 1.1.7 or above.
DYNAMIC TRADE CLIENT(S)
There are different trade clients depending on the style of dynamic trade server
used. For Dutch, English and Procurement auctions, the client is either a Java
applet or application. For bid/offer auctions, the client is provided as HTML
pages hosted on a web site. The bid/ask trading server will support both a Java
client and HTML page interface.
TRADE INFO CATALOGUE
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The trade info catalogue is the repository that contains all lot listings for
the sales that are scheduled on the platform. This data is managed by a SQL
database and can be accessed through the trade info manager. The information is
also accessed by the trade servers when the auctions are running.
TRADE INFO MANAGER
The trade info manager is available as a Java application or as a set of HTML
pages (JSP/Servlet based). It is used to maintain the information contained in
the trade info catalogue. The info manager provides a generic interface through
which an auction house may enter the lot information for their sales and
configure their sale parameters.
TRADE ACCOUNTING SERVER
As auction sales are completed, the data from those sales is summarized and
copied to the trade accounting server. This repository and interface is used to
provide billing information for customer settlement with e-Auction. This is not
the settlement of the auction sale itself, but rather the transactional fees due
to e-Auction for the use of the platform.
TRADE HISTORY SERVER
As auction sales are completed, the data from those sales is moved to the trade
history server. This repository and interface is used to provide historical
analysis of the auction results. It provides a JSP/Servlet interface to produce
historical reports.
TRADE SETTLEMENT SYSTEM
The trade settlement system for any particular dynamic trader (auction house)
typically includes invoice printing for buyers, cheque printing for sellers,
collection or deduction of commissions, insurance fees, taxes, etc. It may also
include lot delivery scheduling and lot grading or inspection processes. There
is no generic system for trade settlement, but rather there is a framework that
is tailored to each dynamic trader (auction house). The system can be web-based
(HTML, Java Applet) or client-based (Java or other application).
FINANCIAL SERVICES INTERFACE
Integration to e-Auction's financial services back-end will be offered through
an integration interface. This interface will allow a dynamic trader to host the
financial services on a web-site or access them through e-Auction's web site(s).
e-Auction believes that an enormous opportunity awaits the company which can
successfully integrate and efficiently deliver the various components and
services of a dynamic global trading solution. e-Auction intends to deliver such
a global trading system in the form of an entirely new distribution channel
which will:
(i) improve economic efficiency in the management of sales and
distribution;
(ii) improve information flow and product availability to potential
purchasers; and
(iii) lower the cost of sales by exploiting internet technologies
and sharing a technology platform.
e-Auction has the potential to be successful and profitable because it is
targeting low risk established high volume B2B auction and commodity exchange
markets. e-Auction's high value and high margin transactional revenue model will
help ensure sustainable growth for the long term.
GOVERNMENTAL APPROVAL, REGULATION AND ENVIRONMENTAL COMPLIANCE
Other than general business licensing requirements, e-Auction is unaware of any
governmental approval which is necessary for e-Auction's operations in the
perishable commodity trading sector. In addition, e-Auction is unaware of any
existing or probable governmental regulations on the perishable commodity
trading sector.
Given the nature of e-Auction's business, e-Auction does not anticipate any
material costs associated with compliance with federal, state and local
environmental laws and regulations.
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e-Auction is not aware of any federal, state or local laws and regulations
regulating the Internet at this time which would materially affect e-Auction's
business activities.
REVENUE FROM FINANCIAL SERVICE
e-Auction's intention is not to remove the traditional auction house from the
electronic auction process, but rather e-Auction intends to make the process
more transparent to those involved in the auction process. Currently, there are
multiple steps in the auction process (from the actual auction to providing
foreign exchange services, settlement services, the insurance of goods in
transit and the delivery of the goods). Therefore, individual buyers and sellers
have to arrange the ancillary services around the auction themselves. e-Auction
proposes to provide a cradle to grave solution for the buyers and sellers.
Initially, e-Auction will focus on the financial services component which
includes foreign exchange services and settlement services.
The Schelfhout computer system will continue to provide software solutions to an
existing customer base with international trade. The "new" Schelfhout system
will allow individual buyers to conduct their auction purchases on the Internet
in their own domestic currency. e-Auction will generate revenue from both the
foreign exchange and the settlement services.
SCHELFHOUT COMPUTER SYSTEMEN N.V.
Schelfhout was acquired by the Company on January 10, 2000. See "Business -
Acquisition of Schelfhout".
When it was established in 1983, Schelfhout focused on two market sectors: (i)
the computerization of auctions; and (ii) automation for the preservation of
perishable products. As an ancillary to the auction system, a modular graphic
display panel was developed by Schelfhout in 1992 and added to the product
range.
As a solutions provider for perishable commodity (fish, flower, fruits and
vegetables) auction houses, Schelfhout has developed over 150 electronic trading
systems for numerous selling organizations all over the world. Schelfhout
delivers the tools to bring together supply and demand under optimum conditions
and thus create a better market situation. Because of its experience in the
marketing of perishable goods and the development of customized hardware and
software solutions in this niche market, Schelfhout takes pride in its knowledge
of the sector.
Schelfhout has developed a range of controllers with microprocessors, customized
for the following market segments :
- ULO (ultra low oxygen) preservation of hard fruit,
- Short-term preservation of soft fruit, exotic fruit, vegetables, plants and
flowers, and
- General temperature control for preservation of deep-frozen and cooled
products.
Schelfhout's controllers are also used to control condensers, gas analysis,
energy management, etc.
Schelfhout has developed a graphic modular display panel on which text, logos
and drawings can be displayed. This innovative concept offers numerous
advantages over standard systems:
- unlimited dimensions,
- storage capacity of more than 100 graphic images, and
- various special effects are included as standard: scrolling, blinking and
animation via fast displays of successive images
EVOLUTION OF THE AUCTION SYSTEMS MODEL
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EURONET PORTALS
e-Auction and Schelfhout will jointly launch EuroNet Trading Portals which can
be described as pan-European networks targeted to link Schelfhout's existing
standalone European systems, which currently trade approximately US$7 billion
dollars in perishable commodities per year.
The networks will be launched into the following three vertical markets:
<TABLE>
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- 38 Fish Auctions Approximately US $2.0 billion in trade volume annually
- 29 Fruits and Vegetables Auctions Approximately US $2.4 billion in trade volume annually
- 11 Flower Auctions Approximately US $2.4 billion in trade volume annually
</TABLE>
The EuroNet Trading Portals will link existing Schelfhout clients using the
Internet, extranet and X.25 networks, as well as clients interested in migrating
to Internet Protocol ("IP") based networks.
The EuroNet Trading Portals for fish, fruit, vegetables and flower will consist
of the development of European auction networks which will offer financial
settlement services and foreign exchange services as their main services. The
Internet will enable individual buyers to participate in the auction process
remotely.
The current European landscape of auctions is highly fragmented. This
fragmentation has not allowed for economies of scale to occur as each auction
house has been saddled with expenses. These expenses will be reduced
significantly with the implementation of e-Auction's business proposition.
e-Auction will link existing stand-alone auction houses in each perishable
commodity vertical, which in turn will benefit from the centralization of
ancillary services around the auction process, such as foreign exchange services
and financial settlement services. Stand-alone auction houses currently do
credit checks and receive letters of credit for each buyer. The buyers, in turn,
must repeat the process with each auction house they deal with. e-Auction will
eliminate these redundancies by implementing a centralized financial settlement
solution which will benefit all the parties involved.
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[CHART]
The solution will make it possible for a remote buyers to participate in
auctions using their own currency while the auction houses and producers will
also be paid in their own local currencies. Hence, a foreign currency service is
an integral part of the bundled financial services offered by e-Auction.
The whole financial settlement for both buyer and seller (auction house and
producer) should be as understandable and as customer-friendly as possible. All
of these services will be offered on the basis of a transaction fee. The
advantage with this cost structure is that auctions will not need to make
substantial investments in Information Technology ("IT") and infrastructure. The
use of these services is therefore a variable cost.
When a network has been established with the Schelfhout customers, it is the
objective of e-Auction to extend that network to include the remaining European
auctions which are not currently Schelfhout's clients, as well as adding
additional international demand.
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BENEFITS OF EURONET TRADING PORTALS
[CHART]
BENEFITS OF EURONET TRADING PORTALS:
BENEFITS TO AUCTION HOUSES ON NETWORK
- Increased numbers of buyers and sellers;
- Focuses on core competency rather than issues such as credit checks and
limits;
- Offers value added service;
- Offers competitive advantage over other European auction houses; and,
- Serves as a deterrent for non-payment, since only buyers with credit
approval may participate in the auctions.
BENEFITS TO BUYERS ON NETWORK
- Need only one letter of credit or a single escrow account;
- Can purchase from all the auction houses on the network;
- Receive better quality product; and,
- Better selection available.
BENEFITS TO SELLER ON NETWORK
(i) Better prices through transparency;
(ii) Increased number of purchasers; and
(iii) Guaranteed payment.
ACQUISITION OF SCHELFHOUT COMPUTER SYSTEMEN N.V.
By a share purchase agreement dated as of January 10, 2000 between the Company,
Luc Schelfhout, Hilde De Laet ("SCS Agreement"), the Company, through its
subsidiary, e-Auction Belgium N.V., acquired all of the shares of Schelfhout, a
Belgium company, from Luc Schelfhout and Hilde De Laet. The purchase price for
the shares of Schelfhout was $10 million, and represents the price stipulated in
the share purchase agreement, paid by the Company by $4 million cash and by the
issuance of 3,636,364 common shares to
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Luc Schelfhout and Hilde De Laet. The Company in the SCS Agreement agreed to not
sell or otherwise transfer the shares of Schelfhout during the 12 month period
ending on January 10, 2001. As security for the covenant not to sell the shares
and for other matters, the Company has pledged the shares of Schelfhout in
favour of Luc Schelfhout and Hilde De Laet.
RISK FACTORS
e-Auction should be considered speculative due to the nature of the business in
which e-Auction will be engaged, its early state of development and the degree
of reliance e-Auction places on the expertise of management. Specifically,
e-Auction's business is subject to numerous risk factors, including but not
limited to the following:
E-AUCTION'S LIMITED OPERATING HISTORY AND EVOLVING BUSINESS MODEL - Although the
acquisition of Schelfhout will provide extensive operating knowledge, e-Auction
has a limited operating history under its current business model upon which it
can be evaluated.
SYSTEM DEVELOPMENT AND OPERATION RISKS - USE OF INTERNET - e-Auction's software
products are based on programming languages, which to date have been used
primarily for specialized applications on the desktop. The future success of
e-Auction will depend, in large part, on the development of specialized
programming languages geared to facilitate Internet based applications with a
particular emphasis on wide spread commercial use in a server based environment.
The Company will be required to add additional software and hardware and further
develop and upgrade its existing technology, transaction-processing capability
and network infrastructure to accommodate increased traffic over its supported
networks due to increased auction volumes as its business expands. Any inability
to do so may cause system disruptions, slower response times and degradation in
auction service levels. There can be no assurance that the Company will be able
to upgrade its systems as necessary in a timely manner or to integrate smoothly
any newly developed or purchased upgrades or enhancements to its current
systems. Any inability to do so could have a material adverse effect on the
Company's business, prospects, financial condition, and results of operation.
DEPENDENCE ON MARKET ACCEPTANCE OF E-AUCTION PACKAGED APPLICATIONS - The vast
majority of e-Auction's revenues will be derived from the implementation of
packaged applications around the perishable commodity auction process.
e-Auction's success will depend on the acceptance of financial services and
settlement services application software by the market, as well as e-Auction's
ability to enhance its products to meet the evolving needs of customers on a
timely basis. There can be no assurance of the market's acceptance of
e-Auction's solutions or e-Auction's ability to meet customers' needs.
INTENSE COMPETITION - The e-commerce business to business market is highly
competitive, is rapidly changing, and is significantly affected by new product
introductions and geographical regional market growth. Barriers to entry into
this market are relatively low and e-Auction expects that competition will
intensify in the future. Specific factors upon which e-Auction competes include,
but are not limited to, functionality of its applications, technological
sophistication, ease of use, timing for implementation, quality of support and
services, price and breadth of experience. e-Auction believes that it will
compete favorably on all of these competitive factors. However, there remains
significant risk that competitive forces may effect e-Auction's ability to
compete and generate revenue. Some of the potential competitors to e-Auction in
the fish commodity space are: Fishmonger, Gofish, French Fish, Nieaff-Smidt and
OES. In the flower commodities space: WCOL, American Clock, Nieaff-Smidt and
OES. In the fruits and vegetables commodities space: WCOL, Nieaff-Smidt and OES.
RISKS ASSOCIATED WITH PAST AND FUTURE ACQUISITIONS - e-Auction intends to engage
in selective acquisitions of perishable commodity businesses in the future,
which may include software vendors, auction houses and information technology
service companies. There are no assurances that e-Auction will be able to
identify suitable acquisition candidates available for sale at reasonable
prices, complete any acquisitions or successfully integrate any acquired
business, including Schelfhout, into e-Auction's operations.
RISKS ASSOCIATED WITH ADDITIONAL FINANCING - e-Auction intends to raise
additional financing, which financing is critical in furthering its business
plan. There are no assurances that e-Auction will be
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successful in capitalizing the company and therefore the business plan may not
be able to be executed as stated herein.
THE PROPOSED OPERATIONS OF E-AUCTION ARE SPECULATIVE - The success of
e-Auction's proposed plan of operation depends to a great extent on the
operations, financial condition and management of Schelfhout and other target
companies. While business combinations with entities having established
operation histories are preferred, there are no assurances that e-Auction will
be successful in locating candidates meeting such criteria. In the event that
e-Auction completes business combinations, the success of the e-Auction's
operations will depend on the management of the target companies and numerous
other factors.
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company's success depends, in part, upon the protection of its proprietary
rights in its products, technology and trade secrets. The Company relies on a
combination of patent, copyright, and trademark laws, confidentiality procedures
and licensing arrangements to protect its proprietary rights. There can be no
assurance, however, that the confidentiality and license agreements on which the
Company relies to protect its trade secrets and proprietary technology will be
adequate. Further, the laws of certain countries in which the Company does
business, do not protect the Company's proprietary rights to the same extent as
the laws of the United States. Legal protections of the Company's proprietary
rights may be ineffective in such countries. Policing unauthorized use of the
Company's products is difficult, and litigation to defend and enforce the
Company's intellectual property rights could result in substantial costs and
diversion of resources. Despite the Company's efforts to safeguard and maintain
its proprietary rights both in the United States and abroad, there can be no
assurance that the Company will be successful in doing so, or that the steps
taken by the Company in this regard will be adequate to deter misappropriation
or independent third party development of the Company's technology or to prevent
an unauthorized third party from copying or otherwise obtaining and using the
Company's products or technology. Any failure in the protection of the Company's
proprietary rights could have a material adverse effect on the Company's
business, financial condition and results of operations.
As the number of industry-specific packaged application and service vendors in
the industry increases and the functionality of these products further overlaps,
software development and services companies like the Company may increasingly
become subject to claims of infringement or misappropriation of the intellectual
property rights of others. There can be no assurance that third parties will not
assert infringement or misappropriation claims against the Company in the future
with respect to current or future products. Any claims or litigation, with or
without merit, could be time-consuming, result in costly litigation, diversion
of management's attention and cause product shipment delays or require the
Company to enter into royalty or licensing arrangements. Such royalty or
licensing arrangements, if required, may not be available on terms acceptable to
the Company, if at all, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Adverse
determinations in such claims or litigation could also have a material adverse
effect on the Company's business, financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE; RISKS OF DEVELOPMENT; DEPENDENCE ON NEW PRODUCTS AND
SERVICES
The Company currently has a substantial number of products and services under
development. There can be no assurance that the Company will not experience
difficulties that delay or prevent the successful development of these new
services. In most cases, substantial expenses will be incurred prior to any
payment by customers.
Rapid technological change, dynamic demands and frequent introductions of new
products and product enhancements characterize the market for the Company's
services. Customer requirements for services can change rapidly as a result of
innovations and changes within the computer hardware and software industries and
the customers' vertical markets, the introductions of new products and
technologies and the emergence, evolution or widespread adoption of industry
standards. The actual or anticipated introduction of new services can render
existing services obsolete or unmarketable or result in delays in the purchase
of such services.
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The Company's future success will depend in large part on its ability to improve
its current services and to develop and market new services that address these
changing markets and market requirements on a timely basis. There can be no
assurance that the Company will be successful in developing and marketing any
new services, that the Company will not experience difficulties that delay or
prevent the successful development, introduction or marketing of such services
or that any new services will adequately address market requirements and achieve
market acceptance. If the Company is unable, for technological or other reasons,
to develop new services in a timely manner in response to, among other things,
changing market conditions or customer requirements, the Company's business,
operation results and financial condition will be materially adversely affected.
Although the Company has no current plans to the contrary, there can be no
assurance that the Company's future services will be similar to, or bear any
resemblance to, its current services.
COMPETITION
The electronic auction market is highly competitive, is changing rapidly, and is
significantly affected by new product and service introductions. Companies are
increasing the demand for industry-specific solutions to meet their needs in
providing products and services to customers and trading partners. Barriers to
entry into this market are relatively low, and the Company expects that
competition will intensify in the future. The market environment in which the
Company operates is extremely dynamic and is characterized by constantly
evolving standards and new market entrants.
The Company's primary competition currently comes from traditional auction
suppliers of hardware and software services such as OES and Palm-Nieaf. OES is
North Americas Largest traditional auction builder specialising on flowers and
tobacco. Palm-Nieaf is Europe oldest auction builder. The company once dominated
the space, now it has 30 installations left predominantly in flowers and fish.
The Company's secondary competition comes from new internet companies such as
World Commerce On-line (WCOL), Decofrut, Farms.com, Pan European Fish Auction
(PEFA), Vertical Net, Moai, OpenSite Technologies, FairMarketSM, Inc, Ariba and
Trade'ex, Gofish, Fishmonger, FreeMarkets and many other. A brief description is
included below:
WCOL delivers Internet-based, global e-commerce solutions to large international
organisations and worldwide vertical industries. Decofrut: provides the
verification of the quality of fruits shipped into the world's largest port,
Rotterdam, and Philadelphia. Farms.com will shortly be offering a Bid-Ask
marketplace. Commodity traders will be able to participate in Real Time Bid-Ask
trading with bids exchanged instantaneously. Pan European Fish Auction (PEFA):
operates a network of electronic Fish Auctions spread over Europe. These
auctions are linked together and accessible to the buyers via the internet, thus
creating a virtual marketplace on a " business-to-business" level. VerticalNet,
Inc. is a creator and operator of vertical trade communities. VerticalNet
leverages the interactive features and global reach of the Internet to create
multi-national, targeted business-to-business communities. Moai provides
commerce solutions for the Internet. Moai provides companies with the technology
and services for customized online auctions and trading exchanges. OpenSite
Technologies: provides online auction solutions. Since 1996, OpenSite has
offered online auction software with quick implementation and ease of
management.
FairMarketSM, Inc. is a provider of networked, online dynamic pricing solutions
that are designed to allow customers to expand their distribution channels and
create new online revenue opportunities. Their primary service offering is an
outsourced, private-label auction solution that is used by some of merchants and
portals on the Web. Ariba and Trade'ex: the evolution of the Internet economy
and the creation of new Digital Marketplaces will streamline the commerce
process and totally transform the way businesses exchange goods, services, and
information. Sorcity is an Internet hosted, business-to-business reverse-auction
service for buyers and sellers of both direct and indirect items. Respond.co is
a online shopping service, a way of matching buyers and sellers of a wide range
of products and services. Gofish: creates a single resource for everyone
connected with the seafood industry. Where buyers and sellers can do business
faster and easier than ever before--with features like real-time pricing and
up-to-date credit reporting.
<PAGE>
-13-
FishMonger is based adjacent to the bustling seafood industry of Seattle, the
Puget Sound, and the North Pacific. It has been developed by combining the
talent from the seafood industry with exceptional expertise from the world of
e-commerce. FreeMarkets creates business-to-business online auctions for buyers
of industrial parts, raw materials, commodities and services. Since 1995, it has
created auctions for goods and services in more than 50 product categories,
including injection molded plastic parts, commercial machining, metal
fabrications, chemicals, printed circuit boards, corrugated packaging and coal.
Many of the Company's competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than the Company,
greater name recognition, more strategic relationships and a larger installed
base of customers. In addition, certain competitors have well-established
relationships with current or potential customers of the Company. As a result,
the Company's competitors may be able to devote greater resources to the
development, promotion and sale of their services, may have more direct access
to corporate decision-makers based on previous relationships and may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competitive pressure
will not have a material adverse effect on its business, operating results and
financial condition.
EMPLOYEES
The Company considers its labour relations to be good and, none of its employees
is covered by a collective bargaining agreement. As of February 1, 2000
e-Auction has thirty five full time employees and five part time employees and
independent contractors. e-Auction is currently dependent upon Daniel McKenzie,
President, C.E.O. and Chairman of e-Auction, Luc Schelfhout, President of
Schelfhout Computer System N.V. and David Hackett, the Chief Financial Officer
of e-Auction and Shane Maine for its success. Mr. Maine has agreed to allocate a
portion of his time to the activities of e-Auction without cash compensation but
has agreed to accept stock options granted as discussed below. None of the
Company's employees is represented by a labor union, and the Company considers
its employee relations to be good. Competition for qualified personnel in the
Company's industry is intense, particularly among software development and other
technical staff. The Company believes that its future success will depend in
part on its continued ability to attract, hire and retain qualified personnel.
MISCELLANEOUS
Currently, e-Auction does not have any registered patents, trademarks, licenses,
franchises, concessions or royalty agreements. There has been small amounts
(approximately Cdn$185,000) spent since inception on research and development.
From February 1999 to present, the Company has had a development team working on
the auction platform.
There are currently no publicly announced new product or services. Currently,
the Company is not dependent on one or a few major customers as the Company is
in development mode. The combined company will have a more diverse customer
base, which will not be dependent on one or a few major customers.
ITEM 2 - PLAN OF OPERATION
The following description of e-Auction's plan of operation should be read in
conjunction with, and qualified in its entirety by, the financial statements and
the notes to the financial statements contained in the Exhibits to this
Registration Statement.
CASH REQUIREMENTS
Over the next twelve months, the Company intends to grow rapidly. With this
expansion will come the need for additional cash requirements to fund operating
capital needs. As its business grows, the Company fully intends to significantly
employ its personnel. The acquisition of Schelfhout, has added approximately
<PAGE>
-14-
30 employees (of which approximately 26 are full time). Such additional
personnel will be required to expand the Company's service offering to its
customer base and to develop additional services for the EuroNet portal
strategy.
e-Auction intends to raise additional financing, which financing is critical in
furthering its business plan. The Company in January, 2000 completed a private
offering of its common shares raising approximately $4.4 million of new capital
through the issuance of 9,293,777 common shares, raised $2.2 million through a
convertible debenture from Halium Hongorzul and issued 7,625,916 common shares
to retire $3.8 million in existing debts. Total cash raised was $6.6 million
($4.4 million and $2.2 million). At December 31, 1999 $3.8 million of the $6.6
million is shown as restricted cash held in trust by lawyers. These restricted
amounts became unrestricted upon the closing of the Schelfhout transaction. The
$3.8 million has been used as follows: final payment of the acquisition of
Schelfhout Computer Systemen N.V. for $3.0 million, payment of Halium Hongorzul
loan fee of $200,000, partial repayment of the Ventures North Investment
Partners Inc. of $252,000, legal fees of $163,000, fees owed to Millennium
Advisors Inc. in the amount of $120,000, SEC filing fees of $55,000 and other
miscellaneous amounts of approximately $42,000.
In June, 2000, the Company completed a private offering of its common shares
raising approximately $7,500,000 through the issuance of 4,072,639 shares of
common stock to ABN AMRO Capital Investments (Belgie) N.V.
As of the date of this registration statement the Company has approximately $9.3
million in cash.
The Company believes that it has sufficient cash to meet its expected needs
until the end of its current fiscal year (December 31, 2000), however, if
further cash is required, the Company intends to complete another private
offering of its securities. Depending upon market conditions, the Company may
consider raising funds by way of a public offering of its securities in late
fiscal 2000. The Company's Schelfhout operation is generating a modest amount of
positive cash flow and any deficiency experienced will be satisfied by a further
private offering of its shares if necessary.
The Company does not foresee any major capital expenditures in its current
fiscal year. The majority of the Company's expenditures will be used to hire
qualified programmers to continue to develop its technology, as well as to hire
a larger sales and marketing staff to grow its business and effectively service
its clientele. The Company used a portion of the funds raised in the January
2000 offering to close the Schelfhout transaction. The loan to the Millennium
Advisors was satisfied by issuing common shares of EAUC at a price of $0.50 per
share in full satisfaction of the loan. Ventures North Investment Partners have
accepted common shares of the Company at a price per share of $0.50 in full
satisfaction of its loan. The Company's accounts payable and accruals will be
satisfied out of its working capital. The Company anticipates spending
approximately $500,000 out of current working capital in fiscal 2000 to purchase
new computer equipment for the increased staff.
ITEM 3 - DESCRIPTION OF PROPERTY
e-Auction currently has no properties and has not entered into any agreements to
acquire any properties. e-Auction has offices located at 161 Bay Street, Suite
4700, BCE Place, Toronto, Ontario, Canada, M5J 2S1 and at Bormte 204/A, Stekene,
Belgium 9190. The offices at 161 Bay Street are leased by Venture North
Investment Partners Inc. ("Ventures North") from which e-Auction sublets office
space. e-Auction has not entered into a lease agreement and pays all rental
charges on a month to month basis. As part of the Schelfhout acquisition, the
land and building were removed from the company prior to the acquisition. As
part of the acquisition, Schelfhout shall be entitled to remain on the premises
where Schelfhout currently operates and carries on business for a period of
twelve (12) months from January 7, 2000 on a rent free basis and that following
such twelve (12) month period, Schelfhout shall lease the building at a rate of
2,400 BEF per square metre for office space, 1,800 BEF per square meter for the
work room and 1,200 per square metre for the warehouse, for a term of 10 years,
which terms of the lease can be considered as normal at January 7, 2000.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
<PAGE>
-15-
The following table sets forth, as of the date of filing this Registration
Statement, each person known to e-Auction to be the beneficial owner of five
percent or more of e-Auction's common stock:
<TABLE>
<CAPTION>
------------------------------------------------------------------------ ------------------ ----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE OF CLASS
------------------------------------------------------------------------ ------------------ ----------------------
<S> <C> <C>
J. Andrews in Trust for the Shareholders of Sanga International Inc.(A)
C/O Pachulski, Stong, Ziehl, Yang & Jones P.C.
10100 Santa Monica Blvd., Suite 1100 16,500,000 25.5%
Los Angeles, CA. 90067
------------------------------------------------------------------------ ------------------ ----------------------
ABN AMRO Capital Investments (Belgie) N.V. 4,072,639 6.2%
Regentlaan 53, 1000 Brussels, Belgium
------------------------------------------------------------------------ ------------------ ----------------------
Luc Schelfhout(B) 3,636,364 5.6%
Bornte 204/A, Stekene, Belgium 9190
------------------------------------------------------------------------ ------------------ ----------------------
QFG Holding Limited (c) 8,474,193 13.1%
P.O. Box 659, Roadtown, Tortola, BVI
------------------------------------------------------------------------ ------------------ ----------------------
</TABLE>
Notes:
(A) The shares are beneficially owned by Sanga International Inc. which is
currently undergoing a restructuring pursuant to Chapter 11 of United
States Bankruptcy laws. Sanga does not have any controlling
shareholder. The sole officer of Sanga is John Andrews and its
directors are John Andrews, Mitch Stein and Masood Jabor.
(B) Includes 1,818,182 common shares held by Mr. Schelfhout's spouse, Hilde
de Laet. Mr. Schelfhout is an officer and director of the Company.
(C) QFG is controlled by the Ballantine Family Trust, and David Ballantine
is the sole director of QFG.
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names, positions and ages of the executive
officers and directors of e-Auction as at August 29, 2000. Directors are elected
at e-Auction's annual meeting of shareholders and serve for one year or until
their successors are elected. Officers are elected by the board of directors and
their terms of office are, except to the extent governed by employment
contracts, at the discretion of the board of directors.
<TABLE>
<CAPTION>
------------------------------------- ----------------------------------- -----------------------------------
NAME AGE TITLE
------------------------------------- ----------------------------------- -----------------------------------
<S> <C> <C>
Daniel McKenzie 45 President, C.E.O. and Chairman
------------------------------------- ----------------------------------- -----------------------------------
Luc Schelfhout 38 President, Schelfhout Computer
System N.V.
------------------------------------- ----------------------------------- -----------------------------------
David Hackett 34 Chief Financial Officer
------------------------------------- ----------------------------------- -----------------------------------
Philip Lapp 71 Director
------------------------------------- ----------------------------------- -----------------------------------
Phillip MacDonnell 58 Director
------------------------------------- ----------------------------------- -----------------------------------
Mark Milazzo 43 Director
------------------------------------- ----------------------------------- -----------------------------------
Bart Sonck 35 Director
------------------------------------- ----------------------------------- -----------------------------------
Ken Reid 60 Director
------------------------------------- ----------------------------------- -----------------------------------
</TABLE>
BIOGRAPHIES
Dan A. McKenzie, President, C.E.O. and Chairman.
<PAGE>
-16-
Mr. McKenzie brings a strong and diversified background in corporate management
and technology development. Mr. McKenzie has 19 years of high tech management
experience, with 15 as an owner/manager. He is the principal founder of two
successful businesses, McKenzie Brown Canada and EveryWare Development Inc. His
experience in mapping out strategic directions, operational skills, and
turnaround techniques have, in each case, maximized shareholder returns.
McKenzie Brown, a national computer peripheral distribution company, was founded
in 1983 and reached sales in excessive of $30 million per year. Mr. McKenzie was
the initial investor and founding partner of EveryWare Development Inc. in 1990
and built the business through sales and software development with a record of
profit for 5 consecutive years as President and CEO. EveryWare is a market
leader in providing innovative cross-platform development tools for creating
dynamic Web-based applications. Dan took the company public in 1995 as CEO and
Chairman of the Board. Dan led the company through numerous financings and
acquisitions, including InContext Systems Inc. (TSE:INI) and in November 1998
EveryWare was purchased by Pervasive Software Inc. Mr. McKenzie's experience in
growing and merging early stage technology companies enables him to identify the
needs of the marketplace to bring new products and services quickly and
profitably to market. Mr. McKenzie's entrepreneurial spirit developed after
working his way up through management at Corvus Computer Corporation and Maclean
Hunter Limited. Mr. McKenzie was National Sales Manager for Corvus, responsible
for developing revenues and reseller relationships across Canada, and at Maclean
Hunter he served in their Business Press Division.
Luc Schelfhout, President, Schelfhout Computer Systemen N.V.
Mr. Schelfhout created the company in 1983 which has grown under his management
into the market leader in the development and implementation of electronic
trading systems. Prior to starting Schelfhout, Mr. Schelfhout worked for Stafa
Control Systems, a company specialising in control and measurement systems. Mr.
Schelfhout also has a degree in Electronics (A1-B1) and is a licensed pilot.
Through Mr. Schelfhout's leadership, Schelfhout has lead in the development of
more than 100 electronic trading systems world-wide. In addition, numerous
feasibility studies have been prepared the highlights are as follows:
- Apeda, New Delhi, India: establishment of 4 flower markets in Pune, Bombay,
Bangalore & Madras.
- European Commission: Information and trading network for the marketing of
fresh fish in Europe (INFOMAR).
- Irish Fish Producers' Organisation Dublin, Ireland : fish auction network.
- Meat & Livestock Commission, Milton Keynes : Improvement of IT in UK cattle
markets.
- F.A.O. of the UNITED NATIONS : establishment of fish markets in Morocco.
David Hackett, Chief Financial Officer
David Hackett attained his Chartered Accountant designation in 1989 while at
Ernst & Young. Mr. Hackett also holds a Master of Business Administration from
the University of Western in Ontario, Canada. In 1992, Mr. Hackett co-founded
323-2323- The Infotainment Line, a movie, restaurant, kids and special events
information telephone service. From 1994 to 1996, Mr. Hackett was a consultant
for the television production industry with Alliance Atlantis Communications
Inc. (formerly "Atlantis Communications Inc.") and CanWest Global Communications
Corp. In 1996, Mr. Hackett joined EveryWare Development Inc. ("EveryWare"), a
provider of middleware database conductivity tools. As Chief Financial Officer
of EveryWare, Mr. Hackett was responsible for the finance and administration
department as well as the day to day operations of EveryWare and its
subsidiaries. While at EveryWare, Mr. Hackett completed numerous financings,
acquisitions and divestitures including the sale of EveryWare to Pervasive
Software Inc. in November 1998. Mr. Hackett is not a director of any other
reporting company.
Philip A. Lapp, Director
Dr. Lapp has been Senior Vice President and Director of SPAR Aerospace Limited,
responsible for all engineering and technical programs. While there, Mr. Lapp
established and developed entry into the medical and technological markets. Dr.
Lapp served as both Director of Technical Operations and Chief Engineer at de
Havilland Aircraft of Canada. At the Massachusetts Institute of Technology Dr.
Lapp was a
<PAGE>
-17-
research Associate and Instructor in Aeronautical Engineering. Dr. Lapp has
received a Centennial Medal 1967, Honorary Member, Engineering Institute of
Canada 1973, Fellow of Ryerson Polytechnical Institute 1987, Gold Medal from the
Association of Professional Engineers of Ontario in1992, Officer of the Order of
Canada in 1995. Dr. Lapp still holds many present Directorships including CDM
Information Inc., InfoWest Services Inc., Kenneth Molson Foundation (Chairman),
EMR Microwave Technology Corporation, PCI Enterprises Inc. Mind The Store Inc.
(Chairman), VisuaLabs Inc., and Honorary Governor, York University. Dr. Lapp
also holds professional affiliations with; Canadian Council of Professional
Engineers, (President 1987-1988), Fellow of the Royal Society of Canada, Fellow
of the Canadian Academy of Engineering, (President 1988), Member of the
Association of Professional Engineers of Ontario (President 1982-1983), Senior
Member of the Institute of Electrical and Electronics Engineers, Fellow of
Canadian Aeronautics and Space Institute (President 1967-1968), Member of
Canadian Remote Sensing Society and Senior Member of American Aeronautics and
Astronautics.
Phil MacDonnell, Director
Mr. MacDonnell is presently Vice President and a Director of Hawk Capital
Corporation and Hawk Partners Ltd., which provides financial services to
Canadian companies, he has held these positions since 1998 and 1997
respectively. Mr. MacDonnell is also currently President and Director of P.G.
MacDonnell Services Ltd., a Director of Constitution Insurance Company since
1987, Director of Syntex Systems Ltd. (a publicly traded company on the ASE,
since 1997), Director of World Wide Warranty (CDNX) and a Director of Palco
Communications, apriate Alabama company since 1999. Mr. MacDonnell obtained an
Honors Business Administration Degree at the University of Western Ontario in
1960, later in 1964 he obtained a Chartered Accountants Degree from the
Institute of Chartered Accountants. Mr. MacDonnell became a founding partner in
Loewen Ondaattje McCutheon & Co. Ltd. (an international institutional stock
Brokerage Company and publicly traded on the TSE). From 1989-1991 Mr. MacDonnell
was the President of Family Trust Corporation before it was sold to Manulife
Insurance. Mr. MacDonnell has sat on the Board of the Vancouver Stock Exchange
and was a Director of Grand Field Pacific Ltd., (a publicly traded hotel company
on the TSE 1996-1998) and EveryWare Development Inc., (a publicly traded
software company on the ASE 1997-1998)
Mark F. Milazzo, Director
Mr. Milazzo currently is the Director, Wireless Market Development, Service
Provider Line of Business, for Cisco Systems Ind., San Jose, CA. He is
responsible for strategy development and Cisco's global sales channel support in
Cisco's Mobile Wireless area. Mr Milazzo joined Cisco Systems Canada, in 1992 as
Channel Manager, and was responsible for developing the channel of business in
Canada, emphasizing public carriers. From 1994-1995 Mr. Milazzo was an Account
Manager, his assigned territory was the BCE group, Nortel, Bell Canada and Bell
Mobility. As Region Manager from 1995-1998, Mr. Milazzo structured teams that
have consistently over-achieved goals, responsible for business alliances with
partners, specifically relating to the developing public carrier market. In 1998
Mr. Milazzo became the Director, Service Provider Global Alliances, for Cisco
Systems Inc. Mr. Milazzo was responsible for building Cisco's Global Alliances
with key Service Providers. Prior to joining Cisco, from 1987-1992, Mr. Milazzo
was the General Manager for Computer Logics Ltd., where he managed a software
development firm developing PC to mainframe gateway software to corporate
clients worldwide. From 1983 to 1987 Mr. Milazzo was with Unisys Canada in a
variety of engineering activities in the Federal Government. Mr. Milazzo holds a
Bachelor of Science (B.Sc.) and a Master of Science (M.Sc.) in Microbiology &
Immunology from the University of Western Ontario in London, Ontario. Mr.
Milazzo is a Board Member of InfoInteractive Inc. (IIA.To:TSE).
Ken Reid, Director
Ken is presently President & CEO of Ontario Flower Growers Inc., one of North
America's largest suppliers of cut flowers and plant products to the wholesale
and retail market place. Additionally, Ken is the General Manager of Ontario
Flower Growers Co-Operative Limited, the largest concentration of growers in
Canada. OFG operates the floral auction in Toronto and Ken has developed
international connections with European and domestic auction houses providing
members with similar services. Ken obtained his C.A. degree in 1972, launching a
public accounting career in his native Hamilton. In 1980
<PAGE>
-18-
Ken joined a small local home centre chain, merged it with Beaver Lumber, then a
subsidiary of Molson Co.'s. Rising to the position of Vice-President & General
Manager, Ken and his principals sold the successful South Ontario chain in 1991.
After a brief but well deserved sabbatical, Ken assumed his present role and has
successfully guided OFG and its subsidiary into their pre-eminent position
today.
Bart Sonck, Director
Mr. Sonck has been involved in the banking community for over ten years, with JP
Morgan, Bank Brussel Lambert and most recently with ABN AMRO. Over the past 6
years with ABN AMRO, Mr. Sonck has been a Senior Account Manager Corporate
Banking for ABN AMRO Bank NV (Belgian Branch)- Antwerp Office, responsible for
Customer Relations Management and Business Development; Regional Manager
Corporate Banking for ABN AMRO Bank NV (Belgian Branch) - Brussels Office
(responsible for management of team of (senior) account managers, for Customer
Relations Management & Business Development; and Managing Director of ABN AMRO
Capital Investments (Belgie) NV responsible for the development of the Private
Equity and Venture Capital operations of ABN AMRO in Belgium.
Bart holds a Master in Arts from Vrije Universiteit Brussel and a Master in
Business Administration, Vrije Universiteit Brussel Solvay Business School. Bart
has also lectured at Hogere Taal- & Handelsleergangen in the areas of Quality
Management in the Banking Industry, Trade & Export Finance, Interest and
Currency Risk Hedging andCredit Negotiation for Relationship Managers.
ITEM 6 - EXECUTIVE COMPENSATION
The following table sets forth certain information for the years ended December
31, 1999 and 1998 regarding the compensation of the Company's Chief Executive
Officer and each of the other most highly compensated executive officers whose
compensation on an annualized basis (salary and bonus) for services rendered in
all capacities to the Company during the year ended December 31, 1999 or 1998
exceeded $100,000 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
-------------------------------------------------------------------------------------------------------------------------
Long-term compensation
--------------------------- -------------------------------------- --------------------------- ---------- ---------------
Annual compensation Awards Payouts
------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
Restricted Securities
Other annual stock underlying LTIP All other
Name and Salary Bonus compensation awards options/ SARs payouts compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fred Tham, 1999 - - - - - - -
CEO & President(1) 1998 $39,500
------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
Shane Maine, CEO 1999 - - - - 1,000,000 - -
& President (2) 1998
------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
David Hackett, 1999 C$58,333 1,000,000
Chief Financial 1998
Officer
------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
</TABLE>
(1) Mr. Tam resigned as CEO and President on February 26, 1999.
(2) Mr. Maine resigned as acting CEO and director of the Company on January
17, 2000 and was replaced as CEO by Dan McKenzie on January 17, 2000.
Shane Maine, a former director and acting CEO of e-Auction, does not receive any
compensation, other than options as indicated below, for his services rendered
to e-Auction, has not received such compensation in the past, and is not
accruing any compensation pursuant to any agreement with e-Auction. However, Mr.
<PAGE>
-19-
Maine anticipates receiving benefits as a beneficial shareholder of e-Auction.
Should e-Auction become profitable and produce commensurate cash flows from
operations and/or through the sale of strategic investments, there may be some
level of compensation paid to Mr. Maine in the future. However, such
compensation will be subject to approval by e-Auction's board of directors.
Dan McKenzie, e-Auction's President, Chief Executive Officer, and Chairman has
an employment contract with the Company whereby he receives a base salary of
Cdn$150,000 per annum. If the Company terminates Mr. McKenzie without just cause
before December 31, 2000 Mr. McKenzie will receive a total amount equal to the 6
months compensation; without just cause after December 31, 2000 Mr. McKenzie
will receive a total amount equal to the 12 months compensation. Mr. McKenzie
was granted 1,000,000 options in e-Auction. The options vest over 3 years and
are exercisable at $0.85 per common share. Furthermore, during the month of
April 2000, the Board will review Mr. McKenzie's option amount with the ability
to grant an additional 500,000 options which will be vesting based on specific
performance goals of e-Auction. Option pricing will be determined based on the
share price at the time of grant in April 2000. Should there be a change in
control of the Company, all of Mr. McKenzie's unvested options will vest.
David Hackett, e-Auction's Chief Financial Officer, has an employment contract
with the Company whereby he receives a base salary of Cdn$100,000 per annum and
is entitled to bonuses of up to Cdn$100,000 per annum. If the Company terminates
Mr. Hackett without just cause Mr. Hackett will receive a total amount equal to
the greater of (i) 12 months compensation; and (ii) $150,000.00 plus bonuses.
Mr. Hackett was granted 1,000,000 options in e-Auction. The options vest over 3
years and are exercisable at $0.85 per common share. Should there be a change in
control of the Company, all of Mr. Hackett's unvested options will vest.
No retirement, pension, annuity benefits have been adopted by e-Auction for the
benefit of its employees.
INCENTIVE STOCK OPTIONS GRANTED TO NAMED EXECUTIVE OFFICERS DURING THE FINANCIAL
YEAR ENDED DECEMBER 31, 1999
The following table sets forth the particulars of individual grants of options
to purchase Common Shares made to each of the Named Executive Officers who were
granted options during the financial year ended December 31, 1999:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF
% OF TOTAL SECURITIES
OPTIONS GRANTED UNDERLYING
SECURITIES UNDER TO EMPLOYEES IN OPTIONS ON THE
NAME OPTION GRANTED FISCAL YEAR EXERCISE PRICE DATE OF THE GRANT EXPIRATION DATE
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
Dan McKenzie 1,000,000 23% $0.85 $0.84375 November 30, 2009
-----------------------------------------------------------------------------------------------------------------------
David Hackett 1,000,000 23% $0.85 $0.84375 November 30, 2009
-----------------------------------------------------------------------------------------------------------------------
Shane Maine 1,000,000 23% $0.85 $0.84375 November 30, 2009
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
COMPENSATION OF DIRECTORS
The Company has not yet instituted any standard arrangement for the compensation
of its directors. On August 29, 1999 Michael Gilley received stock options to
purchase up to 250,000 shares of common stock in e-Auction. The options vest
over 3 years and are exercisable at $5.00 per common share. Under an agreement
dated March 1, 1999 with Millennium Advisors Inc., of which Mr. Gilley is
President, e-Auction agreed to pay to Millennium Advisors a management fee of
$20,000 per month for advice and services with respect to mergers and
acquisitions, corporate structuring, corporate administration, and financing.
The Company also entered into a contract for service whereby Millenium would be
paid 25% of any funds it raised by the sale of equity or issuance of debt by the
Company in excess of the amount required by the Company to complete the
Schelfhout transaction, and no amounts were paid under this agreement, which
agreement has now expired. The Company agreed to pay, and has paid, Millennium
Advisors Inc. $120,000 as full and final payment for all of its obligations
under the March 1, 1999 agreement. As of March 20, 2000, the Company and
Millennium Advisors Inc. have agreed to terminate the March 1, 1999 agreement.
In August 1999, Millennium loaned one (1) million dollars to the Company.
<PAGE>
-20-
On August 13, 1999, the Company agreed to issue 197,219 shares of common stock
to Millennium in payment for the fee and interest on the loan. At the time of
the grant, the shares had a deemed value of $1 million and the deemed price per
share was based on the weighted average closing price in a 5 day period when the
loan was granted. The shares were issued in January, 2000. See also Part 1, Item
7 - Certain Relationships and Related Transactions and Part II, Item 4 - Recent
Sales of Unregistered Securities.
On December 1, 1999, Mr. McKenzie, Mr. Hackett and Mr. Maine, a former director
and acting Chief Executive Officer, each received stock options to purchase up
to 1,000,000 shares of common stock in e-Auction. The options vest over 3 years
and are exercisable at $0.85 per common share.
STOCK OPTION PLAN
e-Auction established a stock option plan on March 1, 1999 (the "Stock Option
Plan") and as amended effective March 13, 2000, to provide incentives to
attract, retain and motivate eligible persons whose presence and potential
contributions are important to the success of e-Auction. The purpose of the
Stock Option Plan is to further the interest of e-Auction and its stockholders
by providing incentives in the form of stock or stock options to key employees
and directors who contribute materially to the success of e-Auction. The grant
of options will recognize and reward outstanding individual performances and
contributions and will give such persons a proprietary interest in e-Auction,
thus enhancing their personal interest in e-Auction's continued success and
progress. This program will also assist e-Auction in attracting and retaining
key employees and directors. To date 6,275,000 options have been granted with
exercise prices ranging from $0.01 to $2.25 per common share. Options to
purchase 3,250,000 common shares of e-Auction have been issued to the officers
and directors as a group.
<TABLE>
<CAPTION>
Date Number Price
---- ------ -----
<S> <C> <C>
December 1, 1998 1,000,000 $0.01
December 1, 1999 3,050,000 $0.85
January 20, 2000 300,000 $2.00
April 24, 2000 100,000 $2.25
May 2, 2000 1,825,000 $2.00
-----------
Total 6,275,000
===========
</TABLE>
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
e-Auction believes that the terms and conditions of the following transaction
was no less favorable to e-Auction than terms attainable from unaffiliated third
parties.
As previously described in Item 1, on February 26, 1999, e-Auction entered into
a stock exchange agreement with the stockholders of e-Auction (Barbados) (the
"Stock Exchange Agreement"). This transaction was made at a time when
e-Auction's common stock was infrequently traded with virtually no trading
volume. e-Auction issued a total of 34,500,000 of its common stock to the
stockholders of e-Auction (Barbados) in exchange for all of the issued and
outstanding shares in the capital of e-Auction (Barbados). The terms and
conditions of the Stock Exchange Agreement were determined by the parties
through arms length negotiations. However, no appraisal was performed. As a
result of the Share Exchange Agreement, the e-Auction (Barbados) shareholders
received 86.6% of the outstanding shares of common stock of e-Auction.
e-Auction treated the Share Exchange Agreement as an acquisition of e-Auction
(Barbados) and a recapitalization whereby e-Auction (Barbados) was the
accounting acquirer. At the time of the acquisition, there were only an
infrequent number of trades and virtually no trading volume of the common stock
of e-Auction and e-Auction was unable to estimate the market value of its common
stock to determine resulting valuation of this acquisition.
The majority of the Company's operations during the 1999 calendar year were
funded by Ventures North Investment Partners Inc. ("VNIP"). As of December 31,
1999, the Company owed Ventures $860,793. VNIP is related through significant
common shareholders. The amounts advanced are non-interest bearing with no fixed
terms of repayment. Subsequent to year end the entire balance was repaid.
<PAGE>
-21-
On August 12, 1999, the Company received a loan of $1,000,000 from Millennium
Advisors Inc. ("Millennium"), a company related through a past common director,
acting as agent for undisclosed lenders. The loan was to be repaid within 30
days. In consideration for the loan, Millennium received 197,219 common shares
of the Company with a deemed value of $1,000,000 as a financing fee. The number
of shares issued was based on the weighted average closing price in a 5 day
range when the loan was granted. These shares were issued in January, 2000.
The Company also entered into a contract for services whereby Millennium would
be paid 25% of any funds raised by the sale of equity or issuance or debt by the
Company in excess of the amount reasonably required by the Company to complete
the Schelfhout acquisition. To date no additional amounts have been paid. The
Company also entered into an agreement on March 1, 1999 to pay Millennium
consulting fees of $20,000 per month for one year. In March 2000, the Company
and Millennium terminated all agreements between the two companies. The Company
also paid $120,000 to extinguish all amounts owing to Millennium. See also Part
I, Item 6 - Executive Compensation - Compensation of Directors and Part II, Item
4 - Recent Sales of Unregistered Securities.
On January 10, 2000, e-Auction, through its subsidiary e-Auction Belgium N.V.,
purchased all of the shares of Schelfhout for a purchase price of US$10 million,
representing the price stipulated in the share purchase agreement,. The purchase
price was satisfied by the payment of US$4 million in cash (U.S. $1million was
paid in August 1999 and the US$3 million balance was paid on closing in January
2000) and by the issuance of 3,636,364 common shares of the Company , of which
1,818,182 common shares of e-Auction were issued to Luc Schelfhout, a current
officer of the Company, and 1,818,182 common shares of e-Auction were issued to
Mr. Schelfhout's spouse, Hilde de Laet. For accounting purposes the purchase
price per share is deemed to be $1.00.
ITEM 8 - DESCRIPTION OF SECURITIES
As previously described in Item 1 under the heading "Description of Business",
e-Auction is authorized to issue two hundred and fifty million (250,000,000)
shares of common stock, of which 64,645,915 common shares are currently issued
and outstanding. The holders of common stock are entitled to one vote per share
on each matter submitted to a vote of shareholders, including the election of
directors. No stockholder is entitled to cumulative votes, preemptive,
subscription or conversion rights. The election of directors and other general
stockholder action requires the affirmative vote of a majority of shares
represented at a duly held meeting at which a quorum is represented, except that
pursuant to the by-laws, a written consent to corporate action by a majority of
stockholders entitled to vote on a matter is permitted. The outstanding shares
of common stock are validly issued, fully paid and non-assessable.
The holders of common stock are entitled to receive dividends when and if
declared by the board of directors. In the event of liquidation, dissolution or
winding up of the affairs of e-Auction, the holders of common stock are entitled
to share ratably in all assets remaining for distribution to them subject to the
rights of holders of senior securities, if any.
There are no provisions in the charter or by-laws of e-Auction that would delay,
defer or prevent a change in control.
At the present time, no preferred stock is authorized in the Articles of
Incorporation, and there are no warrants outstanding. e-Auction approved the
issuance of up to 9,000,000 options to acquire common stock in the Company on
March 1, 1999 pursuant to the Company's Stock Option Plan dtaed March 1, 1999,
as amended effective March 13, 2000. At the time of filing the Registration
Statement, there were 6,115,000 options outstanding.
The Company's common stock may be deemed to be "penny stock" as that term is
defined in Rule 3a51-1 of the Securities and Exchange Commission. Penny stocks
are stocks (i) with a price of less than $5.00 per share; (ii) that are not
traded on a "recognized" national exchange; (iii) whose prices are not quoted on
the
<PAGE>
-22-
NASDAQ automated quotation system (NASDAQ-listed stocks must still meet
requirement (i) above); or (iv) in issuers with net tangible assets less than
$2,000,000 (if the issuer has been in continuous operation for at least three
years) or $5,000,000 (if in continuous operation for less than three years), or
with average revenues of less than $6,000,000 for the last three years. Section
15(g) of the Securities Exchange Act of 1934, as amended, and Rule15g-2 of the
Securities and Exchange Commission require broker/dealers dealing in penny
stocks to provide potential investors with a document disclosing the risks of
penny stocks and to obtain a manually signed and dated written receipt of the
document before effecting any transaction in a penny stock for the investor's
account. Potential investors in our common stock are urged to obtain and read
such disclosure carefully before purchasing any shares that are deemed to be a
"penny stock." Moreover, Rule 15g-9 of the Securities and Exchange Commission
requires broker/dealers in penny stocks to approve the account of any investor
for transactions in such stocks before selling any penny stock to that investor.
This procedure requires the broker/dealer to (i) obtain from the investor
information concerning his or her financial situation, investment experience and
investment objectives; (ii) reasonably determine, based on that information,
that transactions in penny stocks are suitable for the investor and that the
investor has sufficient knowledge and experience as to be reasonably capable of
evaluating the risks of penny stock transactions; (iii) provide the investor
with a written statement setting forth the basis on which the broker/dealer made
the determination in (ii) above; and (iv) receive a signed and dated copy of
such statement from the investor, confirming that it accurately reflects the
investor's financial situation, investment experience and investment objectives.
Compliance with these requirements may make it more difficult for investors in
the Company's common stock to resell their shares to third parties or to
otherwise dispose of them.
SHARES ELIGIBLE FOR FUTURE SALES
Of the 64,645,915 outstanding shares of common stock of e-Auction, 5,150,000 are
free trading shares as of the date of filing this Registration Statement and
59,495,915 shares of common stock are restricted securities as that term is
defined in Rule 144 promulgated under the SECURITIES ACT OF 1933("Restricted
Securities").
Rule 144 governs resale of Restricted Securities for the account of any person,
other than the issuer, and restricted and unrestricted securities for the
account of an "affiliate" of the issuer. Restricted securities generally include
any securities acquired directly or indirectly from an issuer or its affiliates,
which were not issued or sold in connection with a public offering registered
under the SECURITIES ACT of 1933. An affiliate of the issuer is any person who
directly or in directly controls, is controlled by, or is under common control
with the issuer. Affiliates of e-Auction may include its directors, executive
officers and persons directly or indirectly owning 10% or more of the
outstanding common stock. Under Rule 144, unregistered resale of restricted
common stock cannot be made until it has been held for a minimum of one year
from the later of its acquisition from e-Auction or an affiliate of e-Auction.
Thereafter, shares of common stock may be resold without registration subject to
Rule 144's volume limitation aggregation, broker transaction, notice filing
requirements, and requirements concerning publicly available information about
e-Auction ("Applicable Requirements"). Resale by e-Auction's affiliates of
restricted and unrestricted common stock is subject to the Applicable
Requirements. The volume limitations provide that a person, or persons who must
aggregate their sale cannot, within any three-month period, sell more than the
greater of (i) one percent of the then outstanding shares, or (ii) the average
weekly reported trading volume during the four calendar weeks preceding each
such sale. A person who is not deemed an "affiliate" of e-Auction and who has
beneficially owned shares for at least two years would be entitled to sell such
shares under Rule 144 without regard to the Applicable Requirements.
At the time of filing this Registration Statement, the Restricted Securities
have not been held for more than two years. However, between now and the year
2001, approximately 35,020,000 of the Restricted Securities will have been held
for more than two years and therefore could be sold without limitation. No
prediction can be made as to the effect, if any, that sales of shares of common
stock or the availability of such shares for sale will have on the market prices
prevailing from time to time. Nevertheless, the possibility that substantial
amounts of common stock may be sold in the public market would likely have a
material adverse effect on prevailing market prices for the common stock and
could impair e-Auction's ability to raise capital through the sale of its equity
securities.
<PAGE>
-23-
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Interwest Transfer Co., Inc., located at 100-1981 East Murray Holiday Road, Salt
Lake City, Utah, 84117 was appointed transfer agent, registrar and dividend
disbursing agent for all of the shares of common stock of e-Auction on April 15,
1999 and continues to act in those capacities as of the date of filing this
Registration Statement.
<PAGE>
-24-
PART II
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
e-Auction's common stock is currently traded on the OTCBB under the symbol
"EAUC". The following table sets forth, for the periods indicated, the high and
low bid quotations for the common stock of e-Auction as reported on the OTCBB
until January 19, 2000 and on the Pink Sheets thereafter. The bid prices reflect
inter-dealer quotations, do not include retail mark-ups, markdowns, or
commissions and do not necessarily reflect actual transactions.
----------------------------------------------------------------
MONTH ENDED PRICE HIGH PRICE LOW
----------------------------------------------------------------
January, 1999 2.70 2.30
----------------------------------------------------------------
February, 1999 n/a n/a
----------------------------------------------------------------
March, 1999 9.05 4.70
----------------------------------------------------------------
April, 1999 11.00 6.60
----------------------------------------------------------------
May, 1999 11.375 9.500
----------------------------------------------------------------
June, 1999 9.9375 7.000
----------------------------------------------------------------
July, 1999 9.250 5.750
----------------------------------------------------------------
August, 1999 5.875 1.750
----------------------------------------------------------------
September, 1999 2.375 1.1875
----------------------------------------------------------------
October, 1999 1.78125 1.09375
----------------------------------------------------------------
November, 1999 1.46875 1.26
----------------------------------------------------------------
December, 1999 2.719 0.906
----------------------------------------------------------------
January, 2000 3.50 1.688
----------------------------------------------------------------
February, 2000 4.38 2.375
----------------------------------------------------------------
March, 2000 6.375 1.343
----------------------------------------------------------------
April, 2000 2.875 1.90
----------------------------------------------------------------
May, 2000 2.601 1.507
----------------------------------------------------------------
Up to June 28, 2000 1.55 1.25
----------------------------------------------------------------
To the best of e-Auction's knowledge, prior to February 26, 1999 (the date of
the Share Exchange Agreement between Kazari and e-Auction (Barbados)), no
broker-dealer made an active market or regularly submitted quotations for
e-Auction's common stock. During this period, there were only an infrequent
number of trades and virtually no trading volume.
As of May 31 , 2000, there were 219 holders of record of e-Auction's common
stock.
DIVIDENDS
e-Auction has not paid any dividends to date and has no plans to do so in the
immediate future. The current policy of e-Auction's board of directors is for
e-Auction to retain all earnings, if any, to provide funds for operations and
expansion of e-Auction's business. The declaration of dividends, if any, will be
subject to the discretion of the board of directors, which may consider such
factors as e-Auction's results of operations, financial condition, capital needs
and acquisition strategy, amongst others.
ITEM 2 - LEGAL PROCEEDINGS
Except as described below, e-Auction is not presently a party to any litigation,
nor to the knowledge of the board of directors is there any litigation
threatened against e-Auction.
(1) An action (the "Action") was commenced by Icon Capital Corporation (the
"Plaintiff") in the United States District Court - Central District of
California on November 17, 1999 against John Andrews, e-Auction Global
Trading Inc. (a Nevada Corporation), e-Auction Global Trading Inc. (a
Barbados Corporation), e-Medsoft.com, e-Net Global Financial Services,
Inc., Kazari
<PAGE>
-25-
International, Inc., Shane Maine, Shaun Maine, John McLennan, QFG
Holdings Limited, Ventures North International Inc, Jeff Wheeler,
582976 BC Ltd. and Sanga International, Inc. ("Sanga") as a nominal
defendant.
The Action is a shareholder derivative action brought on behalf of the
nominal defendant Sanga. The Plaintiff, on behalf of Sanga, alleges
that the defendants damaged Sanga by: (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. As such, the Plaintiff claims
that the defendants' actions have not only damaged Sanga, but also the
Plaintiff and the remaining shareholders of Sanga totaling as much as
$100 million dollars.
The Plaintiff also seeks a preliminary and permanent injunction
restraining and enjoining all defendants from: (i) using the
proprietary internet auction software of Sanga; (ii) using the
proprietary financial services technology of Sanga; (iii) representing
that the defendants own or have the right to utilize the internet
auction software, the financial services technology or other assets
from Sanga; (iv) continuing to conceal any true and material facts
regarding e-Auction; (v) transferring Sanga's financial services
technology;(vi) transferring any assets of Sanga; and (vii) enforcing
any loans.
The Action was stayed on November 29, 1999 as a result of Sanga filing
for protection pursuant to Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court - Central District of California.
(2) A second action (the "ICON Action") was commenced by Icon Capital
Corporation (the "Plaintiff") in the United States District Court -
Central District of California on February 7, 2000 against John
Andrews, e-Auction Global Trading Inc. (a Nevada Corporation),
e-Auction Global Trading Inc. (a Barbados Corporation), e-Medsoft.com,
e-Net Global Financial Services, Inc., Kazari International, Inc.,
Shane Maine, Shaun Maine, John McLennan, QFG Holdings Limited, Ventures
North International Inc, Jeff Wheeler, 582976 BC Ltd. and DOES 1-50.
The Plaintiff, a shareholder of Sanga International Inc., alleges that
the defendants breached their fiduciary duties to the Plaintiff. As
such, the Plaintiff claims that the defendants' actions have damaged
the Plaintiff totaling several millions of dollars.
The Company does not believe that either of the two above described actions will
have any material adverse effect on the Company or its assets or business. The
Company does not use, or is not planning to use, any proprietary internet
auction software of Sanga or anything else regarding which the plaintiff seeks
an injunction. See also Note 17 in Notes to the Financial Statements of the
Company's Consolidated Financial Statements.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
In a report dated June 8, 1998, David A. Cox, a Chartered Accountant engaged by
e-Auction, reported on e-Auction's interim financial operations from the date of
incorporation on January 8, 1998 to June 1, 1998. Such report did not contain an
adverse opinion or disclaimer of opinion, nor was such report qualified or
modified as to uncertainty, audit scope or accounting principles, except that
the statements were prepared in accordance with Canadian generally accepted
accounting principals. There were no disagreements with David A. Cox on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure. It was decided between Mr. Cox and the Company that
due to Mr. Cox wishing to pursue other areas of accounting practice, Mr. Cox
decided to forego the account. The departure of Mr. Cox as auditor of the
Company was not due to any disagreement or dissatisfaction on the part of either
Mr. Cox or the Company. While there is no record that the board of directors
approved of the departure of Mr. Cox, the board has approved of the hiring of
Dale Matheson Carr-Hilton to become the auditors of the Company.
On December 1, 1999, Dale Matheson Carr-Hilton was hired as the auditors of
e-Auction.
<PAGE>
-26-
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
Since the date of its incorporation, the following transactions were effected by
e-Auction in reliance upon exemptions from registration under the SECURITIES ACT
OF 1933, as amended, (the "1933 Act") as provided in Section 4(6) thereof.
Each certificate issued for unregistered securities contained a legend stating
that the securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities.
On January 8, 1998, e-Auction issued 1,250,000 shares of common stock equally to
Fred Tham, Kam Chun Hui, Noni Wee, Kar Chun Chow and AiNgoh Chiam for an
aggregate and net purchase price of $1,250.00 pursuant to Rule 504 of Regulation
D promulgated under the 1933 Act. E-Auction believes that the investors 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 e-Auction's operations and financial condition.
On January 30, 1998, e-Auction issued 4,000,000 shares of common stock at a
purchase price of one cent ($0.01) per share for an aggregate and net purchase
price of $40,000.00 through an offering circular under Rule 504 of Regulation D
promulgated under the 1933 Act. e-Auction believes that the investors 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 e-Auction's operations and financial condition.
On April 26, 1998, e-Auction issued 70,000 shares of common stock at a purchase
price of three dollars ($3.00) per share for an aggregate purchase price of
$210,000.00 and net proceeds of $200,000.00 pursuant to an offering under Rule
504 of Regulation D promulgated under the 1933 Act. e-Auction believes that the
investors 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 e-Auction's operations and financial
condition.
On February 26, 1999, e-Auction entered into a Stock Exchange Agreement with the
stockholders of e-Auction (Barbados). e-Auction issued a total of 34,500,000
shares of common stock of e-Auction pursuant to Regulation S promulgated under
the 1933 Act to the e-Auction (Barbados) stockholders in exchange for all of the
outstanding shares of e-Auction (Barbados). There was no cash exchanged in this
transaction. The share exchange took place on a one for one basis. e-Auction
believes that the stockholders of e-Auction (Barbados) 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 e-Auction's operations and financial condition.
On August 13, 1999, in consideration for a loan of $1 million by Millennium
Advisors Inc. to e-Auction, Millennium received 197,219 common shares of the
Company with 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 in a
5 day range when the loan was granted. These shares were issued in January,
2000. The common shares were issued to Millennium Advisors Inc., as a non-US
person, pursuant to Regulation S promulgated under the 1933 Act. e-Auction
believes that Millennium Advisors Inc. 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 e-Auction's
operations and financial condition. See also Part 1, Item 6 - Executive
Compensation of Directors and Part 1, Item 7 - Certain Relationships and Related
Transactions.
On January 7, 2000, the Company issued 8,965,899 special warrants (the "Special
Warrants") to various non-United States purchasers pursuant to Regulation S
promulgated under the 1933 Act. Each Special Warrant entitled the holder thereof
to acquire one (1) common share of the Company for no additional
<PAGE>
-27-
consideration. Also on January 7, 2000, the Company issued 8,965,899 shares of
common stock to various non-United States purchasers pursuant to Regulation S
promulgated under the 1933 Act upon the exercise of the Special Warrants
previously issued by the Company. 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 both made in off-shore
transactions to foreign institutional purchasers foreign individual purchasers
who certified that they (i) were not U.S. persons and were not acquiring the
securities for the account or benefit of any U.S. person and (ii) were an
accredited or sophisticated purchaser; and agreed to resell the securities only
in accordance with Regulation S and to comply with certain other provisions of
Regulation S. The purchase price for the Special Warrants was US$0.50 and the
Company raised approximately $4,482,948. In connection with this offering, the
Company paid commissions totalling $163,939 by the issuance of 327,878 common
shares to various non-United States individuals pursuant to Regulation S
promulgated under the 1933 Act. The issue price of the common shares used to pay
the commissions was $0.50. The Company also issued 7,625,916 shares of common
stock to various non-United States individuals pursuant to Regulation S
promulgated under the 1933 Act to settle outstanding liabilities. The issuance
price for the common shares was US$0.50 and the Company retired approximately
$3,812,958 in liabilities. e-Auction believes that the purchasers of the Special
Warrants and the recipients of the shares of common stock on the exercise of the
Special Warrants, as well as the recipients of the common shares for commissions
and to settle outstanding liabilities 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 e-Auction's
operations and financial condition.
On January 10, 2000, the Company issued 3,636,364 shares of common stock to the
former shareholders of Schelfhout pursuant to Regulation S promulgated under the
1933 Act as partial consideration for the purchase by the Belgium subsidiary of
the Company of all of the shares of Schelfhout. For accounting purposes the
purchase price per share is 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 institutional purchasers foreign individual purchasers who certified
that they (i) were not U.S. persons and were not acquiring the securities for
the account or benefit of any U.S. person and (ii) were an accredited or
sophisticated purchaser; and agreed to resell the securities only in accordance
with Regulation S and to comply with certain other provisions of Regulation S.
e-Auction 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 e-Auction's operations and financial condition.
On June 22, 2000, the Company issued 4,072,639 shares of common stock to ABN
AMRO Capital Investments (Belgie) N.V. pursuant to an exemption from the
Securities Act including, but not limited to, applicable exemptions under
Section 4(2), Regulation D and Regulation S of the Securities Act. The purchase
price for the common shares was $1.842 and the Company raised $7,500,000. The
offering was made in an off-shore transaction to the purchaser who certified
that it (i) was not a U.S. person and was not acquiring the securities for the
account or benefit of any U.S. person and (ii) was an accredited or
sophisticated purchaser; and agreed to resell the securities only in accordance
with Regulation S and to comply with certain other provisions of Regulation S.
e-Auction believes that ABN AMRO Capital Investments (Belgie) N.V. 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 e-Auction's operations and financial condition. The Investor
understands that it must hold the Shares for an indefinite period of time unless
the sale or other transfer thereof is subsequently registered under the
Securities Act or an exemption from such registration is available at that time.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of e-Auction contain the following provisions
which limit the liability of directors:
ARTICLE V
<PAGE>
-28-
The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permissible under the General
Corporation Law of the State of Nevada, as the same may be amended and
supplemented.
ARTICLE VI
The corporation shall, to the fullest extent permitted by the General
Corporation Law of the State of Nevada, as the same may be amended and
supplemented (the "Law") indemnify and any all persons whom it shall
have power to indemnify under the Law from and against any and all of
the expenses, liabilities, or other matters referred to in or covered
by the Law. The indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be
entitled under any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding
such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of
the heirs, executors and administrators.
Section 9 of e-Auction's By-laws, which reads as follows, provides for the
indemnification of agents of and the purchase of liability insurance:
For purposes of this Section 9, "agent" means any person who is or was
a director, officer, employee or other agent of the Corporation, or is
or was serving at the request of the Corporation as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a
director, officer, employee or agent of a foreign or domestic
corporation which was a predecessor corporation of the Corporation or
of another enterprise at the request of such predecessor corporation of
the Corporation or of another enterprise at the request of such
predecessor corporation; "proceeding" means any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative
or investigative; and "expenses" included without limitation,
attorneys' fees and any expenses of establishing a right to
indemnification under this Section 9.
The Corporation shall have the power to indemnify any person who was or
is a party or is threatened to be made a party to any proceeding) other
than an action by or in the right of the Corporation to procure a
judgement in its favor) by reason of the fact that such person is or
was an agent of the Corporation, against expenses, judgements, fines,
settlements and other amounts actually and reasonably incurred in
connection with such proceedings to the fullest extent permitted under
the General Corporation Law of the State of Nevada, as amended from
time to time.
<PAGE>
e-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
PROFORMA BALANCE SHEET - DECEMBER 31, 1999
(IN U.S. FUNDS)
ASSETS
<TABLE>
<CAPTION>
E-AUCTION SCS ADJUSTMENTS PROFORMA
$ $ $ $
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets
Cash 4,179,394 284,686 (3,000,000) 1,464,080
Cash guarantees - 29,060 - 29,060
Other current assets - 1,191,179 - 1,191,179
----------- --------- ----------- ---------
4,179,394 1,504,925 (3,000,000) 2,684,319
Investment in SCS 1,000,000 - (1,000,000) -
Tangible assets 34,247 668,181 - 702,428
Goodwill - - 6,881,771 6,881,771
----------- ----------- --------- -----------
5,213,641 2,173,106 2,881,771 10,268,518
=========== =========== ========= ===========
</TABLE>
LIABILITIES AND SHARE CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Loans payable 2,000,000 - - 2,000,000
Shareholders loan 2,200,000 - - 2,200,000
Share subscriptions received 1,858,229 - - 1,858,229
Other current liabilities 1,809,843 1,244,858 - 3,054,701
--------- --------- ---------- -----------
7,868,072 1,244,858 - 9,112,930
Long-term debt - 173,655 - 173,655
--------- --------- ---------- -----------
7,868,072 1,418,513 - 9,286,585
--------- --------- ---------- -----------
Redeemable common stock - - 3,636,364 3,636,364
Share capital 1 831,843 (831,843) 1
Deficit (2,654,432) (77,250) 77,250 (2,654,432)
--------- --------- ---------- -----------
(2,654,431) 754,593 (754,593) (2,654,431)
--------- --------- ---------- -----------
5,213,641 2,173,106 2,881,771 10,268,518
========= ========= ========== ===========
</TABLE>
<PAGE>
e-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
PROFORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1999
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
PROFORMA
E-AUCTION SCS ADJUSTMENTS PROFORMA
$ $ $ $
----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue - 3,469,498 - 3,469,498
Amortization of goodwill - - 1,376,354 1,376,354
Raw materials and goods for resale - 1,229,958 - 1,229,958
Services and other goods - 747,199 - 747,199
Salaries and benefits 458,924 1,188,048 - 1,646,972
Loan fee 1,000,000 - - 1,000,000
Other expenses 1,195,508 195,738 1,391,246
----------- ---------- ---------
2,654,432 3,360,943 7,391,729
----------- --------- ---------
Income (loss) before taxes (2,654,432) 108,555 (3,922,231)
Income taxes - 49,061 49,061
----------- ----------- -----------
Net income (loss) (2,654,432) 59,494 1,376,354 (3,971,292)
=========== =========== ========= ===========
Loss per share
Basic and diluted
Historical (0.07)
===========
Proforma (0.10)
===========
</TABLE>
<PAGE>
e-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTE TO PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
--------------------------------------------------------------------------------
These financial statements have been prepared in connection with the
purchase of Schelfhout Computer Systems N.V. ("Schelfhout") by the Company
in a purchase agreement dated January 7, 2000.
The proforma balance sheet reflects the acquisition as if it took place on
December 31, 1999. The condensed proforma income statement reflects the
combined operations for the year ended December 31, 1999 as if the
acquisition had taken place at January 1, 1999. The goodwill on the
acquisition is calculated as follows:
<TABLE>
<CAPTION>
$
---------
<S> <C> <C> <C>
Purchase price 7,636,364
$
---------
Net tangible assets of SCS acquired
Total Assets 2,173,106
Less: Liabilities 1,418,513 754,593
--------- ----------
Excess of purchase price over net tangible assets, being goodwill 6,881,771
==========
Goodwill is to be amortized on a straight-line basis over 5 years.
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 subsequent to
Common shares at fair value year end
issued on closing (3,636,364) 3,636,364 issued subsequent to
--------- year end
$7,636,364
==========
</TABLE>
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 worth
$750,000 on each of the 6, 12, 18 and 24 month anniversary of the closing
and 606,061 shares with a deemed value of $1,000,000 on each of the 36,
48 and 60 month anniversary of the closing. 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 financial information for the respective companies is based on
audited financial statements. The SCS financial information was prepared
in accordance with Belgian generally accepted accounting principles and
was reported on by other auditors without reservation. There are no
material differences between Belgian and U.S. generally accepted
accounting principles with respect to these financial statements. The
exchange rate used to convert SCS's historical income statement was
1.06626, this is the average exchange rate for 1999 between Euro's and
U.S. dollars. The exchange rate used to convert SCS's historical balance
sheet was 1.00410, this is the exchange rate at December 31, 1999 between
Euro's and U.S. dollars.
The condensed proforma income statement reflects the combined operations
for the year ended December 31, 1999 as if the acquisition had taken
place at January 1, 1999.
<PAGE>
e-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(IN U.S. FUNDS)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
E-AUCTION GLOBAL TRADING INC.
In our opinion, the consolidated balance sheets and the related consolidated
statements of operations and deficit and cash flows present fairly, in all
material respects, the financial position of e-Auction Global Trading Inc. at
December 31, 1999 and December 31, 1998, and the results of their operations and
their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States. These consolidated financial
statements are the responsibility of the Company's management, our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ Alvin F. Dale, Ltd.
Dale Matheson Carr-Hilton
VANCOUVER, B.C.
FEBRUARY 1, 2000 CHARTERED ACCOUNTANTS
<PAGE>
e-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED BALANCE SHEET - DECEMBER 31, 1999
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
1999 1998
$ $
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash 301,461 1
Unrestricted cash held in trust by lawyers 66,853 -
Restricted cash held in trust by lawyers (NOTE 15) 3,811,080 -
--------- -----------
4,179,394 1
INVESTMENT IN SCHELFHOUT (NOTE 4) 1,000,000 -
CAPITAL ASSETS (NOTE 5) 34,247 -
---------------------------------------------------------------------------------------------------------------------------------
5,213,641 1
=================================================================================================================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable 749,050 -
Deferred revenue (NOTE 6) 200,000 -
Due to related party (NOTE 7) 860,793 -
Loans payable (NOTE 8) 2,000,000 -
Shareholder's loan (NOTE 9) 2,200,000 -
Share subscriptions received 1,858,229 -
--------- -----------
7,868,072 -
--------- -----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL AND CONTRIBUTED SURPLUS (NOTE 10) 1 1
DEFICIT, ACCUMULATED DURING DEVELOPMENT STAGE (2,654,432) -
--------- -----------
(2,654,431) 1
---------------------------------------------------------------------------------------------------------------------------------
5,213,641 1
=================================================================================================================================
</TABLE>
CONTINGENCIES (NOTE 16)
APPROVED BY THE DIRECTORS
DIRECTOR
----------------------------------------
DIRECTOR
----------------------------------------
SEE ACCOMPANYING NOTES
<PAGE>
e-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
1999 1998
$ $
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EXPENSES
Advertising and promotion 19,221 -
Bank charges 277 -
Consulting fees 426,158 -
Insurance 3,698 -
Investor relations 316,567 -
Loan fee (NOTE 8) 1,000,000 -
Office and miscellaneous 31,685 -
Professional fees 241,748 -
Rent 59,874 -
Salaries 458,924 -
Telephone 59,136 -
Travel 37,144 -
----------- ---------
2,654,432 -
----------- ---------
NET LOSS (2,654,432) -
DEFICIT, beginning of year - -
---------------------------------------------------------------------------------------------------------------------------------
DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE, end of year (2,654,432) -
=================================================================================================================================
---------------------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER SHARE (NOTE 6) (0.07) 0.00
=================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
e-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
1999 1998
$ $
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss (2,654,432) -
Net changes in non-cash operating accounts
Accounts payable 749,050 -
Deferred revenue 200,000 -
---------- ---------
(1,705,382) -
---------- ---------
FINANCING ACTIVITIES
Due to related parties 860,793 -
Issuance of share capital - 1
Share subscriptions received 247,149 -
Loans received 2,000,000 -
Shareholder's loan received - -
---------- ---------
3,107,942 1
---------- ---------
INVESTING ACTIVITIES
Deposit on Schelfhout acquisition (1,000,000) -
Acquisition of capital assets (34,247) -
----------- ---------
(1,034,247) -
---------- ---------
INCREASE (DECREASE) IN CASH 368,313 -
CASH, beginning of year 1 -
---------------------------------------------------------------------------------------------------------------------------------
CASH, end of year 368,314 1
=================================================================================================================================
CASH
Unrestricted cash held in trust by lawyers 66,853 -
Cash 301,461 1
---------------------------------------------------------------------------------------------------------------------------------
368,314 1
=================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
e-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS
--------------------------------------------------------------------------------
The Company is a development stage entity and was organized with the
intent to be a holding company which will acquire and/or form joint
ventures with corporate entities conducting various types of businesses
throughout the world.
--------------------------------------------------------------------------------
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 a continuation of the financial statements 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.
(SEE NOTE 11)
b) Principles of consolidation
The accompanying financial statements consolidate the accounts of
the Company and its wholly owned subsidiaries, e-Auction Belgium
N.V., e-Auction Global Trading Inc. (Barbados) and their wholly
owned subsidiary e-Auction Global Trading Inc. (Canada).
--------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
a) Foreign currency translation
The Company's functional currency and 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 year end exchange rate.
<PAGE>
--------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES - CONT'D
--------------------------------------------------------------------------------
b) Loss per common share
The weighted average number of shares used for calculating loss
per share is 40,160,438.
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, accounts
payable, due to related parties, loans payable and a shareholder's
loan, the fair market value of which approximates their carrying
value.
e) Amortization
Amortization of capital assets. Amortization is provided at the
following annual rates:
Software Straight-line over 5 years
f) Related party transactions
Related party transactions are recorded at their exchange amounts
which approximate fair market value.
g) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced
before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor
errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
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. The Company has 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.
<PAGE>
--------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES - CONT'D
--------------------------------------------------------------------------------
i) Revenue recognition
The Company's policy is to recognize revenue from license fees
when an agreement specifying the Company's fee is signed, the
software is delivered and collection is considered probable.
Revenue from royalties are recorded as earned and when
collection is considered probable.
--------------------------------------------------------------------------------
4. INVESTMENT IN SCHELFHOUT
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
$ $
---- ----
<S> <C> <C>
Deposit 1,000,000 -
========= ====
</TABLE>
Pursuant to a share purchase agreement dated January 7, 2000, the
Company paid a deposit on the purchase of 100% of the issued and
outstanding share capital of Schelfhout Computer Systemen N.V.
("Schelfhout").
The purchase price is $10,000,000, this represents the price stipulated
in the purchase agreement. For accounting purposes the purchase price
is $7,636,364 and is to be paid as follows:
<TABLE>
<S> <C> <C>
Refundable deposit $ 1,000,000 paid
Cash on closing 3,000,000 paid subsequent to year end
Common shares at fair value
issued on closing (3,636,364) 3,636,364 issued subsequent to year end
----------
$10,000,000
==========
</TABLE>
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 with a
deemed value of $750,000 on each of the 6, 12, 18 and 24 month
anniversary of the closing and 606,061 shares with a deemed value of
$1,000,000 on each of the 36, 48 and 60 month anniversary of the
closing. 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 Schelfhout acquisition was completed and publicly announced on
January 7, 2000.
The stock price of $1.00 per share for accounting purposes represents
the fair value of the shares issued.
<PAGE>
--------------------------------------------------------------------------------
4. INVESTMENT IN SCHELFHOUT - CONT'D
--------------------------------------------------------------------------------
The fair value of the shares issued was determined based on: (a) the
cash price paid for stock in a contemporaneous private placement, (b)
the put feature related to the shares issued and (c) market price of
the stock.
The dollar values for the shares to be released are based on $1.65 per
share which represents the cash price per share that the Company may be
required to pay; and
If the Company is required to repurchase the shares issued at $1.65 per
share that will result in additional goodwill.
(SEE NOTE 15)
--------------------------------------------------------------------------------
5. CAPITAL ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
$ $
------ ------
<S> <C> <C>
Software 34,247 -
====== ======
</TABLE>
No amortization has been taken for the year as the software was not put
into use until after year end.
--------------------------------------------------------------------------------
6. DEFERRED REVENUE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
$ $
------- ------
<S> <C>
200,000 -
======= ======
</TABLE>
In September of 1999 the Company entered into a Software License and
Non-Competition Agreement to grant an exclusive license in perpetuity,
subject to performance, to use its technology to commercially exploit
electronic auctions in the region of Australia and New Zealand.
The Agreement called for a payment of $200,000 by December 31, 1999 and
royalties of 20% of gross revenue less gross operating costs.
The $200,000 is being recorded as deferred revenue until the Company
ships the software at which time it will be taken into income. The
Company's revenue recognition policy is to recognize the license fee upon
shipment of the software as no other obligations exist and to recognize
royalties when received.
<PAGE>
--------------------------------------------------------------------------------
7. DUE TO RELATED PARTIES
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
$ $
------- -------
<S> <C> <C>
Ventures North Investment Partners Inc. ("Ventures") 860,793 -
======= =======
</TABLE>
The majority of the Company's operations during the year were funded by
Ventures. Ventures is related through significant common shareholdings.
The amounts advanced are non-interest bearing with no fixed terms of
repayment. (SEE NOTE 12)
--------------------------------------------------------------------------------
8. LOANS PAYABLE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
$ $
--------- ------
<S> <C> <C>
Millennium Advisors Inc.
Loan payable 1,000,000 -
Financing fee payable 1,000,000 -
--------- -------
2,000,000 -
========= =======
</TABLE>
On August 12, 1999 the Company received a loan of $1,000,000 from
Millennium Advisors Inc. ("Millennium"), a company related through a
common director, acting as agent for undisclosed lenders. The loan was to
be repaid within 30 days. In consideration for the loan Millennium
received 197,219 common shares of the Company with a deemed value of
$1,000,000 as a financing fee. The number of shares issued was based on
the weighted average closing price in a 5 day range when the loan was
granted. These shares were issued in January, 2000. (SEE NOTE 15)
The Company also entered into a contract for services whereby Millennium
would be paid 25% of any funds raised by the sale of equity or issuance
of debt by the Company in excess of the amount reasonably required by the
Company to complete the Schelfhout acquisition. To date Millennium had
raised no additional funds and no additional amounts have been paid. The
Company also entered into an agreement on March 1, 1999 to pay Millennium
consulting fees of $20,000 per month for one year.
(SEE NOTE 12)
<PAGE>
--------------------------------------------------------------------------------
9. SHAREHOLDER'S LOAN
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
$ $
--------- -------
<S> <C> <C>
Halium Hongorzul 2,200,000 -
========= =======
</TABLE>
The loan was obtained on December 14, 1999 to help finance the Schelfhout
acquisition and was originally set up to be convertible to common shares.
Prior to December 31, 1999 the loan was non-interest bearing. Subsequent
to year end, in February, 2000 the loan was repaid with $21,698 in
interest.
A finders fee of $200,000 in connection with the loan was paid to the
shareholder subsequent to year end.
(SEE NOTE 15)
--------------------------------------------------------------------------------
10. SHARE CAPITAL AND CONTRIBUTED SURPLUS
--------------------------------------------------------------------------------
a) Authorized - 250,000,000 common shares with a par value of $0.001
<TABLE>
<CAPTION>
NUMBER OF 1999 CONTRIBUTED TOTAL
SHARES $ SURPLUS $
------------ ------ ------------- ------
<S> <C> <C> <C> <C>
b) Issued - Balance, beginning of year 34,500,000 34,500 (34,500) -
Resulting from reverse takeover acquisition 5,320,000 5,320 (5,319) 1
----------- ------- -------- -----------
Balance, end of year 39,820,000 39,820 (39,819) 1
========== ====== ======= ===========
</TABLE>
c) Share capital and contributed surplus since inception
<TABLE>
<CAPTION>
CONTRIBUTED
NUMBER SURPLUS
DATE ISSUED OF SHARES $ $
----------- --------- ---- ------------
<S> <C> <C> <C>
April 30, 1998 (i) 34,500,000 34,000 (34,500)
February 26, 1999 (ii) 5,320,000 5,320 (5,319)
----------- ------- --------
39,820,000 39,820 (39,819)
========== ====== =======
</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.
<PAGE>
--------------------------------------------------------------------------------
10. SHARE CAPITAL AND CONTRIBUTED SURPLUS - CONT'D
--------------------------------------------------------------------------------
d) Stock options
On March 1, 1999 the Company adopted a stock option plan which
reserved 6,000,000 shares. Vesting requirements are determined by a
Committee when the options are granted. No option 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 EXERCISE EXPIRY
GRANT NUMBER PRICE DATE RESTRICTIONS
----- ------ ----- ---- ------------
<S> <C> <C> <C> <C>
March 1, 1999 1,000,000 $0.01 December 1, 2003 None
August 29, 1999 250,000 $5.00 August 29, 2009 Vest equally over 3 years
December 1, 1999 3,000,000 $0.85 December 1, 2009 50% vest immediately
50% vested exercisable over 3 years
December 1, 1999 50,000 $0.85 December 1, 2009 Vest equally over 3 years
</TABLE>
The weighted average exercise price of the options is $0.90/share.
The weighted average grant date fair value of options granted during the
year is as follows:
<TABLE>
<S> <C>
- Exercise price equals fairmarket value $0.34
- Exercise price exceeds fair market value $0.03
- Exercise price less than fair market value $0.67
</TABLE>
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>
1999 1998
$ $
---- ----
<S> <C> <C>
Net loss
As reported (2,654,432) -
Pro forma (7,125,932) -
Basic and diluted loss per share
As reported (0.07) 0.00
Pro forma (0.16) 0.00
</TABLE>
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:
<PAGE>
--------------------------------------------------------------------------------
10. SHARE CAPITAL AND CONTRIBUTED SURPLUS - CONT'D
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Risk-free interest rate 5% 0%
Expected years until exercise 8 0%
Expected stock volatility 36.8% 0%
Dividend yield 0% 0%
</TABLE>
(SEE NOTE 15)
--------------------------------------------------------------------------------
11. ACQUISITION
--------------------------------------------------------------------------------
On February 26, 1999 the Company entered into a Share Exchange Agreement
between itself, e-Auction Global Trading Inc. ("Barbados") and QFG
Holdings Limited ("QFG"), a significant shareholder of Barbados.
The Agreement required the Company to purchase 100% of the issued and
outstanding shares of Barbados for 34,500,000 shares of the Company. Also
contemplated in the agreement was the adoption of 1,000,000 options at
$0.01/share outstanding in Barbados.
At the time Barbados' only assets were two purchases of intellectual
property negotiated by QFG and assigned to Barbados. The first purchase
was for the exclusive rights to market the operation and management of an
on-line auction system for $300 Cdn. paid in the form of 30,000 options
at a price of $0.01 in the share capital of Barbados. In connection with
this acquisition a consulting agreement was entered into where a company
associated with the vendor would be paid $5,000 Cdn. per month to be
expensed as consulting fees when paid. Additionally on December 1, 1998,
the vendor received options to acquire 65,000 common shares at
$0.01/share in Barbados.
The second purchase was for intellectual property rights relating to the
operation and management of on-line auction for $50,000 Cdn. in cash. In
connection with this acquisition a management services agreement was
entered into where $1,000 Cdn. per month would be paid to the vendor.
These fees will be expensed as consulting fees when paid. Additionally on
December 1, 1998 the vendor received options to acquire 80,000 common
shares at $0.01/share in Barbados.
Subsequent to the acquisitions, Barbados transferred the intellectual
property to its Canadian subsidiary e-Global Auction Trading Inc. The
$50,000 cash purchase price was not paid prior to the share exchange
agreement and is now being paid by the Canadian subsidiary.
At the time of the Agreement, Barbados through QFG had entered into a
three way letter agreement with Jameson Investment Corporation
("Jameson") to acquire 100% of the outstanding shares of Jameson
International Foreign Corporation for a purchase price of $7,500,000.
<PAGE>
--------------------------------------------------------------------------------
11. ACQUISITION - CONT'D
--------------------------------------------------------------------------------
During the ongoing negotiations QFG agreed to pay Jameson a $2,000,000
Canadian deposit to extend the closing date to October 15,1999. Funds
totalling $1,400,000 were borrowed by QFG from Millennium Advisors Inc.
("Millennium"), a company related through common directors. These funds
were deposited into the Company's trust account and paid to Jameson.
During the fall of 1999 the deal failed to close and the deposit provided
by QFG was forfeited. QFG has accepted responsibility for repaying the
funds they borrowed from Millennium. The Company paid $88,785 in
professional fees in connection with this proposed acquisition.
The options issued in connection with the two purchases of intellectual
property are included in the 1,000,000 options adopted from Barbados.
Since both companies had no net tangible assets, the value assigned to
the 34,500,000 shares issued is nil.
--------------------------------------------------------------------------------
12. RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
$ $
---- ----
<S> <C> <C>
Loan fee charged by a company with a common director 1,000,000 -
Consulting fees paid to a company with a common director 180,000 -
Consulting fees charged by an individual who subsequently
became a director 13,501 -
Expenses paid on behalf of the Company and allocations of
expenses charged to the Company by companies with significant
common shareholdings and common directors 900,479 -
</TABLE>
--------------------------------------------------------------------------------
13. COMPARATIVE FIGURES
--------------------------------------------------------------------------------
Comparative figures are for the period from April 30, 1998 (date of
incorporation) of e-Auction Global Trading Inc. ("Barbados") to December
31,1998. Certain of the comparative figures have been reclassified to
conform to the current presentation.
<PAGE>
--------------------------------------------------------------------------------
14. CUMULATIVE STATEMENTS
--------------------------------------------------------------------------------
a) CUMULATIVE STATEMENT OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
$
------
<S> <C>
EXPENSES
Advertising and promotion 19,221
Bank charges 277
Consulting fees 426,158
Insurance 3,698
Loan fee 1,000,000
Office and miscellaneous 31,685
Professional fees 241,748
Rent 59,874
Salaries 458,924
Telephone 59,136
Travel 37,144
-----------
2,654,432
-----------
CUMULATIVE NET LOSS, being deficit accumulated during
development stage (2,654,432)
===========
b) CUMULATIVE STATEMENT OF CASH FLOWS
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss (2,654,432)
Net changes in non-cash operating accounts
Accounts payable 749,050
Deferred revenue 200,000
-----------
(1,705,382)
-----------
FINANCING ACTIVITIES
Due to related parties 860,793
Issuance of share capital 1
Share subscriptions received 247,149
Loans received 2,000,000
---------
3,107,943
---------
INVESTING ACTIVITIES
Deposit of Schelfhout acquisition (1,000,000)
Acquisition of capital assets (34,247)
-----------
(1,034,247)
-----------
CASH, end of year 368,314
=========
</TABLE>
<PAGE>
--------------------------------------------------------------------------------
15. SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
a) On January 7, 2000 the Company completed its acquisition of
Schelfhout Computer Systemen N.V.
b) On January 7, 2000 the Company completed a private placement of
16,885,447 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 their settling the Company's debts to Millennium
Advisors Inc. of $1,000,000, the shareholders loan of $2,200,000 with
interest of $21,968 and a finders fee to the shareholder of $200,000
and Ventures North Investment Partners Inc. of $591,260. The
remaining 9,259,531 were issued for cash.
c) On January 7, 2000 the Company issued 197,219 shares to Millennium
Advisors Inc. as a financing fee. (SEE NOTE 8)
d) On January 20, 2000 the Company granted 300,000 options with an
exercise price of $2/share and on March 1, 2000 the Company granted
1,300,000 options with an exercise price of $4.38/share.
e) In January 2000, all restricted funds held in trust by the Company's
lawyers were released to the Company.
--------------------------------------------------------------------------------
16. 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
totalling several millions of dollars.
It is management's option that the likelihood of a material loss is
remote.
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN U.S. FUNDS)
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
KAZARI INTERNATIONAL, INC.
In our opinion, the balance sheet and the related statements of operations and
deficit and cash flows present fairly, in all material respects, the financial
position of KAZARI INTERNATIONAL, INC. at December 31, 1998, and the results of
their operations and their cash flows for the period from June 2, 1998 to
December 31, 1998, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ Alvin F. Dale, Ltd.
Dale Matheson Carr-Hilton
VANCOUVER, B.C.
DECEMBER 17, 1999 CHARTERED ACCOUNTANTS
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
BALANCE SHEET - DECEMBER 31, 1998
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 1,
1998 1998
$ $
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash 100,181 211,222
INCORPORATION COSTS 2,000 2,000
-----------------------------------------------------------------------------------------------------------------------------------
102,181 213,222
==================================================================================================================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable 2,500 10,700
Due to related parties (NOTE 4) 150,000 20,275
------- --------
152,500 30,975
------- --------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (NOTE 5) 5,320 5,320
CONTRIBUTED SURPLUS (NOTE 5) 235,930 235,930
------- -------
241,250 241,250
DEFICIT, ACCUMULATED DURING DEVELOPMENT STAGE (291,569) (59,003)
------- -------
(50,319) 182,247
-----------------------------------------------------------------------------------------------------------------------------------
102,181 213,222
==================================================================================================================================
</TABLE>
CONTINGENCY (NOTE 9)
APPROVED BY THE DIRECTORS
__________________________________ DIRECTOR
__________________________________ DIRECTOR
SEE ACCOMPANYING NOTES
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
STATEMENT OF OPERATIONS AND DEFICIT
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(WITH COMPARATIVE FIGURES FOR THE PERIOD JANUARY 8, 1998
(DATE OF INCORPORATION) TO JUNE 1, 1998)
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 1,
1998 1998
$ $
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EXPENSES
Accounting, audit and bookkeeping 2,841 3,200
Bank charges 602 118
Consulting fees 110,000 687
Entertainment 1,608 1,378
Legal 19,505 3,500
Office and printing 3,969 3,105
Management fees 39,500 37,500
Telephone 1,537 2,489
Travel and lodging 3,004 7,026
--------- ---------
182,566 59,003
--------- ---------
LOSS BEFORE OTHER ITEM 182,566 59,003
OTHER ITEM
Allowance for loan receivable (NOTE 3) 50,000 -
--------- ---------
NET LOSS FOR THE PERIOD 232,566 59,003
DEFICIT, beginning of period 59,003 -
-----------------------------------------------------------------------------------------------------------------------------------
DEFICIT, end of period 291,569 59,003
===================================================================================================================================
-----------------------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER SHARE (NOTE 6) 0.06 0.02
===================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(WITH COMPARATIVE FIGURES FOR THE PERIOD JANUARY 8, 1998
(DATE OF INCORPORATION) TO JUNE 1, 1998)
(IN U.S. FUNDS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 1,
1998 1998
$ $
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss (232,566) (59,003)
Add items not affecting cash
Allowance for loan receivable 50,000 -
Net changes in non-cash operating accounts
Accounts payable (8,200) 10,700
--------- -------
(190,766) (48,303)
--------- -------
FINANCING ACTIVITIES
Due to related parties 129,725 20,275
Issuance of share capital - 251,250
Share issue costs - (10,000)
--------- -------
129,725 261,525
--------- -------
INVESTING ACTIVITIES
Incorporation costs - (2,000)
Loan receivable (50,000) -
--------- -------
(50,000) (2,000)
--------- -------
INCREASE (DECREASE) IN CASH (111,041) 211,222
CASH, beginning of period 211,222 -
-----------------------------------------------------------------------------------------------------------------------------------
CASH, end of period 100,181 211,222
===================================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
1. INCORPORATION AND NATURE OF BUSINESS
--------------------------------------------------------------------------------
The Company was incorporated on January 8, 1998 in Nevada, U.S.A. On
March 23, 1999 the directors acting in lieu of a special meeting approved
the name change to e-Auction Global Trading Inc.
The Company is a development stage entity and was organized with the
intent to be a holding company which will acquire and/or form joint
ventures with corporate entities conducting various types of businesses
throughout the world. (NOTE 9)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
a) Foreign currency translation
The Company's functional currency and 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 year end exchange rate.
b) Loss per common share
The weighted average number of shares used for calculating loss
per share is 4,266,704 for the period ended December 31, 1998 and
2,638,889 for the period ended June 1, 1998.
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, loan
receivable and accounts payable, the fair market value of which
approximates their carrying value.
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES - CONT'D
--------------------------------------------------------------------------------
e) Related party transactions
Related party transactions are recorded at their exchange amounts
which approximate fair market value.
f) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced
before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor
errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
g) 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. The Company has deferred tax assets of
approximately $78,800. 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.
--------------------------------------------------------------------------------
3. LOAN RECEIVABLE
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 1,
1998 1998
$ $
------------ -------
<S> <C> <C>
Due from Intrepidus, Inc. 50,000 -
Less: allowance (50,000) -
------ ------
- -
====== ======
</TABLE>
During the period the Company signed a letter of intent to merge with
Intrepidus, Inc. ("Intrepidus"). As part of the deal the Company
entered into a Bridge Loan Agreement whereby $150,000 was to be made
available to Intrepidus. The balance of the funds were advanced
subsequent to year end. (SEE NOTE 9)
Subsequent to period end the Company's management decided not to
proceed with the merger. The advance then became a receivable with a
due date of June 22, 2000. The loan bears interest at 10% per annum.
The loan has been provided for in full.
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, June 1,
1998 1998
$ $
------------- -------
<S> <C> <C>
Management fees paid to directors and a company controlled
by a director 39,500 37,500
Reimbursement to the directors for expenses incurred on
behalf of the Company 13,393 13,998
Consulting fees paid to shareholders of the Company 110,000 -
</TABLE>
The amounts due to related parties are non-interest bearing, unsecured,
and have no specific terms of repayment (SEE NOTE 9)
--------------------------------------------------------------------------------
5. SHARE CAPITAL AND CONTRIBUTED SURPLUS
--------------------------------------------------------------------------------
a) Authorized - 40,000,000 common shares with a par value of $0.001
<TABLE>
<CAPTION>
December 31, June 1,
Number of 1998 Contributed Number of 1998 Contributed
Shares $ Surplus Shares $ Surplus
---------------- --------- ------------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
b) Issued -
Balance,
beginning
of period 5,320,000 5,320 235,930 - - -
Private
placement - - - 1,250,000 1,250 -
Private
placement - - - 4,000,000 4,000 36,000
Private
placement - - - 70,000 70 209,930
--------- ----- ------- --------- ----- -------
5,320,000 5,320 235,930 5,320,000 5,320 245,930
Share issue
Costs - - - - - (10,000)
--------- ----- ------- --------- ----- -------
Balance, end
of period 5,320,000 5,320 235,930 5,320,000 5,320 235,930
========= ===== ======= ========= ===== =======
</TABLE>
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
5. SHARE CAPITAL AND CONTRIBUTED SURPLUS - CONT'D
--------------------------------------------------------------------------------
c) Share capital and contributed surplus since inception
<TABLE>
<CAPTION>
Contributed
Number Surplus
Date Issued of shares $ $
----------- --------- ---- ------------
<S> <C> <C> <C>
January 8, 1998 1,250,000 1,250 -
April 12, 1998 4,000,000 4,000 36,000
June 1, 1998 70,000 70 209,930
Share issue costs (10,000)
----------- ------- -------
5,320,000 5,320 235,930
========= ======= =======
</TABLE>
(SEE NOTE 9)
--------------------------------------------------------------------------------
6. LOSS PER SHARE
--------------------------------------------------------------------------------
Loss per share for the period from January 8, 1998 (date of
incorporation) to December 31, 1998 is $0.07.
--------------------------------------------------------------------------------
7. COMPARATIVE FIGURES
--------------------------------------------------------------------------------
Comparative figures are for the period from January 8, 1998 (date of
incorporation) to June 1, 1998. Certain of the comparative figures have
been reclassified to conform to the current presentation.
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
8. CUMULATIVE STATEMENTS
--------------------------------------------------------------------------------
<TABLE>
a) CUMULATIVE STATEMENT OF OPERATIONS AND DEFICIT
$
--------
<S> <C>
EXPENSES
Accounting, audit and bookkeeping 6,041
Bank charges 720
Consulting fees 110,687
Entertainment 2,986
Legal 23,005
Office and printing 7,074
Management fees 77,000
Telephone 4,026
Travel and lodging 10,030
--------
241,569
--------
LOSS BEFORE OTHER ITEM 241,569
OTHER ITEM
Allowance for loan receivable 50,000
--------
CUMULATIVE NET LOSS, being deficit accumulated during
development stage 291,569
=======
b) CUMULATIVE STATEMENT OF CASH FLOWS
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss (291,569)
Add item not affecting cash
Allowance for loan receivable 50,000
Net changes in non-cash operating accounts
Accounts payable 2,500
--------
(239,069)
--------
FINANCING ACTIVITIES
Due to related parties 150,000
Issuance of share capital 251,250
Share issue costs (10,000)
--------
391,250
--------
INVESTING ACTIVITIES
Incorporation costs (2,000)
Loan receivable (50,000)
--------
(52,000)
--------
CASH, end of year 100,181
========
</TABLE>
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
9. SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
Subsequent to year end:
a) The Company entered into an agreement to acquire 100% of the issued
and outstanding shares of e-Auction Global Trading Inc., a Barbados
company (the legal subsidiary). The purchase price was 34,500,000
common shares of the Company. The acquisition will be accounted for
as a reverse takeover where the financial statements will be issued
under the name of the legal parent but will be a continuation of the
financial statements of the legal subsidiary. As preparation for the
acquisition the Company increased its authorized capital stock to
250,000,000 shares of common stock.
In connection with the acquisition of the Barbados subsidiary the
company granted 1,000,000 stock options with an exercise price of
$0.01 per share to the former employees, officers and directors of
this company.
b) e-Auction Global Trading Inc ("e-Auction") entered into an agreement
to acquire 100% of the issued and outstanding shares of Schelfhout
Computer Systemen N.V.("Schelfhout"), a Belgian company. The
purchase price is to be $10,000,000 and is to be paid as follows:
<TABLE>
<S> <C>
Refundable deposit $1,000,000 (paid)
At closing $3,000,000 cash
At closing $6,000,000 in common shares of the Company
</TABLE>
The $6,000,000 in shares are not free trading and are subject to a
timed release formula. The number of shares to be issued will be
based on weighted average of a 5 day range when the agreement is
finalized. 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 are to be returned to the Treasury. The number of
shares to be issued will be determined by the fair market value of
the shares on the date the agreement is finalized.
The agreement is still subject to final approval by all parties
which is expected early in 2000.
c) In connection with the Schelfhout acquisition e-Auction received a
loan of $1,000,000 from Millennium Advisors Inc., ("Millennium") a
company related through a common director, acting as agent for
undisclosed lenders. In addition Millennium received 197,219 common
shares of the Company worth $1,000,000 as a financing fee. The
number of shares issued based on the weighted average closing price
in a 5 day range when the loan was granted.
e-Auction also entered into a contract for services whereby
Millenium would be paid 25% of any funds raised by the sale of
equity or issuance of debt by the Company in excess of the amount
reasonably required by the Company to complete the Schelfhout
acquisition.
e-Auction also entered into an agreement on March 1, 1999 to pay
Millennium consulting fees of $20,000 per month for one year.
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
9. SUBSEQUENT EVENTS - CONT'D
--------------------------------------------------------------------------------
d) e-Auction, through its Canadian subsidiary, made two purchases of
intellectual property. The first purchase was for exclusive rights
to market the operation and management of an on-line auction system
for $300 Cdn. paid in the form of 30,000 options for common shares
with an exercise price of $0.01 U.S. per share. In connection with
this acquisition e-Auction entered into a consulting agreement where
a company associated with the vendor would be paid $5,000 Cdn. per
month to be expensed as consulting fees and would also receive
65,000 options for common shares with an exercise price of $0.01
U.S. per share.
The second purchase was for intellectual property rights relating to
the operation and management of on-line auctions for $50,000 Cdn. in
cash. In connection with this acquisition e-Auction entered into a
management services agreement where $1,000 Cdn. per month would be
paid to the vendor which will be expensed as consulting fees, who
also received 80,000 options for common shares with an exercise
price of $0.01 Cdn. per share.
These options are included in the 1,000,000 stock options under
Note 9(a).
e) Approved a stock option plan where 6,000,000 common shares are
reserved for issuance on the exercise of options. Options are
exercisable for a period of 10 years from the date of the grant.
f) Granted a director of the Company 250,000 stock options with an
exercise price of $5 per share based on agreed price which exceeded
market value on the date granted. Granted employees 3,050,000 stock
options with an exercise price of $0.85 per share which equaled the
market value on the day before the options were granted.
g) The Company advanced a further $100,000 to Intrepidus, Inc. in
connection with the Bridge loan agreement.
h) e-Auction's lawyer received in trust an additional $2,200,000 on
December 14, 1999 in the form of a convertible debenture, the terms
of which still have to be finalized. Terms are expected to be
finalized in January of 2000.
--------------------------------------------------------------------------------
10. CONTINGENCY
--------------------------------------------------------------------------------
A shareholder derivative action was brought against e-Auction 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.
<PAGE>
KAZARI INTERNATIONAL, INC.
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
--------------------------------------------------------------------------------
10. CONTINGENCY - CONT'D
--------------------------------------------------------------------------------
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.
Exposure to the Company is not determinable at this time.
<PAGE>
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
REPORT AND INTERIM FINANCIAL STATEMENTS
JUNE 1, 1998
(in U.S. funds)
<TABLE>
<CAPTION>
<S> <C>
CONTENTS: PAGE
Auditor's Report 1
Interim Balance Sheet 2
Interim Statement of Income and Deficit 3
Interim Statement of Changes in Cash 4
Notes to Interim Financial Statements 5,6
</TABLE>
<PAGE>
AUDITOR'S REPORT
TO THE SHAREHOLDERS,
KAZARI INTERNATIONAL, INC.
I have audited the interim balance sheet of KAZARI INTERNATIONAL, INC. as at
JUNE 1, 1998 and the interim statements of income and deficit and changes in
cash for the period from the date of incorporation on January 8, 1998 to June 1,
1998. These interim financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these interim
financial statements based on my audit.
I conducted my audit in accordance with Canadian generally accepted auditing
standards. Those standards require that I plan to perform an audit to obtain
reasonable assurance whether the interim financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the interim financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall interim
financial statement presentation.
In my opinion, these interim financial statements present fairly, in all
material respects, the financial position of the company as at June 1, 1998 and
the results of its operations and the changes in its financial position from the
period from the date of incorporation on January 8, 1998 to June 1, 1998 in
accordance with Canadian generally accepted accounting principles.
/S/ David A. Cox
Vancouver, British Columbia
June 8, 1998
Chartered Accountant
Suite 1500-701 West Georgia Street
Vancouver, B.C. V7Y 1C6
<PAGE>
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
INTERIM BALANCE SHEET
AS AT JUNE 1, 1998
(in U.S. funds)
<TABLE>
<CAPTION>
1998
ASSETS
<S> <C>
CURRENT
Cash $211,222
INCORPORATION COSTS 2,000
------------
$ 213,222
------------
LIABILITIES
CURRENT
Accounts payable, audit and bookkeeping $ 10,700
Due to a director (note 2) 20,275
------------
30,975
------------
EQUITY
CAPITAL STOCK (NOTE 3)
Authorized: 40,000,000 common shares, with a par value of $.001
Issued and outstanding: 5,320,000 common shares, with a par value of $.001 5,320
CONTRIBUTE SURPLUS (NOTE 3) 235,930
DEFICIT (59,003)
------------
182,247
------------
------------
$ 213,222
------------
</TABLE>
APPROVED BY THE DIRECTORS:
/s/ Fred Tham Chief Executive Officer
/s/ Shelley James Chief Financial Officer
See accompanying notes to financial statements
<PAGE>
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
INTERIM STATEMENT OF INCOME AND DEFICIT
FOR THE PERIOD FROM THE DATE OF INCORPORATION ON JANUARY 8,1998 TO JUNE 1, 1998
(in U.S. funds)
<TABLE>
<CAPTION>
1998
<S> <C>
EXPENSES
Accounting, audit and bookkeeping $ 3,200
Bank charges 118
Consulting fees 687
Entertainment 1,378
Legal 3,500
Office and printing 3,105
Management fees 37,500
Telephone 2,489
Travel and lodging 7,026
------------
59,003
------------
NET LOSS FOR THE PERIOD 59,003
DEFICIT AT THE BEGINNING OF PERIOD -
------------
DEFICIT AT END OF PERIOD $ 59,003
------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
INTERIM STATEMENT OF CHANGES IN CASH
FOR THE PERIOD FROM THE DATE OF INCORPORATION ON JANUARY 8, 1998 TO JUNE 1, 1998
(in U.S. funds)
<TABLE>
<CAPTION>
1998
<S> <C>
OPERATING ACTIVITIES
Net loss for the period (59,003)
Net decrease in non-cash working capital balances 30,975
------------
(28,028)
------------
FINANCING ACTIVITIES
Issuance of capital stock 251,250
Share issue costs (10,000)
------------
241,250
------------
INVESTING ACTIVITIES
Incorporation costs (2,000)
------------
CHANGE IN CASH DURING THE PERIOD 211,222
CASH AT BEGINNING OF PERIOD -
------------
CASH AT END OF PERIOD $ 211,222
------------
</TABLE>
See accompanying notes to financial statements
<PAGE>
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 1, 1998
(in U.S. funds)
1. INCORPORATION AND NATURE OF BUSINESS
The company was incorporated on January 8, 1998 in Nevada, U.S.A.
The company was organized with the intent to be a holding company, which will
acquire and/or form joint ventures with corporate entities conducting various
types of business throughout the world.
2.RELATED PARTY TRANSACTIONS
During the period, the Company incurred $7,500 in management fees to a director.
Also during the period, the Company reimbursed $13,998 to the directors for
expenses incurred on behalf of Kazari International, Inc.
The amount due to a director is non-interest bearing, unsecured, and has no
specific terms of repayment.
3. CAPITAL STOCK AND CONTRIBUTED SURPLUS
During the period the company issued the following common shares:
<TABLE>
<CAPTION>
Capital stock at
#Shares Total proceeds Par Value Contributed Surplus
-------
<S> <C> <C> <C>
1,250,000 at 0.001each $ 1,250 $ 1,250 $ -
4,000,000 at 0.010each 40,000 4,000 36,000
70,000 at 3.000each 210,000 70 209,930
--------------- -------------------- --------------------- --------------------
5,320,000 $ 251,250 $ 5,320 $ 245,930
---------------
Less share issue costs: 10,000 10,000
-------------------- --------------------- --------------------
-------------------- --------------------- --------------------
$ 241,250 $ 5,320 $ 235,930
-------------------- --------------------- --------------------
</TABLE>
<PAGE>
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 1, 1998
(in U.S funds)
4. INCOME TAXES
The Company has an interim net loss and other expenditures which may give rise
to future tax benefits. The potential benefit from these losses has not been
reflected in the financial statements.
5. LOSS PER SHARE
Loss per share information is not disclosed as it is not considered meaningful
at this stage of the Company's development.
6. CONTINUING OPERATIONS
These financial statements have been based upon accounting principles which
presume the realization of assets and the settlement of liabilities as they
become due in the course of continuing operations. The Company's ability to
maintain operations is contingent upon successful completion of additional
financing arrangements.
<PAGE>
SCHELFHOUT COMPUTER SYSTEMEN, NV
JUNE 2000
--------------------------------------------------------------------------------
SCHELFHOUT COMPUTER SYSTEMEN NV
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998
RECONCILED TO US GAAP
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
I. Report of Independent Accountants.......................... 2
II. Balance Sheets as of December 31, 1999 and 1998............ 3
III. Statements of Operations for the years ended December 31,
1999 and 1998.............................................. 5
IV. Notes to financial statements.............................. 6
</TABLE>
STRICTLY PRIVATE & CONFIDENTIAL
1
<PAGE>
I. REPORT OF INDEPENDENT ACCOUNTANTS
To the shareholders and the Board of Directors of
Schelfhout Computer Systemen NV
We have examined the accompanying balance sheets of Schelfhout Computer Systemen
NV (the "Company") as of December 31, 1999 and 1998 and the related statements
of operations for each of the two years in the period ended December 31, 1999,
all expressed in Euro. Our examinations of these statements were made in
accordance with auditing standards generally accepted in the United States and
accordingly included such tests of the accounting records and such other
auditing procedures as we considered necessary in the circumstances.
In our opinion, the financial statements referred to above present fairly the
financial position of the Company and the results of its operations for each of
the two years in the period ended December 31,1999, in conformity with
accounting principles generally accepted in Belgium consistently applied.
Accounting principles generally accepted in Belgium vary in certain significant
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of net profit
expressed in Euro for each of the two years in the period ended December 31,
1999 and the determination of shareholders' equity also expressed in Euro at
December 31, 1999 and 1998 to the extent summarized in Note 4 to the financial
statements.
Antwerp, July 3, 2000
PricewaterhouseCoopers Bedrijfsrevisoren bcvba
Represented by
/s/ Luc Discry
Luc Discry
STRICTLY PRIVATE & CONFIDENTIAL
2
<PAGE>
II. BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
THOUSANDS OF EUROS
---------------------
12/31/99 12/31/98
-------- --------
<S> <C> <C>
ASSETS
Fixed assets:
Tangible assets:
A. Land and buildings....................... 516 567
B. Plant, machinery and equipment........... 2 5
C. Furniture and vehicles................... 103 89
D. Leasing and other similar rights......... 44 77
-------- --------
Total tangible assets............................ 665 738
Financial assets................................... 29 25
-------- --------
Total fixed assets................................. 694 763
Current assets:
Stocks and contracts in progress:
A. Stocks.................................... 274 198
B. Contracts in progress..................... 192 37
-------- --------
Total stocks and contracts in progress........... 466 235
Amounts receivables within one year:
A. Trade debtors............................. 653 388
B. Other amounts receivable.................. 54 114
-------- --------
Total amounts receivables within one year........ 707 502
Cash at bank and in hands.......................... 284 415
Deferred charges and accrued income................ 13 17
-------- --------
Total current assets............................... 1,470 1,169
-------- --------
TOTAL ASSETS......................................... 2,164 1,932
======== ========
</TABLE>
The accompanying Notes 1 to 4 are an integral part of these Financial
Statements.
The financial statements and notes to financial statements are presented in
Euro. The company previously reported this information in Belgian francs. The
conversion of Belgian francs amounts into Euro related to the financial
information presented prior to the creation of the Euro on January 1, 1999 was
calculated using the exchange rate as of January 1, 1999 which was 1 Euro to
40.3399 Belgian francs.
STRICTLY PRIVATE & CONFIDENTIAL
3
<PAGE>
II. BALANCE SHEETS AS OF DECEMBER 31, 1999 AND 1998 - (CONTINUED)
<TABLE>
<CAPTION>
THOUSANDS OF EUROS
---------------------
12/31/99 12/31/98
-------- --------
<S> <C> <C>
LIABILITIES
Capital and reserves:
Share capital...................................... 793 793
Reserves:
A. Legal reserve............................. 9 9
B. Reserves available for distribution....... 26 26
Profit/(Loss) carried forward...................... (77) (130)
-------- --------
Total capital and reserves......................... 751 698
Creditors:
Amounts payable after more than one year:
Financial debts:
Credit institutions, leasing and other
similar obligations........................... 173 205
-------- --------
Total amounts payable after more than one year..... 173 205
Amounts payable within one year:
A. Current portion of amounts payable after
one year.................................. 70 182
B. Financial debts........................... 15 --
C. Trade debts............................... 403 246
D. Advances received on contracts in progress 254 131
E. Taxes, remuneration and social security
1. Taxes................................. 107 89
2. Remuneration and social security...... 266 229
-------- --------
Total taxes, remuneration and
social security........................... 373 318
F. Other amounts payable..................... 8 --
-------- --------
Total amounts payable within one year.......... 1,123 877
Accrued charges and deferred income................ 117 152
-------- --------
Total creditors.................................... 1,413 1,234
-------- --------
TOTAL LIABILITIES.................................... 2,164 1,932
======== ========
</TABLE>
The accompanying Notes 1 to 4 are an integral part of these Consolidated
Financial Statements.
The financial statements and notes to financial statements are presented in
Euro. The company previously reported this information in Belgian francs. The
conversion of Belgian francs amounts into Euro related to the financial
information presented prior to the creation of the Euro on January 1, 1999 was
calculated using the exchange rate as of January 1, 1999 which was 1 Euro to
40.3399 Belgian francs.
STRICTLY PRIVATE & CONFIDENTIAL
4
<PAGE>
III. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND
1998
<TABLE>
<CAPTION>
THOUSANDS OF EUROS
--------------------
YEAR ENDED
--------------------
12/31/99 12/31/98
-------- --------
<S> <C> <C>
INCOME STATEMENT
Operating income and charges:
Turnover........................................ 3,218 3,116
Other income.................................... 36 47
Cost of goods sold.............................. (1,153) (1,045)
-------- --------
Gross operating income.......................... 2,101 2,116
Services and sundries........................... (699) (844)
Remuneration, social security and pensions...... (1,121) (983)
Depreciation of and other amounts written off
formation expenses, intangible and tangible
fixed assets.................................... (127) (151)
Value adjustments to stocks, contracts in
progress and trade debtors...................... (4) --
Other operating charges......................... (17) (8)
-------- --------
Operating profit................................ 133 132
Financial income.................................. 7 38
Financial charges................................. (41) (38)
-------- --------
Profit on ordinary activities before taxes........ 99 132
Extraordinary income.............................. -- 2
Extraordinary charges............................. -- (1)
-------- --------
Profit for the year before taxes.................. 99 133
Income taxes...................................... (46) (66)
-------- --------
Profit for the period............................. 53 67
Profit for the period available for appropriation. 53 67
======== ========
</TABLE>
The accompanying Notes 1 to 4 are an integral part of these Consolidated
Financial Statements.
The financial statements and notes to financial statements are presented in
Euro. The company previously reported this information in Belgian francs. The
conversion of Belgian francs amounts into Euro related to the financial
information presented prior to the creation of the Euro on January 1, 1999 was
calculated using the exchange rate as of January 1, 1999 which was 1 Euro to
40.3399 Belgian francs.
STRICTLY PRIVATE & CONFIDENTIAL
5
<PAGE>
IV. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998
AND 1999- IN THOUSANDS OF EURO, EXCEPT SHARE AND PER SHARE AMOUNTS
(1) BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS
TRUE AND FAIR VIEW -
The individual financial statements were prepared by the company's directors in
accordance with the accounting principles and standards regulated in Belgium by
the Company Law and Accounting Law as implemented by the Belgian Chart of
Accounts, and are presented in accordance with the regulations for the
preparation of financial statements, as approved by the Royal Decree dated 8
October 1976. Accordingly, these financial statements give a true and fair view
of the financial position of Schelfhout Computer Systemen NV for the years ended
December 31, 1999 and 1998 and of the results of its operations for the years
then ended.
(2) ACCOUNTING PRINCIPLES
The significant accounting principles used in the preparation of these financial
statements are as follows:
RESEARCH AND DEVELOPMENT-
Costs incurred in the research and development of software products, clocks,
cooling installations and displays are expensed as incurred.
TANGIBLE ASSETS -
All tangible assets are carried at cost and are not revalued.
Tangible assets are depreciated using the straight-line method over the
estimated useful life of the assets, as follows:
<TABLE>
<CAPTION>
YEARS OF
ESTIMATED
USEFUL LIFE
-----------
<S> <C>
Industrial, administrative or commercial buildings:
Buildings................................................ 20
Furnishing and refurbishing.............................. 5 - 15
Plant, machinery and equipment:
Tools.................................................... 5
Test equipment........................................... 3
Vehicles:
Cars and leasing cars.................................... 5
Second-hand cars......................................... 3
Office furniture:
Office furniture......................................... 5
Computer hardware........................................ 5
</TABLE>
STRICTLY PRIVATE & CONFIDENTIAL
6
<PAGE>
IV. NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1999 -- (CONTINUED)- IN THOUSANDS OF EURO, EXCEPT SHARE AND PER SHARE
AMOUNTS
In compliance with Belgian accounting and fiscal regulations, the company
depreciates its fixed assets investments for a full year in the year of
acquisition. Accumulated depreciation on total tangible assets at December 31,
1999 and 1998 amounts to 1,394 and 1,288,respectively. Accumulated depreciation
on tangible assets under capital lease at December 31, 1999 and 1998 amounts to
332 and 312, respectively.
STOCKS AND CONTRACTS IN PROGRESS -
Raw materials and consumables inventories are stated at the lower of cost or
market with cost being determined on the weighted average price method of
accounting. Obsolete or defective inventories have been reduced to net
realisable value. The write-downs of inventories are recorded on the basis of
age and turnover of inventory according to the judgement of management. The
company does not book provisions to write down inventories but records inventory
write-downs as inventory movements (i.e. as cost of sales), in accordance with
Belgian GAAP.
The inventory in progress includes only direct costs (i.e., raw materials and
labour costs).
FOREIGN CURRENCY TRANSLATION -
Foreign currency transaction gains and losses are included in the results of
operations. The assets, liabilities, income and expenses for historic periods
are translated to Euro at a fixed exchange rate of BEF 40.3399 per Euro.
Effective January 1, 1999 the functional currency of the company was changed
from BEF to the Euro.
The main foreign currency transactions are performed in United States dollars
and British pounds sterling.
The comparative statements reported in Euro show the same trends as would have
been presented if the company had presented such statements in Belgian francs.
The financial statements may not be comparable to financial statements of other
companies that report in Euro and that restate amounts from currencies other
than Belgian francs.
CORPORATE INCOME TAX AND OTHER TAXES --
These captions in the statements of operations include all debits and credits
arising from Belgian corporate income tax, including those relating to period
expenses and those arising from adjustments to amounts recorded in prior
periods.
The corporate income tax expense for each year is calculated on the basis of
book income before taxes, increased or decreased, as appropriate, by the
permanent differences from taxable income, defined as those arising between
taxable income and book income before taxes that do not reverse in subsequent
periods.
RECOGNITION OF REVENUES AND EXPENSES -
General standard -
The company derives its revenues from the development and installation of clock
systems, cooling installations and maintenance for auction halls.
In accordance with the accounting principle of prudence, only realisable income
is recorded at year-end. Invoiced advances on contracts in progress are deferred
on the balance sheet and shown under the heading "Advances received on contracts
in progress".
STRICTLY PRIVATE & CONFIDENTIAL
7
<PAGE>
Revenues from the clock systems and cooling installation activities are
recognised according to the completed contract method, therefore upon completion
of the project.
Maintenance contracts are sold separately from specific projects. Revenues from
annual maintenance contracts are recognised on a straight line basis over the
period in which the services are provided and when all contractual obligations
have been met.
Cost of sales derived from clock systems, cooling installations and maintenance
consist of those costs directly related to each respective activity.
(3) SHAREHOLDER'S EQUITY- CAPITAL AND RESERVES
The details of the balances of and changes in shareholders equity- capital and
reserves accounts in the year ended 1999 and 1998 are as follows:
THOUSANDS OF EUROS
<TABLE>
<CAPTION>
------------------------------------------------------------------
COMPREHENSIVE SHARES SHARE LOSSES TOTAL
INCOME NDEG. CAPITAL RESERVES CARRIES CAPITAL &
FORWARD RESERVES
------------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE 12/31/97..... 640 793 35 (197) 631
------------- ------- ------- -------- -------- --------
Profit of the year. 67 67 67
------------- ------- ------- -------- -------- --------
BALANCE 12/31/98..... 640 793 35 (130) 698
------------- ------- ------- -------- ------- --------
Profit of the year. 53 53 53
------------- ------- -------- ------- ------ --------
BALANCE 12/31/99..... 640 793 35 (77) 751
------------- ------- -------- -------- ------- -------
</TABLE>
SHARE CAPITAL -
The share capital of Schelfhout Computer Systemen NV as of December 31, 1999 is
represented by 640 authorised and outstanding bearer shares each with equal
rights and representing one vote each.
RESERVES -
Under the revised Corporations Law, 5% of income for each year must be
transferred to the legal reserve until the balance of this reserve reaches at
least 10% of share capital.
As of December 31, 1999, Schelfhout Computer Systems NV has a legal reserve
amounting to Euro 9.
Distribution of available reserves is at the discretion of the company's
shareholders upon proposal of the board of directors. These can however only be
distributed after the losses carried forward have been absorbed.
STRICTLY PRIVATE & CONFIDENTIAL
8
<PAGE>
As at December 31, 1999, Schelfhout Computer Systems NV has reserves available
for distribution of Euro 26.
(4) DIFFERENCES BETWEEN BELGIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES AND OTHER REQUIRED DISCLOSURES
The financial statements of Schelfhout Computer Systemen NV were prepared in
accordance with generally accepted accounting principles in Belgium ("Belgian
GAAP"), which differ in some respects from generally accepted accounting
principles in the United States ("U.S. GAAP"). A reconciliation of net result
and shareholders' equity from Belgian GAAP to U.S. GAAP and the most significant
differences are provided in this Note. The reconciliation presented in item L
includes the effect of all the adjustments.
The following paragraphs include adjustments to the Belgian statutorily approved
financial statements of the Company solely for the purpose of complying with the
United States securities regulations.
NATURE OF OPERATIONS
Schelfhout Computer Systemen, NV, is located at Zavelstraat 7, in 9190 Stekene,
Belgium.
The Company has been incorporated on August 29, 1986 under the legal form of a
B.V.B.A. This legal form has been changed to an NV on June 15, 1989. The Company
is registered with the commercial register of St-Niklaas, Belgium, under number
43.775.
The company installs clock systems, cooling installations and offers maintenance
services to clients all over the world.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. 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 dates of the financial
statements, and the reported amounts of revenues and expenses during the
reported periods. Actual results could differ from such estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
Management re-evaluates its long-lived assets whenever events or circumstances
arise indicating that the carrying amount of a long-lived asset may not be
recoverable. Management has determined that no provision for impairment is
required.
FINANCIAL INSTRUMENTS
Financial instruments consist solely of short and long-term bank loans. The
carrying amount of short-term debt approximates fair value due to their
short-term nature. The carrying value of the company's long-term debt
approximates fair value since all of the company's long term debts bears
interest based on prevailing market rates currently available in the open
market.
STRICTLY PRIVATE & CONFIDENTIAL
9
<PAGE>
Financial instruments that potentially subject the company to concentrations of
credit risk comprise principally accounts receivable. The company generally does
not require collateral on accounts receivable, as the majority of the company's
customers are well-established companies. The company has not experienced any
significant losses related to individual customers or groups of customers in
their particular industry or geographic area.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The company recorded advertising
expenses during 1999 and 1998 of Euro 11 and Euro 19, respectively.
NET INCOME PER SHARE
Basic and diluted profit per share are computed by dividing net profit available
to common shareholders by the weighted average number of common shares
outstanding for the period. The Company has no common stock equivalents.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, or SFAS 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
SFAS 133 establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives be
recognised at fair value in the balance sheet, and that the corresponding gains
or losses be reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
SFAS 133 will be effective for fiscal years beginning after June 15, 2000. The
company does not currently hold derivative instruments or engage in hedging
activities and does not anticipate that adoption of SFAS 133 will have a
material effect on its financial position or its results of operations.
DEPRECIATIONS OF TANGIBLE ASSETS
In compliance with Belgian accounting and fiscal regulations, the company
depreciates its fixed assets investments for a full year in the year of
acquisition. Under U.S. GAAP, the fixed assets should be depreciated from the
date the assets are placed in service. The effect of this issue is recorded as
an adjustment for US GAAP purposes in the company's reconciliation of
shareholder's equity and net profit from Belgian GAAP to US GAAP.
MAINTENANCE CONTRACTS
The company adopted its current policy to recognise revenue from maintenance
contracts as services are provided on January 1, 1998. Prior to this date, the
company recognised revenue from maintenance contracts at the moment of
invoicing. The effect on revenue for amounts recognized on maintenance contracts
prior to January 1, 1998 is recorded as an adjustment for US GAAP purposes in
the company's reconciliation of net profit from Belgian GAAP to US GAAP.
As from January 1, 1998 revenue generated from maintenance contracts is
recognised on a straight line basis over the life of the contract.
CORPORATE INCOME TAXES
The company's income before taxes of Euro 99 and Euro 133 in 1999 and 1998,
respectively has been entirely generated in Belgium. The company's current
income taxes of Euro 46 and Euro 66 in 1999 and 1998, respectively have also
been entirely generated in Belgium. The company has recorded no deferred tax
assets or liabilities in the financial statements for the periods presented.
STRICTLY PRIVATE & CONFIDENTIAL
10
<PAGE>
The following table sets forth a reconciliation of the company's taxes for the
years ended December 31,1999 and 1998 to the taxes calculated as enacted
statutory rates for each respective year:
<TABLE>
<CAPTION>
THOUSANDS OF EUROS
--------------------------------
YEAR ENDED
--------------------------------
12/31/99 12/31/98
-------- --------
<S> <C> <C>
Taxes enacted at statutory rates 40 53
Disallowed expenses 6 13
-------- --------
Current taxes 46 66
</TABLE>
The company is subject to the reduced income tax rate. This rate is determined
as follows :
Taxable income up to Euro 24,8 28,84%
Taxable income between Euro 24,8 and Euro 89,2 37,08%
Taxable income between Euro 89,2 and Euro 322,3 42,23%
REVENUE RECOGNITION
The company applies the completed contract method as revenue recognition policy
for clock and cooling systems revenues. The application of the completed
contract method is accepted under Belgian GAAP and has been approved by the
Board of Directors and included in the company's valuation rules. A contract is
considered complete upon final acceptance by the client, which is usually one
month after the service goes live. Moreover the company has primarily short-term
contracts, which on average take 3 to 4 months to complete. During 1999, the
company recognized revenue on one customer project in its financial statements
prepared under Belgian GAAP which would not qualify for recognition in 1999
under US GAAP due to the fact that the company had not yet fulfilled all
contractual obligations. The effect of this issue is recorded as an adjustment
for US GAAP purposes in the company's reconciliation of shareholder's equity and
net profit from Belgian GAAP to US GAAP.
RECONCILIATION OF SHAREHOLDER'S EQUITY AND NET PROFIT FROM BELGIAN GAAP TO U.S.
GAAP
<TABLE>
<CAPTION>
THOUSANDS OF EUROS
--------------------------
YEAR ENDED
--------------------------
12/31/99 12/31/98
-------- --------
<S> <C> <C>
SHAREHOLDER'S EQUITY PER BELGIAN GAAP.......... 751 698
Adjustments for U.S. GAAP purposes:
Depreciation of tangible assets.............. 21 18
Revenue recognition.......................... (36)
Deferred Taxation............................ 6 (7)
-------- --------
Total differences.............................. (9) 11
-------- --------
SHAREHOLDER'S EQUITY PER U.S. GAAP............. 742 709
======== ========
</TABLE>
STRICTLY PRIVATE & CONFIDENTIAL
11
<PAGE>
<TABLE>
<CAPTION>
THOUSANDS OF EUROS
---------------------------
YEAR ENDED
---------------------------
12/31/99 12/31/98
----------- -----------
<S> <C> <C>
NET PROFIT PER BELGIAN GAAP.................... 53 67
Adjustments for U.S. GAAP purposes:
Depreciation of tangible assets.............. 3 8
Maintenance contracts........................ 142
Revenue recognition.......................... (36)
Deferred taxation............................ 13 (60)
----------- -----------
Total differences.............................. (20) 90
----------- -----------
NET PROFIT PER U.S. GAAP....................... 33 157
=========== ===========
NET PROFIT PER COMMON SHARE U.S. GAAP..........
Basic.......................................... 51.56 245.31
Diluted.................... ................... 51.56 245.31
----------- -----------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING....
Basic.......................................... 640 640
Diluted........................................ 640 640
----------- -----------
</TABLE>
STRICTLY PRIVATE & CONFIDENTIAL
12
<PAGE>
STATEMENT OF CASH FLOWS
Belgian GAAP does not require the presentation of statements of cash flows.
The following are the statements of cash flows under "SFAS No. 95" based on the
financial statement amounts reported under Belgian GAAP:
<TABLE>
<CAPTION>
THOUSANDS OF EUROS
---------------------
YEAR ENDED
---------------------
12/31/99 12/31/98
--------- ---------
<S> <C> <C>
Net profit per Belgian GAAP 53 67
--------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities --
Depreciation and amortisation................ 127 151
Bad debt expense............................. 4 --
Changes in operating assets and liabilities
(Increase) Decrease --
Inventory.................................. (232) (12)
Accounts receivable............................ (209) 109
Other current assets........................... (4) --
Prepayments................................ 4 4
Increase (Decrease) --
Trade creditors............................ 157 18
Non trade creditors........................ 179 (24)
Other liabilities.......................... (27) 151
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES...... 52 464
--------- ---------
Cash flow from investing activities:
Capital expenditures......................... (54) (133)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES.......... (54) (133)
--------- ---------
Cash flow from financing activities:
Increase (decrease) in financial liabilities. (129) (48)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES.......... (129) (48)
--------- ---------
STRICTLY PRIVATE & CONFIDENTIAL
13
<PAGE>
Net change in cash and cash equivalents........ (131) 283
Cash and cash equivalents at beginning of
year......................................... 415 132
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF THE
PERIOD....................................... 284 415
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interests paid 18 24
Income taxes paid 31 88
========= =========
</TABLE>
RELATED PARTY TRANSACTIONS
The company enters into transactions with certain related parties primarily
comprised of shareholders (those prior to the acquistion of 100 % of the shares
of the company by E-Auction Global Trading Inc) and directors. These
transactions include management fee arrangements and sundry services. For the
year ended December 31, 1999 revenues and expenses generated by related party
transactions are 0 and 174, respectively. At December 31, 1999, outstanding
related party receivables and payables amounted to 0 and 57, respectively. . For
the year ended December 31, 1998 revenues and expenses generated by related
party transactions are 51 and 222, respectively. At December 31, 1998,
outstanding related party receivables and payables amounted to 51 and 56,
respectively.
COMMITMENTS AND CONTINGENCIES
LEASES -
Future minimum lease payments for non-cancellable automobile leases as of
December 31, 1999 are Euro 17 for 2000. The company has no other commitments for
later payments.
The company is currently negotiating a new rent contract for the office
building. These negotiations have not yet been finalised yet. Consequently, the
future lease payments are not fixed.
LITIGATION -
In the normal course of business the company is party to certain legal
proceedings. At December 31, 1999 and 1998 there are no matters of pending or
threatened litigation known to management that would be expected to have a
material adverse impact on the company's results of operations or financial
position.
SEGMENT REPORTING
Based on the current nature of operations, management assesses the company's
performance and reports its results of operations in only one industry segment
for which information is disclosed in the statement of operations. In 1999 and
1998 all of the company's revenues were generated and long-lived assets were
located in its sole operating entity domiciled in Belgium.
STRICTLY PRIVATE & CONFIDENTIAL
14
<PAGE>
SUBSEQUENT EVENTS
On January 7, 2000, the shareholders entered into an agreement with E-Auction
Global Trading NV (later on renamed to Auxcis NV), a company incorporated in
Belgium. Auxcis NV at that date acquired 100% of the outstanding share capital
of the company. Auxcis NV is owned by E-Auction Global Trading Inc (Nevada) and
E-Auction Global Trading Inc (Canada).
The purchase price for the shares of Schelfhout was $10 million, paid by $4
million cash and by the issuance of 3,636,364 common shares to the former
shareholders of Schelfhout Computer Systemen. E-Auction Global Tranding Inc in
the SCS Agreement agreed to not sell or otherwise transfer the shares of
Schelfhout during the 12 month period ending on January 10, 2001. As security
for the covenant not to sell the shares and for other matters, the Company has
pledged the shares of Schelfhout in favour of Luc Schelfhout and Hilde De Laet.
The agreement included also a decrease of the company's share capital by K
393.
On March 22, 2000, the company has participated in the incorporation of a new
legal entity, SDL Invest NV. The company holds 379 out of 381 outstanding shares
of SDL Invest NV. The incorporation of SDL Invest NV was performed through
contribution in kind of the company's buildings and some liabilities. Also in
the context of the above agreement an option was granted by Schelfhout Computer
Systems NV to Luc Schelfhout and Hilde De Laet to purchase the shares of SDL
Invest NV for a price equal to the bookvalue.
STRICTLY PRIVATE & CONFIDENTIAL
15
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT # EXHIBIT NAME NOTES
--------- ------------ -----
<S> <C> <C>
Exhibit 2(i) Articles of Incorporation
Exhibit 3(ii) By-laws
Exhibit 4 Instruments defining the rights of security holders Form of Common Share Certificate
Exhibit 6(i) Material agreement Share Exchange Agreement
Exhibit 6(ii) Material agreement Agreement with Millennium
Advisors
Exhibit 6(iii) Material agreement Stock Option Plan
Exhibit 6(iv) Material agreement Schelfhout Share Purchase
Agreement
Exhibit 6(v) Material agreement Stock Purchase Agreement dated
June 21, 2000 between e-Auction
and ABN AMRO Capital
Investments (Belgie) N.V.
Exhibit 15 Subsidiaries of the registrant
Exhibit 16 Letter of Past Auditor Consent to Registration Statement
Language
Exhibit 27 Financial Data Schedule
</TABLE>
ITEM 2. DESCRIPTION OF EXHIBITS
The Exhibits required by this item are included as set forth in the Exhibit
Index.
SIGNATURES
Pursuant to the requirements of Section 12 of the SECURITIES EXCHANGE ACT OF
1934, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
e-AUCTION GLOBAL TRADING INC.
September 29, 2000
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Dan McKenzie Chief Executive Officer, President & Director
----------------------
Dan McKenzie
/s/ David Hackett Chief Financial Officer
----------------------
David Hackett
/s/ Philip Lapp Director
----------------------
Philip Lapp
/s/ Phil MacDonnell Director
-----------------------
Phil MacDonnell
/s/ Mark F. Milazzo Director
-----------------------
Mark F. Milazzo
/s/ Ken Reid Director
-----------------------
Ken Reid
<PAGE>
/s/ Bart Sonck Director
-----------------------
Bart Sonck
</TABLE>
