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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BIDBAY.COM, INC.
(Name of small business issuer in its charter)
NEVADA 95-4814876
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(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7209 Foothill Blvd, Tujunga, California, 91042; Telephone (818) 951-5755
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(Address and telephone number of principal executive offices)
7209 Foothill Blvd, Tujunga, California, 91042; Telephone (818) 951-5755
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(Address of principal place of business or
intended principal place of business)
Lucille K. Marley, 2920 S. National, Pahrump, Nevada 89048;
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(Name, address and telephone number of agent for service)
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |__|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |__|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |__|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |__|
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES OFFERING AGGREGATE AMOUNT OF
TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT (1) PRICE (2) FEE (2)
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Common Stock 6,000,000 shares $10.00 $60,000,000 $15,000.00
Common Stock 600,000 shares $10.00(1) $ 6,000,000(2)$ 1,500.00
Total $16,500.00
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(1) Selling shareholder's stock registration fee was based on a bona fide
estimate of the maximum offering price pursuant to Rule 457(a) of
Regulation C.
(2) Estimated solely for the purpose of calculating the registration fee
in accordance with Rule 457 under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
COPIES OF COMMUNICATIONS TO:
Michael A. Cane, Esq.
2300 W. Sahara Blvd., Suite 500
Las Vegas, NV 89102
(702) 312-6255
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P R O S P E C T U S
BIDBAY.COM, INC.
6,000,000 Shares $10.00 Per Share
600,000 separate shares of common stock(1)
(1) The 600,000 separate shares of common stock (the "separate
shares") are issued and outstanding shares owned by the persons
specified in this prospectus under the caption "selling security
holders."
______________________
Investing in BidBay.com, Inc. involves significant risks.
Investors need to read the "Risk Factors" beginning on page 3
______________________
Per Share Total
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Public Offering Price ............................... $10.00 $60,000,000
Estimated Selling Discounts and Commission - only
if brokers are used $ 1.50 $ 9,000,000
Estimated Proceeds to BidBay.com $ 8.50 $51,000,000(2)
(2) BidBay.com will receive no part of the proceeds from the sale
of the 600,000 separate shares.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of the
prospectus. Any representation to the contrary is a criminal
offense.
The 600,000 separate shares were acquired by the selling security
holders in private placement transactions which were exempt from
the registration and prospectus delivery requirements of the
Securities Act of 1933.
The selling securities holders may from time to time sell the
separate shares on any securities exchange or automated quotation
system on which our common stock may be listed on traded, in
negotiated transactions or otherwise, at prices then prevailing
or related to the then correct market price or at negotiated
prices. The separate shares may be sold directly or through
brokers or dealers. We note that our common stock is not listed
on any exchange or quotation system at the present time.
There are no prior agreements for the purchase of these common
shares. BidBay.com. Inc.'s officers and directors will attempt
to offer and sell all of the shares. They may use a registered
broker dealer to assist them, although at this time no such
broker has been identified. If a broker-dealer is used, we will
allow a maximum commission of 15% on broker sales.
The $51,000,000 net proceeds to BidBay.com shown above is before
deduction of offering expenses estimated at $116,500, which
includes legal and accounting fees and printing costs.
There is no public market for BidBay.com common stock.
The Date of this prospectus is February ___, 2001
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TABLE OF CONTENTS
PAGE
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Risk Factors ........................................................... 3
Use of Proceeds ........................................................ 18
Determination of Offering Price ........................................ 19
Dilution ............................................................... 19
Selling Shareholders ................................................... 20
Plan of Distribution ................................................... 21
Legal Proceedings ...................................................... 23
Directors, Executive Officers, Promoters and Control Persons ........... 24
Principal Shareholders ................................................. 25
Description of Securities .............................................. 26
Interest of Named Experts and Counsel .................................. 28
Disclosure of Commission Position of Indemnification for
Securities Act Liabilities .......................................... 28
Organization Within Last Five Years .................................... 28
Description of Business ................................................ 30
Management's Discussion and Analysis or Plan of Operations ............. 37
Management's Discussion and Analysis of Financial Condition &
Results of Operation ................................................ 37
Description of Property ................................................ 38
Certain Relationships and Related Transactions ......................... 38
Market for Common Equity and Related Stockholder Matters ............... 40
Executive Compensation ................................................. 40
Financial Statements ................................................... 41
Changes in and Disagreements with Accountants .......................... 41
Legal Opinion .......................................................... 41
Experts ................................................................ 41
Where You Can Find Additional Information .............................. 41
Until January 12, 2001, all dealers that effect transactions in
these securities whether or not participating in this offering,
may be required to deliver a prospectus. This is in addition to
the dealer' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
No dealer, salesperson or other individual has been authorized to
give any information or to make any representation not contained
in this Prospectus in connection with the Offering. If given or
made, such information or representation must not be relied upon
as having been authorized by the Company or any of the
Underwriters. This Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, the Common Stock in
any jurisdiction where, or to any person to whom, it is unlawful
to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any
circumstances, create an implication that there has not been any
change in the facts set forth in this Prospectus or in the
affairs of the Company since the date hereof.
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RISK FACTORS
RISK FACTORS THAT MAY AFFECT
RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
An investment in our common
stock involves a high degree
of risk. You should carefully
consider the risks described
below and other information in
this prospectus before
investing in our common stock.
If any of the following risks
occur, our business, operating
results and financial
condition could be seriously
harmed. The risks and
uncertainties described below
are not the only ones facing
BidBay.com. Additional risks
and uncertainties not
presently known to us or that
we currently deem immaterial
also may impair our business
operations. Due to any of
these risks you may lose all
or part of your investment.
THERE IS NO MINIMUM OFFRING
AMOUNT
BidBay.com is dependant upon
the proceeds of this offering
and other offerings to
maintain its business
operations and to continue to
implement its business plan.
There is no minimum offering
amount assigned to this
offering. Accordingly, upon
acceptance of offering
subscriptions, the proceeds of
such subscriptions are
immediately transferred into
the operating account of
BidBay.com and used to conduct
the business affairs of
BidBay.com. In the event
BidBay.com is not successful
in raising sufficient capital
in this or other offerings to
continue its business
development, it is likely that
subscribers that have invested
will lose their investments.
WE HAVE LIMITED OPERATING
HISTORY
BidBay.com was organized on
December 21, 1999. We have
only a limited operating
history on which you can base
an evaluation of our business
and prospects. As an online
commerce company still
relatively early in our
development, we face
substantial risks,
uncertainties, expenses and
difficulties. To address these
risks and uncertainties, we
must do the following:
- maintain and increase our
number of registered
users, items listed on our
service and completed
sales;
- expand into new markets;
- maintain and grow our
website and customer
support operations at a
reasonable cost;
- continue to make trading
through our service safer
for users;
- maintain and enhance our
brand;
- continue to develop and
upgrade our technology and
information processing
systems;
- continue to enhance our
service to meet the
changing requirements of
our users;
- provide superior customer
service;
- respond to competitive
developments;
- attract, integrate, retain
and motivate qualified
personnel; and
- develop and implement
tools for generating
revenue and making our
website a profit center.
- We may be unable to accomplish
one or more of these goals,
which could cause our business
to suffer.
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WE MAY NOT ACHIEVE
PROFITABILITY
At the present time,
BidBay.com does not charge any
fee to the user. In its
present business format,
BidBay.com does not generate
revenue. Therefore, until we
change our operating format,
we will not be profitable and
we expect to operate at a loss
for the foreseeable future.
We expect to charge the seller
a listing fee in the future.
In addition, we anticipate
charging the consumer a
transaction charge associated
with each sale. We believe the
transaction charges will be
less than amounts presently
charged by our competitors.
The existence of several
online auction sites
consisting of larger, more
established companies, as well
as new companies, may limit
our ability to implement user
fees. This is because other
companies may choose to charge
little or no transaction or
listing fees to the seller.
Others are facilitating
trading through other pricing
formats (fixed price, reverse
auction, group buying, etc.).
We believe that our ability to
achieve profitability will
also depend in large part on
our ability to do the
following:
- maintain sufficient
transaction volume to
attract buyers and
sellers;
- attract large volume of
listings, which in turn
may generate, in the
future, listing fees to
BidBay.com.
- manage the costs of our
business, including the
costs associated with
maintaining and developing
our website, customer
support and international
and product expansion;
- increase our brand name
awareness; and
- provide our customers with
superior community and
trading experiences.
We are investing heavily in
marketing and promotion,
customer support, further
development of our website,
technology and operating
infrastructure development.
The costs of these investments
have dramatically impacted our
financial statements and are
expected to remain significant
into the future. In addition,
we have significant ongoing
commitments in some of these
areas. As a result, we may be
unable to adjust our spending
to any material extent.
We are spending in advance of
anticipated growth. In view of
the rapidly evolving nature of
our business and our limited
operating history, we believe
that period-to-period
comparisons of our operating
results are not necessarily
meaningful. You should not
rely upon our historical
results as indications of our
future performance. Also, as
we move away from a no charge
auction format, it may impede
the growth of our auction
usage or usage may even
decline.
NEED FOR ADDITIONAL FINANCING
We had cash in the amount of
$136,116 at August 31, 2000.
We currently generate
insignificant revenue. Our
business plan calls for
significant expenses in
connection with the
development of our online
auction site and related
marketing expenses. We will
require additional financing
in order to implement our full
business plan and to sustain
our business operations.
The Independent Auditor's
Report to BidBay.com's audited
financial statements for the
period ended August 31, 2000
indicate that there are a
number of factors that raise
substantial doubt about the
ability of BidBay.com to
continue as a going concern.
Such factors identified in
Note 2 are: BidBay.com was
only recently formed, has
incurred losses since its
inception, has
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current
liabilities in excess of
current assets and has not yet
been successful in
establishing profitable
operations. BidBay.com will
not be able to expand its
operations as planned without
obtaining additional financing
in the near future. If this
financing is not available or
obtainable, investors may lose
a substantial portion or all
of their investment. There can
be no assurance that
additional financing, when
necessary, will be available
to BidBay.com on acceptable
terms, or at all.
OUR OPERATING RESULTS MAY
FLUCTUATE
Our operating results have
varied on a quarterly basis
during our operating history.
Our operating results may
fluctuate significantly as a
result of a variety of
factors, many of which are
outside our control. Factors
that may affect our quarterly
operating results include the
following:
- our ability to retain an
active user base, to
attract new users who list
items for sale and who
purchase items through our
service and to maintain
customer satisfaction;
- our ability to keep our
website operational and to
manage the number of items
listed on our service;
- the amount and timing of
operating costs and
capital expenditures
relating to the
maintenance and expansion
of our business,
operations and
infrastructure;
- federal, state or local
government regulation,
including investigations
prompted by items
improperly listed or sold
by our users;
- the introduction of new
sites, services and
products by us or our
competitors;
- volume, size, timing and
completion rate of trades
on our website;
- consumer confidence in the
security of transactions
on our website;
- our ability to upgrade and
develop our systems and
infrastructure
accommodate growth;
- technical difficulties or
service interruptions;
- our ability to attract new
personnel in a timely and
effective manner;
- our ability to retain key
employees in both our
online businesses and our
acquisitions;
- the timing, cost and
availability of
advertising in traditional
media and on other website
and online services;
- the timing of marketing
and other expenses under
existing contracts;
- consumer trends and
popularity of some
categories of collectible
items;
- the success of our brand
building and marketing
campaigns;
- the level of use of the
Internet and online
services;
- increasing consumer
acceptance of the Internet
and other online services
for commerce and, in
particular, the trading of
products such as those
listed on our website; and
- general economic
conditions and economic
conditions specific to the
Internet and e-commerce
industries.
Our limited operating history
and the emerging nature of the
markets in which we
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compete
make it difficult for us to
forecast the future
accurately. We believe that
period-to-period comparisons
of our operating results may
not be meaningful and you
should not rely upon them as
an indication of future
performance.
OUR FAILURE TO MANAGE GROWTH
COULD HARM US
We currently are experiencing
a period of expansion in our
business, and we anticipate
that further expansion will be
required to address potential
growth in our customer base
and number of listings, and
our expansion into new
geographic areas, types of
goods and alternative methods
of sale. This expansion has
placed, and we expect it will
continue to place, a
significant strain on our
management, operational and
financial resources. The areas
that are put under strain by
our growth include the
following:
- The Website. We must
constantly add new
hardware, update software
and add new engineering
personnel to accommodate
the increased use of our
website and the new
products and features we
are regularly introducing.
If we are unable to
increase the capacity of
our systems at least as
fast as the growth in
demand for this capacity,
our website may become
unstable and may cease to
operate for periods of
time. We may experience
periodic unscheduled
downtime. Unscheduled
downtime would harm our
business and also could
anger users of our website
and reduce use.
- Customer Support. We must
expand our customer
support operations to
accommodate the increased
number of users and
transactions on our
website. If we are unable
to hire and successfully
train sufficient employees
or contractors in this
area, users of our website
may have negative
experiences, and current
and future use of our
website could suffer.
WE ARE DEPENDENT ON KEY
PERSONNEL
Our future performance will be
substantially dependent on the
continued services of our
senior management and other
key personnel. Our future
performance also will depend
on our ability to retain and
motivate our other officers
and key employees. The loss of
the services of any of our
executive officers or other
key employees could harm our
business. Such personnel are
in great demand by other
online companies. We currently
have no long term employment
agreements with our key
personnel. In addition,
BidBay.com has no monetary
protection in the event of
death or disability of any of
our key personnel as we do not
carry "keyperson" life or long
term disability insurance.
Our future success also will
depend on our ability to
attract, train, retain and
motivate highly skilled
technical, managerial,
marketing and customer support
personnel. Competition for
these personnel is intense,
especially for engineers and
other professionals,
especially in the Southern
California area, and we may be
unable to successfully
attract, integrate or retain
sufficiently qualified
personnel.
FUTURE SALES OF SHARES COULD
AFFECT STOCK PRICE
The market price for our
common stock in any market
that may develop in the future
could fall dramatically if our
stockholders sell large
amounts of our common stock in
any public market that may
develop following this
offering. These sales, or the
possibility that these sales
may occur could make it more
difficult for us to sell
equity or equity-related
securities in the future.
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CONTROL BY MAJORITY
SHAREHOLDERS
After this offering, our
directors and management will
own or control a substantial
percentage of our common
stock. If these people act
together, they will be able to
significantly influence the
management and affairs of
BidBay.com. This
concentration of ownership may
have the effect of delaying,
deferring or preventing an
acquisition of BidBay.com and
may adversely affect the
market price of our common
stock. Existing shareholders
paid considerably less for
their shares than the amount
to be paid by investors who
purchase in this offering.
OUR BUSINESS MAY BE HARMED BY
THE LISTING OR SALE BY OUR
USERS OF ILLEGAL ITEMS
The law relating to the
liability of providers of
online services for the
activities of their users on
their service is currently
unsettled. We are aware that
certain goods, such as
firearms, other weapons, adult
material, tobacco products,
alcohol and other goods that
may be subject to regulation
by local, state or federal
authorities, could potentially
be listed and traded on our
service.
We may be unable to prevent
the sale of unlawful goods, or
the sale of goods in an
unlawful manner, by users of
our service, and we may be
subject to allegations of
civil or criminal liability
for unlawful activities
carried out by users through
our service. Such lawsuits or
allegations could be filed
against BidBay.com should such
listings and sales occur.
In order to reduce our
exposure to this liability, we
have prohibited the listing of
certain items. We may in the
future implement other
protective measures that could
require us to spend
substantial resources. Any
costs incurred as a result of
liability or asserted
liability relating to the sale
of unlawful goods or the
unlawful sale of goods, could
harm our business. The listing
or sale of unlawful goods on
our website could attract
media attention and this
negative publicity could
damage our reputation and
diminish the value of our
brand name. It also could make
users reluctant to continue to
use our services.
OUR BUSINESS MAY BE HARMED BY
THE LISTING OR SALE BY OUR
USERS OF PIRATED ITEMS
We anticipate that we will
receive in the future,
communications alleging that
certain items listed or sold
through our service by our
users infringe third-party
copyrights, trademarks and
tradenames or other
intellectual property rights.
BidBay.com intends to work
with the various parties to
reduce the possibility of
infringing listings on our
website. An allegation of
infringement of third-party
intellectual property rights
may result in litigation
against us. Any such
litigation could be costly for
us, could result in increased
costs of doing business
through adverse judgment or
settlement, could require us
to change our business
practices in expensive ways,
or could otherwise harm our
business. Litigation against
other online companies could
result in interpretations of
the law that could also
require us to change our
business practices or
otherwise increase our costs.
OUR BUSINESS MAY BE HARMED BY
FRAUDULENT ACTIVITIES ON OUR
WEBSITE
Our future success will depend
largely upon sellers reliably
delivering and accurately
representing their listed
goods and buyers paying the
agreed purchase price. We
anticipate that we will
receive in the future,
communications from users who
did not receive the purchase
price or the goods that were
to have been exchanged. In
some cases
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we anticipate that
individuals could be arrested
and convicted for fraudulent
activities using our website.
While we can suspend the
accounts of users who fail to
fulfill their delivery
obligations to other users, we
do not have the ability to
require users to make payments
or deliver goods or otherwise
make users whole.
Unlike some competitors, at
the present time, we do not
compensate users who believe
they have been defrauded by
other users. At least one
competitor provides a
reimbursement of up to $200
with a $25 deductible. No
premium is charged to the
consumer. It is possible that
a number of our competitors
may begin to offer buyer
insurance at no additional
cost or nominal cost to the
consumer. If this occurs while
BidBay.com does not provide
such insurance, BidBay.com may
be adversely affected by the
potential loss of consumers
who wish to obtain such
protection.
We also expect to receive
complaints from buyers as to
the quality of the goods
purchased. Negative publicity
generated as a result of
fraudulent or deceptive
conduct by users of our
service could damage our
reputation and diminish the
value of our brand name. We
expect to continue to receive
requests from users requesting
reimbursement or threatening
or commencing legal action
against us if no reimbursement
is made. This sort of
litigation could be costly for
us, divert management
attention, result in increased
costs of doing business, lead
to adverse judgments or could
otherwise harm our business.
GOVERNMENT INQUIRIES MAY LEAD
TO CHARGES OR PENALTIES
We anticipate that we may
receive requests to produce
certain
records and information to the
federal or state governmental
agencies relating to possible
investigations of future
unknown illegal transactions
in connection with consumer
usage of our website. We
anticipate that any such
inquiries may include an
examination of our practices
with respect to these
transactions. Should these or
any other future unknown
investigations lead to civil
or criminal charges against
us, we would likely be harmed
by negative publicity, the
costs of litigation, the
diversion of management time
and other negative effects,
even if we ultimately prevail.
Our business would certainly
suffer if we were not to
prevail in any actions like
these. Even the process of
providing records and
information can be expensive,
time consuming and result in
the diversion of management
attention.
A large number of transactions
occur on our website. Due to
unknown and unforeseeable
circumstances, we anticipate
that that federal or state
government regulators could
possibly receive a number of
consumer complaints about us
which, while small as a
percentage of our total
transactions, could be large
in aggregate numbers. If so,
we could be contacted by such
authorities with questions as
to the adequacy of the steps
we take to protect our users
from fraud. We could receive
inquiries from regulatory
agencies in the future, which
may lead to action against us.
If one or more of these
agencies is not satisfied with
our antifraud efforts, the
resultant investigations and
potential fines or other
penalties could harm our
business.
As our activities and the
types of goods listed on our
site expand, state regulatory
agencies may claim that we are
subject to licensure in their
jurisdiction. These claims
could result in costly
litigation or could require us
to change our manner of doing
business in ways that increase
our costs or reduce our
revenues or force us to
prohibit listings of certain
items. We could also be
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subject to fines or other
penalties. Any of these
outcomes could harm our
business.
COMPANIES THAT HANDLE PAYMENTS
MAY BE SUBJECT TO ADDITIONAL
REGULATION
BidBay.com does not serve in
any capacity with regard to
the settlement of payment
obligations resulting from
auction transactions on our
Internet site. Our website
simply links our customers to
various third-party companies
that handle payments.
Consumers benefit by having
these companies arrange to
process the payments
associated with the online
auctions. For example, I Trust
You.com serves as an escrow
company and provides customers
with the security of keeping
custody of the buyer's funds
and disbursing to the Seller
only upon the meeting of
specified conditions. Such
company charges the parties to
the transaction a varying
amount up to 3.5% of the
transaction. In addition,
PayPal.com provides our
customers with an opportunity
to instantly pay their
financial obligations using
Mastercard, Visas or their
checking account. Such funds
are then made available to
satisfy the buyer's financial
obligations to the Seller. In
the future, PayPal's services
may also be used to satisfy
certain customer financial
obligations to BidBay.com with
regard to any listing or
transaction fees.
PayPal.com and I Trust You.com
handles customer funds as a
provider of Internet payment
solutions. Businesses that
handle consumers' funds are
subject to numerous
regulations, including those
related to banking, credit
cards, escrow, fair credit
reporting and others. Such
companies provide a relatively
novel approach to facilitating
payments. It is not yet known
how regulatory agencies will
treat such companies. In
addition to the need to comply
with these regulations, such
businesses are also subject to
risks of fraud. As BidBay.com
provides a important link to
such Internet payment
solutions, our customers may
often depend on the
reliability and accessibility
of such financial services.
Without such services, many of
our customers may either have
greater difficulty arranging
payment to complete the
transactions, or would be
hesitant to enter into an
online auction without the
security of an available
escrow company. Accordingly,
should such Internet payment
solution companies be subject
to additional regulations or
otherwise be detrimentally
impacted by other risks
associated with their
particular industry,
BidBay.com would be adversely
impacted. Furthermore, it is
possible that consumers might
be able to find alternative
internet payment solutions at
lower charges per transaction.
BidBay.com does not currently
provide consumers with a list
of competing products for
similar services. We may be
adversely affected if we are
required to provide consumers
with extensive disclosure such
as third party transaction
charges or other fees or
listings of a variety of
competing products relating to
Internet payment solutions.
BidBay.com believes that such
disclosures are the
responsibilities of such third
parties.
WE ARE SUBJECT TO RISKS
ASSOCIATED WITH INFORMATION
DISSEMINATED THROUGH OUR
SERVICE
We provide visitors with free
email accounts. Our service
also features a "Chat", which
may include the dissemination
of information from users
regarding other users. In
addition, our website provides
users with an opportunity to
take advantage of "Image
Hosting". The law relating to
the liability of online
services companies for
information carried on or
disseminated through their
services is currently
unsettled. Claims could be
made against online services
companies under both United
States, foreign or state law
for defamation,
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<PAGE>
libel,
invasion of privacy,
negligence, copyright or
trademark infringement, or
other theories based on the
nature and content of the
materials disseminated through
their services.
We anticipate that we may be
subject to unknown future
private lawsuits seeking to
impose liability upon us for
information carried on or
disseminated through our
online service. In addition,
federal, state and foreign
legislation has been proposed
that imposes liability for or
prohibits the transmission
over the Internet of certain
types of information. Although
all such chat or images
displayed on our website is
generated by users and not by
us, it is possible that a
claim of defamation or other
injury could be made against
us for content posted in the
"Chat" or images placed on our
"Image Hosting" service.
Claims like these become more
likely and have a higher
probability of success in
jurisdictions outside the U.S.
If we become liable for
information provided by our
users and carried on our
service, we could be directly
harmed and we may be forced to
implement new measures to
reduce our exposure to this
liability. This may require us
to expend substantial
resources and/or to
discontinue certain service
offerings, which would
negatively affect BidBay.com.
In addition, the increased
media attention focused upon
liability issues as a result
of these lawsuits and
legislative proposals could
harm our reputation or
otherwise impact the growth of
our business. Any costs
incurred as a result of this
liability or asserted
liability could harm our
business.
WE ARE SUBJECT TO RISKS OF
INTELLECTUAL PROPERTY
LITIGATION AND OTHER
LITIGATION
Not unlike our competitors, we
anticipate that we could be
the subject of future, but
presently unknown, lawsuits
alleging possible violations
of Section 17200 of the
California Business &
Professions Code. This is a
statute that relates to unfair
competition, based upon the
listing of "bootleg" or
"pirate" recordings by
BidBay.com's users, allegedly
in violation of California
penal statutes relating to the
sale of unauthorized audio
recordings. Should BidBay.com
be sued for such actions, the
defense would be costly and,
if BidBay.com were to lose
this lawsuit, our business
would be harmed.
Not unlike our competitors, we
also anticipate that we could
be sued in the state or
federal court for future, but
presently unknown possible
violations leading to certain
causes of action. This could
include unfair competition,
violation of the computer
fraud and abuse act,
misappropriation, false
advertising, trademark
dilution, injury to business
reputation, interference with
prospective economic
advantage, and unjust
enrichment. Should such
lawsuits be filed, they might
be costly to defend and our
business would be harmed if we
were to lose.
We also anticipate that, not
unlike our competitors, third
parties may claim in the
future that we have infringed
their past, current or future
technologies. We expect that
participants in our markets
increasingly will be subject
to infringement claims as the
number of services and
competitors in our industry
segment grows. Any claim like
this, whether meritorious or
not, could be time-consuming,
result in costly litigation,
cause service upgrade delays
or require us to enter into
royalty or licensing
agreements. These royalty or
licensing agreements might not
be available on acceptable
terms or at all. As a result,
any claim like this could harm
our business.
THE INABILITY TO EXPAND OUR
SYSTEMS MAY LIMIT OUR GROWTH
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<PAGE>
We seek to generate a high
volume of traffic and
transactions on our service.
The satisfactory performance,
reliability and availability
of our website, processing
systems and network
infrastructure are critical to
our reputation and our ability
to attract and retain large
numbers of users. Our future
revenues may depend on the
number of items listed by
users. We need to expand and
upgrade our technology,
transaction processing systems
and network infrastructure
both to meet increased traffic
on our site and to implement
new features and functions,
including those that may be
required under our contracts
with third parties. We may be
unable to accurately project
the rate or timing of
increases, if any, in the use
of our service or to expand
and upgrade our systems and
infrastructure to accommodate
any increases in a timely
fashion.
We must continually improve
our technology systems in
order to accommodate the level
of use of our website. In
addition, we may add new
features and functionality to
our services that would result
in the need to develop or
license additional
technologies. Our inability to
add additional software and
hardware or to upgrade our
technology, transaction
processing systems or network
infrastructure to accommodate
increased traffic or
transaction volume could have
adverse consequences. These
consequences include
unanticipated system
disruptions, slower response
times, degradation in levels
of customer support, impaired
quality of the users'
experience of our service and
delays in reporting accurate
financial information. Our
failure to provide new
features or functionality also
could result in these
consequences. We may be unable
to effectively upgrade and
expand our systems in a timely
manner or to integrate
smoothly any newly developed
or purchased technologies with
our existing systems. These
difficulties could harm or
limit our ability to expand
our business.
SYSTEM FAILURES COULD HARM OUR
BUSINESS
Not unlike other competitors,
we may experience system
failures from time to time.
Service to our website could
be interrupted for extended
periods of time. In addition
to placing increased burdens
on our engineering staff, such
outages could create a flood
of user questions and
complaints that need to be
responded to by our customer
support personnel. Any
unscheduled interruption in
our service may cause some
users to switch to our
competitors. If we experience
frequent or persistent system
failures, our reputation and
brand could be permanently
harmed.
Our facilities are located in
Southern California. This area
of the state has been subject
to recent threat of electric
power service disruption due
to local conditions. Our
systems and operations are
vulnerable to damage or
interruption from earthquakes,
floods, fires, power loss,
telecommunication failures and
similar events. They are also
subject to break-ins,
sabotage, intentional acts of
vandalism and similar
misconduct. We do not maintain
fully redundant systems or
alternative providers of
hosting services, and we do
not carry business
interruption insurance
sufficient to compensate us
for losses that may occur.
Despite any precautions we may
take, the occurrence of a
natural disaster or other
unanticipated problems at our
facility could result in
interruptions in our service.
UNAUTHORIZED BREAK-INS OR
OTHER ASSAULTS ON OUR SERVICE
COULD HARM OUR BUSINESS
Our servers are vulnerable to
computer viruses, physical or
electronic break-ins and
similar disruptions, which
could lead to
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<PAGE>
interruptions,
delays, loss of data or the
inability to complete customer
transactions. In addition,
unauthorized persons may
improperly access our data.
Attacks that result in a
denial of online service to
our customers could adversely
affect our business. Actions
of this sort may be very
expensive to remedy and could
damage our reputation and
discourage new and existing
users from using our service.
NEW AND EXISTING REGULATIONS
COULD HARM OUR BUSINESS
We are subject to the same
federal, state and local laws
as other companies conducting
business on the Internet.
Today there are relatively few
laws specifically directed
towards online services.
However, due to the increasing
popularity and use of the
Internet and online services,
many laws relating to the
Internet are being debated at
the state and federal levels
both in the U.S. and abroad
and it is possible that laws
and regulations will be
adopted with respect to the
Internet or online services.
These laws and regulations
could cover issues such as
online contracts, user
privacy, freedom of
expression, pricing, fraud,
content and quality of
products and services,
taxation, advertising,
intellectual property rights
and information security.
Applicability to the Internet
of existing laws governing
issues such as property
ownership, copyrights and
other intellectual property
issues, taxation, libel,
obscenity and personal privacy
is uncertain. The vast
majority of these laws were
adopted prior to the advent of
the Internet and related
technologies and, as a result,
do not contemplate or address
the unique issues of the
Internet and related
technologies. Those laws that
do reference the Internet,
such as the Digital Millennium
Copyright Act, have not yet
been interpreted to a
significant degree by the
courts and their applicability
and reach are therefore
uncertain.
In addition, numerous states,
including the State of
California, where our
headquarters are located, have
regulations regarding how
"auctions" may be conducted
and the liability of
"auctioneers" in conducting
such auctions. No final legal
determination has been made
with respect to the
applicability of the
California regulations to our
business to date and little
precedent exists in this area.
Several states are considering
imposing these regulations
upon us or our users, which
could harm our business. In
addition, as the nature of the
products listed by our users
change, we may become subject
to new regulatory
restrictions.
Several states have proposed
legislation that would limit
the uses of personal user
information gathered online or
require online services to
establish privacy policies.
The Federal Trade Commission
also has recently settled
several proceedings regarding
the manner in which personal
information is collected from
users and provided to third
parties. Changes to existing
laws or the passage of new
laws intended to address these
issues could directly affect
the way we do business or
could create uncertainty in
the marketplace. This could
reduce demand for our
services, increase the cost of
doing business as a result of
litigation costs or increased
service delivery costs, or
otherwise harm our business.
In addition, because our
services are accessible
worldwide, and we facilitate
sales of goods to users
worldwide, foreign
jurisdictions may claim that
we are required to comply with
their laws. For example, a
French court has recently
ruled that a U.S. website must
comply with French laws
regarding content. In the
event we expand our operations
to include international
activities, we will become
obligated to comply with the
laws of the countries in which
we may operate. Laws
regulating Internet companies
outside of the United States
may be less favorable than
those in
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<PAGE>
the United States,
giving greater rights to
consumers, content owners and
users. Should we operate
overseas, compliance may be
more costly or may require us
to change our business
practices or restrict our
service offerings relative to
those in the United States.
OUR BUSINESS MAY BE SUBJECT TO
SALES AND OTHER TAXES
We do not collect sales or
other similar taxes on goods
sold by users through our
service. One or more states
may seek to impose sales tax
collection obligations on
companies such as ours that
engage in or facilitate online
commerce. Several proposals
have been made at the state
and local level that would
impose additional taxes on the
sale of goods and services
through the Internet. These
proposals, if adopted, could
substantially impair the
growth of e-commerce, and
could diminish our opportunity
to derive financial benefit
from our activities. In 1998,
the U.S. federal government
enacted legislation
prohibiting states or other
local authorities from
imposing new taxes on Internet
commerce for a period of three
years. This tax moratorium
will last only for a limited
period and does not prohibit
states or the Internal Revenue
Service from collecting taxes
on our income, if any, or from
collecting taxes that are due
under existing tax rules. A
successful assertion by one or
more states or any foreign
country that we should collect
sales or other taxes on the
exchange of merchandise on our
system would harm our
business.
WE ARE DEPENDENT ON THE
CONTINUED GROWTH OF ONLINE
COMMERCE
The business of selling goods
over the Internet,
particularly through personal
trading, is new and dynamic.
Our future success will be
substantially dependent upon
the widespread acceptance of
the Internet and online
services as a medium for
commerce by consumers. Rapid
growth in the use of and
interest in the Internet and
online services is a recent
phenomenon. This acceptance
and use may not continue. Even
if the Internet continues to
be accepted, concerns about
fraud, privacy and other
problems may mean that a
sufficiently broad base of
consumers will not adopt the
Internet as a medium of
commerce. In particular, our
website requires users to make
publicly available their e-
mail addresses and other
personal information that some
potential users may be
unwilling to provide. These
concerns may increase as
additional publicity over
privacy issues on BidBay.com
or generally over the Internet
increase.
Market acceptance for recently
introduced services and
products over the Internet is
highly uncertain, and there
are few proven services and
products. In order to expand
our user base, we must appeal
to and acquire consumers who
historically have used
traditional means of commerce
to purchase goods. If these
consumers prove to be less
active than our earlier users,
and we are unable to gain
efficiencies in our operating
costs, including our cost of
acquiring new customers, our
business could be adversely
impacted.
WE MAY BE UNABLE TO COMPETE
SUCCESSFULLY AGAINST CURRENT
AND FUTURE COMPETITORS
The principal competitive
factors in our market include
the following:
- ability to attract buyers;
- volume of transactions and
selection of goods;
- customer service;
and
- brand recognition.
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<PAGE>
With respect to our online
competition, additional
competitive factors are:
- community cohesion and interaction;
- system reliability;
- reliability of delivery and payment;
- website convenience and accessibility;
- level of service fees; and
- quality of search tools.
Increased competition may
result in loss of market share
and diminished value of our
brand. Not unlike what
BidBay.com has done in order
to attract a large number of
sellers to the auction site,
some of our competitors have
offered services for free, and
others may do this in the
future. We may be unable to
compete successfully against
current and future
competitors.
In order to respond to changes
in the competitive
environment, we may, from time
to time, make pricing, service
or marketing decisions that
could harm our business. New
technologies may increase the
competitive pressures by
enabling our competitors to
also offer a low cost service.
Some Internet-based
applications that direct
Internet traffic to certain
websites may channel users to
trading services that
compete with us. In addition,
companies that control access
to transactions through
network access to Internet
browsers could promote our
competitors or charge us
substantial fees for
inclusion.
OUR BUSINESS IS DEPENDENT ON
THE DEVELOPMENT AND
MAINTENANCE OF THE INTERNET
INFRASTRUCTURE
The success of our service
will depend largely on the
development and maintenance of
the Internet infrastructure.
This includes maintenance of a
reliable network backbone with
the necessary speed, data
capacity and security, as well
as timely development of
complementary products such as
high-speed modems, for
providing reliable Internet
access and services. Because
global commerce and the online
exchange of information is new
and evolving, we cannot
predict whether the Internet
will prove to be a viable
commercial marketplace in the
long term. The Internet has
experienced, and is likely to
continue to experience,
significant growth in the
numbers of users and amount of
traffic. If the Internet
continues to experience
increased numbers of users,
increased frequency of use or
increased bandwidth
requirements, the Internet
infrastructure may be unable
to support the demands placed
on it. In addition, the
performance of the Internet
may be harmed by increased
users or bandwidth
requirements.
The Internet has experienced a
variety of outages and other
delays as a result of damage
to portions of its
infrastructure, and it could
face outages and delays in the
future. These outages and
delays could reduce the level
of Internet usage as well as
the level of traffic and the
processing transactions on our
service. In addition, the
Internet could lose its
viability due to delays in the
development or adoption of new
standards and protocols to
handle increased levels of
activity or due to increased
governmental regulation. The
infrastructure and
complementary products or
services necessary to make the
Internet a viable commercial
marketplace for the long term
may not be developed
successfully or in a timely
manner. Even if these products
or services are developed, the
Internet may not become a
viable commercial marketplace
for services such as those
that we offer.
14
<PAGE>
OUR BUSINESS IS SUBJECT TO
ONLINE COMMERCE SECURITY RISKS
A significant barrier to
online commerce and
communications is the secure
transmission of confidential
information over public
networks. Our security
measures may not prevent
security breaches. Our failure
to prevent security breaches
could harm our business. In
the future it is anticipated
that a significant number of
our users will authorize us to
bill their credit card
accounts directly for future
listing fees that may be
charged by us.
We intent to rely on
encryption and authentication
technology licensed from third
parties to provide the
security and authentication
technology to effect secure
transmission of confidential
information, including
customer credit card numbers.
Advances in computer
capabilities, new discoveries
in the field of cryptography,
or other developments may
result in a compromise or
breach of the technology used
by us to protect customer
transaction data. A number of
other websites have reported
breaches of their security.
Any compromise of our security
could harm our reputation and,
therefore, our business. In
addition, a party who is able
to circumvent our security
measures could misappropriate
proprietary information or
cause interruptions in our
operations. In the future, we
may need to expend significant
resources to protect against
security breaches or to
address problems caused by
breaches. Security breaches
could damage our reputation
and expose us to a risk of
loss or litigation and
possible liability.
WE MUST KEEP PACE WITH RAPID
TECHNOLOGICAL CHANGE TO REMAIN
COMPETITIVE
The market in which we compete
is characterized by rapidly
changing technology, evolving
industry standards, frequent
new service and product
introductions and enhancements
and changing customer demands.
These market characteristics
are worsened by the emerging
and changing nature of the
Internet. Our future success
therefore will depend on our
ability to adapt to rapidly
changing technologies, to
adapt our services to evolving
industry standards and to
continually improve the
performance, features and
reliability of our service.
Our failure to adapt to such
changes would harm our
business. In addition, the
widespread adoption of new
Internet, networking or
telecommunications
technologies or other
technological changes could
require substantial
expenditures to modify or
adapt our services or
infrastructure.
WE NEED TO ESTABLISH STRATEGIC
RELATIONSHIPS WITH THIRD
PARTIES IN ORDER TO EXPAND
We may also consider strategic
relationships with third
parties to provide various
post-auction related support
services. By using third
parties to deliver these
services, we may be unable to
control the quality of these
services and our ability to
address problems if any of
these third parties fails to
perform adequately will be
reduced. Expanding our
operations in this manner also
will require significant
additional expenses and
development, operations and
other resources and will
strain our management,
financial and operational
resources. The lack of market
acceptance of any new services
could harm our business.
INTERNET DOMAIN NAMES
BidBay.com currently holds the
website domain name relating
to our brand. The acquisition
and maintenance of domain
names generally is regulated
by governmental agencies and
their designees. The
regulation of domain names in
the
15
<PAGE>
United States and in
foreign countries is subject
to change in the near future.
As a result, BidBay.com may be
unable to acquire or maintain
relevant domain names in the
countries in which it
conducts, or plans to conduct,
business. Furthermore, the
relationship between
regulations governing domains
names and laws protecting
trademarks and similar
proprietor rights is unclear.
Therefore, BidBay.com may be
unable to preserve third
parties from acquiring domain
names that are similar to,
infringe upon, dilute or
otherwise decrease the value
of its trademarks and other
proprietary rights.
WE MAY BE UNABLE TO PROTECT
OUR OWN INTELLECTUAL PROPERTY
RIGHTS ADEQUATELY
To date, BidBay.com has not
filed any trademark
applications in the United
States Trademark Office.
Effective copyright, service
mark, trademark, etc.
protection is very expensive
to maintain, and protection
may not be available in every
country in which our services
are made available online. We
may not be successful in
protecting our intellectual
property rights adequately.
IF A MARKET FOR OUR COMMON
STOCK DEVELOPS, OUR STOCK
PRICE MAY BE VOLATILE
There is currently no market
for our common stock and we
can provide no assurance to
investors that a market will
develop. We currently plan to
attempt to obtain a listing of
our common stock on the NASDAQ
market if we qualify at the
time upon the effectiveness of
the registration statement of
which this prospectus forms a
part. However, we can provide
investors with no assurance
that our shares will be traded
on any market, if traded, that
a viable public market will
materialize. If a market does
develop, however, we
anticipate that the market
price of our common stock will
be subject to wide
fluctuations in response to
several factors, including:
- actual or anticipated
variations in our results
of operations;
- our ability or inability
to generate revenues;
- increased competition;
and
- conditions and trends
with the Internet.
Further, if our common stock
is traded, our stock price may
be impacted by factors that
are unrelated or
disproportionate to our
operating performance. These
market fluctuations, as well
as general economic, political
and market conditions, such as
recessions, interest rates or
international currency
fluctuations may adversely
affect the market price of our
common stock.
IF THE SELLING SHAREHOLDERS
SELL A LARGE NUMBER OF SHARES
ALL AT ONCE OR IN BLOCKS, THE
MARKET PRICE OF OUR SHARES
WOULD MOST LIKELY DECLINE
The selling shareholders are
offering 600,000 shares of our
common stock through this
prospectus. The selling
shareholders are not
restricted in the price they
can sell the common stock.
Our common stock is presently
not traded on any market or
securities exchange, but
should a market develop,
shares sold at a price below
the current market price at
which the common stock is
trading may cause that market
price to decline. Moreover,
an offer or sale of large
numbers of shares at any price
may cause the market price to
fall.
IF OUR STOCK PRICE DROPS
SIGNIFICANTLY, WE MAY BECOME
SUBJECT TO SECURITIES
LITIGATION THAT WOULD RESULT
IN A HARMFUL DIVERSION OF OUR
BUSINESS RESOURCES
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<PAGE>
In the past, following periods
of volatility in the market
price of a particular
company's stock, securities
class action litigation has
been brought against that
company. Any litigation
arising from the volatility in
the
price of our common stock
could have an adverse effect
on our business, financial
condition and results of
operations.
17
<PAGE>
USE OF PROCEEDS
The net proceeds from the placement of the stock will be
used to acquire, develop, and operate the Internet web site
and market the sale of its services. The Company will have
the discretion to reallocate the proceeds of this Offering
among the various categories described in this Offering.
Should we raise less than the full offering, we intend to
scale down our budget accordingly. In particular, if we are
only able to successfully complete 50% of this offering, it
is our intention to significantly reduce our proposed
advertising and marketing schedule. While we feel this is a
very important aspect to the company's growth, we will still
be able to sustain operations for approximately twenty-four
months but our growth rate will be significantly impacted.
We will not receive any proceeds from the sale of shares
offered by the selling stockholders. We will receive up to
$51,000,000, which figure is net of a 15% commission if a
broker-dealer is used to sell the offering and if all of the
6,000,000 common shares offered by us on a "best efforts"
basis at $10.00 per share are purchased, and we intend to
use any proceeds from such sale for the approximated
expenses set forth below:
Sales & Marketing Expense
Advertising $18,000,000
Literature 1,000,000
Promotions 2,000,000
Sales Staff 500,000
Support Staff 500,000
Trade Shows 1,000,000
Travel 250,000
-----------
Total Sales & Marketing $23,250,000
General & Administrative Expenses
Accounting Services $ 150,000
Customer Support 1,000,000
Hosting Fees 160,000
Legal Services 50,000
Management Salaries 800,000
Office Rent 75,000
Office Supplies 24,000
Payroll Tax 180,000
Phone 36,000
Total G & A Expense $2,475,000
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<PAGE>
Research & Development Expenses
Application Development $ 250,000
Hardware & Equipment 2,500,000
----------
Total R & D Expense $2,750,000
Offering Costs
Accounting $ 38,000
Attorney fees 50,000
Printing Expense 5,000
Standard & Poors Application 5,000
SEC registration 16,500
Transfer Agent 2,000
------------
Total Registration/Filing fees $ 116,500
Working Capital $22,408,500
-----------
Total Gross Proceeds $51,000,000
DETERMINATION OF OFFERING PRICE
The offering price of the selling shareholders' shares was
calculated pursuant to rule 457 (c) of Regulation C with a
good faith estimate that the price will be the same as the
offering price for the 6,000,000 BidBay.com shares.
Prior to this offering there has been no market for the
common stock of BidBay.com. The public offering price for
the 6,000,000 shares has been determined arbitrarily by
BidBay.com's board of directors.
DILUTION
On August 31, 2000, BidBay.com had a negative net tangible
book value of ($2,049,832) or ($0.039) per share. This
calculation is based upon 50,468,290 common shares
outstanding as of August 31, 2000 and assumes the
conversion of 1,562,766 shares of convertible preferred
stock. The net tangible book value per share is equal to
BidBay.com's total tangible assets, less its total
liabilities and divided by its total number of shares of
common stock outstanding. After giving effect to the sale
of the shares at the public offering price of $10.00 per
share and after the application of the estimated net
offering proceeds of $51,000,000, the net tangible book
value of BidBay.com, as of August 31, 2000, would have
been $48,950,168 or $0.843 per share. This represents an
immediate increase in net tangible book value of $0.804
per share to existing shareholders, and an immediate
dilution of $9.157 per share to new investors purchasing
shares in this offering. The following table illustrates
the per share dilution in net tangible book value per
share to new investors:
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Public offering price per Share $10.00
Net tangible book value per share
as of August 31, 2000 ($0.039)
Increase per share attributed to
investors in this Offering $0.804
Net tangible book value per share as of
August 31, 2000, after this Offering $0.843
Net tangible book value dilution per
share to new investors $9.157
The information set forth above regarding dilution assumes
the sale of all shares offered. If less than all shares
offered are purchased, those who do invest in the offering
will undergo even greater dilution of their investment
dollar than the amounts stated.
SELLING SECURITY HOLDERS
The following table sets forth the names of the selling
security holders, the number of shares held by each security
holder prior to the offering, the number of shares which may
be offered for sale from time to time by the selling
security holders and the amount and percentage of shares to
be owned by such security holder after the offering is
complete.
Total
Shares Total Number Shares To
Owned Of Shares To Be Owned Percent
Prior Be Offered Upon Com- Owned Upon
Name Of To This For Selling Pletion Of Completion
Selling Offer- Shareholders This Of This
Stockholder Ing Account Offering Offering(3)
-------------------------------------------------------------------------
Wester Cooley(1) 20,000 10,000 10,000 below 1%
John Adams 2,000 1,000 1,000 below 1%
Joseph Bartfay 50,000 5,000 45,000 below 1%
Bryan Fannon 2,000 1,000 1,000 below 1%
Susan Mivelaz 6,000 6,000 0 below 1%
Yvonne Van Hoek(1) 20,000 10,000 10,000 below 1%
Dores Yockel 5,000 1,000 4,000 below 1%
George Tannous(1) 9,599,400 283,000 9,316,400(2) 17.8%
Donald Dayer 9,800,900 283,000 9,517,900 18.2%
(1) Each of these persons is an officer and/or director of BidBay.com.
(2) Mr. Tannous holds a 60% interest in George Tannous and
Affiliates, Inc. which owns a 59% interest in BidBay.com.
This figure does not include that indirect ownership interest.
(3) Percentage based upon 52,324,382 common shares issued and
outstanding as of January 9, 2001.
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PLAN OF DISTRIBUTION
BidBay.com is offering 6,000,000 shares through its
officers and directors on a "best-efforts" basis at a
purchase price of $10.00 per share. The offering is planned
to be managed by BidBay.com without any underwriter, and
without any underwriting discounts or sales commissions.
The shares will be offered and sold by BidBay.com's officers
and directors who will receive no sales commissions or other
compensation, except for reimbursement of expenses actually
incurred on behalf of BidBay.com for such activities. In
connection with their efforts, they will rely on the "safe
harbor" provisions of Rule 3a4-1 of the Securities and
Exchange Act of 1934 (the "1934 Act"). Generally speaking,
Rule 3a4-1 provides an exemption from the broker/dealer
registration requirements of the 1934 Act for associated
persons of an issuer. There is no minimum offering,
therefore all subscriptions will be paid directly to
BidBay.com upon receipt. No one, including BidBay.com has
made any commitment to purchase any or all of the shares.
Rather, the officers and directors will use their best
efforts to find purchasers for the shares. BidBay.com
cannot state how many shares will be sold.
BidBay.com anticipates making sale of the shares to persons
whom it believes may be interested or who have contacted
BidBay.com with interest in purchasing the securities.
BidBay.com may sell shares to such persons if they reside
in a state in which the shares legally may be sold and in
which BidBay.com is permitted to sell the shares.
BidBay.com is not obligated to sell shares to any such
persons.
BidBay.com has established no minimum offering amount and no
escrow of investor money pending a certain minimum number of
shares being sold. Each subscription for shares in this
offering that is accepted by BidBay.com will be credited
immediately to the cash accounts of BidBay.com and such
investor funds may be spent by BidBay.com without any
waiting period or other contingency.
No person has been authorized to give any information or to
make any representations in connection with this offering
other than those contained in this prospectus and if given
or made, that information representations must not be relied
on as having been authorized by BidBay.com. This prospectus
is not an offer to sell or a solicitation of an offer to buy
any of the securities it offers to any person in any
jurisdiction in which that offer or solicitation is
unlawful. Neither the delivery of this prospectus nor any
sale hereunder shall under any circumstances, create any
implication that the information in this prospectus is
correct as of any date later than the date of this
prospectus.
The shares may only be offered or traded in states where
they have been registered or where an exemption from
registration exists.
Purchasers of shares either in this offering or in any
subsequent trading market which may develop must be
residents of states in which the securities are registered
or exempt from registration. Some of the exemptions are
self-executing, that is to say that there are no notice or
filing requirements, and compliance with the conditions of
the exemption render the exemption applicable.
The selling stockholders may from time to time sell all or a
portion of their shares in the over-the-counter market, or
on any other national securities exchange on which the
common stock is or becomes listed or traded, in negotiated
transactions or otherwise, at prices then prevailing or
related to the then current market price or at negotiated
prices. The shares will not be sold in an underwritten
public offering. The shares may be sold directly or through
brokers or dealers. The
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methods by which the shares may be
sold include: (a) a block trade (which may involve crosses)
in which the broker or dealer so engaged will attempt to
sell the securities as agent but may position and resell a
portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) ordinary brokerage
transactions and transactions in which the broker solicits
purchasers; and (d) privately selling stockholders may
arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from
selling stockholders (or, if any such broker-dealer acts as
agent for the purchaser of such shares, from such purchaser)
in amounts to be negotiated which are not expected to exceed
those customary in the types of transactions involved.
Broker-dealers may agree with the selling stockholders to
sell a specified number of such shares at a stipulated price
per share, and, to the extent such purchase as principal any
unsold shares at the price required to fulfill the broker-
dealer commitment to such selling stockholder. Broker-
dealers who acquire shares as principal may thereafter
resell such shares from time to time in transactions (which
may involve crosses and block transactions and sales to and
through other broker-dealers (including transactions of the
nature described above) in the over-the-counter market or
otherwise at prices and on terms then prevailing at the time
of sale, at prices then related to the then-current market
price or in negotiated transactions and`, in connection with
such re-sales, may pay to or receive from the purchasers of
such shares commissions as described above.
In connection with the distribution of the shares, the
selling stockholders may enter into hedging transactions
with broker-dealers. In connection with such transactions,
broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with the
selling stockholders. The selling stockholders may also
sell the shares short and redeliver the shares to close out
the short positions. The selling stockholders may also loan
or pledge the shares to a broker-dealer and the broker-
dealer may sell the shares so loaned or upon a default the
broker-dealer may effect sales of the pledged shares. In
addition to the foregoing, the selling stockholders may
enter into, from time to time, other types of hedging
transactions.
The selling stockholders and any broker-dealers
participating in the distributions of the shares may be
deemed to be "underwriters" within the meaning of Section
2(11) of the 1933 Act and any profit on the sale of shares
by the selling stockholders and any commissions or discounts
given to any such broker-dealer may be deemed to be
underwriting commissions or discounts under the 1933 Act.
The shares may also be sold pursuant to Rule 144 under the
1933 Act beginning one year after the shares were issued.
We have filed the registration statement, or which this
prospectus forms a part, with respect to the sale of the
shares. There can be no assurance that the selling
stockholders will sell any or all of the shares they desire
to sell, or that we will sell any of the share we desire to
sell.
Under the Securities Exchange Act of 1934 ("Exchange Act")
and the regulations thereunder, any person engaged in a
distribution of the shares offered by this prospectus may
not simultaneously engage in market making activities with
respect to the common stock of BidBay.com during the
applicable "cooling off" periods prior to the commencement
of such distribution. In addition, and without limiting the
foregoing, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and
regulations thereunder, which provisions may limit the
timing of purchases and sales of common stock by the selling
stockholders.
We have advised the selling stockholders that, during such
time as they may be engaged in a distribution of any of the
shares we are registering by this registration statement,
they are required to comply with Regulation M promulgated
under the Securities Exchange Act of 1934. In
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general,
Regulation M precludes any selling stockholder, any
affiliated purchasers and any broker-dealer or other person
who participates in such distribution from bidding for or
purchasing, or attempting to induce any person to bid for or
purchase, any security which is the subject of the
distribution until the entire distribution is complete.
Regulation M defines a "distribution" as an offering of
securities that is distinguished from ordinary trading
activities by the magnitude of the offering and the presence
of special selling efforts and selling methods. Regulation
M also defines a "distribution participant" as an
underwriter, prospective underwriter, broker, dealer, or
other person who has agreed to participate or who is
participating in a distribution.
Regulation M prohibits any bids or purchases made in order
to stabilize the price of a security in connection with the
distribution of that security, except as specifically
permitted by Rule 104 of Regulation M. These stabilizing
transactions may cause the price of the common stock to be
higher than it would otherwise be in the absence of those
transactions. We have advised the selling stockholders that
stabilizing transactions permitted by Regulation M allow
bids to purchase our common stock so long as the stabilizing
bids do not exceed a specified maximum, and that Regulation
M specifically prohibits stabilizing that is the result of
fraudulent, manipulative, or deceptive practices. Selling
stockholders and distribution participants will be required
to consult with their own legal counsel to ensure compliance
with Regulation M.
It should be noted that notwithstanding any of the
foregoing discussion in this section on plan of
distribution, at the present time the common shares of
BidBay.com are not listed on any exchange or quoting service
nor does any public market exist for the shares. It remains
uncertain at the present time whether this offering will
create a public market for the common shares.
LEGAL PROCEEDINGS
PENNSYLVANIA ACTION
On or about December 21, 2000, the Pennsylvania
Securities Commission filed a petition in the Commonwealth
Court of Pennsylvania against BidBay.com, Inc.
("BidBay.com"), Donald Dayer (a holder of more than 5% of
the common shares of BidBay.com) and John Montgomery (the
"Defendants"), alleging that a Summary Order to Cease and
Desist from offering or selling securities in the State of
Pennsylvania had been entered on August 22, 2000, that the
order had been violated when defendant Montgomery offered to
sell shares of BidBay.com to a resident of Pennsylvania
during the last part of October, 2000, and that BidBay.com
had mailed materials to the same person in his capacity as a
shareholder of BidBay.com.
The complaint seeks an order enforcing the original
Summary Order, an order rescinding all sales made to
Pennsylvania residents after August 24, 2000 (of which there
are none known to the Company), an order adjudging
Defendants in contempt of the original Summary Order, civil
penalties in the amount of $5,000 per violation, the
attorneys fees and investigative costs of the commission,
and such other relief as the court deems just.
BidBay.com has agreed to sign a consent that it will
not violate the Summary Order. Opposing counsel has stated
that once the consent is signed, it will negotiate a
possible penalty and when paid, BidBay.com will be dismissed
from the action. It is
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understood however that BidBay.com
will not be able to sell securities in the State of
Pennsylvania in the future.
FORMER EMPLOYEE LAWSUIT
The Company has been named as a co-defendant in a lawsuit
involving a former business associate of the President of
the Company. The President, other business entities of the
President and the Company have been named in the suit.
Management believes the lawsuit is without merit and intends
to vigorously defend its position. The Company has filed
suit against the same former business associate alleging
that the former associate gained illegal access to certain
of the Company's proprietary intellectual information for
the purpose of doing harm to the Company and to steal
customers from the Company. At this time management is not
able to estimate the likelihood of a favorable outcome in
the lawsuit.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following persons are the current executive officers and
directors of BidBay.com:
NAME AGE POSITION(S)
George Tannous 44 director, president and
chief executive officer
Yvonne Van Hoek 35 director and vice president
Wester Cooley 68 director and vice president
Fredrick Grossi 47 chief financial officer
Directors are elected by the shareholders annually.
George Tannous, EA, is a former IRS Agent who specializes in
taxation and related financial matters. He graduated with
honors from Regis University in Denver, Colorado, and owned
and operated several diverse businesses before joining the
Internal Revenue Service. From 1995 to the present, Mr.
Tannous has been the president of George Tannous &
Affiliates Inc., a tax consulting and preparation firm. In
January, 2000, he also became the chief executive officer
and a director of BidBay.com, positions which he continues
to hold. Mr. Tannous has lectured extensively at the
college level on career planning in the areas of taxation
and financial issues, and how they impact individuals,
partnerships, and corporations. He has been honored by the
IRS with certificates of merit for his work with the elderly
and indigent, and for his work with the victims of the Los
Angeles riots.
Yvonne Van Hoek is a licensed tax preparer through the State
of California. From 1995 through September 1998, she was
the assistant manager of accounting division for Crestview
Medical Group. From September, 1998, through January, 2000,
she was a certified tax preparer for George Tannous &
Affiliates Inc. From January, 2000, to the present she has
been a director and a vice president of BidBay.com.
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Wester Cooley is a former United States Congressman serving
from 1995 to 1997 as Congressman for the 2nd district of
Oregon. From 1997 to the present has been self employed in
real estate development and investment. In January, 2000,
he became a director and a vice president of BidBay.com,
positions which he continues to hold. Prior to 1995 he
served as a State Senator from the state of Oregon. Mr.
Cooley has held the position of Vice President of Regulatory
affairs with Viratek, Inc.
Fredrick Grossi, EA, is an Enrolled Agent with the
Department of Treasury. From 1995 to the present he has
been the president of Grossi & Associates, a company
engaged in the business of tax preparation and
representation. In December, 2000, he became the chief
financial officer of BidBay.com. Fred has held the position
of chief financial officer for a major telecommunications
company.
DONALD DAYER
Dayer owns 18.7% of the common shares of
BidBay.com, was instrumental in establishing BidBay.com and
has been a fund raiser for BidBay.com. Mr. Dayer was the
subject of a permanent injunction obtained by the Federal
Trade Commission (FTC) in the U.S. District Court for the
Central District of California for the fraudulent
telemarketing of investments in Federal Communications
Commission (FCC) paging licenses (FTC Permanent Injunction).
FTC v. Bell Connections, Inc., Donald Dayer et al., No. 96-
0455 KMW (Shx) (C.D. Cal. December 10. 1996). The FTC
Permanent Injunction permanently restrained Dayer from "the
advertising, promotion, offering for sale or sale of . any
investment. whether directly or indirectly, or through any
business entity, unless . [Dayer] first obtains a
performance bond in the principal sum of $275,000." Mr.
Dayer is also involved at the present time as a defendant
before the courts of Pennsylvania for selling securities in
Pennsylvania without a license in that state. See "LEGAL
PROCEEDINGS" herein.
PRINCIPAL SHAREHOLDERS
The following table provides the names and addresses of each
person known to us to own more than 5% of our outstanding
common stock as of January 9, 2001, and by the officers and
directors, individually and as a group. Except as otherwise
indicated, all shares are owned directly.
Name and address Amount of Percent
Title of class of beneficial owner beneficial ownership of class(1)
-------------- ------------------- -------------------- -----------
Common Stock George Tannous &
Affiliates Inc. 30,000,000 shares 57.3%
7209 Foothill Blvd.
Tujunga, CA 91042
Common Stock George Tannous 27,599,400 shares(2) 52.7%(2)
7209 Foothill Blvd.
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Tujunga, CA 91042
Common Stock Donald Dayer 9,800,900 shares 18.7%
9925 Commerce Ave.
Tujunga, CA 91042
Common Stock Yvonne Van Hoek 20,000 shares *(3)
7209 Foothill Blvd.
Tujunga, CA 91042
Common Stock Wester Cooley 20,000 shares *(3)
7209 Foothill Blvd.
Tujunga, CA 91042
Common Stock Fredrick Grossi -0- -0-
7209 Foothill Blvd.
Tujunga, CA 91042
Common Stock All Officers and
Directors 37,440,300 shares(2) 71.6%(2)
as a Group that
consists of four people
(1) The percent of class is based on 52,324,382 shares of
common stock issued and outstanding as of January 9,
2001.
(2) Mr. George Tannous holds a 60% ownership interest in
George Tannous & Affiliates Inc. The figures noted
acknowledge the beneficial interest by Mr. Tannous of
18,000,000 common shares in BidBay.com held by George
Tannous & Affiliates Inc.
(3) Percentage is less than 1%.
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized common stock of BidBay.com consists of
100,000,000 shares, with each share having a par value of
$0.001 (the "common stock" or "common shares" or "shares"),
of which 52,324,382 shares were issued and outstanding on
January 9, 2001. There were 25,619 holders of the common
stock as of January 9, 2001.
Holders of the common stock are entitled to one vote per
share on all matters submitted to a vote of shareholders of
BidBay.com and may not cumulate votes for the election of
directors. Holders of the common stock have the right to
receive dividends when, as, and if declared by the board of
directors from funds legally available therefore. Upon
liquidation of BidBay.com holders of the common stock are
entitled to share pro rata in any assets available for
distribution to shareholders after payment of all
obligations of BidBay.com. Holders of common stock have no
preemptive rights and have no rights to convert their common
stock into any other securities. All shares of common stock
have
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<PAGE>
equal rights and preferences. All shares of common
stock now outstanding are fully paid for and non-assessable.
BidBay.com has never paid a cash dividend on the common
stock. BidBay.com currently intends to retain all earnings,
if any, that might otherwise be paid as a cash dividend on
the common stock, to increase the capital of BidBay.com to
effect planned expansion activities and to pay dividends
only when it is prudent to do so and BidBay.com's
performance justifies such action.
CONVERTIBLE REDEEMABLE PREFERRED STOCK
The authorized preferred stock of BidBay.com consists of
10,000,000 shares, with each share having a par value of
$0.001 (the "preferred stock" or "preferred shares").
BidBay.com designated 1,600,000 shares of 10% Convertible
Redeemable preferred stock non-cumulative non-compounding at
a purchase price of $2.50 per share. The holders of the
preferred stock are entitled to annual dividends once
declared and approved by BidBay.com's Board of Directors.
The dividend is 25 cents per share per annum. Each share of
preferred stock is convertible into one share of common
stock. BidBay.com has the right to cause a partial or
complete redemption of the shares at certain times and for
specific redemption price.
BidBay.com has the option to redeem all or any portion of
the preferred stock after June 15, 2000 by paying cash or
shares of common stock of publicly traded company have a
market value equal to 110% of the original purchase price of
the share plus a non-cumulative non-compounded dividend at
the rate of 10% per annum. The redemption price may be paid
in cash or, at the option of the preferred stockholder
exercisable in the holder's sole discretion, in shares of
the common stock of a publicly traded company, or in any
combination of both cash and stock. For the purpose of
determining the number of shares of common stock to be
issued in a redemption of the preferred stock, the following
formula applies: If the common stock is immediately
tradable on the date of the redemption, then the number of
shares will be calculated based on the average last sale
price of the stock on the five (5) trading days immediately
preceding the date of the declaration of the redemption. If
the common stock is restricted pursuant of Rule 144 of the
Securities Act of 1933, as amended, with any holding period
remaining, then the number of shares will be calculated
based on 90% of the average last sale price of the stock on
the five (5) trading days immediately preceding the date of
the declaration of the redemption. The redemption right
relates to all shares, as adjusted for stock splits, stock
dividends and similar events.
The preferred stockholders may convert each share of
preferred stock into one share of common stock at any time
after the shares are issued. BidBay.com does not have the
right to require a conversion of the preferred stock to
common stock.
Each share of the preferred stock has one vote to the same
extent as the outstanding common stock. The common stock
into which the preferred stock is convertible has the same
voting right as the currently outstanding common stock.
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<PAGE>
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this prospectus as having
prepared or certified any part of this prospectus or having
given an opinion upon the validity of the securities being
registered or upon other legal matters in connection with
the registration or offering of the common stock was
employed on a contingency basis, or had, or is to receive,
in connection with the offering, a substantial interest,
direct or indirect, in the registrant or any of its parents
or subsidiaries. Nor was any such person connected with the
registrant or any of its parents or subsidiaries as a
promoter, managing or principal underwriter, voting trustee,
director, officer, or employee.
Michael A. Cane of Cane & Company, LLC, our independent
legal counsel, has provided an opinion on the validity of
our common stock.
Pritchett, Siler & Hardy, P.C., independent certified
public accountants, of Salt Lake City, Utah audited our
financial statements and presented their report with respect
to the audited financial statements. The report of
Pritchett, Siler & Hardy, P.C., was given upon their
authority as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
BidBay.com's articles of incorporation provide that
BidBay.com will indemnify an officer, director, or former
officer or director, to the full extent permitted by law.
This could include indemnification for liabilities under
securities laws enacted for shareholder protection.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to
directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that
in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer, or controlling person in
connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue.
ORGANIZATION WITHIN LAST FIVE YEARS
Our Company was organized under the laws of the State of
California on December 21, 1999. On March 3, 2000 we
effected a change of domicile to Nevada. Mr. George
Tannous, our President, Chief Executive Officer and a
director, has been a promoter since our inception. Other
than the purchase of his stock and the real property lease
agreements and loans described herein under Certain
Relationships and Related Party Transactions, Mr. Tannous
has not entered into any agreement with us in which he is to
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<PAGE>
receive from us or provide to us any thing of value. Mr.
Tannous has acquired 10,000,000 shares of our common stock
at a price of $0.001 per share. Mr. Tannous provided
services valued at $10,000 for these shares. In addition,
Donald Dayer acquired 10,000,000 shares of our common stock
at a price of $0.001 per share at the inception of
BidBay.com. Mr. Dayer also provided services valued at
$10,000 for these shares. The other 30,000,000 in common
shares issued at the inception of BidBay.com was issued to
George Tannous & Affiliates Inc. at a price of $0.001 per
share and was paid for by services rendered to BidBay.com.
Mr. George Tannous owns 60% of George Tannous & Affiliates
Inc. For additional information regarding transactions
between these persons and BidBay.com please refer to the
detailed discussion found under Certain Relationships and
Related Party Transactions.
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DESCRIPTION OF BUSINESS
BACKGROUND
The Company was launched on the world-wide-web around
January 15, 2000. The Company started out as a California
company in December, 1999 and was redomiciled in Nevada in
March, 2000. The Company was founded by George Tannous, its
current Chief Executive Officer. Mr. Tannous started trading
on a competitor's website in October, 1999 and, during his
moments of frustration, determined that there was a
tremendous need for another online auction site to be
established. A variety of auction sites existed at the
time, including Amazon.com and Yahoo.com, however such sites
primarily offered other services such as the sales of books
or the provision of a search engine. Using his background in
marketing, advertising, sales as well as his general
business know-how, Mr. Tannous set out to develop an auction
site to compete with eBay.com and other established
websites. During such time he retained the services of
numerous talented individuals and BidBay.com was formed.
Today, the company offers users the opportunity to buy and
sell products in over 2,200 categories including antiques,
automobiles, dolls, collectibles, household items, toys,
computers, jewelry, etc. Sellers will list the items for
sale and, depending on the specific type of auction elected
by the seller, hopefully the products will be sold to the
highest bidder or bidders. Sellers can generally list their
items for three to ten days. The BidBay.com service permits
sellers to list items for sale, buyers to bid on items of
interest and all BidBay.com users to browse through listed
items in a fully-automated, topically-arranged, intuitive
and easy-to-use online service that is available 24 hours a
day, seven days a week. At the present time, the winning
bidder or bidders are notified by email by the seller and
shipping and payment arrangements are addressed at that
time. Once money is received by the seller, the item is
shipped to the winning bidder.
Sellers are attracted to BidBay.com as a result of the large
number of potential buyers, and buyers in turn are attracted
to BidBay.com by the broad selection of goods listed on
BidBay.com. The website provides buyers and sellers a place
to rate each other, discuss topics of common interest and,
ultimately, to conduct business in a compelling trading
environment, thus fostering a large and growing commerce-
oriented online community. Over Four Million members enjoy
using BidBay.com with over One Million items listed among
2,200 categories. The Company has seen over 29 Million
offers to purchase products, and over 10 Million auctions
since January, 1999.
The Company offers daily prizes to its visitors as an
incentive to register and view the auctions on the website.
BidBay.com created a site which is easy to navigate through
and which is easy to register bids as well as post an item
for sale. In addition to television, radio, internet and
billboard advertising, promotional giveaways have a proven
track record of success. BidBay.com's goal is to make its
website the most convenient place to bring buyers and
sellers together as they form an "auction community". Each
day the Company lists over one dozen "Featured Auctions" as
well as "Hot Auctions". Such front
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<PAGE>
page display provides a
few lucky sellers with the recognition of being highlighted
or featured on the main page of a site visited by potential
buyers. This feature provides added value and attraction to
the brand name. With the large number of listed products to
be sold at auction, the site is able to attract a
significant number of visitors on a daily basis. Such
individuals may also create a personalized auction site
experience using the free service called "My BidBay". This
streamlines the buyer's opportunity to quickly stay abreast
of on-going auctions in the areas of his or her interest.
Currently, the Company offers sellers the opportunity to
display and sell their products at BidBay.com's website
without any charge being accessed by this Company. (Note:
the Buyers and Sellers may be charged additional fees by a
third party escrow company or for internet payment
solutions, if requested by the parties to the transaction).
Visitors are able to register with the Company to purchase
such goods free of any membership charge. The competition
currently charges a commission on the seller's proceeds and
often charges a listing fee in addition to the commissions.
One competitor charges up to five percent of the seller's
proceeds, depending on the amount realized. Theoretically,
buyers may be paying a greater amount for similar goods
purchased on our competitor's websites. This may be the case
if the seller marks up the price of product to be sold in
order to offset or cover for the additional costs of sale
relating to the listing fee and commission to be paid to our
competitor.
Sellers may also take advantage of our "Image Hosting"
technology. This allows the seller to include pictures of
the product or products offered for sale. Once again, at the
present time, the seller is not charged an additional fee
for the display of such pictures. The Company believes that
the Image Hosting technology adds significant value to the
brand name. Photos increase the opportunities for successful
auctions to occur. This makes the visit an enjoyable
experience for visitors, and encourages them to return to
the site. A series of help screens as well as a simple site
map provides additional explanation to assist the internet
user. In addition to live technical support available by
telephone or email, BidBay.com provides a message board
where the "auction community" may ask and receive auction
advise from fellow members. The Company also offers its
members free email which can be accessed world-wide from the
member's internet browser.
The Company also offers users the opportunity to visit a
continuously maintained, internal charity auction site.
Often times sellers wish to take advantage of the
opportunity to quickly and easily dispose of certain
possessions, while making sure that the proceeds of the sale
benefit their favorite charity. BidBay.com also provides
buyer's the opportunity to shop locally or regionally for
their products. This may be preferable if the buyer wishes
to avoid the cost of shipping or the related delays. Some
buyers who are new to online auctions may prefer this as it
gives him or her the opportunity to inspect the products in
person before expending any time, effort or money associated
with making payment arrangements.
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MARKET
The concept of the online auction has been in existence on
the world-wide-web for sometime. The members of the
organization have decided to take that concept and enhance
it using their combined expertise to create an auction
service that is unique, reasonable in price, service
oriented and facilitates the creation of a true auction
community. In order to achieve their objectives, they
continuously conduct market research. In addition to
analyzing the competition, they review input received from
their members. Email is often sent to members to survey
their satisfaction with the company's services and
soliciting feedback on improvements and services they would
like to see offered by BidBay.com. In "chat", members have
the opportunity to communicate with other members for
feedback on auction techniques or suggestions. In addition,
the company makes available to members at no extra charge, a
useful book which was authored by the CEO and describes ways
in which members might benefit from conducting auction
sales.
To establish a successful online auction community requires
millions of dollars in advertising, and highly experienced
software engineering and web design talent. BidBay.com has
made an investment to enter this marketplace and is
confident of its ability and drive to compete with companies
such as eBay.com, Yahoo ! and Amazon.com. BidBay.com hopes
to become a household name in this industry. The Company has
focused its attention in three key areas: Sellers, Buyers
and Advertisers. The Sellers include transactions involving
consumer to consumer, business to consumer as well as
business to business, also known as "B2B". The Company has
conducted extensive research along the lines of these three
key areas and understands the industry practices. Although
the Company takes pride in the gathering of new members by
word of mouth, it continues to direct its energy and efforts
in bringing in new members on a continuous basis. This is
accomplished by advertisement in various media such as
television, radio, newspaper and other print; banners or
tiles in other popular websites, which contain links to
BidBay.com; and purchasing space in other websites to
promote the opportunity for visitors to register as members
of BidBay.com. Furthermore, the Company believes it will
attract advertisement revenue from other websites. As such
organizations become more aware of the traffic entering our
site, they may be willing to contract with our Company for
the placement of their banners or tiles on our website
pages.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND ONLINE COMMERCE
The Internet has emerged as a global medium enabling
millions of people worldwide to share information,
communicate and conduct business electronically. This year
there will be hundreds of millions of web users worldwide.
This user population is expected to be driven by the large
and growing number of internet-ready computers installed in
homes and offices, the decreasing cost of computers, easier,
faster and cheaper access to the
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Internet, improvements in
network infrastructure, the proliferation of Internet
content and the increasing familiarity and acceptance of the
Internet by businesses and consumers. The Internet possesses
a number of unique characteristics that differentiate it
from traditional media: users communicate or access
information without geographic or temporal limitations;
users access dynamic and interactive content on a real-time
basis; and users communicate and interact instantaneously
with a single individual or with entire groups of
individuals. As a result of these characteristics, Web usage
is expected to continue to grow rapidly.
The growing adoption of the Web represents an enormous
opportunity for businesses to conduct commerce over the
Internet. While companies initially focused on facilitating
and conducting transactions between businesses over the
Internet, a number of companies more recently have focused
on facilitating a wide variety of business-to-consumer
transactions. These companies typically use the Internet to
offer standard products and services that can be easily
described with graphics and text and do not necessarily
require physical presence for purchase, such as books, CDs,
videocassettes, automobiles, home loans, airline tickets and
online banking and stock trading. The Internet gives these
companies the opportunity to develop one-to-one
relationships with customers worldwide from a central
location without having to make the significant investments
required to build a number of local retail presences, manage
a worldwide distribution infrastructure or develop the
printing and mailing infrastructure associated with
traditional direct marketing activities. While companies
have generally focused on applying these benefits in
business-to-business and business-to-consumer transactions,
a significant market opportunity exists to apply these same
advantages to facilitate person-to-person trading over the
Internet.
THE PERSON-TO-PERSON TRADING MARKET OPPORTUNITY
The exchange of goods between individuals--person-to-person
trading-has traditionally been conducted through trading
forums such as classified advertisements, collectibles
shows, garage sales and flea markets or through
intermediaries, such as auction houses and local dealer
shops. These markets are highly inefficient, making person-
to-person trading difficult for buyers and sellers. Their
fragmented, regional nature makes it difficult and expensive
for buyers and sellers to meet, exchange information and
complete transactions. The localized nature of these markets
also results in a limited variety and breadth of goods
available in any one location. Buyers are limited to
searching through local classified ads or to traveling to
numerous geographically-dispersed flea markets, trade shows
or dealer shops in order to find items of interest. These
markets often have high transaction costs because
intermediaries either mark up goods for resale or charge a
commission. Because these markets are information
inefficient, buyers and sellers lack a reliable and
convenient means of setting prices for sales or purchases.
The Internet offers for the first time the opportunity to
create a compelling global marketplace that overcomes the
inefficiencies associated with traditional person-to-
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person
trading while offering the benefits of Internet-based
commerce to the person-to-person trading market. An
Internet-based centralized trading place facilitates buyers
and sellers meeting, listing items for sale, exchanging
information, interacting with each other and, ultimately,
consummating transactions. It allows buyers and sellers to
trade directly, bypassing traditional intermediaries and
lowering costs for both parties. This trading place is
global in reach, offers buyers a significantly broader
selection of goods to purchase and provides sellers the
opportunity to sell their goods efficiently to a broader
base of buyers. It offers significant convenience, allowing
trading at all hours and providing continually-updated
information.
By leveraging the interactive nature of the Internet, this
trading place also facilitates a sense of community through
direct buyer and seller communication, thereby enabling the
interaction between individuals with mutual interests. In
addition, this community orientation, facilitation of direct
buyer and seller communication and efficient access to
information on a particular buyer or seller's trading
history can help alleviate the risks of anonymous trading.
As a result, there exists a significant market opportunity
for an Internet-based centralized trading place that applies
the unique attributes of the Internet to facilitate person-
to-person trading.
COMPETITION
WE INTEND TO SUCCEED IN AN INTENSELY COMPETITIVE MARKET
Depending on the category of product, the Company currently
or potentially competes with a number of companies serving
particular categories of goods as well as those serving
broader ranges of goods. The online personal trading market
is a new, rapidly evolving and intensely competitive area.
We expect competition to intensify in the future as the
barriers to entry are relatively low, and current and new
competitors can launch new sites at a nominal cost using
commercially available software. Our broad-based competitors
include the vast majority of traditional department and
general merchandise stores as well as emerging online
retailers. These include most prominently: Wal-Mart,
Kmart,Target, Sears, Macy's, JC Penney, Montgomery Ward,
Costco, Sam's Club as well as Amazon.com, Buy.com, AOL.com,
Yahoo! shopping and MSN.
In addition, the Company faces competition from
specialty retailers and exchanges in each of its categories
of products. For example and without limitation:
Antiques: Christies, eHammer, Sotheby's /
Sothebys.com, Sothebys.amazon.com
Coins & Stamps: Collectors Universe, Heritage,
Numismatists Online, US
Mint
Collectibles: Franklin Mint
Musical Instruments: Guitar Center, Harmony-
Central.com, MARRS,
MusicHotBid.com
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Sports Memorabilia: Beckett's, Collectors Universe
Toys, Bean Bag Plush: Amazon.com, eToys.com, KB Toys
Premium Collectibles: Christies, DuPont Registry,
Gavelnet, Greg Manning Auctions, iCollector, Lycos / Skinner
Auctions, Millionaire.com, Phillips (LVMH), Sotheby's,
Sothebys.amazon.com
Automotive (used cars): Auction Auto.com,
Autobytel.com, AutoMallUSA,AutoVantage.com, AutoWeb.com,
Barrett-Jackson, CarOrder.com, CarPoint, CarScene.com,
eClassics.com, Edmunds, GreenLight.com, Hemmings, Newspaper
classifieds, Used car dealers
Books, Movies, Music: Amazon.com, Barnes & Noble,
Barnesandnoble.com, BigStar, Blockbuster, BMG Columbia
House, CDNow, DVD Express, Spinner.com, Wherehouse,
Alibris.com, Bookfinders.com
Clothing: Bluefly.com, Dockers.com, FashionMall.com,
The Gap, J. Crew, LandsEnd.com, The Limited, lucy.com,
Macys, The Men's Wearhouse, Ross, 3Dshopping.com
Computers & Consumer Electronics: Best Buy, Buy.com,
Circuit City, Compaq, CompUSA, Dell, Egghead, Fry's
Electronics, Gateway, The Good Guys, IBM, MicroWarehouse,
The Sharper Image, Shopping.com, Surformama.com
Home & Garden: IKEA, Crate & Barrel, Homepoint.com,
Home Depot,
Garden.com, Pottery Barn, Ethan Allen, Frontgate
Jewelry: Ashford.com, Mondera.com
Sporting Goods/Equipment: dsports.com, FogDog.com,
Footlocker, Gear.com, golfclubexchange, golftrader.com,
MVP.com, PlanetOutdoors.com, Play It Again Sports, REI,
Sports Authority
Tool/Equipment/Hardware: Home Depot, HomeBase,
Amazon.com, Ace Hardware, OSH
Business-to-Business: Ariba, BidFreight.com,
BizBuyer.com, bLiquid.com, CloseOutNow.com, CommerceBid.com,
Commerce One, Concur Technologies, DoveBid, FreeMarkets,
iMark, Oracle, PurchasePro.com, RicardoBiz.com, Sabre,
SurplusBin.com, UnionStreet.com, Ventro, VerticalNet
Additionally, we face competition from various online
auction sites including: Amazon.com, eBay.com, the
Fairmarket Auction Network (an auction network including
Microsoft's MSN, Excite@Home, Dell Computer, ZD Net, Lycos
and more than 100 others), First Auction, Surplus Auction,
uBid, Yahoo! Auctions and a large number of
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other companies using an auction format for consumer-to-consumer
or business-to-consumer sales.
Some current and potential competitors have longer company
operating histories, larger customer bases and greater brand
recognition in other business and Internet markets than we
do. Some of these competitors also have significantly
greater financial, marketing, technical and other resources.
Other online trading services may be acquired by, receive
investments from or enter into other commercial
relationships with larger, well-established and well-
financed companies. As a result, some of our competitors
with other revenue sources may be able to devote more
resources to marketing and promotional campaigns, adopt more
aggressive pricing policies and devote substantially more
resources to website and systems development than we are
able to.
MARKETING
WE WILL DEVELOP OUR BIDBAY.COM BRAND NAME IN OUR EFFORT TO
ACHIEVE GROWTH
We believe that our future growth will be attributable, to
some extent, by word of mouth. We also hope to obtain a
strong benefit from high visibility media exposure. We
believe that continuing to strengthen our brand is important
to achieving widespread acceptance of our service. Promoting
and positioning our brand will depend largely on the success
of our marketing efforts and our ability to provide high
quality services. In order to promote our brand, we will
need to increase our marketing budget and otherwise increase
our financial commitment to creating and maintaining brand
loyalty among users.
WE PLAN TO DEVELOP NEW SERVICES, FEATURES AND FUNCTIONS IN
ORDER TO EXPAND
We plan to expand our operations by developing new
or complementary services, products or transaction formats
for expanding the breadth and depth of services. We intend
to expand our operations in a cost-effective and timely
manner. With this expansion, we hope to increase our overall
market acceptance. As we launch new businesses or services,
we expect that such additions will be favorably received by
our consumers, and that value of our reputation and the
BidBay.com brand name will increase.
EMPLOYEES
As of January 9, 2001, BidBay.com had 17 employees in
addition to management.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
For the next twelve months, the Company will require
significant additional capital to support the Company's
current infrastructure, including costs of operation, and
planned expansion. At August 31, 2000, the Company had
insufficient capital at that time to support its immediate
cash requirements. The Company must raise additional capital
in the next twelve months. Assuming the capital needs are
met, initially, the Company will contract with IBM for the
use of their database management db-2. Then, the Company
will expand its computer servers to approximately 100 in
number in order to accommodate millions of users as well as
millions of products listed to be auctioned. Subsequently,
the Company will launch a national advertising campaign on
television, radio and billboards for the purpose of branding
the name as well as the acquisition of new registered users.
Then the Company will incorporate a classified advertisement
site linked to its main web page for those interested in
advertising their product on a direct sale as opposed to an
auction format. The classified section will be similar to
major newspapers for businesses to market their services or
employment.
The Company intends to increase the number of its employees
to handle the additional demands associated with expansion
of its customer base. Additional employees may be hired in
the following departments: sales, customer service,
technical support, website management and development, as
well as administration. Furthermore, the Company will need
to lease additional office space to accommodate the
associated growth in number of employees and computer
servers.
The Company plans to continue its current efforts in market
research and development. As part of this process, the
Company continuously surveys its auction community members
and gains an understanding of the user's likes and dislikes.
Based upon this feedback, the Company considers the merits
of offering additional products and services and once again
surveys its members to gauge the feasibility of planned
expansions. During this time, the Company looks to the
market to learn the approach used by competitors, if any,
who face similar expansion challenges. Based upon
constructive feedback, the Company would then decide whether
or not the Company wishes to roll out such additional
products or services during the next twelve months.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE PERIOD ENDING AUGUST 31, 2000
For the eight month period of January 1, 2000 through August
31, 2000, we earned revenues of $17, 750. The Company had no
earnings from the date of inception, which is December 21,
1999, through December 31, 1999. We do not anticipate
earning revenues until such time as we are able to begin
charging sellers various fees including listing charges as
well as a small transaction charge for each item sold on our
auction site.
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Furthermore, we do not expect to generate
significant revenues until such time as we have further
developed a substantial customer base and affiliated
additional merchants or other third parties to join us in
support of our website-based advertisement strategy.
We incurred operating expenses in the amount of $3,704.657
during the eight month period ending August 31, 2000. Such
amount is made up of costs associated with business
development, advertisement, promotion as well as general and
administrative expense. Since we had so little revenue, we
incurred a net loss of $3,686,907 for this accounting
period. As of August 31, 2000, we had cash of $136,116.
During the next twelve months, the Company will respond
accordingly to industry trends. The market is intensely
competitive and new companies are entering the market while
established companies continue to consider the opportunity
to join in the online auction business arena. Personal
online auction trading is relatively new, rapidly evolving
and is the subject of broader ranges of goods serving
particular business or consumer markets. During this period
of time the Company will continue to devote more of its
resources to marketing and promotional campaigns, while
adopting reasonable pricing policies and looking for ways to
further develop its website based auction services in an
economically and efficiently manner. As new technology
becomes available, our Company hopes to have the financing
available to take advantage of such opportunities. At the
present time the Company has no fixed commitments to acquire
any capital equipment which would be material to the
Company's financial position. Our competitors have
experienced seasonable impact on its profitability. Our
Company has not yet been in existence long enough to measure
such trends and its potential impact on our organization.
During the Christmas holiday season, there is the typical
higher number of transactions posted to our website. Such
trends have been recognized and the Company will respond
accordingly during the next twelve months to take into
account such higher volume of activity.
DESCRIPTION OF PROPERTY
We incurred leasehold improvements of $26,543 in 2000. We
have no other real property interests. The Company is
renting its headquarters on a month to month basis from
George Tannous & Affiliates Inc., a corporation whose
majority shareholder is George Tannous, a director and the
chief executive officer of BidBay.com. The space is
adequate at the present time for housing the operations of
BidBay.com. However, if the operations of BidBay.com
increase at the rate projected by management, it will become
necessary to relocate or find additional office space.
Management does not believe that it will be difficult to
obtain additional office space suitable to the needs of
BidBay.com. Rent paid on the present space is $2,200 per
month. The offices are located at 7209 Foothill Blvd.,
Tujunga, CA 91042.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company is making payments related to a lease
agreement which has George Tannous and Affiliates, a related
party, as the lessee. The lease agreement is for office
space located at three locations in Tujunga, California. The
lease agreement is for five years beginning on April 1, 1999
and ending March 31, 2004. Monthly payments are
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scheduled
for $2,200 for the first 24 months and monthly payments of
$2,400 for the remaining 36 months. The Company had expensed
$11,500 for the period ended August 31, 2000.
The Company is making payments related to a lease
agreement which has George Tannous, a related party, as the
lessee. The lease agreement is for office space located in
Las Vegas, Nevada. The lease is for one year beginning
October 26, 1999 and ending October 25, 2000. Payments are
scheduled for $795 due monthly. The Company had expensed
$1,580 for the period ended August 31, 2000.
The Company is making payments related to a lease
agreement which has George Tannous, a related party, as the
lessee. The lease agreement is for office space located in
Tujunga, California. The lease is for one year beginning
March 1, 2000 and ending February 28, 2001. Payments were
scheduled for $700 due monthly. The Company had made one
lump sum payment of $9,100 during the period ended August
31, 2000.
The Company is making payments related to a lease
agreement which has George Tannous, a related party, as the
lessee. The lease agreement is for storage space located in
Tujunga, California. The lease is for approximately one year
beginning April 30, 2000 and ending April 20, 2001. Payments
were scheduled for $50 due monthly. The Company had made one
lump sum payment of $600 during the period ended August 31,
2000.
The Company is making payments related to a lease
agreement which has George Tannous, a related party, as the
lessee. The lease agreement is for office space located in
Westwood, California. The lease is for two years beginning
September 10, 1999 and ending September 9, 2001. Payments
were scheduled for $3,500 due monthly for the first twelve
months, and $4,625 due monthly for the last twelve months..
The Company had expensed $23,125 during the period ended
August 31, 2000.
During the Regulation D, Section 506 private placement
offering, the Company received proceeds from approximately
seventy non-accredited investors in excess of the allowed
numbers. The Company gave these investors the option to have
their money refunded or to purchase common stock from an
officer or an entity related to the officer. These non-
accredited investor proceeds of $80,500 and $202,674 were
reclassified to related party payable for the officer and
the entity related to the officer, respectively.
On or about December 31, 1999, the Company entered into
an agreement with Donald Dayer, a related party
stockholder, to compensate Mr. Dayer for services performed
in reference to raising capital pursuant to the the
Regulation D, Section 506 private placement offering. The
agreement states that Mr. Dayer will receive a monetary
commission of twenty five percent (25%) on all sales made by
him. For the period ended August 31, 2000, the Company has
paid $977,105 to Mr. Dayer for such services. The agreement
also states that the contract may canceled by each party
upon written notice.
On or about November 19, 1999, the Company entered into
an agreement with Donald Dayer, a related party stockholder,
to compensate Mr. Dayer for business
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development services
including, but not limited to incorporation, advertising,
marketing, technical, site services, and user acquisition.
The agreement states that Mr. Dayer will receive twenty-nine
(29%) of all funds received, whether in the form of revenue
or capital investment, until $1,500,000 is paid to the
shareholder. The $1,500,000 may be increased or decreased if
both parties agree to the change. For the period ended
August 31, 2000, the Company has paid $1,132,296 to the
shareholder.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no public trading market for the common stock
of BidBay.com. There are 52,324,382 outstanding common
shares as of January 9, 2001. The Company is currently
offering 6,000,000 common shares through this offering. We
have also agreed to register an additional 600,000 for
selling shareholders. The remaining shareholders will also
be able to sell their shares after having met the holding
requirements of Rule 144.
Since its inception, no dividends have been paid on
BidBay.com 's common stock. BidBay.com intends to retain
any earnings for use in its business activities, so it is
not expected that any dividends on the common stock will be
declared and paid in the foreseeable future.
At January 9, 2001, there were 25,619 shareholders of
record holding BidBay.com 's common stock.
EXECUTIVE COMPENSATION
Cash compensation awarded to, earned by, or paid to our
executive officers for the period ended August 31, 2000 is
as follows:
George Tannous, President and Chief Executive Officer: $89,000
Yvonne Van Hoek, Vice President: $20,700
Wester Cooley, Vice President: $ 8,000
Stock Option Grants
During the period January 1, 2000 through August 31, 2000,
we did not grant any stock options to the executive
officers. We have also not granted any stock options to the
executive officers since September 1, 2000.
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FINANCIAL STATEMENTS
Index to Financial Statements:
1. Independent Auditor's Report;
2. Audited Financial Statements for the period ending August
31, 2000, including:
a. Balance Sheet, August 31, 2000
b. Statements of Operations, for the eight month period
ended August 31, 2000 and from inception on December
21, 1999 through August 31, 2000
c. Statement of Stockholders' Equity (Deficit), from
inception on December 21, 1999, through August 31, 2000
d. Statement of Cash Flows, for the eight month period
ended August 31, 2000 and from inception on December
21, 1999 through August 31, 2000
e. Notes to Financial Statements
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in or disagreements with
BidBay.com's accountants since the formation of BidBay.com
required to be disclosed pursuant to Item 304 of Regulation
S-B.
LEGAL OPINION
The validity of the issuance of shares of BidBay.com's
common stock offered hereby has been passed upon for
BidBay.com by Cane & Company, located in Las Vegas, Nevada.
EXPERTS
The audited financial statements of BidBay.com. at August
31, 2000, and for the period then ended appearing in this
prospectus and registration statement have been audited by
Pritchett, Siler & Hardy, P.C., Certified Public
Accountants, and are included in reliance upon such reports
given upon the authority of Pritchett, Siler & Hardy, P.C.
as experts in accounting and auditing.
WHERE CAN YOU FIND ADDITIONAL INFORMATION
A registration statement on Form SB-2, including amendments
thereto, relating to the shares offered hereby has been
filed with the Securities and Exchange Commission. This
prospectus does not contain all of the information set forth
in the registration statement and the exhibits and schedules
thereto. Statements contained in the prospectus as to the
contents of any contract or other document referred to are
not necessarily complete and in each instance reference is
made to the copy of such contract or other document filed as
an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
For further information with
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respect to BidBay.com and the
shares offered hereby, reference is made to such
registration statement, exhibits and schedules. A copy of
the registration statement may be inspected by anyone
without charge at the Commission's principal office
location at 450 Fifth Street, N.W., Washington, D.C. 20549,
the Northeast Regional Office location at 7 World Trade
Center, 13th. Floor, New York, New York, 10048, and the
Midwest Regional Office location at Northwest Atrium Center,
500 Madison Street, Chicago, Illinois 60661-2511 and copies
of all or any part thereof may be obtained from the Public
Reference Branch of the Commission upon the payment of
certain fees prescribed by the Commission. You may also
obtain information on the Public Reference Room by calling
the SEC at 1-800-SEC-0330. The Commission also maintains a
site on the world wide web at http://www.sec.gov that
contains information regarding registrants that file
electronically with the Commission.
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BIDBAY.COM, INC.
[A Development Stage Company]
FINANCIAL STATEMENTS
AUGUST 31, 2000
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
CONTENTS
PAGE
- Independent Auditor's Report 1
- Balance Sheet, August 31, 2000 2 - 3
- Statements of Operations, for the eight month period
ended August 31, 2000 and from inception
on December 21, 1999 through August 31, 2000 4
- Statement of Stockholders' Equity (Deficit), from inception
on December 21, 1999 through August 31, 2000 5
- Statements of Cash Flows, for the eight month period
ended August 31, 2000 and from inception
on December 21, 1999 through August 31, 2000 6 - 7
- Notes to Financial Statements 8 - 18
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
BIDBAY.COM, INC.
Tujunga, California
We have audited the accompanying balance sheet of Bidbay.com, Inc. [a
development stage company] as of August 31, 2000, and the related statements
of operations, stockholders' equity (deficit) and cash flows for the eight
month period ended August 31, 2000 and for the period from inception on
December 21, 1999 through August 31, 2000. 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 audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bidbay.com, Inc. as of August
31, 2000, and the results of its operations and its cash flows for the eight
month period ended August 31, 2000 and for the period from inception through
August 31, 2000, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company was only recently formed, has incurred losses since
its inception, has current liabilities in excess of current assets and has not
yet been successful in establishing profitable operations. These factors
raise substantial doubt about the ability of the Company to continue as a
going concern. Management's plans in regards to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
/s/ Pritchett, Siler & Hardy, P.C.
Pritchett, Siler & Hardy, P.C.
November 30, 2000
Salt Lake City, Utah
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
BALANCE SHEET
ASSETS
August 31,
2000
___________
CURRENT ASSETS:
Cash $ 136,116
Employee receivables 8,345
Promotional inventory 109,798
Related-party receivable 119,147
Prepaid expense 10,000
___________
Total Current Assets 383,406
PROPERTY AND EQUIPMENT, net 174,667
INTANGIBLES, net 1,832,078
___________
$2,390,151
____________
[Continued]
-2-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
BALANCE SHEET
[Continued]
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
August 31,
2000
___________
CURRENT LIABILITIES:
Accounts payable $ 62,021
Payable to related party 111,307
Shareholder deposits 176,800
Accrued expenses 96,517
Installment payable 1,830,987
Dividends payable 198,678
Current portion of note payable 1,204
___________
Total Current Liabilities 2,477,514
NOTES PAYABLE, less current portion 25,391
DEFERRED REVENUE 105,000
___________
Total Liabilities 2,607,905
STOCKHOLDERS' EQUITY (DEFICIT):
10% convertible redeemable Preferred stock,
$.001 par value, 10,000,000 shares authorized,
1,562,766 shares issued and outstanding 1,563
Common stock, $.001 par value, 100,000,000
shares authorized, 50,468,290 shares
issued and outstanding 50,468
Capital in excess of par value 3,467,122
Deficit accumulated during the
development stage (3,736,907)
___________
Total Stockholders' Equity (Deficit) (217,754)
___________
$2,390,151
___________
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
STATEMENTS OF OPERATIONS
For the From Inception
Eight Month on December 21,
Period Ended 1999 Through
August 31, August 31,
2000 2000
_____________ ____________
REVENUE $ 17,750 $ 17,750
_____________ ____________
EXPENSES:
Business development 1,092,587 1,092,587
Advertising 932,258 932,258
Promotion 360,194 360,194
General and administrative 1,319,618 1,369,618
_____________ ____________
Total Expenses 3,704,657 3,754,657
_____________ ____________
LOSS FROM OPERATIONS (3,686,907) (3,736,907)
_____________ ____________
CURRENT TAX EXPENSE - -
DEFERRED TAX EXPENSE - -
_____________ ____________
NET LOSS $(3,686,907) $(3,736,907)
_____________ ____________
LOSS PER COMMON SHARE $ (.07) $ (.07)
____________ ____________
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM THE DATE OF INCEPTION ON DECEMBER 21, 1999
THROUGH AUGUST 31, 2000
Deficit
Capital Accum-
in ulated
Excess During
Preferred Stock Common Stock of the
_____________ ___________________ Par Development
Shares Amount Shares Amount Value Stage
_______ _____ _________ ________ ______ _______
BALANCE, December 21, 1999 - $ - - $ - $ - $ -
Issuance of 50,000,000
shares common stock
to founders for services,
December 1999, at
$.001 per share - - 50,000,000 50,000 - -
Net loss for the period
ended December 31, 1999 - - - - - (50,000)
_______ _____ _________ ________ ______ _______
BALANCE, December 31, 1999 - - 50,000,000 $ 50,000 - (50,000)
Issuance of preferred
stock and common stock
for cash, February 2000
through August 2000,
at $2.50 per unit of
1 preferred share and
.1 common share, net of
$977,103 stock offering
costs 1,562,766 1,563 156,277 156 2,928,092 -
Issuance of common stock
to employees for services,
March 2000, valued at
$2.50 per share - - 52,000 52 129,948 -
Issuance of common stock
for promotional giveaway,
June 2000, at $2.50 per
share - - 126,150 126 315,249 -
Issuance of common stock
for cash, July 2000, at
$5.00 per share - - 60,000 60 299,940 -
Declaration of cash dividends
on preferred stock,
August 2000, at the rate
of $.25 per outstanding share
of preferred stock - - - - (390,692) -
Issuance of common stock
in payment of dividend
payable on preferred stock,
August 2000, at $2.50
per share - - 73,863 74 184,585 -
Net loss for the period ended
August 31, 2000 - - - - - (3,686,907)
_______ _____ _________ ________ ______ _______
BALANCE, August 31,
2000 1,562,766 $1,563 50,468,290 $50,468 $3,467,122 $(3,736,907)
_______ _____ _________ ________ ______ _______
The accompanying notes are an integral part of this financial statement.
-5-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS
For the From Inception
Eight Month on December 21,
Period Ended 1999 Through
August 31, August 31,
2000 2000
_____________ ____________
Cash Flows from Operating Activities:
Net loss $ (3,686,907) $(3,736,907)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation and amortization 176,010 176,010
Stock issued for services 130,000 180,000
Stock issued for promotion 315,375 315,375
Changes in assets and liabilities:
(Increase) in employee receivable (8,345) (8,345)
(Increase) in related party receivable (109,798) (109,798)
(Increase) in promotional inventory (92,311) (92,311)
(Increase) in prepaid (10,000) (10,000)
Increase in accounts payable 62,021 62,021
Increase in payable related party 111,307 111,307
Increase in deposits payable 176,800 176,800
Increase in accrued payroll
and payroll taxes 96,517 96,517
Increase in deferred revenue 105,000 105,000
(Decrease) in Installment payable (169,013) (169,013)
_____________ ____________
Net Cash (Used) by
Operating Activities (2,903,344) (2,903,344)
_____________ ____________
Cash Flows from Investing Activities:
Purchase of equipment (182,756) (182,756)
_____________ ____________
Net Cash Provided (Used) by
Investing Activities (182,756) (182,756)
_____________ ____________
Cash Flows from Financing Activities:
Principal payments on notes payable (241) (241)
Proceeds from preferred and
common stock offering 3,906,916 3,906,916
Proceeds from common stock issuance 300,000 300,000
Dividends paid in cash (7,356) (7,356)
Payment of stock offering costs (977,103) (977,103)
_____________ ____________
Net Cash Provided by
Financing Activities 3,222,216 3,222,216
_____________ ____________
Net Increase (Decrease) in Cash 136,116 136,116
Cash at Beginning of Period - -
_____________ ____________
Cash at End of Period $ 136,116 $ 136,116
_____________ ____________
Supplemental Disclosures of
Cash Flow Information:
Cash paid during the year
and from inception for:
Interest $ - $ -
Income taxes $ - $ -
[Continued]
-6-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
STATEMENTS OF CASH FLOWS [Continued]
Supplemental Schedule of Non-Cash Investing and Financing Activities:
For the period ended December 31, 1999:
The Company issued 50,000,000 shares of common stock to founders for
services valued at $50,000 or $.001 per share.
For the period ended August 31, 2000:
The Company issued 52,000 shares of common stock to employees for services
valued at $130,000 or $2.50 per share.
The Company issued 126,150 shares of common stock for promotional giveaways
valued at $315,375 or $2.50 per share.
The Company declared a dividend on preferred stock at the rate of $.25 per
share or $390,692.
The Company issued 73,863 shares of common stock in lieu of cash dividends
on preferred stock valued at $184,659 or $2.50 per share.
In May 2000, the Company purchased a boat for promotional inventory, from
the president of the Company by assuming a notes payable with a balance of
$26,835.
The Company obtained 2,000,000 registered users valued at $1.00 each for a
total of $2,000,000 through an agreement with Speedy Click. The $2,000,000
was set up as a installment payable to be paid with $1,000,000 cash and
200,000 shares of preferred stock valued at $5.00 each for a total of
$1,000,000.
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Bidbay.Com, Inc. (The Company) was organized under the laws of
the State of California on December 21, 1999. On March 3, 2000 The Company
effected a change of domicile to Nevada. The Company is considered to be in
the development stage as defined in SFAS No. 7. The Company is engaging in the
business of developing and marketing an internet auction site. The Company is
marketing regional stores which would focus on auction activity within a
specific region. The Company may also pursue other internet related business.
Property and Equipment - Property and equipment are stated at cost.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized, upon being placed in service.
Expenditures for maintenance and repairs are charged to expense as incurred.
Depreciation is computed for financial statement purposes on a straight-line
basis over the estimated useful lives of the assets, which ranges from five to
seven years.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This statement requires an asset and liability approach for
accounting for income taxes.
Dividend Policy - The Company has not paid any dividends on common stock to
date and does not anticipate paying dividends on common stock in the
foreseeable future. The Company has declared dividends on preferred stock
which are payable in the form of cash and common stock [See note 9].
Revenue Recognition - Revenue is recognized at the time of the sale.
Earnings (Loss) Per Share - The Company accounts for earnings per share in
accordance with Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share", which requires the Company to present basic earnings
(loss) per share and dilutive earnings (loss) per share when the effect is
dilutive. [See Note 10]
Cash and Cash Equivalents - For purposes of the statement of cash flows, the
Company considers all highly liquid debt investments purchased with a maturity
of three months or less to be cash equivalents. August 31, 2000, the Company
had $36,116 in excess of Federal Depository Insurance Company limits.
Advertising - Advertising costs are expensed as incurred. For the period
ended August 31, 2000 advertising costs amounted to $932,258.
Software / Website Capitalization - For software that is developed for
internal use, including internet websites, the Company expenses the initial
research and development costs but begins to capitalize the development costs
upon reaching the point of technological feasibility.
Research and Development - The Company expenses research and development costs
as incurred.
-8-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Continued]
Stock Based Compensation - The Company accounts for its stock based
compensation in accordance with Statement of Financial Accounting Standard 123
"Accounting for Stock-Based Compensation". This statement establishes an
accounting method based on the fair value of equity instruments awarded to
employees as compensation. However, companies are permitted to continue
applying previous accounting standards in the determination of net income with
disclosure in the notes to the financial statements of the differences between
previous accounting measurements and those formulated by the new accounting
standard. The Company has adopted the disclosure only provisions of SFAS No.
123, accordingly, the Company has elected to determine net income using
previous accounting standards.
Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that effect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimated
by management.
Recently Enacted Accounting Standards - Statement of Financial Accounting
Standards (SFAS) No. 136, "Transfers of Assets to a not for profit
organization or charitable trust that raises or holds contributions for
others", SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - deferral of the effective date of FASB Statement No. 133 (an
amendment of FASB Statement No. 133.),", SFAS No. 138 "Accounting for Certain
Derivative Instruments and Certain Hedging Activities - and Amendment of SFAS
No. 133", SFAS No. 139, "Recission of SFAS No. 53 and Amendment to SFAS No 63,
89 and 21", and SFAS No. 140, "Accounting to Transfer and Servicing of
Financial Assets and Extinguishment of Liabilities", were recently issued SFAS
No. 136, 137, 138, 139 and 140 have no current applicability to the Company or
their effect on the financial statements would not have been significant.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company was only recently
formed, has incurred losses since its inception, has current liabilities in
excess of current assets and has not yet achieved profitable operations.
These factors raise substantial doubt about the ability of the Company to
continue as a going concern. In this regard, management is continuing to
promote and develop its website and is proposing to raise any necessary
additional funds not provided by operations through loans and/or through
additional sales of its common stock. There is no assurance that the Company
will be successful in raising additional capital or in achieving profitable
operations. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
-9-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - PROMOTIONAL INVENTORY
The following is a summary of inventory (carried at the lower of cost or
market value) as of August 31, 2000. The Company holds contests and giveaways
for registered users of its site. Promotional inventory has been acquired for
the purpose of providing prizes and awards to winners of these contests and
giveaways. At August 31, 2000 management estimated that a reserve for
obsolescence was not necessary.
2000
__________
Promotional products $109,798
__________
$109,798
__________
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment - at cost, less
accumulated depreciation as of August 31, 2000:
2000
_________
Office and computer equipment $156,213
Leasehold improvements 26,543
_________
182,756
Less: accumulated depreciation (8,089)
_________
$174,667
_________
Depreciation expense for the period ended August 31, 2000 amounted to $8,089.
NOTE 5 - INTANGIBLES
The Company entered into an agreement with Speedy Click to purchase 2,000,000
registered users at the rate of $1.00 each for a total of $2,000,000. The
Company has capitalized the costs associated with obtaining the registered
users database and has determined its useful life to be 36 months. Management
plans on re-evaluating the useful life should conditions warrant. The
following schedule details the carrying value at August 31, 2000:
2000
_________
Registered users $2,000,000
Less: accumulated amortization (167,922)
_________
$1,832,078
_________
Amortization expense for the period ended August 31, 2000 amounted to
$167,921.
-10-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - RECEIVABLE / PAYABLE - RELATED PARTIES
Payable to related party - An officer/director/significant shareholder of the
Company, and an entity related to him, made various advances to and from the
Company. At August 31, 2000 the net amount owed the related party and the
related entity was $111,307. The balance is non-interest bearing and
payable on demand.
Related-party receivable - The Company entered into an agreement with a
significant shareholder relating to the private placement of preferred stock.
The shareholder is to receive a commission equal to 25% of funds raised
through the private placement. At August 31, 2000, the shareholder had
received payments in excess of commissions earned in the amount of $119,147.
NOTE 7 - NOTES PAYABLE
The Company has agreed to assume a note payable for a boat previously
held by an officer of the Company. The boat was recorded as a promotional
inventory item and remains on the books at August 31, 2000. The note payable
was originally taken out in September 1997, approximately $29,500 financed,
imputed interest rate of 10%, payments of $317 due monthly for 180 months.
The Company assumed the payments on the note payable in May 2000. The
aggregate maturities required on notes payable at August 31, 2000 are as
follows:
August 31,
2001 1,204
2002 1,330
2003 1,469
2004 1,623
2005 and thereafter 20,969
---------
Total $ 26,595
---------
NOTE 8 - INSTALLMENT PAYABLE
The Company entered into several agreements with Speedy Click (aka Network
Commerce, Inc.), wherein Speedy Click was to provide two million registered
users at $1.00 each for a total of $2 million. Payment is to be paid in the
form of $1 million cash and 200,000 shares of the Company's preferred stock at
$5.00 per share. The agreement also stated that Speedy Click is to purchase
60,000 shares of common stock from the Company at $5.00 per share. As of
August 31, 2000 the Company had paid $169,013 in cash to Speedy Click and had
issued no shares of preferred stock. Subsequent to August 31, 2000, the
Company paid $200,000 in cash and issued 200,000 shares of preferred stock at
$5.00 per share.
Subsequent to August 31, 2000, the Company entered into eight monthly
agreements with Speedy Click wherein the Company will feature Speedy Click in
its weekly newsletter to the Company's 2 million registered users. Each
agreement is for $50,000 per month or a total of $400,000.
-11-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - CAPITAL STOCK
Preferred Stock - The Company authorized 10,000,000 shares of preferred stock,
$.001 par value with such rights, preferences and designations and to be
issued in such series as determined by the Board of Directors.
Convertible Redeemable Preferred Stock - The Company designated 1,600,000
shares of 10% convertible redeemable preferred stock non-cumulative non-
compounding at a purchase price of $2.50 per share. The holders of the
preferred stock are entitled to annual dividends once declared and approved by
the Company's Board of Directors. The dividend is 25 cents per share per
annum. Each share of preferred stock is convertible into one share of common
stock. The Company has the right to cause a partial or complete redemption of
the shares.
The Company has the option to redeem all or any portion of the preferred stock
after June 15, 2000 by paying cash or shares of common stock of a publicly
traded company having a market value equal to 110% of the original purchase
price of the share plus a non-cumulative non-compounded dividend at the rate
of 10% per annum. The redemption price may be paid in cash or, at the option
of the preferred stockholder in shares of the common stock of a publicly
traded company, or in any combination of both cash and stock. For the purpose
of determining the number of shares of common stock to be issued in a
redemption of the preferred stock, the following formula applies: If the
common stock is immediately tradable on the date of the redemption, then the
number of shares will be calculated based on the average last sale price of
the stock on the five (5) trading days immediately preceding the date of the
declaration of the redemption. If the common stock is restricted pursuant of
Rule 144 of the Securities Act of 1933, as amended, with any holding period
remaining, then the number of shares will be calculated based on 90% of the
average last sale price of the stock on the five (5) trading days immediately
preceding the date of the declaration of the redemption. The redemption right
relates to all shares, as adjusted for stock splits, stock dividends and
similar events.
The preferred stockholders may convert each share of preferred stock into one
share of common stock at any time after the shares are issued. The Company
does not have the right to require a conversion of the preferred stock to
common stock.
Each share of the preferred stock has one vote to the same extent as the
outstanding common stock. The common stock into which the preferred stock is
convertible has the same voting right as the currently outstanding common
stock.
During the period ended August 31, 2000, the Company had received
approximately $3.6 million in proceeds from sale of its preferred stock.
Dividends - The Company declared a $.25 dividend on 1,562,766 shares of
preferred stock for a total of $390,692. Preferred shareholders were given
the option to receive a payment in the form of cash or common stock at the
rate of $2.50 per share. During the period ending August 31, 2000, $7,356 was
paid in cash and $184,659 was paid with 73,863 shares of common stock at $2.50
per share. The balance of $198,678 is reflected as Dividends Payable at August
31, 2000. The dividend was recorded as a liquidating dividend and offset
against Capital in Excess of Par.
-12-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - CAPITAL STOCK [Continued]
Common Stock - During the period ended August 31, 2000, the Company made
various issuances of common stock. The issuances are as follows:
The Company issued common stock as an incentive to investors purchasing the
Company's preferred stock. The incentive was a ten percent common stock to
preferred stock ratio. During the period ended August 31, 2000, the Company
issued 156,277 shares of common stock as part of the preferred stock
incentive.
During the period ended August 31, 2000, the Company issued a total of 52,000
shares to employees, officers and directors for consultation, programming, or
other services rendered. The stock was valued at $2.50 per share. The
Company also issued 50,000,000 shares of common stock valued at $.001 per
share to founders of the Company.
During the period ended August 31, 2000, the Company issued 126,150 of common
stock for promotional purposes. The value of the promotion activities was
$315,375 or $2.50 per share.
In July 2000, the Company issued 60,000 of its common stock for cash proceeds
of $300,000 or $5.00 per share.
In 2000, the Company issued 73,863 of its common stock for dividends declared
on its preferred stock. The dividend was treated as a liquidating dividend.
NOTE 10 - EARNINGS (LOSS) PER SHARE
The following data show the amounts used in computing earnings (loss) per
share and the effect on income and the weighted average number of shares of
dilutive potential common stock for the periods ended August 31, 2000 and from
inception on December 21, 1999 through August 31, 2000:
For the From Inception on
Eight Month December 21,
Period Ended 1999 Through
August 31, August 31,
2000 2000
___________ ___________
Net (Loss) $(3,686,907) $ (3,736,907)
Preferred dividends (390,692) (390,692)
___________ ___________
Loss available to common shareholders $ 4,077,599) $ (4,127,599)
___________ ___________
Weighted average number of
common shares outstanding
used in earnings (loss) per
share during the period 50,208,123 50,199,929
___________ ___________
Dilutive earnings (loss) per share was not presented. The Company had no
outstanding warrants or options at August 31, 2000.
-13-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109 Accounting for Income taxes.
SFAS 109 requires the Company to provide a net deferred tax asset or liability
equal to the expected future tax benefit or expense of temporary reporting
differences between book and tax accounting and any available operating loss
or tax credit carryforwards. At August 31, 2000, the total of all deferred
tax assets was $1,483,345 and the total of the deferred tax liabilities was
$0. The amount of and ultimate realization of the benefits from the deferred
tax assets for income tax purposes is dependent, in part, upon the tax laws in
effect, the Company's future earnings, and other future events, the effects of
which cannot be determined. Because of the uncertainty surrounding the
realization of the deferred tax assets, the Company has established a
valuation allowance of $1,483,345 as of August 31, 2000, which has been offset
against the net deferred tax assets. The net change in the valuation
allowance during the years ended August 31, 2000 amounted to approximately
$1,483,345.
The components of income tax expense from continuing operations for the period
ended August 31, 2000 consist of the following:
2000
___________
Current income tax expense
Federal $ -
State -
___________
Net tax expense -
___________
Deferred tax expense (benefit) arising from:
Excess of tax over financial
accounting depreciation $(44,951)
Contribution carryover (1,265)
Valuation allowance 1,483,345
Net operating loss carryforward (1,437,129)
___________
Net deferred tax expense $ -
___________
Deferred income tax expense results primarily from the reversal of temporary
timing differences between tax and financial statement income.
A reconciliation of income tax expense at the federal statutory rate to income
tax expense at the Company's effective rate is as follows:
2000
___________
Computed tax at the expected
statutory rate 34.00%
___________
State and local income taxes, net of
federal benefit 5.83
Other (.14)
Valuation allowance (39.69)
___________
Income tax expense -
___________
-14-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - INCOME TAXES [Continued]
As of August 31, 2000 the Company has net tax operating loss (NOL)
carryforwards available to offset its future income tax liability of
approximately $3,608,000 that expire in various years through 2020.
The temporary differences and carryforwards gave rise to the following
deferred tax asset (liability) at August 31, 2000:
2000
____________
Excess of tax over book accounting
depreciation $ 44,951
Net operating loss carryover 1,437,129
Contribution carryover 1,265
NOTE 12 - RELATED PARTY TRANSACTIONS
Business development costs - The Company entered into an agreement with
Donald Dayer, a significant shareholder of the Company, for services
related to the development of the Company's business. The agreement states
that the shareholder is to receive twenty-nine percent (29%) of all funds
received, whether in the form of revenue or capital investment, until
$1,500,000 is paid to the shareholder. The $1,500,000 may be increased or
decreased if both parties agree to the change. The Company has paid
$1,132,296 to the shareholder during the period ended August 31, 2000.
Stock offering costs - The Company entered into an agreement with Donald
Dayer, a significant shareholder, for services related to a section 506
regulation D offering. The agreement states the shareholder is to receive
a commission of twenty five percent (25%) for all funds raised by him
through the offering. The Company has paid $977,105 to Donald Dayer for
the period ended August 31, 2000. These payments were offset against the
proceeds from the offering.
Leases - The Company is renting property on a month to month basis from an
officer of the Company or an entity related to him. The following
describes the underlying leases on the properties held by the related
parties:
The Company is making payments related to a lease agreement which
has George Tannous and Affiliates (GTA), a related party, as the
leasee. The lease agreement is for office space located at three
locations in Tujunga California. The lease agreement is for five
(5) years beginning on April 1, 1999 and ending March 31, 2004.
Monthly payments are scheduled for $2,200 for the first 24 months
and monthly payments of $2,400 for the remaining 36 months. The
Company had expensed $11,500 for the period ended August 31, 2000.
The Company is making payments related to a lease agreement which
has George Tannous (GT), a related party, as the leasee. The lease
agreement is for office space located in Las Vegas Nevada. The
lease is for one (1) year beginning on October 26, 1999 and ending
October 25, 2000. Payments are scheduled for $795 due monthly. The
Company had expensed $1,580 for the period ended August 31, 2000.
-15-
<PAGE>
BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - RELATED PARTY TRANSACTIONS [continued]
The Company is making payments related to a lease agreement which
has GT, a related party, as the leasee. The lease agreement is for
office space located in Tujunga California. The lease begins March
1, 2000 and ends February 28, 2001. Payments were scheduled for
$700 due monthly. The company had made one lump sum payment of
$9,100 during the period ended August 31, 2000.
The Company is making payments related to a lease agreement which
has GT, a related party, as the leasee. The lease agreement is for
storage space located in Tujunga California. The lease begins April
30, 2000 and ends April 20, 2001. Payments were scheduled for $50
due monthly. The Company had made one lump sum payment of $600
during the period ended August 31, 2000.
The Company is making payments related to a lease agreement which
has GTA, a related party, as the leasee. The lease agreement is for
office space located in Westwood California. The lease begins
September 10, 1999 and ends September 9, 2001. Payments were
scheduled for $3,500 due monthly for the first twelve months and
$4,625 due monthly for the last twelve months. The Company had
expensed $23,125 during the period ended August 31, 2000.
During the period ended August 31, 2000, certain deposits for stock
proceeds were deposited outside the Company accounts by GTA. The proceeds
amounted to $214,953, which were used to cover Company expenses.
During the period ended August 31, 2000, certain deposits for stock
proceeds were deposited outside the Company accounts by an officer of the
Company. The proceeds amounted to $41,200 and were offset to payable-
related party.
During the section 506 regulation D offering, the Company received proceeds
from approximately seventy non-accredited investors in excess of the
allowed numbers. The Company gave these investors the option to have their
money refunded or to purchase common stock from an officer or an entity
related to the officer. These non-accredited investors proceeds of $80,500
and $202,674 were reclassed to related party payable for the officer and
the entity related to the officer, respectively.
Compensation to officers - For the period ended August 31, 2000 the Company
paid compensation to its officers according to the following schedule:
$89,000 to the President; $8,000 to a Vice President and $20,700 to
another Vice President.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Litigation - The Company has been named as a co-defendant in a lawsuit
involving a former business associate of the President of the Company. The
President, other business entities of the President and the Company have
been named in the suit. Management believes the lawsuit is without merit
and intends to vigorously defend its position. The Company has filed suit
against the same former business associate alleging that the former
associate gained illegal access to certain of the Company's proprietary
intellectual information for the purpose of doing harm to the Company and
to steal customers from the Company. At this time management is not able
to estimate the likelihood of a favorable outcome in the lawsuit.
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BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 13 - COMMITMENTS AND CONTINGENCIES [continued]
Litigation - The Company is also involved in litigation as a normal course
of its business operations, but management believes that these items would
not have any material effect on the financial position or operations of the
Company.
Consultant Agreement - The company has entered into an agreement with
Donald Dayer ("Dayer") wherein the Company has agreed to compensate Dayer
one million five hundred thousand dollars for his assistance in developing
the Company's business. The fee will be paid over time by Dayer receiving
29% from every dollar that is generated into the Company whether it be in
the form of revenue or capital investment. The Company has also entered
into an agreement with Dayer wherein Dayer would market preferred and/or
common stock of the Company offered through a Regulation D offering. Dayer
is to receive 25% on all sales made by him including any resales after
initial sales. This agreement only applies to funds raised privately by
the Company that are assisted by Dayer and do not apply to any future
public stock offerings the Company may undertake.
NOTE 14 - SHAREHOLDER DEPOSITS
During the period ended August 31, 2000, the Company received proceeds from
several non-accredited investors. The total number of non-accredited investors
exceeded Security and Exchange Commission limitations of no more than thirty
five non-accredited investors for a 506 regulation D offering. The non-
accredited investors which exceeded the limit of thirty five were given the
option of accepting a refund of their investments, purchasing common stock
from the Company's President's personal holdings, purchasing common stock from
the personal holdings of a Company controlled by the Company's President, or
providing documentation that the non-accredited investor is really an
accredited investor. The Company has recorded the proceeds from the non-
accredited investors which had not responded to the letters as a liability
labeled shareholder deposits in the financial statements at August 31, 2000.
NOTE 15 - SUBSEQUENT EVENTS
Common Stock - Subsequent to August 31, 2000, the Company made various
issuances of common stock. A total of 1,844,777 shares of common stock were
issued as follows: 30,000 shares of common stock for services valued at
$75,000; 1,800,000 shares of common stock for installment payable obligation;
8,723 shares of common stock issued as an incentive for purchase of preferred
stock; and 6,054 shares of common stock issued for stock dividend payable.
Preferred stock - A total of 146,110 shares of preferred stock were issued for
cash proceeds of $365,277, or $2.50 per share.
Loans from Related Party - Subsequent to August 31, 2000, an officer/director
and significant shareholder of the Company made loans to the Company totaling
$60,000.
Private Placement Extension - Subsequent to August 31, 2000, the Company
submitted an extension to its original private placement. The extension was
for an additional 400,000 shares of preferred stock to be offered at $5.00 per
share or $2,000.000 total.
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BIDBAY.COM, INC.
[A Development Stage Company]
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - SUBSEQUENT EVENTS [continued]
Speedy Click - Subsequent to August 31, 2000, the Company paid $200,000 in
cash and issued 200,000 shares of preferred stock at $5.00 per share in
relation. In December 2000, the Company entered into eight monthly agreements
with Speedy Click wherein the Company will feature Speedy Click in its weekly
newsletter to the Company's 2 million registered users. Each agreement is for
$50,000 per month or a total of $400,000.
Proposed Public Stock Offering - The Company is proposing to make a public
offering of 6,000,000 shares of its previously authorized but unissued common
stock and 600,000 issued and outstanding shares owned by officers, directors,
employees and a consultant of the Company. This offering is proposed to be
registered with the Security and Exchange Commission on Form SB-2. An
offering price of $10 per share has been arbitrarily determined by the
Company. The Company will pay a 15% commission if brokers are used in the
offering, otherwise the offering will be managed by officers of the Company,
who will receive no sales commissions or other compensation in connection with
the offering, except for reimbursement of expenses actually incurred on behalf
of the Company in connection with the offering estimated to be approximately
$116,500.
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<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS
BidBay.com's Articles of Incorporation eliminate,
subject to certain exceptions, directors' personal liability
to the Company or its stockholders for monetary damages for
breaches of fiduciary duties. The Articles of Incorporation
do not, however, eliminate or limit the personal liability
of a director for (i) any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) unlawful
payments of dividends or unlawful stock repurchases or
redemptions as provided in the Nevada Corporate Code or (iv)
for any transaction from which the director derived an
improper personal benefit.
BidBay.com's Bylaws provide that BidBay.com shall indemnify
its directors, officers, employees, and against to the
fullest extent permitted under the laws of the state of
Nevada. In addition, BidBay.com has entered or will enter
into indemnification agreements with its directors and
officers that provide for indemnification in addition to the
indemnification provided in BidBay.com's Bylaws. The
indemnification agreements contain provisions that may
require BidBay.com, among other things, to indemnify its
directors and executive officers against certain liabilities
(other than liabilities arising from intentional or knowing
and culpable violations of law) that may arise by reason of
their status or service as directors or executive officers
of BidBay.com or other entities to which they provide
service at the request of BidBay.com and to advance
expenses they may incur as a result of any proceeding
against them as to which they could be indemnified.
BidBay.com believes that these provisions and agreements are
necessary to attract and retain qualified directors and
officers. BidBay.com will obtain an insurance policy
covering directors and officers for claims that such
directors and officers may otherwise be required to pay or
for which BidBay.com is required to indemnify them, subject
to certain exclusions.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
BidBay.com will pay all expenses in connection with the
registration and sale of the shares but will not pay selling
commissions or discounts allocable to sales of shares by
selling stockholders or any other fees in connection with
the sale of such shares. The estimated expenses of issuance
and distribution are set forth below.
Registration fees $ 16,500
Transfer agent fees Approximately 2,000
Costs of printing and engraving Approximately 5,000
Selling Commissions (if incurred) Approximately 9,000,000
Legal and accounting fees Approximately 88,000
Standard & Poors Listing Apprixomately 5,000
RECENT SALES OF UNREGISTERED SECURITIES
There have been no sales of unregistered securities
within the last three years which would be required to be
disclosed pursuant to Item 701 of Regulation SB, except for
the following:
During December 1999, in connection with its organization, the
Company issued 50,000,000 shares of its previously authorized,
but unissued common stock. The shares were issued for
services
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rendered valued at $50,000 (or $.001 per share). The
transaction was an isolated transaction with three persons
having close affiliations with either the Company or with an
officer of the Company and was exempt from registration under
the Securities Act of 1933 (the "Act") pursuant to Section
4(2) of the Act because of not being part of a public
offering.
During March 2000, the Company issued 52,000 shares of its
previously authorized, but unissued common stock. The shares
were issued to three employees of BidBay.com for services
rendered to BidBay.com valued at $130,000 or $2.50 per share.
The transaction was an isolated transaction with a total of
three persons having a close affiliation with the Company and
was exempt from registration under the Securities Act of 1933
(the "Act") pursuant to Section 4(2) of the Act because of not
being part of a public offering.
During June 2000, the Company issued 126,150 shares of its
previously authorized, but unissued common stock. The
shares were issued to persons who had visited the website of
BidBay.com or had otherwise used the services of BidBay.com
in the past. The shares were issued in a promotional
giveaway at the rate of 5 shares person or to a total of
25,230 persons. The shares were valued at $2.50 per share.
The transaction was exempt from registration under the
Securities Act of 1933 (the "Act") because it did not
constitute an offer or sale of securities pursuant to
Section 5 of the Act.
During July 2000, the Company issued 60,000 common shares of
its previously authorized, but unissued common stock. The
shares were issued for cash of $300,000 or $5.00 per share.
The transaction was an isolated transaction with one person
having a close affiliation with the Company and was exempt
from registration under the Securities Act of 1933 (the
"Act") pursuant to Section 4(2) of the Act because of not
being part of a public offering.
During August 2000, the Company issued 73,863 shares of its
previously authorized, but unissued common stock. The
shares were issued by the board of directors as a dividend
on preferred stock of BidBay.com which was theretofore
outstanding. The shares were valued at $2.50 per share. The
transaction was exempt from registration under the
Securities Act of 1933 (the "Act") because it did not
constitute an offer or sale of securities pursuant to
Section 5 of the Act.
During September, 2000, the Company issued 800,000 common
shares of its previously authorized, but unissued common
stock. The shares were valued at $5.00 per share and were
issued in satisfaction of an installment payment obligation
to Network Commerce dba Speedy Click. The transaction was an
isolated transaction with one enitity having a close
affiliation with the Company and was exempt from
registration under the Securities Act of 1933 (the "Act")
pursuant to Section 4(2) of the Act because of not being
part of a public offering.
During September, 2000 or shortly thereafter, the Company
issued 30,000 shares of its previously authorized, but
unissued common stock. The shares were issued to a company
that had rendered advertising services for BidBay.com. The
services were valued at $75,000 or $2.50 per share. The
transaction was an isolated transaction with one company
having a close affiliation with the Company and was exempt
from registration under the Securities Act of 1933 (the
"Act") pursuant to Section 4(2) of the Act because of not
being part of a public offering.
The Company issued 6,054 shares of its previously
authorized, but unissued common stock. The shares were
issued by the board of directors as a dividend on preferred
stock of BidBay.com which was theretofore outstanding. The
shares were valued at $2.50 per share. The transaction was
exempt from registration under the Securities Act of 1933
(the "Act") because it did not constitute an offer or sale
of securities pursuant to Section 5 of the Act.
44
<PAGE>
During November, 2000, the Company issued 1,000,000 common
shares of its previously authorized, but unissued common
stock. The shares were valued at $5.00 per share and were
issued in satisfaction of an installment payment obligation
to Network Commerce dba Speedy Click. The transaction was an
isolated transaction with one entity having a close
affiliation with the Company and was exempt from
registration under the Securities Act of 1933 (the "Act")
pursuant to Section 4(2) of the Act because of not being
part of a public offering.
During December, 2000, the Company issued 1,000,000
preferred shares of its previously authorized, but unissued
preferred stock. The shares were valued at $5.00 per share
and were issued in satisfaction of an installment payment
obligation to Network Commerce dba Speedy Click. The
transaction was an isolated transaction with one enitity
having a close affiliation with the Company and was exempt
from registration under the Securities Act of 1933 (the
"Act") pursuant to Section 4(2) of the Act because of not
being part of a public offering.
From February, 2000, through January, 2001, BidBay.com sold
1,762,878 shares of preferred stock to an aggregate of 402
individual investors at the price of $2.50 per share. Each
investor in the offering was also offered a premium equal to
10% of the amount invested which could be received in cash
or in BidBay.com common shares at the election of the
investor. 176,315 shares of BidBay.com common stock was
issued as premium shares in connection with the offering at
a price of $2.50 per share. The offering was exempt from
registration under the Securities Act of 1933 pursuant to
Rule 506 of Regulation D promulgated under the Securities
Act of 1933.
EXHIBITS
Copies of the following documents are filed with this
Registration Statement, Form SB-2, as exhibits:
Exhibit No.
3.1 Articles of Incorporation
3.2 By-Laws
4.1 Share Certificate
5.1 Opinion of Cane & Company, LLC, with consent to use
10.1 Material Contract - Speedyclick.com Services Agreement
10.2 Material Contract - Letter of Agreement
10.3 Material Contract - Business Development Agreement
23.1 Consent of Pritchett, Silver & Hardy, P.C., Certified
Public Accountants
27 Financial Data Schedule
UNDERTAKINGS
BidBay.com will:
(1) File, during any period in which it offers or
sells securities, a post-effective amendment to this
registration to:
(i) Include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental
change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or
45
<PAGE>
high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities
Act, treat each post-effective amendment as anew
registration statement of the securities offered, and the
offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities that remain unsold at the
end of the offering.
If an underwriter is used in the offering, BidBay.com
will provide to the underwriter at the closing specified in
the underwriting agreement certificates in such
denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising
under the Securities act of 1933 (the "Act") may be
permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against
such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding)
is asserted by director, officer or controlling person in
connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue.
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SIGNATURES
In accordance with the requirements of the Securities
Act of 1933, the registrant certifies that it ahs reasonable
grounds to believe that it meets all of the requirements of
filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in
the City of Salt Lake, State of Utah, on January 12, 2001.
BidBay.com, Inc., a Nevada corporation
By: /s/ George Tannous
----------------------------
George Tannous
Principal Executive Officer
In accordance with the requirements of the Securities
Act of 1933, the registration statement was signed by the
following persons in the capacities and on the dates stated.
/s/ George Tannous
----------------------------
George Tannous
Director
Principal Executive Officer
Principal Accounting Officer
January 12, 2001
/s/ Yvonne Van Hoek
----------------------------
Yvonne Van Hoek
Director
January 12, 2001
/s/ Wester Cooley
----------------------------
Wester Cooley
Director
January 12, 2001
/s/ Fredrick Grossi
----------------------------
Fredrick Grossi
Principal Financial Officer
January 12, 2001
