FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended April 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 00-18140
ADEN ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 87-0447215
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13314 "I" Street, Omaha, Nebraska 68137
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (402) 334-5556
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes / / No /X/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of December 31, 1999, was $198,482,869.20
based on the closing price of $3.08 per share as of such date. As of December
31, 1999, 81,000,000 shares of the registrant's Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Registration Statement on Form S-18 and
all amendments thereto (Registration No. 33-7494-LA) (the "Registration
Statement") are incorporated by reference in Parts I and IV of this Report.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) Introduction
Aden Enterprises, Inc. was incorporated in Nevada on May 22, 1986, and was
reincorporated in California effective August 12, 1988. Unless the context
otherwise requires, the term "Company" means Aden Enterprises, Inc. and its
subsidiaries, collectively. The original business purpose of the Company and the
circumstances surrounding its reincorporation are more fully described in the
Registration Statement.
On January 31, 1995, a group of investors based in Omaha, Nebraska,
acquired from the Company's principal shareholder 19.8% of the Company's
outstanding Common Stock and options to acquire an additional 21.8% of such
Common Stock (which options were not exercised). Concurrent with this
transaction, the selling shareholder (being the sole director of the Company at
the time) designated members of this group of investors as directors of the
Company, who thereupon assumed control of the Company. Since then, the Company
has undertaken to locate and negotiate with selected business entities for the
purpose of acquiring, or entering into business combinations, with the selected
businesses.
The Company has adopted a strategy of seeking opportunities to realize
gains through the selective sale of investments or having separate subsidiaries
or affiliates sell minority interests to outside investors. The Company believes
that this strategy provides the ability to increase shareholder value as well as
provide capital to support the growth in the Company. The Company expects to
continue to develop and refine the products and services of its businesses, with
the goal of increasing revenue as new products are commercially introduced, and
to continue to pursue the acquisition of or the investment in, additional
internet and fulfillment services companies.
The Company will initially conduct its internet-related businesses through
three operating subsidiaries. Cheapfares.com Incorporated is a newly-formed
Nevada corporation which will provide online travel services. Navlet.com, Inc.
is a newly-formed Delaware corporation which will develop certain proprietary
technology described below. Leftbid.com, Inc. is a newly-formed Nevada
corporation which will provide an internet bid/ask system in the fine arts and
collectibles marketplace.
At the present time, the Company uses certain intellectual property
rights the Company has acquired to operate a travel web site that allows
participants to bid for travel services in an environment that informs the
consumer of a potential ask price. The Company believes that the informational
aspect of the system is superior to a name your price type system because it may
foster an informed expectation in the consumer's mind of the reasonableness of a
particular bid which in turn may facilitate higher order fulfillment and greater
consumer satisfaction than possible with the name your price type bid system.
The Company has an improved version of its proprietary technology under
development and plans to continue to improve system and product offerings.
The Company has acquired ownership of a confidential proprietary
technology that, among other things, may provide a new way to navigate the
Internet. Developed by employees of the Company, the Company acquired its
ownership interest in this proprietary technology by causing the assignment of
all right, title and interest therein from the original inventors to the
Company's majority owned subsidiary, Navlet.com, Inc. ("Navlet"). Navlet will
develop the technology
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and bring the technology to market in a commercial product. At the present time,
the Company is maintaining the new technology as a confidential trade secret.
The new technology is, however, the subject of four (4) pending patent
applications, which if the Company is successful in protecting the technology
through the issuance of patent(s), may provide the Company the right to exclude
others from using the technology. At the present time, however, the Company does
not have sufficient capital or internal resources to fully develop the new
technology into a commercial product. There can be no assurance that the Company
will be successful at bringing a commercial product based on the new technology
to market nor whether the Company will successfully overcome the technical
challenges required to implement the new technology. There can be no assurance
that the company will be able to continue to maintain the new technology as a
trade secret nor whether the Company will be ultimately successful at protecting
the new technology through the issuance of patent(s).
Also, in January of 1999, the Company announced that it had entered
into a license agreement with MercExchange LLC ("MercExchange") under which the
Company would obtain a perpetual, exclusive right to use the MercExchange
patent, pending patents and proprietary plans and strategies ("the MercExchange
intellectual property") for the travel services industry subject to certain
restrictive terms and conditions. That agreement was not consummated and the
Company and MercExchange subsequently negotiated and executed revised agreements
which restructured the arrangement in its entirety. There are three agreements.
Under the first agreement, the Company will acquire all of the issued and
outstanding shares of MercTravel Incorporated ("MercTravel"), a wholly owned
subsidiary of MercExchange. The Company will issue and deliver 58,000,000 shares
of the Company's common stock to MercExchange (when and if the Company's
shareholders approve an amendment to the Company's articles of incorporation
increasing the number of authorized shares of common stock). Prior to this
exchange agreement, MercExchange granted to MercTravel an exclusive license to
utilize MercExchange's patents in the online travel sector. It is anticipated
that this agreement will be completed in the fourth quarter of fiscal year 2000.
Under the second agreement, the Company agreed to purchase a ten
percent ownership interest in MercExchange for the sum of $4,000,000 evidenced
by two promissory notes, the first note being in the amount of $1,000,000 due
and payable 30 days after the effective date of the agreement and the second
note for the balance due and payable 120 days after the effective date. This
agreement gives the Company a two-year option to acquire an additional five
percent ownership interest in MercExchange for the sum of $3,000,000. The
effective date of this agreement is October 30, 1999. As of the date of this
report, the Company has only paid a portion of the principal amount of the first
note; however, to date MercExchange has not given any notice of default under
the agreement. If and when a notice of default is given, the Company has 2
months within which to cure the default. If it fails to cure the default, the
agreement will be terminated and all of the Company's interests in MercExchange
will revert to MercExchange.
Under the third agreement, MercExchange granted to the Company an
option to acquire a non-exclusive license for use MercExchange's patents for
internet markets and auctions for a variety of vertical sectors. MercExchange
received the sum of $35,000 for such option and, upon exercise of such option,
the Company will make an annual payment to MercExchange the greater of (1) the
first $50,000 of any of the gross transactions collected or earned by the
Company from any third party or (2) a 1.5% continuing royalty of the gross
transactions generated by each vertical sector. The term "vertical sector" means
the industry and service classifications of customary usage and categories of
commerce as defined by the United States Department of Commerce eight digit
Standard Industrial Classification codes. The agreement further provides that,
in the event of a joint venture, marketing agreement, acquisition or any other
business combination
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between the Company and a third party, the Company and MercExchange shall
negotiate an equity position for MercExchange in such venture or business
combination and in no event shall this equity position be less than 15% on a
fully diluted basis for the venture.
Each of the foregoing agreements is filed as an exhibit to this report.
The foregoing summary of these agreements is qualified in its entirety by the
more detailed information appearing in the agreements themselves.
At the present time, the Company does not have the financial resources
necessary to exercise its rights and meets its obligations under the agreements
or to exercise its options to purchase an additional interest in MercExchange or
to acquire a license in any vertical sector. There can be no assurance that the
Company will have the necessary funds to meet its obligations in the time
periods required by the agreements. A failure to meet its obligation will have a
material adverse effect on the Company.
The MercExchange intellectual property was assigned to MercExchange by
the original inventor, Thomas G. Woolston. Mr. Woolston joined the Company as
its Chief Technology Officer (CTO) in September 1999 subject to certain terms
and conditions and an acknowledgment by the Company that Woolston can continue
to manage the MercExchange and that this may cause a conflict of interest and
impact on Woolston's availability to devote the time that may be required to
serve as an effective Company CTO. At the present time, Mr. Woolston devotes a
substantial portion of his time to the Company, although he continues to manage
MercExchange. Despite the licensing arrangement and Woolston's employment with
the Company, the MercExchange may pursue other business activities which may be
competitive to the Company and there can be no assurance that the demands of
managing the MercExchange will not place increasing demands on Mr. Woolston's
time and on his availability to act as CTO for the Company.
The Company's management believes that the MercExchange intellectual
property may permit the Company to offer a number of Internet-based products for
the travel industry exclusively. The MercExchange intellectual property is the
subject of one issued patent, U.S. Patent No. 5,845,265, and nine (9) pending
patent applications all of which are exclusively licensed for use in the travel
service industry to the Company. There can be no assurance that subsequent
MercExchange patents will issue or that the Company will be successful in
enforcing the patents against the travel industry nor in obtaining an exclusive
provider position in the market.
A competitor, Priceline.com, operates a system under which consumers go
to an Internet site and name the price they are willing to pay for airline
tickets, hotel rooms and other items. Priceline.com then tries to find an
airline or other company willing to accept that price. Priceline.com has a
patent for its system which Priceline purports covers its "name your price" bid
system for items like airline tickets over the Internet (U.S. Patent No.
5,794,207, the "Walker '207 Patent"). On December 1, 1998, MercExchange filed a
petition for interference with the United States Patent Office contending that
the MercExchange patent application was filed more than 16 months before the
application for the Walker '207 Patent and that under the laws of the United
States, the Walker '207 Patent should be cancelled and that certain claims of
the Walker '207 patent should be awarded in a patent assigned to the
MercExchange. Under the terms of its agreement with MercExchange, the Company
has agreed to underwrite the cost of litigation against Priceline.com and to
compensate the MercExchange for a portion of the fair and reasonable value of an
injunction (should one be obtained) against the continued operation of
Priceline.com's "name your price" bid system. Subject to the terms and
conditions of the Company's agreement with MercExchange to acquire MercTravel,
the Company has the exclusive
<PAGE>
right to use and enforce any patent issuing to the MercExchange from an
interference proceeding against Priceline.com. While the Company believes that
the petition for interference is well founded in fact and law, the Company
cannot estimate when the dispute will be resolved, nor what the outcome of the
dispute will be. There can be no assurance that the dispute will be resolved
favorably to MercExchange and the Company. If the dispute is not resolved
favorably to MercExchange and the Company, there could be a material adverse
effect on the Company's travel business.
The Company is currently in discussions with several companies that
offer a bid type system in the travel sector or are developing bid type systems
for use in the travel sector or may wish to participate in bid type systems for
the on-line travel sector. There can be no assurance that the Company will reach
an agreement with one or more of these companies or that their relationships
with the Company will remain non-adversarial. There can be no assurance that the
Company will ultimately prevail if required to enforce its intellectual property
against infringement by third parties.
(b) Business Strategy
The Company's business strategy is to identify industries where it can
profitably deploy its proprietary technology. The Company intends to engage in
additional internet-related and other businesses on a case-by-case basis which
may not utilize this proprietary technology. In order to bring this new
technology to the market, the Company will require significant capital spending
and investment in technology resources. This initiative will include both hiring
skilled employees and engaging third-party developers. There can be no assurance
that the Company will be able to raise sufficient capital to deploy its
proprietary technology in the travel business or additional industries.
(c) Intellectual Property and Technology
The Company uses patents, copyrights, trade secrets and common law
rights to protect its intellectual property. The Company has acquired ownership
of a confidential proprietary technology that, among other things, provides a
new way to navigate the Internet. The Company acquired its ownership interest by
assignment of all rights, title and interest through employment agreements and
written assignment agreements. At the present time, the Company is maintaining
this intellectual property as a trade secret through the use of non-disclosure
and confidentiality agreements. The new technology is also the subject of four
(4) pending patent applications, which if the Company is successful at
perfecting the issuance of patent(s) covering the new technology, may provide
the Company the right to exclude others from using the technology. There can be
no assurance that the Company's efforts to maintain the new technology a trade
secret will be successful nor whether the Company could obtain an adequate
remedy by the enforcement of the non-disclosure and confidentiality agreements
governing the confidential subject matter.
(d) Competition
As of the date of this report, the Company's primary activities relate
to the online travel services market. The online travel services market is new,
rapidly evolving and intensely competitive, and the Company expects competition
to increase. The Company will compete on the basis of service, merchandising,
reliability, amount and accessibility of information and breadth of products and
services offered. The Company makes available, or intends to offer, to its
customers a wide range of products and prices offered by its travel suppliers.
The Company will compete primarily with online travel services and with
traditional travel agent distribution channels. In the online travel services
<PAGE>
market, the Company competes with other entities that maintain commercial
websites providing online travel services, such as Expedia (an affiliate of
Microsoft Corporation), Travelocity (operated by Sabre), Preview Travel,
CheapTickets.com, Cendant Corporation, TravelWeb (operated by Pegasus),
GetThere.com, Biztravel.com (operated by Rosenbluth Travel) and Trip.com. The
Company also competes with companies that offer travel as part of a larger
electronic commerce portfolio, such as Priceline.com and Yahoo. Several
traditional large travel agencies such as Uniglobe Travel and Carlson Wagonlit
Travel, have established, or may establish in the future, commercial websites
offering online travel services. The Company also competes with many of these
same parties and others in the licensing of technology to airlines and corporate
travel agencies.
(e) Government Regulation
The laws and regulations applicable to the travel industry will affect
the Company and the Company's travel suppliers. The Company will be subject to
laws and regulations relating to the sale of travel services, including those
prohibiting unfair and deceptive practices and requiring the Company to register
as a seller of travel, comply with disclosure requirements and participate in
state restitution funds. In addition, many of the Company's travel suppliers and
computer reservation systems providers will be heavily regulated by the United
States and other governments. The Company's services will be indirectly affected
by regulatory and legal uncertainties affecting the businesses of the Company's
travel suppliers and computer reservation systems providers.
The Company also will be subject to laws and regulations applicable to
businesses generally and online commerce specifically. Currently, few laws and
regulations apply directly to the Internet and commercial online services.
Moreover, there is currently great uncertainty whether or how existing laws
governing issues such as property ownership, sales and other taxes, libel and
personal privacy apply to the Internet and commercial online services. It is
possible that laws and regulations may be adopted to address these and other
issues. Further, the growth and development of the market for online commerce
may prompt calls for more stringent consumer protection laws. New laws or
different applications of existing laws would likely impose additional burdens
on companies conducting business online and may decrease the growth of the
Internet or commercial online services. In turn, this could decrease the demand
for the Company's products and services, increase the Company's cost of doing
business or otherwise adversely effect the Company's business.
Federal legislation imposing limitations on the ability of states to
impose taxes on Internet-based sales was enacted in 1998. The Internet Tax
Freedom Act, as this legislation is known, exempts certain types of sales
transactions conducted over the Internet from multiple or discriminatory state
and local taxation through October 21, 2001. It is possible this legislation
will not be renewed when it terminates in October 2001. Failure to renew this
legislation could allow state and local governments to impose taxes on
Internet-based sales, and these taxes could hurt the Company's business.
(f) Year 2000 Issues
In the year 2000, the Company could encounter system and processing
failures of date-related data because the Company's computer-controlled systems
may use two digits rather than four to define the applicable year. This could
result in system failure or miscalculations. If this were to happen, the Company
would experience disruptions of the Company's operations including a temporary
inability to process reservations on the Company websites or to engage in
similar normal business activities.
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The Company's operations could also be harmed if the information
technology systems or other systems that the Company operates or that are
operated by third parties are not year 2000 compliant. The Company is not aware
of any year 2000 problems relating to the Company's systems or third parties'
systems that would have a material effect on the Company's business, results of
operations or financial condition.
The Company anticipates that costs associated with fixing any
information technology or other systems will be insignificant. To date, the
Company's costs for assessing, remediating and developing a remediation plan
relating to year 2000 issues have been negligible. The Company does not
currently expect that the Company's financial condition or results of operations
will be adversely affected by the year 2000 issue. However, the Company's
financial condition or results of operations could be adversely affected if:
* the Company's systems are not converted in a timely
manner
* the systems of other companies on which the Company's
systems rely are not converted in a timely manner
* other companies do not convert their systems at all or
in a manner compatible with the Company's systems
If the Company's assessment is finalized and there are no additional
material systems the Company operates or that are operated by third parties that
are found to be non-compliant, the worst case year 2000 scenario is a systemic
failure beyond the Company's control. This failure could include a prolonged
telecommunications, Internet or electrical failure. Such a failure could affect
the Company's business by:
* preventing the Company from operating the Company's
business
* preventing users from accessing the Company's websites
* changing the behavior of advertising customers or
persons accessing the Company's websites
If such a failure were to happen, the Company believe that the primary
business risks would include any or all of the following:
* lost sales
* increased operating costs
* loss of customers or persons accessing the Company's
websites
* business interruptions of a material nature
* claims of mismanagement, misrepresentation or breach of
contract
Any of the above business risks could have a material adverse effect on
the Company's business, results of operations and financial condition. The
Company has not made any contingency plans to address such risks. As of the date
of this report, the Company has experienced no year 2000 problems.
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(g) Employees
As of December 31, 1999, the Company had approximately 21 full-time
employees, none of whom is subject to collective bargaining agreements. The
Company believes that it enjoys good relations with its employees.
(h) Forward-Looking and Cautionary Statements
Forward-looking and Cautionary Statements: Certain statements contained
in this report may constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 ("Reform Act"). The Company
may also make forward-looking statements in other reports filed with the
Securities and Exchange Commission, in materials delivered to stockholders and
in press releases. In addition, the Company's representatives may from time to
time make oral forward-looking statements. Forward-looking statements provide
current expectations of future events based on certain assumptions and include
any statement that does not directly relate to any historical or current fact.
Words such as "anticipates," "believes, "expects," "estimates," "intends,"
"plans," "projects," and similar expressions, may identify such forward-looking
statements. In accordance with the Reform Act, set forth below are cautionary
statements that accompany those forward-looking statements. Readers should
carefully review these cautionary statements as they identify certain important
factors that could cause actual results to differ materially from those in the
forward-looking statements and from historical trends. The following cautionary
statements are not exclusive and are in addition to other factors discussed
elsewhere in this report, in the Company's filings with the Securities and
Exchange Commission or in materials incorporated herein or therein by reference.
Because the Company has a limited operating history, it is difficult to
evaluate the Company's business. Factors that may cause the Company to fail to
meet its business goals include the following:
* the inability to obtain new customers at reasonable
cost, retain existing customers or encourage repeat
purchases
* decreases in the number of visitors to the Company's
websites or the Company's inability to convert visitors
to the Company's websites into customers
* the Company's inability to adequately maintain, upgrade
and develop the Company's websites, the systems that we
use to process customers' orders and payments or the
Company's computer network
* the Company's inability to retain existing airlines,
hotels, rental car companies and other suppliers of
travel services ("travel suppliers") or to obtain new
travel suppliers
* the Company's inability to obtain travel products on
satisfactory terms from the Company's travel suppliers
* the ability of the Company's competitors to offer new
or enhanced websites, services or products
* fluctuating gross margins due to a changing mix of
revenues
* the termination of existing relationships with key
service providers or failure to develop new ones
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* the amount and timing of operating costs relating to
expansion of the Company's operations
* economic conditions specific to the Internet, online
commerce and the travel industry
* the Company's inability to attract additional travel
suppliers and consumers to our service
* the Company's inability to establish, maintain and
enhance its brands
* the Company's inability to expand its service offerings
* the Company's inability to operate, expand and develop
its operations and systems efficiently
* the Company's inability to maintain adequate control of
our expenses
* the Company's inability to raise additional capital
* the Company's inability to respond to competitive
market conditions
The Company's stock price is also affected by a number of other
factors, including quarterly variations in results, the competitive landscape,
general economic and market conditions and estimates and projections by the
investment community. As a result, like other technology companies, the
Company's stock price is subject to significant volatility.
Much of the future success of the Company depends on the continued
service and availability of skilled personnel, including technical, marketing
and staff positions. Experienced personnel in the information technology
industry are in high demand and competition for their talents is intense. There
can be no assurance that the Company will be able to successfully retain and
attract the key personnel it needs.
The Company has made and expects to continue to make acquisitions or
enter into alliances from time to time. Acquisitions and alliances present
significant challenges and risks relating to the integration of the business
into the Company, and there can be no assurances that the Company will manage
acquisitions and alliances successfully.
(i) Reported Events.
During the fiscal year ended April 30, 1999, the Company reported
certain events through press releases or through filings with the Securities and
Exchange Agreement under Form 8-K or otherwise. The following supplements or
corrects information pertaining to such events.
On September 4, 1998, the Company announced that it had entered into a
two (2) year Marketing Exclusivity Agreement with SellectSoft, L.L.C., an
Arizona Limited Liability Corporation in exchange for ten (10) million shares of
the Company Enterprises, Inc. common stock. Under the terms of such agreement
Company was granted sole and complete access and availability to all current and
future related components required in the marketing and distribution of the
SellectSoft patented processes. On February 12, 1999, the Company announced that
it entered into a Rescission Agreement by and between SellectSoft L.L.C., an
Arizona Limited Liability Company. In connection with the Agreement, 10 million
shares of the Company's common stock were returned.
<PAGE>
On January 13, 1999, the Company announced that it had entered into an
agreement with Government Payment Services, Inc., and Synergy Media, Inc., to
assume 100% ownership of Government Payment Services, Inc. As of the date of
this report, the transactions contemplated in this agreement have not been
consummated.
On January 11, 1999, the Company announced that it had expanded the
services it will market to consumers on the Internet to include long distance
and local telephone service, electricity and gas service. These services were to
be offered in certain geographic regions through an agreement with Massachusetts
based TelEnergy Inc. The Company has not actively pursued this agreement,
although it is still in effect.
On September 24, 1998, the Company announced that it executed a letter
term sheet setting forth the terms and conditions whereby Luther & Company, or
its designee, would provide Alcohol Sensors International, LTD. (ASI), with
principal offices located in Islandia, New York, and other consideration set
forth in such letter term sheet in exchange for an exclusive worldwide
three-year license and other considerations. An affiliate of the Company
provided funds to ASI on behalf of the Company in the amount of $40,000. These
funds are due and payable to the Company, but are deemed to be uncollectible as
ASI has entered into Chapter 11 proceedings.
On February 16, 1998, the Company announced it had entered into a
binding Letter of Intent for a proposed merger with Engineered Medical Concepts,
Inc., (EMC) a two year old Florida corporation which has one extended care
treatment facility located in Palm Beach Gardens Florida. This agreement has
been terminated. In conjunction with this agreement, certain parties advanced
funds on behalf of the Company to EMC and these funds are due and payable from
EMC. However, the Company has determined that these funds are not collectable
and they have been written off.
(j) Recent Activities.
The Company acquired the Internet domain name "Cheapfares.com" on June
24, 1999, from Roy Flanders in exchange for 3,000,000 shares of the Company's
Common Stock. The Company informally agreed to register shares of Mr. Flanders
stock, but has not yet done so. At the present time, the Company is employing
proprietary technology on the Cheapfares.com site.
During this same time period, the Company entered into an agreement to
purchase several Internet domain names from Rene Fidler, a resident of Colorado,
which included the domain name "Cheapfares.to." Terms of the agreement called
for an initial payment of $50,000 with a subsequent payment of $250,000 and the
issuance of 5,000,000 shares of the Company's Common Stock and warrants to
purchase an additional 5,000,000 shares of Common Stock. Owing to a dispute
which arose between Fidler and the Company, this transaction was not consummated
and litigation ensued. The parties reached a settlement whereby Fidler was paid
an additional $50,000, the warrants were cancelled and the shares of Common
Stock were returned to the Company. Furthermore, the Company was released from
all liability related to the use of the words "Cheapfares.com" and derivations
thereof. See "LEGAL PROCEEDINGS."
On October 7, 1999, the Company caused the formation of Leftbid.com,
Inc. ("Leftbid") under the laws of the State of Nevada on October 7, 1999.
Leftbid will be engaged in the business of selling fine art and collectibles to
the public via the Internet. The Company presently owns 61% of Leftbid's voting
stock. Based in New York, New York, Leftbid is in the process of entering into
contracts with selected auction firms, but it has not yet commenced operations.
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On October 8, 1999, MercExchange entered into a license agreement with Leftbid
under which Leftbid was granted a non-exclusive license (with no right of
sublicense) to use the MercExchange patents in the fine art sector. MercExchange
acquired 7.5% of Leftbid's issued and outstanding voting stock. In addition,
Leftbid agreed to pay MercExchange an annual payment of the greater of (1) the
first $50,000 of the gross transactions collected or earned by Leftbid or (2) a
1.5% continuing royalty of the gross transactions generated in the fine arts
sector.
On October 30, 1999, the Company entered into an agreement and plan of
exchange with Data Duplicating Corporation ("DDC") and all its shareholders (the
"DDC Shareholders"), which agreement was revised on December 31, 1999. Based in
Omaha, Nebraska, DDC provides services related to the duplication of data stored
on electronic media. Under the terms of this agreement, the Company will acquire
all of the issued and outstanding capital stock of DDC in exchange for which the
Company shall deliver 7,622,491 shares of its common stock to the DDC
Shareholders. In addition, the Company shall make a capital contribution to DDC
in the amount of $700,000 in no event later than January 31, 2000. The effective
date of the agreement is as of the close of business on December 31, 1999;
however, the issuance and delivery of the Company's capital stock is subject to
the Company's articles of incorporation being amended to increase the number of
authorized shares of common stock.
On January 14, 2000, the Company consummated the acquisition of certain
assets owned by Rose Lancaster d/b/a Rose Lancaster Tours, a travel agency based
in Edgewater, Florida. The Company paid Rose Lancaster a total of $147,855.07 in
cash and delivered a warrant to purchase 700,000 shares of common stock having a
total agreed value of $100,000. The warrant is exercisable at any time on or
before January 14, 2002, without further payment on the part of the warrant
holder. The exercise of the warrant is subject to the Company's articles of
incorporation being amended to increase the number of authorized shares of
common stock.
In April of 1999, the Company entered into an agreement to acquire all
of the capital stock of Azumano Travel, Inc. ("Azumano"), a travel agency based
in Portland, Oregon. The transactions contemplated in this agreement have not
been consummated and the Company is renegotiating the terms of this agreement.
As of the date of this report, the parties have agreed, subject to execution of
a definitive amendment to the agreement, under which the Company will deliver to
the selling shareholder a promissory note in the principal amount of $3,000,000
(secured by a pledge of Azumano capital stock acquired by the Company), payable
in two installments of $1,000,000 due and payable 30 days following execution of
the note and the balance due and payable 90 days following execution of the
note. Interest will accrue on the outstanding balance of the note at a rate of
9% per annum. In addition, the Company will issue and deliver to the selling
shareholder 33,500,000 shares of the Company's capital stock, subject to the
Company's articles of incorporation being amended to increase the number of
authorized shares of common stock.
The Company is negotiating the acquisition of all the capital stock of
Corporate Travel Consultants II, Inc. ("CTC"), a travel agency based in Miami,
Florida. As of the date of this report, the parties have agreed, subject to
execution of a definitive agreement, under which the Company will deliver to the
selling shareholders (i) cash in the amount of $1,250,000 ($250,000 of which has
been heretofore advanced), (ii) a promissory note in the amount of $4,000,000
payable in three installments of $1,000,000 thirty days following delivery of
the note, $2,000,000 sixty days following delivery of the note and $1,000,000,
(iii) a convertible promissory note in the principal amount of $3,000,000
(convertible into 12,500,000 shares of the Company's common stock), and (iv) a
five-year
<PAGE>
warrant to purchase 3,000,000 shares of the Company's common stock at $0.25 per
share. The promissory note and the convertible note will be secured by a pledge
of CAC's capital stock acquired by the Company. The outstanding principal
balance of the promissory note will accrue interest at a rate of 6% per annum.
No interest will accrue on the outstanding principal balance of the convertible
note. The exercise of the warrant and the conversion of the convertible
promissory note are subject to the Company's articles of incorporation being
amended to increase the number of authorized shares of common stock.
ITEM 2. PROPERTIES
As of December 31, 1999, the Company operated at three offices, all of
which are leased. The Company owns no real property at this time.
ITEM 3. LEGAL PROCEEDINGS
On October 16, 1998, the Company was named as a co-defendant in an
action brought in the District Court of Douglas County, Nebraska, captioned
Copper Canyan [sic] Ventures, L.L.C., Plaintiff, vs. Michael S. Luther, Aden
Enterprises, Inc. and Capstone Group, Inc., Defendants, Doc. 976 No. 824. The
action seeks to recover on a promissory note. On September 25, 1999, the parties
entered into a settlement agreement under which certain payments will be made in
exchange for the release and dismissal of all claims against the Company and the
other defendants. As of the date of this report, such payments have not been
made and the action remains pending.
On August 6, 1999, the Company entered into a settlement agreement with
Rene Fidler with respect to the aborted acquisition of Cheapfares.to. Under the
terms of this agreement, the Company paid Ms. Fidler the sum of $100,000 and Ms.
Fidler returned 5,000,000 shares of the Company's common stock delivered to her
(which were returned to treasury) and released the Company from all liability
related to the use of the words "Cheapfares.com" and derivations thereof. A
stipulated order of dismissal with prejudice was filed in the United States
District Court for the District of Colorado on September 21, 1999.
On October 13, 1999, the Internal Revenue Service filed a federal tax
lien upon the assets of the Company. This tax lien relates to the unpaid balance
of a tax assessment in the amount of $311,109.86 in connection with unpaid
employment taxes for employees of Smart Pay Processing, Inc. ("Smart Pay"). The
lien was placed upon the Company's assets by reason of Mr. Luther and the
Company being "responsible parties" for Smart Pay. As of the date of this
report, no efforts have been made to pay this assessment (or any penalties or
accrued interest) or to have it discharged.
As of the date of this annual report, the Company has certain judgments
outstanding which are described at Note 6 to "FINANCIAL STATEMENTS."
Except as set forth in this Item 3, the Company is not currently
subject to any material legal proceedings. The Company may from time to time
become a party to various legal proceedings arising in the ordinary course of
its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a shareholder vote from April 30, 1998
through April 30, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market Information.
Until July 2, 1999, the Company's Common Stock was quoted on the OTC
Bulletin Board (trading symbol "ADEN") operated by the National Association of
Securities Dealers. As of that date, the Company's Common Stock was ineligible
for further quotation on the OTC Bulletin Board because the Company was not
current in its reports with the United States Securities and Exchange Commission
(the "SEC"). Since July 2, 1999, the Company's Common Stock has been quoted on
the so-called "pink sheets" maintained by the National Quotation Bureau.
The following table sets forth the high and low bid information for
each quarter during the two-year period beginning May 1, 1997, as reported by
the OTC Bulletin Board:
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Year ended April 30, 1998
First Quarter ....................... $ 0.08 $ 0.01
Second Quarter ...................... 0.08 0.01
Third Quarter ....................... 0.08 0.01
Fourth Quarter ...................... 0.65 0.01
Year ended April 30, 1999
First Quarter ....................... 0.437 0.031
Second Quarter ...................... 0.125 0.031
Third Quarter ....................... 0.25 0.031
Fourth Quarter ...................... 0.75 0.062
</TABLE>
Such over-the-counter market quotations reflect inter-dealer prices,
without mark-up, mark-down or commission and may not necessarily represent
actual transactions.
The Company's management does not believe that the quotations on the
OTC Bulletin Board or the "pink sheets," as the case may be, accurately reflect
the value of the Company's Common Stock for two reasons. First, the Common Stock
is thinly traded amongst a relatively small number of holders. Second, because
the Company has been delinquent in filing its reports with the SEC, there has
been inadequate information available to the public respecting the business and
financial condition of the Company. With respect to private placements of its
Common Stock subject to the restrictions of Rule 144 under the Securities Act of
1933, the Company's management has applied a discount of 84% for sales effected
prior to January 1, 1999, and of 74% for sales effected on or after January 1,
1999. Such discount is applied as of the date of issuance based upon the average
closing price of each share of Common Stock for the immediately preceding sixty
(60) days.
(b) Holders.
As of December 31, 1999, the Company's Common Stock was held by
approximately 223 holders.
<PAGE>
(c) Dividends.
The Company has never paid cash dividends on its Common Stock, and
anticipates that it will continue to retain its earnings, if any, to finance the
growth of its business.
(d) Recent Sales of Unregistered Securities.
(i) Sales of Common Stock
During the fiscal year ended April 30, 1999, the Company issued shares
of its Common Stock which were not registered under the Securities Act of 1933,
as amended (the "Securities Act"), which are described as follows:
On May 21, 1998, the Company issued 1,142,857 and 1,714,286 shares of
its Common Stock to Mr. Rokusek and Mrs. Sundberg, respectively, for services
previously rendered. The Company's management valued such shares at $34,286 and
$51,429, respectively.
On May 21, 1998, the Company issued in the aggregate 10,000,000 shares of
its Common Stock to Mr. Luther and Capstone Group, Inc. in exchange for their
holdings in Liberty Court Travel, Inc. All of Capstone's shares of Common Stock
were then transferred to Mr. Luther in consideration of his personally assuming
certain indebtedness of Capstone. The Company's management valued such shares at
$300,000.
On June 10, 1998, the Company issued 25,000,000 shares of its Common Stock
to Mr. Luther. These shares were issued to Mr. Luther in consideration of Mr.
Luther guaranteeing the Company's indebtedness in the amount of $4,000,000 and
for the assumption and indemnification of the Company's liabilities stemming
from certain litigation claims. The Company's management valued such shares at
$750,000.
On October 2, 1998, the Company issued 2,000,000 shares of its Common Stock
to Mr. Luther. These shares were issued to Mr. Luther in consideration of his
services to the Company. The Company's management valued such shares at $40,000.
On October 14, 1998, the Company issued 10,000,000 shares of its Common
Stock to Sellectsoft LLC as consideration for entering into an exclusive
marketing agreement. This transaction was rescinded on March 1, 1999, and all of
these shares were returned.
On November 20, 1998, the Company issued 1,407,600 shares of its Common
Stock to Tim Banghart. These shares were issued to Mr. Banghart in consideration
of his forbearance of collection of a loan made to the Company having an
outstanding balance as of such date of approximately $43,225. The Company's
management valued such shares at $21,058.
On November 20, 1998, the Company issued 13,366,188 shares of its Common
Stock to Daniel Koch. These shares were issued to Mr. Koch in consideration of
his arranging a loan to the Company in the principal amount of $100,000,
repaying such loan on behalf of the Company and paying additional expenses in
the amount of $40,000 on behalf of Liberty Court. The Company's management
valued such shares at $199,958.
On November 20, 1998, the Company issued 2,580,000 shares of its Common
Stock to William Person. These shares were issued to Mr. Person in consideration
of his forbearance of collection of a loan made to the Company having an
<PAGE>
outstanding balance as of such date of $100,000. The Company's management valued
such shares at $32,198.
On March 3, 1999, the Company issued 5,000,000 shares of its Common Stock
to Rene Fidler in exchange for all of Ms. Fidler's interest in Cheapfares.to.
This transaction was subsequently rescinded and all of these shares were
returned. See Item 3 of this annual report under the caption "Legal
Proceedings."
On April 9, 1999, the Company issued 2,000,000 shares of its Common Stock
to Joseph Haller. These shares were issued to Mr. Haller in consideration of his
forbearance of collection of a loan made to the Company having an outstanding
balance as of such date of approximately $322,000. The Company's management
valued such shares at $40,000.
(ii) Issuance of Warrants
During the fiscal year ended April 30, 1999, the Company issued, or
became committed to issue, warrants to purchase shares of its Common Stock to
various creditors and vendors of the Company as described in the table below.
Except as otherwise indicated, the fulfillment of the Company's obligations is
subject to the shareholders of the Company approving an amendment to the
Company's articles of incorporation increasing the number of authorized shares.
<TABLE>
<CAPTION>
Date of Average
No. of Shares Issuance or Expiration Exercise
(1) Commitment Date Price Valuation (2)
<S> <C> <C> <C> <C>
10,000 6/30/98 6/29/00 $ 0.010 $ 5
230,000 11/15/98 11/14/00 $ 0.173 $ 467
86,469,527 11/15/98 11/14/00 $ 0.001 $ 175,066
200,000 1/10/99 1/31/01 $ 0.050 $ 2,640
1,500,000 2/1/99 1/31/01 $ 0.084 $ 9,897
</TABLE>
(1) Of the foregoing warrants or commitments to issue warrants, Mr. Koch and
Mr. Ulegard received warrants to purchase 43,000,000 and 20,000,000 shares
of Common Stock, respectively, at $0.125 per share. See "SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
(2) See subparagraph (iii) of this paragraph (d) below.
(iii)Claimed Exemption and Method of Valuation
The issuance of securities described above in this paragraph (d) of
Item 5 were deemed exempt from registration under the Securities Act in reliance
on Section 4 (2) of the Securities Act as transactions by an issuer not
involving any public offering. Such securities are subject to the restrictions
of Rule 144 under the Securities Act. All of such securities were valued in
accordance with the method described at paragraph (a) of this Item 5.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read together with the
Company's financial statements and notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this annual report. The statement of operations data for the years ended April
30, 1998 and 1999 and the balance sheet data as of April 30, 1998 and 1999 are
derived from our audited financial statements included elsewhere in this annual
which have been audited by Schvaneveldt and Company, independent auditors, whose
report thereon is also included elsewhere in this annual report.
The statement of operations data for the years ended April 30, 1995,
1996 and 1997 and the balance sheet data as of April 30, 1995, 1996 and 1997 are
derived from financial statements not included herein. The 1996 and 1997
financial statements are unaudited. In the opinion of management, these
statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair statement of the results for these periods.
<TABLE>
<CAPTION>
Years ended April 30,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Revenues ........... $ -- $ 152.1 $ 0.3 $ -- $ 98.1
Investment Losses ............ -- (3,246.1) (544.5) (137.0) (25.0)
Forebearance and Settlement .. -- (228. 7) (970.5) (1,404.9) (431.0)
Costs
Warrants Issued Expense ...... -- (403.5) (8.3) -- (188.1)
Payroll Taxes Assumed ........ -- (317.2) (140.8) (37.7) --
Other Operating Expenses ..... (98.2) (1,485.3) (1,098.1) (1,508.2) (3,259.5)
Net Loss ..................... (98.2) (5,528.7) (2,736.9) (3,087.8) (3,805.5)
Total Assets ................. 1.4 243.1 0.3 -- 378.9
Notes Payable ................ -- 2,044.8 2,640.1 3,281.5 3,381.5
Judgments Payable ............ -- 972.4 981.4 1,906.9 1,906.9
Stockholders' Equity (Deficit) (88.6) (3,811.4) (6,165.8) (8,773.5) (10,719.3)
Dividends Declared Per Common
Share ........................ -- -- -- -- --
Net Loss Per Share ........... ($ 0.19) ($ 0.16) ($ 0.05)
Shares Used in Computing Net
Loss Per Share ............... 14,646,602 19,039,069 73,625,767
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in this section has been derived from the
Company's financial statements and should be read together with the financial
statements and related notes included elsewhere in this annual report. The
discussion contains forward-looking statements that involve risks and
<PAGE>
uncertainties. Actual results may differ materially from those expressed or
implied in these forward-looking statements as a result of various factors,
including those set forth under Item 1(h) captioned "Forward-Looking and
Cautionary Statements" and elsewhere in this annual report.
(a) Overview
During the fiscal year ended April 30, 1999, the Company did not engage
in any significant operations. The Company's management has decided to engage in
the electronic commerce area, primarily as it relates to the sale or
facilitation of the sale of travel services. For accounting purposes, the
Company is a development stage enterprise. As such the Company's planned
principal operations have not commenced or, having commenced, have not generated
significant revenue. Therefore, the reported financial information is not
necessarily indicative of the Company's future operating results or of its
future financial condition. The Company's independent auditors have expressed
substantial doubts as to whether the Company is a going concern (i.e., that the
Company will remain in operation long enough to carry out all of its current
plans). See Note 15 to "FINANCIAL STATEMENTS."
The Company believes that over the short-term a substantial majority of
its revenues will be derived from airline ticket transactions. Airline ticket
commissions are determined by individual airlines and billed and collected
through the Airline Reporting Corporation, an industry-administered
clearinghouse. As is customary in the travel industry, travel suppliers are not
obligated to pay any specified commission rate for bookings made through our
websites. The Company anticipates that commission revenues will be recognized
when the reservation is made, net of allowances for cancellations.
Cost of revenues will consist primarily of fees paid to the Company's
fulfillment vendors for the costs associated with issuing airline tickets and
related customer services, fees paid to third party vendors for use of their
computer reservation and information services systems, allocated and direct
costs for the operation of the Company's data operations and costs related to
insertion of banner and other advertisements.
The Company's direct product development expenses consist primarily of
compensation for personnel. Its direct sales and marketing expenses consist
primarily of personnel-related costs as well as advertising, distribution and
public relations expenses.
The Company has incurred and expects to continue to incur substantial
losses and negative cash flows on both an annual and interim basis. In
particular, the Company intends to increase its focus and spending on brand
development, sales and marketing, product development, website content and
strategic relationships. Additionally, the Company's revenues are impacted by
the seasonality of the travel industry, particularly leisure travel. These
factors could adversely affect the Company's future financial condition and
operating results.
The Company's fiscal years end on April 30 of each year. References to
a fiscal year, such as fiscal 1999, are to the twelve months ended April 30 of
that year.
(b) Results of Operations
The following table sets forth the Company's results of operations for
fiscal 1997, 1998 and 1999.
<PAGE>
<TABLE>
<CAPTION>
Years ended April 30,
1997 1998 1999
---- ---- ----
(Amounts in $000s)
<S> <C> <C> <C>
Net Revenues ..................................... $ 0.3 $ -- $ 98.1
Cost of Revenues ................................. -- -- --
--------- --------- --------
Gross Profit ..................................... 0.3 -- 98.1
Operating Expenses:
Investment Losses ....................... 544.5 137.0 25.0
Forebearance and Settlement
Costs ................................... 970.5 1,404.9 431.0
Warrants Issued Expense ................. 8.3 -- 188.1
Payroll Taxes Assumed ................... 140.8 37.7 --
Other Operating Expenses ................ 1,098.1 1,508.2 3,259.5
------- ------- -------
Total Operating Expenses 2,762.2 3,087.8 3,903.6
------- ------- -------
Loss from Operations ............................. (2,761.9) (3,087.8) (3,805.5)
Other Income ..................................... 25 -- --
Provision for Income Taxes ....................... -- -- --
--------- --------- --------
Net Loss ......................................... $ (2,736.9) $ (3,087.8) $ (3,805.5)
---------- ---------- ----------
</TABLE>
Net Revenues. Our net revenues decreased 100% from $300 in fiscal 1997
to $0 in fiscal 1998 but increased to $98,100 in fiscal 1999. Because the
Company was conducting no material operations during these time periods, the
decrease in revenues from 1997 to 1998 were attributable to decreases in other
income. The increase in revenues from 1998 to 1999 were due to increases in
commissions and related revenues. These increases were primarily attributable to
increases in the number of airline-related transactions.
Cost of Revenues. The cost of revenues (which was $0) remained unchanged
during the periods indicated.
Operating Expenses. Operating expenses increased 11.8% from $2,762,200
in 1997 to $3,087,800 in 1998 and increased a further 23.2% in 1999 to
$3,805,500. From 1998 to 1999, this increase was primarily attributable to
increased warrants issued expenses (from $0 to $188,073), consultant fees (from
$855,000 to $1,910,296),wages (from $0 to $181,481), administrative and general
expenses (from $8,505 to $308,272), professional fees (from $6,318 to $126,387),
payroll taxes and penalties (from $37,677 to $50,462)and interest (from $638,370
to $665,525). From 1997 to 1998, this increase was primarily attributable to
<PAGE>
increased consultant fees (from $96,088 to $855,000) and settlement costs (from
$525,279 to $1,194,052). Except for consultant fees, professional fees, wages,
and administrative and general expenses, management does not believe that the
increases in the foregoing categories represent a known trend as to future
operating expenses.
Income Taxes. The Company files consolidated returns for federal income
tax purposes with its subsidiaries. In certain states it may file unitary or
combined tax returns with its subsidiaries. The Company will realize certain tax
benefits stemming from its net operating losses to date.
(c) Liquidity and Capital Resources
Historically, the Company financed its activities through private
placements of its securities or borrowing from individuals or private
organizations. The Company had negative working capital and had an accumulated
deficit of $10,719,300 at April 30, 1999. This includes $3,381,520 for notes
payable, $1,906,939 for outstanding judgments and $628,409 for collected, but
unpaid, employment taxes. See "LEGAL PROCEEDINGS" and Notes 5 and 6 to
"FINANCIAL STATEMENTS." Because the Company has not realized significant
revenues since April 30,1999, the Company's independent auditors have expressed
substantial doubts as to whether the Company is a going concern. See Note 15 to
"FINANCIAL STATEMENTS."
The Company anticipates that its liquidity needs over the next twelve
months will be met with proceeds generated from private offerings of its
securities or those of its subsidiaries. However, the Company's ability to issue
securities to meet such liquidity needs from the sale of its securities is
subject to the shareholders of the Company approving a proposed amendment to its
articles of incorporation increasing the number of authorized shares of capital
stock. If such approval is not given, the Company will be required to obtain
funds by alternative methods. There can be no assurances that such alternative
methods will be available under commercially reasonable terms or adequate to
meet the Company's needs. The Company does not have a credit facility and is not
currently negotiating with any party to obtain a credit facility.
The Company has had no net cash available for operations. At April 30,
1999, the Company had no material commitments for capital expenditures, but the
Company expects a substantial increase in capital expenditures for fiscal 2000.
The Company also expects a substantial increase in merger and acquisition
related costs for fiscal 2000.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditor's Report
Board of Directors
Aden Enterprises, Inc.
(A Development Stage Company)
I have audited the accompanying balance sheets of Aden Enterprises, Inc., as of
April 30, 1999 and 1998, and the related statements of operations, stockholders'
equity, and cash flows for the fiscal years ended April 30, 1999 and 1998. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatements. 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 the significant estimates made by
management, as well as evaluating the overall financial statements presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of Aden Enterprises, Inc., as of April
30, 1999 and 1998, and the results of its operations and its cash flows for the
fiscal years ended April 30, 1999 and 1998, 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 #15 to the financial
statements, the Company has an accumulated deficit and a negative net worth at
April 30, 1999 and 1998. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note #15. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Salt Lake City, Utah
October 13, 1999
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Balance Sheets
April 30, 1999 and 1998
<TABLE>
<CAPTION>
April April
30, 1999 30, 1998
<S> <C> <C>
Assets
Current Assets
Cash in Bank $ -0- $ -0-
Accounts Receivable Officer . 5,756 -0-
Other Receivables ........... 296,700 -0-
------- -------
Total Current Assets ........ 302,456 -0-
Property & Equipment
Furniture & Fixtures - Cost . 34,395 -0-
Less Accumulated Depreciation (13,181) -0-
------- -------
Net Property & Equipment .... 21,214 -0-
Other Assets
Goodwill - Net .............. 55,217 -0-
------- -------
Total Assets ................ $ 378,887 $ -0-
========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Balance Sheets -Continued-
April 30, 1999 and 1998
<TABLE>
<CAPTION>
April April
30, 1999 30, 1998
<S> <C> <C>
Liabilities & Stockholders' Equity
Current Liabilities
Cash in Bank Overdraft $ 17,630 $ -0-
Accounts Payable - Trade ....................... 469,652 360,092
Accounts Payable - Employees ................... 137,834 -0-
Payroll Taxes Payable .......................... 628,409 495,621
Accrued Payables - Services .................... 106,530 -0-
State Franchise Taxes Payable .................. 5,729 5,729
Accrued Interest Payable ....................... 2,589,254 1,842,730
Accrued Forbearance Fees Payable ............... 1,264,662 773,862
Notes Payable .................................. 3,453,574 3,353,574
Judgments Payable .............................. 1,906,939 1,906,939
Unissued Common Stock .......................... 518,000 35,000
------- ------
Total Current Liabilities ...................... 11,098,213 8,773,547
Stockholders' Equity
Common Stock, 100,000,000 Shares at No
Par Value Authorized;
97,000,000 Shares and 32,789,069 Shares
Issued at No Par Value, Respectively ........... 4,055,293 2,383,564
Paid In Capital ................................ 723,002 534,929
Deficit Accumulated in the Development Stage (15,497,621) (11,692,040)
----------- -----------
Total Stockholders' Equity ..................... (10,719,326) (8,773,547)
----------- ----------
Total Liabilities & Stockholders' Equity ....... $ 378,887 $ -0-
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Statements of Operations
Accumulated for the Period May 22, 1986 (Inception) to April 30, 1999 and
the Years Ended April 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated 1999 1998 1997
<S> <C> <C> <C> <C>
Revenues
Travel Commissions ........ $ 98,140 $ 98,140 $ -0- $ -0-
Other Income .............. 82,492 -0- -0- 300
------ - - ---
Total Revenues ............ 180,632 98,140 -0- 300
Operating Expenses
Amortization & Depreciation 39,679 17,125 -0- -0-
Warrants Issued Expenses .. 723,002 188,073 -0- 8,339
Consultant Fees ........... 3,488,219 1,910,296 855,000 96,088
Interest .................. 2,882,394 665,525 638,370 857,670
Wages ..................... 191,081 181,481 -0- -0-
Professional Fees ......... 636,788 126,387 6,318 54,289
Payroll Taxes & Penalties . 550,460 50,462 37,677 140,783
Forbearance ............... 740,066 84,000 210,841 445,225
Administrative &
General Expenses .......... 696,181 308,271 8,505 90,008
Settlement Costs .......... 2,295,071 347,000 1,194,052 525,279
Investment Losses ......... 3,975,563 25,100 137,000 544,544
--------- ------ ------- -------
Total Operating Expenses .. 16,218,504 3,903,720 3,087,763 2,762,225
Loss from Operations ...... ( 16,037,872) ( 3,805,580)( 3,087,763) ( 2,761,925)
Other Income
Interest Income ........... 152,251 -0- -0- 25,000
Litigation Settlement ..... 388,000 -0- -0- -0-
------- - - -
Total Other Income ........ 540,251 -0- -0- 25,000
------- - - ------
Net Loss Before Taxes ..... ( 15,497,621) ( 3,805,580)( 3,087,763) ( 2,736,925)
Provisions for Taxes ...... -0- -0- -0- -0-
- - - -
Net Loss After Taxes ...... ($ 15,497,621) ($ 3,805,580)($ 3,087,763) ( 2,736,925)
============= ============== =============== ==============
Loss Per Share ............ ($ 0.05)($ 0.16) ($ 0.19)
Weighted Average
Shares Outstanding ........ 73,625,767 19,039,069 14,646,602
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity For the Period May 22,
1986 (Inception) to April 30, 1999
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
---------------------------------------------
<S> <C> <C> <C> <C>
Beginning Balance,
May 22, 1986 .............. -0- $ -0- $ -0- $ -0-
Common Stock Issued for
Cash May 22, 1986 ......... 100,000 12,500
Cash Contributed by
Public Investors .......... 14,322
Net Loss for Year Ended
April 30, 1987 ............ ( 532)
---------------------------------------------
Balance, April 30, 1987 ... 100,000 26,822 -0- ( 532)
Net Loss for Year Ended
April 30, 1988 ............ ( 20,472)
---------------------------------------------
Balance, April 30, 1988 ... 100,000 26,822 -0- ( 21,004)
Cash Contributed by Officer -0- 10,691
Common Stock Issued for
Cash February 28, 1989 .... 240,600 71,428
Net Loss for Year Ended
April 30, 1989 ............ ( 89,362)
---------------------------------------------
Balance, April 30, 1989 ... 340,600 108,941 -0- ( 110,366)
Net Income for Year
Ended April 30, 1990 ...... 194,573
---------------------------------------------
Balance, April 30, 1990 ... 340,600 108,941 -0- 84,207
Net Loss for Year Ended
April 30, 1991 ............ ( 85,269)
---------------------------------------------
Balance, April 30, 1991 ... 340,600 108,941 -0- ( 1,062)
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity -Continued-
For the Period May 22, 1986 (Date of Inception) through April 30, 1999
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
---------------------------------------------
<S> <C> <C> <C> <C>
Dividend of No Par Shares 340,600
Net Loss for Year Ended
April 30, 1992 ........... ( 57,653)
---------------------------------------------
Balance, April 30, 1992 .. 681,200 108,941 -0- (58,715)
Reverse Split of Shares
Outstanding One for Two .. (340,600)
Net Loss for Year Ended
April 30, 1993 ........... ( 37,074)
---------------------------------------------
Balance, April 30, 1993 .. 340,600 108,941 -0- ( 95,789)
Net Loss for Year Ended
April 30, 1994 ........... ( 21,520)
---------------------------------------------
Balance, April 30, 1994 .. 340,600 108,941 -0- (117,309)
Capital Contributed by
Stockholder .............. 17,917
Capital Contributed by
Default of Public Investor 128
Warrants Issued .......... 123,095
Net Loss for Year Ended
April 30, 1995 ........... ( 221,340)
---------------------------------------------
Balance, April 30, 1995 .. 340,600 126,986 123,095 ( 338,649)
Shares Issued for Cash at
$0.333 Per Share ......... 600,000 200,000
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity -Continued-
For the Period May 22, 1986 (Date of Inception) through April 30, 1999
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
---------------------------------------------
<S> <C> <C> <C> <C>
Shares Issued for Note
Receivable $0.291 Per Share 1,082,143 315,000
Shares Issued for Cash at
$0.486 Per Share .......... 300,000 146,000
Shares Issued for Cash
at $0.50 Per Share ........ 1,100,000 550,000
Shares Issued for Services
at $0.35 Per Share ........ 100,000 35,000
Shares Issued for Services
at $0.162 Per Share ....... 460,845 75,000
Shares Issued for Debt
Reduction ................. 197,505 32,140
Shares Issued for Cash
$0.001 Per Share .......... 3,900,889 39,008
Shares Returned to
Company for
Contribution at $0.01
Per Share ................. ( 90,000) ( 900)
Shares Issued for Service
at $0.01 Per Share ........ 1,110,000 11,100
Warrants Issued ........... 403,495
Net Loss for Year Ended
April 30, 1996 ............ ( 5,528,702)
---------------------------------------------
Balance, April 30, 1996 .. 9,101,982 1,529,334 526,590 ( 5,867,352)
Shares Issued for Cash at
$0.01 Per Share ........... 658,333 6,583
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity -Continued-
For the Period May 22, 1986 (Date of Inception) through April 30, 1999
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
--------------------------------------------------
<S> <C> <C> <C> <C>
Shares Issued for Services
at $0.01 Per Share ....... 116,667 1,167
Shares Issued for Cash at
$0.05 Per Share .......... 5,000,000 250,000
Shares Issued for
Forbearance at $0.04
Per Share ................ 290,000 11,600
Shares Issued for
Forbearance at $0.04
Per Share ................ 2,622,087 104,883
Cost of Warrants Issued .. 8,339
Net Loss for Year Ended
April 30, 1997 ........... (2,736,925)
--------------------------------------------------
Balance, April 30, 1997 .. 17,789,069 1,903,567 534,929 (8,604,277)
Shares Issued for Services
at $0.32 Per Share ....... 15,000,000 480,000
Net Loss for Year Ended
April 30, 1998 ........... ( 3,087,763)
--------------------------------------------------
Balance, April 30, 1998 .. 32,789,069 2,383,567 534,929 (11,692,040)
Shares Issued to Acquire
Liberty Court Travel ..... 10,000,000 300,000
Shares Issued for Services
at $.03000 Per Share ..... 27,857,143 1,135,715
Shares Issued for Services
at $0.01248 Per Share .... 2,580,000 32,198
Shares Issued for Services
at $0.02 Per Share ....... 4,000,000 80,000
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity -Continued-
For the Period May 22, 1986 (Date of Inception) through April 30, 1999
<TABLE>
<CAPTION>
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
--------------------------------------------------
<S> <C> <C> <C> <C>
Shares Issued for Services
at $0.014960 Per Share 14,773,788 221,016
Shares Issued for Stock at
$0.04056 Per Share 5,000,000 202,800
Cost of Warrants Issued 188,073
Net Loss for Year Ended
April 30, 1999 ( 3,805,580)
--------------------------------------------------
Balance, April 30, 1999 97,000,000 $4,055,296 $723,002 ($15,497,621)
=====================================================
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Statements of Cash Flows
Accumulated for the Period Amy 22, 1986 (Inception) to April 30, 1999 and
for the Years Ended April 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated 1999 1998 1997
----------- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Loss ............................................ ($ 15,497,621) ($3,805,581) ($ 3,087,763) ($2,736,925)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities;
Amortization & Depreciation ......................... 39,679 17,125 -0- -0-
Non Cash Expenses ................................... 2,755,708 1,789,459 480,000 117,650
Warrants Issued ..................................... 723,002 188,073 -0- 8,339
Rounding ............................................ -0- -0- -0- ( 3)
Changes in Operating Assets & Liabilities;
(Increase) Decrease in Accounts Receivable ( 296,700) (296,700) -0- 243,085
Increase (Decrease) in Accounts Payable Trade ....... 469,652 109,560 8,814 200,151
Increase (Decrease) in Accounts Payable Employees ... 137,834 137,834 -0- -0-
Increase (Decrease) in Payroll Taxes Payable ........ 628,409 132,788 37,677 140,783
Increase (Decrease) in Franchise Taxes Payable ...... 5,729 -0- 5,729 -0-
Increase (Decrease) in Accrued Interest ............. 2,589,254 746,524 543,269 805,528
Increase (Decrease) in Accrued Forbearance .......... 1,264,662 490,800 445,120 328,742
Increase (Decrease) in Unissued Common Stock ........ 518,000 438,000 -0- 35,000
Increase (Decrease) in Judgements Payable ........... 1,906,939 -0- 925,495 981,444
--------- -------- ------- -------
Net Cash (Used) Provided in Operating Activities ... ( 4,755,383) ( 52,118) ( 641,659) 123,794
Cash Flows from Investing Activities
Organization Costs .................................. ( 160) -0- -0- -0-
Purchase of Equipment ............................... ( 34,235) ( 20,318) -0- -0-
--------- -------- ------- -------
Net Cash (Used) Provided in Investing Activities .... ( 34,395) ( 20,318) -0- -0-
Cash Flows from Financing Activities
Increase in Cash in Bank Overdraft .................. 17,630 17,630 -0- -0-
Sale of Common Stock ................................ 1,318,574 -0- -0- 256,583
Increase (Decrease) in Notes Payable ................ 3,453,574 54,806 641,379 (380,097)
--------- -------- ------- -------
Net Cash Provided (Used) in Financing Activities .... 4,789,778 72,436 641,379 ( 123,514)
--------- -------- ------- -------
Increase (Decrease) Cash & Cash Equivalents ......... -0- -0- ( 280) 280
Cash & Cash Equivalents Beginning of Period ......... -0- -0- 280 -0-
--------- -------- ------- -------
Cash & Cash Equivalents End of Period $ ............. -0- $ -0- $ -0- $ 280
========= ============ ============= ============
Disclosures for Operating Activities
Interest $ .......................................... 2,882,394 $ 665,525 $ 638,370 $ 857,670
Taxes ............................................... -0- -0- -0- -0-
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements
NOTE #1 - Corporate History
Organization of Business
The Company was organized on May 22, 1986 under the laws of the state of Nevada.
During August 1988, the Company merged with Aden Enterprises, Inc., a California
Corporation, changing the Company's corporate domicile to the state of
California.
The Company has not commenced planned principal operations and is considered to
be a development stage enterprise. The Company's principal business activity is
investing in all forms of investments or lawful business activities.
NOTE #2 - Significant Accounting Policies
A. The Company uses the accrual method of accounting.
B. Revenues and directly related expenses are recognized in the period
when the services are performed for the customer.
C. The Company considers all short term, highly liquid investments that
are readily convertible, within three months, to known amounts as cash
equivalents. The Company currently has no cash equivalents.
D. Primary Earnings Per Share amounts are based on the weighted average
number of shares outstanding at the dates of the financial statements.
Fully Diluted Earnings Per Share shall be shown on stock options and
other convertible issues that may be exercised within ten years of the
financial statement dates.
E. Inventories: Inventories are stated at the lower of cost, determined by
the FIFO method or market.
F. Depreciation: The cost of property and equipment is depreciated over
the estimated useful lives of the related assets. The cost of leasehold
improvements is depreciated (amortized) over the lesser of the length
of the related assets or the estimated lives of the assets.
Depreciation is computed on the straight line method for reporting
purposes and for tax purposes.
G. Estimates: The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates
H. Consolidation Policy; The accompanying consolidated financial
statements include the accounts of the Company and all of its wholly
owned and majority owned subsidiaries. Intercompany transactions and
balances have been eliminated in the consolidation.
I. New Technical Pronouncements; In February 1997, SFAS No. 129,
"Disclosure of Information about Capital Structure" was issued
effective for periods ending after December 15, 1997. The Company has
adopted the disclosure provisions of SFAS No. 129 effective with the
fiscal year ended April 30, 1999.
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #2 - Significant Accounting Policies
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was issued
effective for fiscal years beginning after December 31, 1997, with earlier
application permitted. The Company has elected to adopt SFAS No. 130
effective with the fiscal year ended April 30, 1999. Adoption of SFAS No.
130 did not have a material impact on the Company's financial statements.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued for fiscal year beginning after
December 31, 1997, with earlier application permitted. The Company has
elected to adopt SFAS No. 131, effective with the fiscal years ended April
30, 1999. Adoption of SFAS No. 131 did not have a material impact on the
Company's financial statements.
J. Forbearance Amounts: The Company calculates forbearance amounts at 10-
20% of the indebtedness.
NOTE #3 - Property, Equipment and Depreciation
Capitalized amounts are depreciated over the useful life of the assets using the
straight line method of depreciation. At December 31, 1999 and 1998, the Company
had property and equipment as follows;
<TABLE>
<CAPTION>
Depreciation Accumulated
Cost Cost Expenses Depreciation
Assets 1999 1998 Life 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Computer Equipment . $20,318 $ -0- 3-5 $10,366 $ -0- $10,366 $ -0-
Furniture & Fixtures 14,077 -0- 2 2,815 -0- 2,815 -0-
--------------------------------------------------------------------------------
Total .............. $34,395 $ -0- $13,181 $ -0- $13,181 $ -0-
================================================================================
</TABLE>
NOTE #4 - Consolidation
The Company issued 10,000,000 shares of its common stock to its President to
acquire Liberty Court Travel. During the year ended April 30, 1999, Liberty
Court Travel operated as a wholly owned subsidiary of Aden Enterprises, Inc.
Subsequent to its year end, Liberty Court Travel, suspended operations, but
plans to renew operations as part of the Company's Internet travel business. All
intercompany transactions were eliminated in consolidation. The discounted value
of the stock exchanged exceeded the net book value of the assets of Liberty
Court Travel by $59,161. This amount has been recorded as goodwill and is being
amortized over a period of ten years.
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #5 - Notes Payable
The Company has notes payable to a commercial bank, and twenty seven individual
lenders as follows;
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Commercial Bank, Due August 21, 1995, Interest Rate 10.5%. $ 165,732 $ 165,732
Individual #1, Interest Rate 15%, Due August 12, 1996 .... 300,000 300,000
Individual #2, Interest Rate 15%, Due October 31, 1996 ... 395,101 395,101
Individual #3, Interest Rate 15%, Due January 15, 1996 ... 145,000 145,000
Individual #4, Interest Rate 22%, Due April 15, 1997 ..... 345,000 345,000
Individual #5, Interest Rate 11%, Due on Demand .......... 37,500 37,500
Individual #6, Interest Rate 12.%, Due on Demand ......... 81,330 81,330
Individual #7, Interest Rate 12.5%, Due on Demand ........ 82,200 82,200
Individual #8, Interest Rate 12.%, Due on Demand ......... 7,100 7,100
Individual #9, Interest Rate 15%, Due on Demand .......... 5,000 5,000
Individual #10, Interest Rate 15%, Due on Demand ......... 160,000 160,000
Individual #11, Interest Rate 10%, Due on Demand ......... 350,000 350,000
Individual #12, Interest Rate 12.5%, Due on Demand ....... 20,000 20,000
Individual #13, Interest Rate 11%, Due on Demand ......... 10,000 10,000
Individual #14, Interest Rate 11%, Due on Demand ......... 5,000 5,000
Individual #15, Interest Rate 11%, Due on Demand ......... 8,000 8,000
Individual #16, Interest Rate 11%, Due on Demand ......... 5,000 5,000
Individual #17, Interest Rate 11%, Due on Demand ......... 8,000 8,000
Individual #18, Interest Rate 11%, Due on Demand ......... 5,000 5,000
Individual #19, Interest Rate 10%, Due on Demand ......... 100,000 -0-
Individual #20, Interest Rate12%, Due on Demand .......... 109,279 109,279
Individual #21 , Due on Demand ........................... 5,000 5,000
Individual #22, Interest Rate 12%, Due on Demand ......... 257,000 257,000
Individual #23, Due on Demand ............................ 150,000 150,000
Individual #24, Interest Rate 7%, Due on Demand .......... 100,000 100,000
Individual #25, Interest Rate 12%, Due on Demand ......... 104,286 104,286
Individual #26, Interest Rate 12%, Due on Demand ......... 420,992 420,992
Individual #27, Interest Rate 15% Due on Demand .......... 72,054 72,054
--- -- ------ ------
Total .................................................... $3,453,574 $3,353,574
========== ==========
</TABLE>
Conversion Applicable to Individual #27
At any time after the issue date hereof and on or before the due date, or such
earlier date as the principal amount due hereunder may be paid, the registered
owner is entitled to convert all, but not less than all, of the unpaid principal
amount of this debenture into fully paid and non-assessable shares of its common
stock of Aden Enterprises, Inc., at the applicable conversion price, or at such
conversion price as may be adjusted from time to time. The conversion price
represents the principal amount of this debenture which may be converted into a
share of common stock. The conversion price is equal to 70% of the fair market
value of each share of common stock, subject to the following limitations.
1. If the note is converted within 90 days following the issue date,
inclusive, the conversion price will be $1.00 per share.
2. If the note is converted at any time after the 90 day period, but on or
before the first anniversary of the issue date, the conversion price shall
not exceed $1.50 per share.
3. The conversion price shall in no event be less that $0.70 per share.
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #6- Litigation
On October 16, 1998, the Company was named as a co-defendant in an action
brought in the District Court of Douglas County, Nebraska, captioned Copper
Canyon Ventures, L.L.C., Plaintiff, vs. Michael S. Luther, Aden Enterprises,
Inc. and Capstone Group, Inc., Defendants, Doc. 976 No. 824. The action seeks to
recover on a promissory note, effective January 1, 1998, with interest thereon
at 12.5% per annum. On September 25, 1999, the parties entered into a settlement
agreement under which certain payments will be made in exchange for the release
and dismissal of all claims against the Company and the other defendants. As of
the date of this report, such payments have not been made and the action remains
pending.
The Company has been a defendant in legal proceedings at various times in the
past and has outstanding balances as follows;
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Judgment in the United States District Court of Nebraska,
Douglas County, Doc. #97, No. 465, Invest L' Inc.,
Plaintiff vs. Aden Enterprises, Inc., Et Al.,
Petition filed September 23, 1997............................. $ 437,924 $ 437,924
Judgment in the United States District Court of Nebraska,
Douglas County, Doc. #97, No. 465, Invest L' Inc.,
Bridge Fund Plaintiff vs. Aden Enterprises, Inc., Et Al.,
Petition Filed September 23, 1997 ............................ 398,970 398,970
Judgment in the District Court of Nebraska,
Douglas County, Doc. #964, No. 98, Fredrick W. Weidinger
Plaintiff, vs. Aden Enterprises, Inc., Defendant,
Petition Filed August 18, 1997 ............................... 88,600 88,600
Judgment in the District Court of Nebraska,
Douglas County, Doc. #959 No. 864, Russell Barger
Plaintiff vs., Aden Enterprises, Inc., Et. Al., Petition Filed
April 2, 1997 ................................................ 119,932 119,932
Judgment in the District Court of Nebraska,
Douglas County, Doc. #956, No. 36, Matthew A. Gohd
Plaintiff vs., Aden Enterprises, Inc., Et. Al., Petition Filed
November 27, 1996, Judgment includes Accrued Interest
of $41,891 ................................................... 200,000 200,000
Judgment in the District Court of Nebraska,
Douglas County, Doc., 958, No. 177, Value Partners LTD.,
Plaintiff vs., Aden Enterprises, Inc., Et. Al., Petition Filed
February 12, 1997 ............................................ 482,773 482,773
Judgment in the United States Eighteenth Judicial Circuit,
County of Du Page State of Illinois, Doc., 0256,
Primary Resources, Inc., Plaintiff vs. Aden Enterprises, Inc.,
Et. Al., Filed March 8, 1996 ................................. 178,740 178,740
------- -------
Total ........................................................... $1,906,939 $1,906,939
========== ==========
</TABLE>
NOTE #7 - Payroll Taxes
Resulting from a failed acquisition in 1996 the Company has been identified as a
responsible party by the Internal Revenue Service for unpaid payroll taxes of
$311,020 and Liberty Court Travel has $124,176 in unpaid payroll taxes.
Penalties and interest of $193,233 have been accrued on these taxes.
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #8 - Unissued Common Stock
In 1997, the Company received $35,000 for payment of 100,000 shares of common
stock and in 1999 $483,000 was received for payment of approximately 5,800,000
of shares of common stock. The Company has not directed its transfer agent to
issue the shares and currently does not have authorized but unissued shares
available to issue the purchaser.
NOTE #9 - Interest Payable
The Company has not paid the accrued interest on the notes payable presented in
Note #5. Interest at the debt rate and penalty interest has been accrued and
represents $2,589,254 at April 30, 1999 and $1,842,730 at April 30, 1998. These
amounts have been personally guaranteed by the Company's President.
NOTE #10 - Forbearance Fees Payable
The notes payable as disclosed in Note #5, have all been defaulted upon by the
Company. The Company has made commitments to the note holders of additional
amounts to be repaid for an extension of the payment of accrued interest and
principal of the notes. These forbearance fees commitments are $1,264,662 for
April 30, 1999 and $773,862 for April 30, 1998.
NOTE #11 - Income Taxes
The Company has adopted FASB 109 to account for income taxes. The Company
currently has no issues that create timing differences that would mandate
deferred tax expense. Net operating losses would create possible tax assets in
future years. Due to the uncertainty as to the utilization of net operating loss
carryforwards an evaluation allowance has been made to the extent of any tax
benefit that net operating losses may generate.
The Company has incurred losses that can be carried forward to offset future
earnings if conditions of the Internal revenue Codes are met. These losses are
as follows:
<TABLE>
<CAPTION>
Year of Loss Amount Expiration Date
------------------------------------------------
<S> <C> <C>
1991 $ 1,062 2006
1992 57,653 2007
1993 37,074 2008
1994 21,520 2009
1995 221,340 2010
1996 5,528,703 2011
1997 2,736,925 2017
1998 3,087,763 2018
1999 3,805,580 2019
</TABLE>
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred Tax Assets Balance Beginning of Year $ -0- $ -0-
Net Operating Loss Carryforwards 15,537,620 11,732,040
========== ==========
Tax at Current Rate $ 5,282,791 $ 3,988,894
Valuation Allowance ( 5,282,791) (3,988,894)
----------- -----------
Net Deferred tax Assets $ -0- $ -0-
============= ===========
Deferred Tax Liability -0- -0-
</TABLE>
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #12 - Stockholders' Equity
Common Stock
The total authorized stock of the Corporation is 100,000,000 shares of common
stock with no par value. All stock when issued shall be deemed fully paid and
non-assessable. No cumulative voting on any matter to which stockholders shall
be entitled to vote, shall be allowed for any purpose. Shareholders have no
pre-emptive rights to acquire unissued shares of stock of the Corporation.
Common Shares Issued for Non Cash Investing and Financing Activities
The Company issued shares for non cash investing and financing activities
as follows;
04-30-96 Issued 1,082,143 Shares for a Note Receivable of $315,000
04-30-97 Issued 116,667 Shares for Services of $1,167
04-30-97 Issued 2,912,087 Shares for Forbearance Expense of $116,483
04-30-98 Issued 15,000,000 Shares Valued at $480,000 to the President of
the Company for Personal Guarantee of the Notes Payable, Related
Interest Accrued and Forbearance Fee Outstanding
04-30-99 Issued 10,000,000 Shares Valued at $300,000 to the Company's
President for 100% of the Outstanding Shares of Liberty Court
Travel, Inc
04-30-99 Issued 2,580,000 Shares to a Consultant for Services Valued at
$32,198
04-30-99 Issued 4,000,000 Shares to Two Consultants for Services Valued at
$80,000
04-30-99 Issued 5,000,000 Shares to a Consultant for Web Page Address
Services Valued at $202,800, (subsequent to the year end, the
Consultant returned the shares as part of a negotiated settlement
of a dispute).
The price of the shares issued was computed as follows; The market
quote price on the day of the transaction multiplied by a financial risk and
liquidity risk discount of 50% prior to January 1, 1999 and 40% after January 1,
1999 and a lack of marketability risk discounts of 34%. The Company used an
outside valuation service to obtain the two discounts described above.
Warrants
The Company has issued warrants to purchase shares of its stock at various
prices over a two year period from the date of issue. The warrants have been
valued at the difference between the stock price on the date of issue and the
present value on a 5% discount for two years multiplied by the valuation study
discount of 50% prior to January 1, 1999 and 40% after January 1, 1999 for
financial risk and liquidity and 34% for lack of marketability. The resultant
cost has been expensed to the operations in the year the warrants were issued
and paid in capital in the stockholders' equity section of the balance sheet has
been correspondingly increased. Upon issue of the shares the paid in capital
will be relieved of the warrant cost and the value of the no par stock will be
increased. If the warrants are not exercised they remain as paid in capital and
no reduction to warrant expense will be made.
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #12 - Stockholders' Equity-Continued-
Warrants Issued are as follows;
<TABLE>
<CAPTION>
Warrants Expiration
Fiscal Year Ended Issued Date Expense
- ----------------------------------------------------------------------
<S> <C> <C> <C>
04-30-96 9,725,334 04-30-98 $ 526,570
04-30-97 2,150,000 04-30-99 8,339
04-30-99 88,179,527 04-30-01 188,073
----------------------------------------
Total 100,054,861 $ 723,002
========================================
Subsequent Issued 04-30-2000 142,860,441 $ 1,806,496
</TABLE>
NOTE #13 - Segments Accounting
Segment disclosure for the Company and its wholly owned subsidiaries are as
follows;
<TABLE>
<CAPTION>
Aden Enterprises, Inc. Liberty Court Travel
---------------------- --------------------
<S> <C> <C>
Total Current Assets ..... $ 302,456 $ -0-
Property & Equipment - Net -0- 21,214
Other Assets ............. 55,217 -0-
----------- ----------
Total Assets ............. $ 357,673 $ 21,214
=========== ==========
Current Liabilities $ .... 10,925,931 $183,482
=========== ==========
Total Revenues $ ......... -0- $ 98,140
Operating Expenses ....... 3,299,875 603,846
----------- ----------
Loss from Operations ..... ($ 3,299,875) ($505,706)
=========== ==========
</TABLE>
NOTE #14 - Lease Obligation
At April 30, 1999, the Company had no operating leases.
Subsequent to its year end the Company leased three commercial office sites
which require lease payments as follows;
Year End Amount
April 30, 2000 $ 46,952
April 30, 2001 47,003
April 30, 2002 14,645
--------
Total $108,600
========
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #15 - Going Concern
The accompanying financial statements of Aden Enterprises, Inc., have been
prepared on a going concern basis, which contemplates profitable operations and
the satisfaction of liabilities in the normal course of business. There are
uncertainties that raise substantial doubt about the ability of the Company to
continue as a going concern, as shown in the statements of operations. In
addition the Company has no assets with which to conduct profitable operations
and has an inordinately high amount of current debt. These items raise
substantial doubt about the ability of the Company to continue as a going
concern.
Subsequent to its year end the Company is commencing new operations in the
electronics commerce industry where it will sell, or facilitate the sale, of
travel services through the Internet utilizing the Company's proprietary
technology in a web site. The Company presently is working on an improved
version of the web site systems.
The Company has accrued ownership of a technology that among other things
provides a new way to navigate the Internet.
The Company entered into a License Agreement whereby the Company acquired an
exclusive right to certain patents, pending patents and proprietary plans and
strategies to operate in the travel service industry subject to certain
restrictive terms and conditions.
The Company has also entered into negotiations to acquire traditional type
travel agencies and four providers.
In addition to its efforts in the travel industry the Company has formed a
Nevada Corporation, as a wholly owned subsidiary, to establish and maintain web
sites pertaining to the offer and sale of artwork and related merchandise.
The Company's continuation as a going concern is dependent upon its ability to
satisfactorily meet its obligations, generate cash flows from operations for
current operating costs and to raise capital to fund the planned ventures. As of
the date of this report, the Company has received subscription proceeds in the
amount of approximately $2,400,000.
The Company's President has personally guaranteed the Company's current debt and
accumulated interest. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
NOTE #16 - Acquisition and Rescission
On February 7, 1997, the Company entered into a letter of intent with Advanced
Business Sciences, Inc., a Nebraska Corporation to purchase 21,750 shares, a
minority interest in the Company. The letter of intent was publically reported
on Form 8-K. The Company did not acquire the shares or the minority interest in
Advanced Business Sciences, Inc.
On July 24, 1997, the Company filed an 8-K announcing the acquisition of a
minority position in Focused Energy International, for approximately 10,000,000
shares of common stock. The shares were never issued and no acquisition
occurred.
On February 17, 1998, the Company issued and 8-K announcing the acquisition or
Engineer Medical Concepts, Inc. The Company failed to make the required cash
investments and no acquisition occurred.
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #16 - Acquisition and Rescission -Continued-
On September 4, 1998, the Company issued an 8-K announcing the acquisition of a
two year marketing agreement with SelectSoft LLC an Arizona Limited Liability
Corporation. The Company issued 10,000,000 shares of its common stock. On
February 26, 1999 the Company issued and 8-K announcing the recission of its
agreement of SelectSoft, LLC and received its 10,000,000 shares back.
On January 13, 1999, the Company announced that it has entered into an agreement
with Government Payment Services, Inc., and Synergy Media, Inc., to assume 100%
ownership of Government Payment Services, Inc. Subsequently, the Company elected
not to proceed with the transaction and no stock was issued.
On January 11, 1999, the Company announced that it has expanded the services it
will market to consumers on the Internet to include long distance and local
telephone service, electricity and gas services. These services will be offered
in certain geographic regions through an agreement with Massachusetts based
TelEnergy, Inc. At the date of this report, the Company has not actively pursued
this agreement, although it is still in effect.
On September 24, 1998, the Company announced that it had entered into a letter
term setting forth the terms and conditions whereby Luther & Company, or its
Designee, would provide Alcohol Sensors International, LTD., with principal
offices located in Islandia, New York, prepaid royalties and other consideration
set forth in such letter term sheet in exchange for an exclusive worldwide
three-year license for the Company's product(s) and three year's warrants. An
affiliate of the Company provided funds to ASI on behalf of the Company in the
amount of $40,000. These funds are due and payable to the Company, but are
deemed to be uncollectible as ASI has entered into Chapter 11 proceedings.
On February 16, 1998, the Company announced it had entered into a binding Letter
of Intent for a proposed merger with Engineered Medical Concepts, Inc., (EMC) a
two year old Florida corporation which has one esthetic care treatment facility
located in Palm Beach Gardens, Florida. This agreement was not acted upon and is
considered null and void. In conjunction with this agreement, certain parties
advanced funds on behalf of the Company to EMC and these funds are due and
payable. However, the Company has determined these funds are not collectable and
they have been written off.
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #17 - Subsequent Events
Subsequent to April 30, 1999, the Company entered into a license agreement with
MercExchange LLC (MercExchange) whereby the Company obtained a perpetual,
exclusive right to use the MercExchange patent, pending patents and proprietary
plans and strategies, (the MercExchange intellectual property), for the travel
services industry subject to certain restrictive terms and conditions. In
addition to the license agreement, Aden purchased a ten percent (10%) ownership
interest in MercExchange, LLC and the Company acquired an option to purchase an
additional five percent (5%). In October 1999, the Company entered into a
revised agreement with MercExchange whereby it obtained a right to enforce the
MercExchange intellectual property in the travel service industry and a right to
non-exclusively license the MercExchange intellectual property to other business
opportunities that the Company may pursue. Subject to the terms of the revised
agreement and the issuance of certain warrants for the Company's stock, the
MercExchange acquired a substantial financial and equity interest in the
Company. At the present time, the Company does not have the financial resources
necessary to perform its rights and obligations under the agreement or to
perfect its ownership interest in the MercExchange, LLC.
The Company acquired the Internet domain name "Cheapfares.com" on June 24, 1999,
from Roy Flanders in exchange for 3,000,000 shares of the Company's common stock
. The Company formally agreed to register shares of Mr. Flanders stock, but has
not yet done so. At the present time, the Company is employing proprietary
technology on the Cheapfares.com site.
During this same time period, the Company entered into an agreement to purchase
several Internet domain names from Rene Fidler, a resident of Colorado, which
included the domain name Cheapfares.to. Terms of this agreement called for an
initial payment of $50,000 with a subsequent payment of $250,000 and the
issuance of 5,000,000 shares of the Company's common stock and warrants to
purchase an additional 5,000,000 shares of common stock. Owing to a dispute
which arose between Fidler and the Company, this transaction was not consummated
and litigation ensued. The parties reached a settlement whereby Fidler was paid
an additional $50,000, the warrants were canceled and the shares of common stock
were returned to Aden.
The Company has entered into a letter of intent to acquire another traditional
travel agency, Corporate Travel Consultants II, Inc., based in Miami, Florida.
The letter of intent was accompanied by a payment of $50,000 and the issuance of
1,000,000 shares of the Company's common stock. It is anticipated that this
acquisition will be completed by the fiscal year ending April 30, 2000, although
there can be no assurance the Company will have the funds to fulfill the
acquisition agreement.
The Company has formed a Nevada Corporation under the name Leftbid.com, Inc. The
Company will own sixty-one percent (61%) of Leftbid's issued and outstanding
capital stock. Leftbid will develop, establish and maintain websites pertaining
to the offer and sale of artworks and related merchandise. As of the date of
this annual report, Leftbid has not conducted any business operations.
In April of 1999, the Company entered into an agreement to acquire all of the
capital stock of Azumano Travel, Inc., ("Azumano"). The transactions
contemplated in this agreement have not been consummated and the Company is
renegotiating the terms of this agreement. As of the date of this report, the
parties have agreed, subject to execution of a definitive amendment to the
agreement under which the Company will deliver to the selling shareholders a
promissory note in the principal amount of $3,000,000 (secured by a pledge of
Azumano capital stock acquired by the Company), payable in two installments of
$1,000,000, due and payable 30 days following execution of the note, and the
balance due and payable 90 days following execution of the note. In addition,
<PAGE>
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #17 - Subsequent Events -Continued-
the Company will issue and deliver to the selling shareholder 33,500,000 shares
of the Company's capital stock, subject to the Company's articles of
incorporation being amended to increase the number of authorized shares of
common stock.
In October of 1999, the Company caused the formation of Navlet.com, Inc.,
("Navlet") under the laws of the state of Delaware. Navlet will be engaged in
holding and licensing certain intellectual property rights related to electronic
commerce. The Company will hold a majority interest in Navlet's voting stock.
As of the date of this report, the Company has received subscription proceeds in
the amount of approximately $2,400,000. See note #8. The Company anticipates
further infusions of capital; however, as of the date of this report, all or
substantially all of the Company's authorized capital stock has been issued.
While the Company anticipates that, subject to shareholder approval, its
articles of incorporation will be amended to increase the number of authorized
shares, there can be no assurances that such an amendment will be completed.
Furthermore, there can be no assurances that additional infusions of capital
will be forthcoming, under commercially reasonable terms. The Company
anticipates that its principal shareholder, Mr. Luther, may loan some of his
holdings to the Company for the purpose of raising additional funding.
In order to issue shares of common stock with respect to certain commitments
made to various third parties, the company redeemed 38,438,316 of its common
stock from Mr. Luther and 13,366,188 shares of its common stock from Mr. Koch.
Note #18 - Related Party Transactions
The Company has issued stock to officers, directors and others for various
services as follows:
Michael S. Luther, an officer and director of the Company
- 25,000,000 shares in consideration of his guaranteeing $4,000,000
of the Company's indebtedness and for the assumption and
indemnification of the Company's liabilities arising from certain
litigation claims.
- 2,000,000 shares in consideration of unspecified services to the
Company.
Judith E. Sundberg, an officer and director of the Company
- 1,714,286 shares in consideration of services rendered.
Donald E. Rokusek, a director of the Company
- 1,142,857 shares in consideration of services rendered.
Daniel A. Koch
- 13,366,188 shares in consideration of his arranging a $100,000
loan to the Company, repaying such loan and paying $40,000 of
additional expenses on behalf of Liberty Court.
The Company has paid commissions to Quaestus Ltd for sale of the Company's
stock. Anders Ulegard, who is a significant stockholder for the Company, is a
principal in Quaestus, Ltd.
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information concerning the age, current
positions with the Company, and term of office as a director and period of
service as such, for all of the directors of the Company, as of April 30, 1999:
<TABLE>
<CAPTION>
Year
Became a
Name Age Director Office and Title
- ---- --- -------- ----------------
<S> <C> <C> <C>
Michael S. Luther 41 1995 Chairman of the Board of
Directors; Chief
Executive Officer
Judith E. Sundberg 58 1998 Director; Secretary
Donald E. Rokusek 62 1998 Director
</TABLE>
All of the directors hold their office until the next annual meeting of
the shareholders and their respective successors shall qualify.
Michael S. Luther has been associated with the Company as its Chief
Executive Officer since February 1995. From August, 1993 to November, 1994, Mr.
Luther was a registered representative of the investment banking firm of
Kirkpatrick, Pettis, Smith & Polian, Inc. of Omaha, Nebraska. Mr. Luther is a
graduate of the University of Maryland with a Bachelor of Science degree in
accounting and he is a certified public accountant. Mr. Luther is a director of
Synergy Media, Inc. Mr. Luther and his brother, Mark Luther, were named as
defendants in an action brought in the United States District Court for the
District of Nebraska by the United States Secretary of Labor on March 17, 1999,
captioned Alexis M. Herman, Secretary of Labor, United States Department of
Labor, Plaintiff, v. Michael S. Luther, Mark E. Luther, and SmartPay Processing,
Inc. 401(k) Profit Sharing Plan, Defendants, Civil Action No. 8:99-CV-00093. The
complaint alleged that the defendants failed to exercise their responsibilities
as fiduciaries of the SmartPay Processing, Inc. 401(k) Profit Sharing Plan (the
"Plan"). On September 9, 1999, a consent judgment was entered against the
defendants which ordered and adjudged that (1) Messrs. Luther, their agents,
servants, employees, and attorneys and those persons (having notice of such
order) in active concert or participation with them be permanently enjoined and
restrained from violating the provisions of Sections 403-406, inclusive, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") and (2)
Messrs. Luther be permanently enjoined and restrained from (a) exercising any
discretionary authority or discretionary control respecting management of any
ERISA-covered pension or welfare benefit plan or exercising any authority or
control respecting management or disposition of any such plan's assets and (b)
having any discretionary authority or discretionary responsibility in the
administration of any such plans. Messrs. Luther were further ordered to pay the
sum of $23,500 to the independent trustee of the Plan within thirty (30) days of
the entry of the judgment for distribution to the Plan's participants and/or
beneficiaries. The Company has made this payment on behalf of Mr. Luther. Mr.
Luther does not currently exercise any discretionary authority or responsibility
respecting any ERISA-covered pension or welfare benefit plan pertaining to the
Company.
Judith E. Sundberg has been associated with the Company since November
1995. Mrs. Sundberg has no experience in the management of a public company.
Mrs. Sundberg is also a director of Synergy Media, Inc.
<PAGE>
Donald E. Rokusek has been associated with the Company since 1997. Mr.
Rokusek has also been associated with (1) Concepts, Inc. from 1980 to date as
its vice president, (2) Digital Products Corporation from 1997 to date as its
director of contracts administration, and (3) Sewing Concepts from 1985 to 1997
as its operations and financial manager. Mr. Rokusek has no experience in the
management of a public company.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the compensation
of each of the Company's last three completed fiscal years, at April 30, 1999,
of the principal executive officer. There were no other persons serving in an
executive capacity for the Company during such time period
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------- SECURITIES
NAME AND SALARY UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR ($) BONUS($) OPTIONS(#) COMPENSATION($)
------------------ ---- ------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Michael S. Luther 1999 0 0 0 0
Chairman of the Board and 1998 0 0 0 0
Chief Executive Officer 1997 0 0 0 0
</TABLE>
The Company has no retirement, pension, profit-sharing, insurance, or
medical reimbursement plan covering its officers or employees. The Company has
not entered into any employment agreements with any of the named executive
officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
As of December 31, 1999, there were 81,000,000 shares of the Company's
common stock outstanding. The following table sets forth information regarding
the beneficial ownership of the Company's common shares by shareholders holding
or controlling five percent (5%) or more of its outstanding voting securities.
<TABLE>
<CAPTION>
Amount of
Beneficial
Ownership of
Common Stock as Percent of
Name and Address of 12/31/199 Total
- ---------------- ------------ -----
<S> <C> <C>
Michael S. Luther (1) 9,414,353 11.62%
1611 So. 91st Avenue
Omaha, Nebraska 68124
Daniel A. Koch (2) 143,169 0.18%
12905 Lafayette Ave
Omaha, Nebraska 68154
MercExchange, LLC(3) 0 0.00%
8408 Washington Avenue
Alexandria, VA 22309
Anders Ulegard (4) 4,085,278 5.04%
c/o Quaestus Ltd.
38 Route de Malagnon
CH-1208
Geneva, Switzerland
</TABLE>
<PAGE>
(b)Security Ownership of Management.
The following table sets forth information regarding the beneficial
ownership of the Company's common shares by its directors, the Company's Chief
Executive Officer and the Company's only other executive officer, and the
directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount of
Beneficial
Ownership of
Common Stock as Percent of
Name and Address of 12/31/1999 Total
- ---------------- ------------- -----
<S> <C> <C>
Michael S. Luther (1) 9,414,353 11.62%
Chairman and Chief Executive Officer
1611 So. 91st Avenue
Omaha, Nebraska 68124
Judith E. Sundberg 1,771,853 2.19%
Director
c/o 13314 "I" Street
Omaha, Nebraska 68137
Donald E. Rokusek 1,142,857 1.41%
Director
c/o 13314 "I" Street
Omaha, Nebraska 68137
Thomas Woolston (3) 0 0.00%
Chief Technology Officer
8408 Washington Avenue
Alexandria, VA 22309
Directors and Executive Officers 12,329,063 15.22%
as a group (4individuals)
</TABLE>
(1) In order to issue shares of Common Stock with respect to certain commitments
made to various third parties, the Company redeemed 38,438,316 shares of its
Common Stock from Mr. Luther. The Company committed to reissue such shares to
Mr. Luther subject to the approval of the amendment to Article IV of its
Articles of Incorporation. Furthermore, on September 21, 1999, the Company
agreed to issue a warrant to Mr. Luther which grants him the right to purchase
50,000,000 shares of Common Stock at an exercise price of $0.15 per share. This
warrant expires on September 21, 2001. At the time this warrant was issued, the
fair market value of each share of Common Stock was determined by the Company's
board of directors to be $0.038. This warrant is also subject to the approval of
the amendment to Article IV of the Company's Articles of Incorporation.
(2) In order to issue shares of Common Stock with respect to certain commitments
made to various third parties, the Company redeemed 13,366,188 shares of its
Common Stock from Mr. Koch. The Company committed to reissue such shares to Mr.
Koch subject to the approval of the amendment to Article IV of its Articles of
Incorporation as set forth herein. On November 15, 1998, the Company agreed to
issue a warrant to Mr. Koch which grants him the right to purchase 43,000,000
shares of Common Stock at an exercise price of $0.001 per share. At the time
this warrant was issued, the fair market value of each share of Common Stock was
determined by the Company's board of directors to be $0.011. This warrant
expires on November 14, 2000. On September 21, 1999, the Company agreed to issue
a warrant to Mr. Koch which grants him the right to purchase 50,000,000 shares
of common stock at an exercise price of $0.15 per share. At the time this
warrant was issued, the fair market value of each share of Common Stock was
determined by the Company's board of directors to be $0.038. This warrant
expires on September 21, 2001. Each of the warrants is also subject to the
approval of the amendment to Article IV of the Company's Articles of
Incorporation.
<PAGE>
(3) Subject to the approval of the amendment to Article IV of the Company's
Articles of Incorporation as set forth herein, MercExchange, LLC will receive
58,000,000 shares of the Company's Common Stock in consideration for the
conveyance of certain intellectual property rights. MercExchange, LLC is a
Virginia limited liability company owned and controlled by Thomas Woolston, the
Company's Chief Technology Officer.
(4) Mr. Ulegard beneficially owns directly 1,128,611 shares of Common Stock. Mr.
Ulegard's affiliates, Quaestus Ltd. and Quaestus Life International Ltd.
("Quaestus Life"), beneficially own 1,220,000 and 1,736,667 shares of Common
Stock, respectively. On November 15, 1998, the Company agreed to issue to Mr.
Ulegard a warrant to purchase in the aggregate 20,000,000 shares of Common Stock
at an exercise price of $0.001 per share. At the time this warrant was issued,
the fair market value of each share of Common Stock was determined by the
Company's board of directors to be $0.011. This warrant expires on November 14,
2000. In addition, the Company agreed on November 1, 1999, to issue to
affiliates of Mr. Ulegard, Quaestus S.A. and Quaestus Life, warrants to purchase
in the aggregate 3,842,096 shares of Common Stock at $0.20 per share and
warrants to purchase in the aggregate 522,000 shares of Common Stock at $0.15
per share. At the time these warrants were issued, the fair market value of each
share of Common Stock was determined by the Company's board of directors to be
$0.044. These warrants expire on October 31, 2001. Each of these warrants is
subject to the approval of the amendment to the Company's Articles of
Incorporation increasing the number of authorized shares of capital stock. Under
agreements dated as of December 31, 1999, Quaestus Ltd. has also acted as agent
for certain investors in the Company who purchased in the aggregate 30,788,383
shares of Common Stock at $0.24087643454 per share, 19,000,000 of which shares
will be issued from the Company's currently authorized shares and the balance
will be issued subject to approval of the proposed amendment to the Company's
Articles of Incorporation increasing the number of authorized shares of capital
stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 13, 1998, the Company announced it had received funding and
services from a corporation controlled by its Chairman, Michael S. Luther, and
another shareholder, Daniel Koch. In conjunction with the funding, services and
joint venture agreement, Mr. Koch was issued 13,366,188 shares of restricted
common stock in Aden Enterprises, Inc. For purposes of the stock issuance to Mr.
Koch, the services rendered were estimated at a value of $199,958. Funds
advanced by him were approximately $350,000. The joint venture agreement with
Emerald Technologies Corporation, dba NETWorks Direct ("Emerald") was for
Internet-based advertising programs to recruit independent travel agents.
Emerald is not currently conducting any operations.
Mr. Luther is a Director of Synergy Media, Inc. During the previous fiscal
year, Liberty Court Travel, Inc. and certain affiliates of the Company advanced
funds to Synergy Media. Furthermore, Liberty Court Travel, Inc. utilized a
subsidiary of Synergy, GPS for the processing of credit card transactions for
travel customers.
In a series of transactions in the second half of calendar year 1999,
the Company redeemed (without any cash consideration therefor)38,438,276 shares
of its Common Stock from Mr. Luther and 13,366,188 shares of its Common Stock
from Mr. Koch. These shares were then issued to meet the Company's commitments
to certain third parties in exchange for cash consideration therefor. The
Company is committed to reissue such shares to Messrs. Luther and Koch subject
to approval by its shareholders of an amendment of its articles of incorporation
increasing the number of authorized shares of capital stock. The parties have
characterized the foregoing series of transactions as a loan of securities.
In October 1999 Mr. Koch loaned the Company the sum of $1,200,000. This
loan is not evidenced by a loan agreement, promissory note or any other
instrument. There are no agreed terms as to when this loan is due or whether any
interest accrues thereon. There is an oral agreement between Mr. Koch and Mr.
Luther, however, under which Mr. Koch will assign the Company's obligations to
<PAGE>
Mr. Luther if and when Mr. Luther has sufficient personal funds to pay Mr. Koch
the amount due. There can be no assurances that this proposed assignment will
occur.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
The financial statements as set forth under Item 8 of this report on
Form 10-K are incorporated herein by reference.
Financial statement schedules have been omitted since they are either
not required, not applicable, or the information is otherwise included.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed during the last quarter of
the Company's fiscal year ending April 30, 1999:
On February 1, 1999, a report under Form 8-K was filed respecting
the agreement between Liberty Court Travel, Inc. and MercExchange LLC for the
license to use its patent in the travel services industry.
On February 26, 1999, a report under Form 8-K was filed respecting
the rescission of the agreement between the Company and SellectSoft L.L.C. as of
September 4, 1998.
(c) Exhibit Listing
EXHIBIT
NUMBER DESCRIPTION
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
10.1 Exchange Agreement between MercExchange LLC and the Company
10.2 Transfer Agreement between MercExchange LLC and MercTravel, Inc.
10.3 Option Agreement between MercExchange LLC and the Company
10.4 Capital Contribution and Sale Agreement between MercExchange LLC and the
Company
21.1 Subsidiaries of Company
27.1 Financial Data Schedule
(1) Incorporated by reference to Registration Statement under Form S-18 (No.
33-7494-LA).
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF OMAHA,
STATE OF NEBRASKA, ON JANUARY 24, 2000.
ADEN ENTERPRISES, INC.
By: /s/ Michael S. Luther
Michael S. Luther
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES INDICATED ON JANUARY 24, 2000.
SIGNATURE TITLE
/s/ Michael S. Luther Chairman of the Board of Directors and
- -------------------------------------- Chief Executive Officer
Michael S. Luther
/s/ Judith E. Sundberg Director; Secretary
- --------------------------------------
Judith E. Sundberg
/s/ Donald. E. Rokusek Director
- --------------------------------------
Donald. E. Rokusek
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
10.1 Exchange Agreement between MercExchange LLC and the Company
10.2 Transfer Agreement between MercExchange LLC and MercTravel, Inc.
10.3 Option Agreement between MercExchange LLC and the Company
10.4 Capital Contribution and Sale Agreement between MercExchange LLC and
the Company
21.1 Subsidiaries of Company
27.1 Financial Data Schedule
(1) Incorporated by reference to the Company's Registration Statement under
Form S-18 (No. 33-7494-LA).
Exhibit 10.1
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT (this "Agreement") is made and entered into as of
the 24th day of January, 2000, by and between Aden Enterprises, Inc., a
California corporation, with its principal place of business at 13314 I Street,
Omaha, NE 68137 ("Aden"), and MercExchange, LLC, a Virginia limited liability
company, with its principal place of business at 114 N. Alfred Street,
Alexandria, VA 22314 ("MercExchange").
WHEREAS, MercTravel, Incorporated, a Delaware corporation ("MercTravel"),
is a wholly owned subsidiary of MercExchange; and
WHEREAS, Aden desires to acquire all of the issued and outstanding shares
of common stock of MercTravel on the terms and conditions hereinafter set forth;
and
WHEREAS, the parties desire that the transactions contemplated by this
Agreement constitute an exchange of property as provided in Section 351 of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants set forth herein, the parties agree as follows:
1. Representations of MercExchange.
a. To the knowledge of MercExchange, the authorized capital stock of
MercTravel consists of 1,000 shares of common stock, par value $.01 per
share, of which 1,000 shares are issued and outstanding. MercExchange is
the sole shareholder. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require such
corporation to issue, sell or otherwise cause to become outstanding any of
its capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to such corporation. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital
stock of such corporation.
b. To the knowledge of MercExchange, MercTravel is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
businesses as now being conducted, and is duly qualified to do business as
a foreign corporation, if required, and is in good standing in each
jurisdiction in which the ownership or leasing of its properties or the
conduct of its business require such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
assets, business, results of operations or conditions (financial or
otherwise) of each of such corporation. MercTravel has previously delivered
to Aden true, complete and correct copies of its charter and by-laws, as
currently in effect.
c. To the knowledge of MercExchange, MercTravel has no subsidiaries, or any
direct or indirect interest, whether by way of stock ownership or
otherwise, in any corporation, firm, association or business enterprise.
d. To the knowledge of MercExchange, MercTravel owns and possesses, or is duly
licensed in respect of, all licenses, trademarks, trademark rights,
applications for trademarks, trade names, trade name rights, processes, and
formulas, necessary for the operation of its business, with no known
material conflict with the rights of others, and the same are subject to no
liens, encumbrances, claims, or charges.
<PAGE>
e. As of the date of this Agreement, to the knowledge of MercExchange, there
are no actions, suits, or proceedings pending or, to the knowledge of
MercExchange, threatened, against MercTravel, at law or in equity, or
before or by any federal, state, municipal, or other governmental agency or
instrumentality, domestic or foreign, except for those actions, suits, or
proceedings which would not have a material and adverse effect on the
financial condition of MercTravel. MercTravel is not in default with
respect of any order or decree of any court or of any such governmental
agency or instrumentality.
f. Neither the execution and delivery of this Agreement nor the consummation
of the transactions herein contemplated, will conflict with or result in
the breach of, or accelerate the performance required by, any terms of any
agreement to which either of MercTravel or MercExchange are now a party, or
constitute a default thereunder, or result in the creation of any lien,
charge, or encumbrance upon any of the properties or assets of MercTravel.
g. To the knowledge of MercExchange, MercTravel is not a party to any
agreement or instrument subject to any charter or other corporate
restriction materially and adversely effecting the business, property, or
assets, operations or condition (financial or otherwise) of such
corporation.
h. To the knowledge of MercExchange, MercTravel and MercExchange have timely
filed all tax returns and reports required to be filed by each, including
without limitation all federal, state, local and foreign tax returns, and
all such tax returns and reports are true, complete and correct in all
material respects. MercTravel has paid in full or made adequate provision
by the establishment of reserves for all such taxes and other charges which
have become due or have been asserted in writing by any taxing authority to
be due, relating to each such corporation, including, if such corporation
was an S Corporation prior to the consummation of the transactions
contemplated by this Agreement, taxes and other charges attributable to the
S Corporation election by each such corporation, and has withheld with
respect to their employees all federal and state income taxes, FICA, FUTA
and any other taxes or charges required to be withheld except for those
taxes or other charges the failure of which to pay or withhold would not
have a material and adverse effect on the financial condition of
MercTravel. To the knowledge of MercExchange, there is no tax deficiency
proposed or threatened against MercTravel. To the knowledge of
MercExchange, MercTravel has made all payments of estimated taxes, if any,
when due in amounts sufficient to avoid the imposition of any penalty
except where such penalty would not have a material and adverse effect on
the financial condition of MercTravel. There are no outstanding agreements,
waivers, or arrangements extending the statutory period of limitation
applicable to any claim for, or the period for the collection or assessment
of, taxes due from or with respect to MercTravel for any taxable period,
and no power of attorney granted by or with respect to MercTravel relating
to taxes is currently in force. No closing agreement pursuant to Section
7121 of the Internal Revenue Code of 1986, as amended, (or any predecessor
provision) or any similar provision of any state, local, or foreign law has
been entered into by or with respect to MercTravel that could materially
and negatively effect the future liability for taxes of MercTravel. No
audit or other proceeding by any governmental authority has formally
commenced and no written notification has been given that such an audit or
other proceeding is pending or threatened with respect to any taxes due
from or with respect to MercTravel that could materially and negatively
affect the future liability for taxes of MercTravel. No unpaid assessment
of tax has been proposed in writing against MercTravel other than
assessment of a type that arise on a recurring basis in the ordinary course
of business.
i. To the knowledge of MercExchange, MercTravel has no direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, accrued, absolute, contingent or otherwise
<PAGE>
("Liabilities"), which would be required by generally accepted accounting
principles to be disclosed in their respective financial statements
(including, without limitation, in the notes thereto), other than
liabilities fully and adequately reflected or reserved against their
respective balance sheet, prepared in accordance with generally accepted
accounting principles. To the knowledge of MercExchange, since December 13,
1999, MercTravel has incurred no liabilities which would be required by
generally accepted accounting principles to be disclosed in its financial
statements (including, without limitation, in the notes thereto), other
than Liabilities incurred since December 13, 1999 in the ordinary course of
business.
j. To the knowledge of MercExchange, MercTravel is in compliance in all
material respects with all applicable laws (including, but not limited to,
rules, regulations, codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of all federal, state or local
governments, or any agency or instrumentality of the foregoing, domestic or
foreign, in respect of the conduct of its business and ownership or leasing
of its properties, except where the failure to so comply would not have a
material adverse effect on the assets, business, results of operations or
condition (financial or otherwise) of such corporation. To the knowledge of
MercExchange, MercTravel has all licenses, permits, orders or approvals of
all federal, state or local governmental bodies, quasi-governmental bodies
or authorities, domestic or foreign, which are material to, or necessary
for, the conduct of the operations of such corporation. To the knowledge of
MercExchange, no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against
MercTravel alleging any failure so to comply, except where the failure to
so comply would not have a material and adverse effect on the assets,
business, results of operations or condition (financial or otherwise) of
such corporation.
k. Since December 13, 1999, there has not been any material adverse change in
the business, financial condition, operations, results of operations, or
future prospects of MercTravel.
l. MercTravel has good and marketable title to, or a valid leasehold interest
in, the properties and assets used by it, located on its premises, or shown
in its balance sheet, or acquired after the date thereof, free and clear of
all liens, claims, encumbrances, charges, and assessments, except for
properties and assets disposed of in the ordinary course of business since
December 13, 1999.
m. MercExchange further represents and warrants that:
i. The Aden Shares (as defined below) are being acquired for investment
for MercExchange's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof, and
MercExchange has no present intention of selling, granting any
participation in, or otherwise distributing the same. MercExchange
does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participation to such person or
to any third person, with respect to any of the Aden Shares.
ii. MercExchange believes it has received all information it considers
necessary or appropriate for deciding whether to purchase the Aden
Shares. MercExchange has had an opportunity to ask questions and
receive answers from Aden regarding the terms and conditions of the
offering of the Aden Shares.
iii.MercExchange has previously invested in companies in the development
stage, can bear the economic risks of the investment and has such
knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of its investment in the
Aden Shares.
<PAGE>
iv. MercExchange is an accredited investor as defined in Rule 501(a) of
Regulation D, as amended, of the Securities and Exchange Commission
("SEC") under the Securities Act of 1933, as amended.
v. MercExchange understands that the Aden Shares it is purchasing
pursuant to this Agreement are characterized as "restricted
securities" under the federal securities laws inasmuch as they are
being acquired from Aden in a transaction not involving a public
offering and that under such laws and applicable regulations the Aden
Shares may be resold without registration under the Securities Act
only in certain limited circumstances. In this connection,
MercExchange is familiar with SEC Rule 144, as presently in effect,
and understands the resale limitations imposed thereby and by the
Securities Act.
vi. MercExchange will not dispose of any of the Aden Shares (other than
pursuant to SEC Rules 144 or 144A or any similar or analogous rule or
rules) unless and until (A) MercExchange shall have notified Aden of
the proposed disposition and the circumstances surrounding the
proposed disposition and, if reasonably requested by Aden,
MercExchange shall have furnished Aden with an opinion of counsel
reasonably satisfactory in form and substance to Aden to the effect
that such disposition will not require registration under the
Securities Act; or (B) there is in effect a registration statement
under the Securities Act covering the proposed disposition and the
proposed disposition is made in accordance with such registration
statement.
vii.The certificates evidencing the Aden Shares may bear the restrictive
legends set forth below, except that such certificates shall not bear
the legends set forth below if: (x) the transfer was made in
compliance with Rule 144; (y) there is in effect a registration
statement under the Securities Act covering the proposed disposition
and the proposed disposition is made in accordance with such
registration statement; or (z) if the opinion of counsel, if any,
delivered pursuant to this Section is to the effect that such legend
is not required in order to establish compliance with any provisions
of the Securities Act:
(A) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT").
THE SECURITIES MAY NOT BE TRANSFERRED UNLESS A REGISTRATION
STATEMENT UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR SUCH
TRANSFER IS MADE PURSUANT TO RULES 144 OR 144A OF THE ACT OR AN
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THE ACT."
(B) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS THE CORPORATION RECEIVES
AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF SAID ACT."
(C) Any legend required by the laws of any applicable state or other
jurisdiction governing the Aden Shares.
2. Exchange of Stock.
a. On the Closing Date, as hereinafter fixed, MercExchange shall deliver to
Aden certificates representing all of the issued and outstanding shares of
common stock of MercTravel, as the same shall be constituted on the Closing
Date, duly endorsed in blank by the owner of record, or accompanied by duly
executed stock powers in blank, and accompanied by
<PAGE>
requisite revenue stamps evidencing the payment of the transfer tax, if
any.
b. On the Closing Date, as hereinafter fixed, Aden shall deliver to
MercExchange fifty-eight million (58,000,000) shares of restricted common
stock in Aden Enterprises, Inc. (the "Aden Shares").
3. Closing. The consummation of the transactions contemplated herein (the
"Closing") shall take place at the offices of Erickson & Sederstrom, P.C. at
10330 Regency Parkway Drive, Omaha, Nebraska 68114, at 10:00 a.m. (local time)
on February 25, 2000 (the "Closing Date"), or at such other time and place as
the parties may agree.
4. Indemnity for Damages. MercExchange shall indemnify, fully defend and save
and hold harmless Aden at all times from and against all demands, claims,
actions, causes of action, assessments, losses, damages, liabilities, costs and
expenses, including, without limitation, interest, penalties and reasonable
attorneys' fees and expenses, but net of any tax savings and insurance proceeds
actually received by the indemnitee as a result of the matter giving rise to the
indemnification, asserted against, resulting to, imposed upon or incurred by
Aden, by reason of or resulting from any inaccurate representation made by
MercExchange in this Agreement, breach of any of the warranties made by
MercExchange in this Agreement and breach or default in performance by
MercExchange of any of the covenants which it is to perform hereunder.
5. Conditions to Obligations of Aden. The obligations of Aden hereunder are,
except as may be waived in writing by Aden, subject to the conditions that:
a. Certificates representing 100% of the issued and outstanding shares of
common stock of MercTravel, as such stock shall then be constituted, shall
be tendered for exchange at the Closing by MercExchange.
b. The representations contained in Sections 1 and 7 hereof shall be true on
and as of the Closing Date with the same effect as though such
representations had been made on and as of the Closing Date, and there
shall be delivered to Aden at the Closing, if requested, a certificate, in
form and substance satisfactory to Aden and its counsel, duly signed by
MercExchange to that effect.
6. Conditions to Obligations of MercExchange. The obligation of MercExchange
hereunder to deliver to Aden shares of common stock of MercTravel is, except as
may be waived in writing by MercExchange, subject to the conditions that:
a. Aden is a duly organized and existing corporation in good standing under
the laws of the State of California;
b. A certificate or certificates representing the Aden Shares are delivered to
MercExchange according to the provisions of Section 2;
c. A duly executed Registration Rights Agreement in substantially the form of
Exhibit "A" hereto is delivered at the Closing; and
d. This Agreement has been duly executed and delivered by Aden, and
constitutes the legal, valid, and binding obligation of Aden, enforceable
in accordance with its terms.
7. Survival of Representations. The representations and warranties of the
parties hereto shall survive the making of this agreement, any examination on
behalf of such parties, and the Closing hereunder. Any waiver of any term or
condition of this agreement shall not operate as a waiver of any other breach of
such term or condition, or of any other term or condition, nor shall any failure
to enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof.
8. Notices. All communications hereunder shall be in writing and delivered or
mailed to Aden, Aden Enterprises, Inc., Attn: Michael Luther, and to
<PAGE>
MercExchange, MercExchange, LLC, Attn: Thomas Woolston, or at such other address
as each party may specify in writing.
9. Broker. Aden and MercExchange represent to each other that no broker has been
employed in connection with any transaction or transactions involved in this
Agreement.
10. Entire Agreement. This Agreement constitutes the entire contract between the
parties hereto and no party shall be liable or bound to another in any manner by
any warranties, representations or guarantees except as specifically set forth
herein.
11. Modification. This Agreement may not be changed or modified except by an
agreement in writing by Aden and by MercExchange or by any person authorized to
act on their behalf.
12. Benefit. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective legal representatives, successors,
and assigns of the parties hereto.
13. Governing Law. This Agreement is made pursuant to and shall be construed
under the laws of the State of Nebraska, without regard to any applicable
conflicts of law provisions.
14. Counterparts. This Agreement may be executed and endorsed in one or more
counterparts, and each of such counter parts shall, for all purposes, be deemed
to be an original, but all such counterparts shall together constitute but one
and the same instrument.
IN WITNESS WHEREOF the parties hereto have duly caused this Agreement to be
executed as of the day and year first above written.
Aden: MercExchange:
By: /s/ Michael S. Luther By: /s/ Thomas Woolston
<PAGE>
EXHIBIT "A"
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of ___, 2000, by and between
Aden Enterprises, Inc., a California corporation (the "Company") and
MercExchange, LLC, a Virginia limited liability company (the "Shareholder").
WHEREAS, the Company and the Shareholder are parties to that certain
Exchange Agreement, dated January 24, 2000 (the "Exchange Agreement"); and
WHEREAS, the issuance of Company's Common Stock to the Shareholder in the
Exchange Agreement is conditioned upon the registration rights being extended to
the Shareholder,
NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Closing Date" shall mean the date of execution of this Agreement and
the Exchange Agreement by the Company and the Shareholder.
"Commission" shall mean the Securities and Exchange Commission of the
United States or any other U.S. federal agency at the time administering the
Securities Act.
"Common Stock" shall mean shares of the Company's Common Stock.
"Holder" shall mean any person holding Registrable Securities.
"Other Holders" shall mean persons other than Holders who, by virtue of
agreements with the Company, are entitled to include their securities in certain
registrations hereunder.
"Registrable Securities" means (i) the Common Stock issued pursuant to
the Exchange Agreement and (ii) any shares of Common Stock issued or issuable in
respect of such Common Stock upon any stock split, stock dividend,
recapitalization, or similar event; provided that none of such shares of Common
Stock are, at the time of Holders' exercise of any rights hereunder, subject to
a repurchase option in favor of Company. Shares of Common Stock shall only be
treated as Registrable Securities if they have not been (A) sold to or through a
broker or dealer or underwriter in a public distribution or a public securities
transaction or (B) sold or, in the opinion of counsel to the Company, are
available for sale in a single transaction exempt from the registration and
prospectus delivery requirements of the Securities Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale.
The terms "register, "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 2 and 3 hereof,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company (but not fees and disbursements of special counsel for Holders, if any,
that is not also counsel for the Company), Blue Sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, or any similar United
States federal statute.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
Holders.
2. COMPANY REGISTRATION.
(a) Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Commission Rule 145 transaction, or (iii) a registration on
any registration form that does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof, and
(ii) include in such registration (and any related qualification under
Blue Sky laws or other compliance), and in any underwriting-involved therein,
all the Registrable Securities specified in a written request or requests, made
within twenty (20) days after receipt of such written notice from the Company,
by any Holder,
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to Section
2(a)(i). In such event the right of any Holder to registration pursuant to this
Section 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall, together with the Company and Other Holders, if
any, enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities and
other securities to be included in such registration. The Company shall so
advise all Holders and Other Holders and the number of shares that may be
included in the registration and underwriting by all Holders and Other Holders
shall be allocated among them, as nearly as practicable, first, to the Company
(or, if applicable, to the holders for whose account the Company is registering
the securities), second, among the Other Holders of securities in proportion to
the respective amounts of securities proposed to be included in the registration
by such Other Holders, and, third, among the Holders in proportion to the number
of Registrable Securities proposed to be included in such registration by such
Holders. If any Holder or Other Holder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
(c) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 2
prior to the effectiveness of such registration whether or not any Holder or has
elected to include Registrable Securities in such registration.
3. REGISTRATION ON FORM S-3.
(a) Request for Registration. If any Holder or Holders request that the
Company file a registration statement on Form S-3 (or any successor form to Form
S-3) for a public offering of shares of the Registrable Securities the
reasonably anticipated aggregate price to the public of which would exceed
$500,000, and the Company is a registrant entitled to use Form S-3 to register
the Registrable Securities for such an offering, the Company shall use its best
efforts to cause such Registrable Securities to be registered for the offering
on such form and to cause such Registrable Securities to be qualified in such
jurisdictions as the
<PAGE>
Holder or Holders may reasonably request. The substantive provisions of Section
2(b) shall be applicable to each registration initiated under this Section 3.
(b) Limitations. Notwithstanding the foregoing, the Company shall not
be obligated to take any action pursuant to this Section 3:(i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act; (ii) if the Company, within
ten (10) days of the receipt of the request of the initiating Holders, gives
notice of its bona fide intention to effect the filing of a registration
statement with the Commission within thirty (30) days of receipt of such request
(other than with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other registration which is
not appropriate for the registration of Registrable Securities); (iii) during
the period starting with the date thirty (30) days prior to the Company's
estimated date of filing of, and ending on the date six (6) months immediately
following, the effective date of any registration statement pertaining to
securities of the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; (iv) if the Company shall furnish to
such Holder a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its shareholders for registration statements to be
filed in the near future, then the Company's obligation to use its best efforts
to file a registration statement shall be deferred for a period not to exceed
sixty (60) days from the receipt the request to file such registration by such
Holder, provided, however, that the Company shall not utilize this right more
than once in any twelve (12) month period; (v) if in a given twelve-month
period, the Company has effected one (1) such registration in such period; or
(vi) after the Company has effected two (2) registration statements pursuant to
this Section 3.
4. EXPENSES OF REGISTRATION.
(a) Registration Expenses. The Company shall bear all Registration
Expenses incurred in connection with all registrations pursuant to Section 2 and
Section 3.
(b) Selling Expenses. Unless otherwise stated, all Selling Expenses
relating to securities registered on behalf of the Holders and Other Holders
shall be borne by the Holders and Other Holders pro rata on the basis of the
number of shares so registered.
5. REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will:
(a) keep each Holder advised in writing as to the initiation of each
registration, qualification and compliance and as to the completion thereof,
(b) prepare and file with the Commission a registration statement and
any amendments thereto with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for at least
one hundred twenty (120) days or until the distribution described in the
Registration Statement has been completed; and
(c) furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities.
6. INDEMNIFICATION.
(a) By Company. The Company will indemnify each Holder with respect to
which registration, qualification or compliance has been effected pursuant to
this Agreement, and each underwriter, if any, and each person who controls any
<PAGE>
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation or alleged violation by the Company of the
Securities Act, or the Securities Exchange Act of 1934, as amended (the "1934
Act"), or any rule or regulation promulgated under the Securities Act or the
1934 Act applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use therein.
If the Holders are represented by counsel other than counsel for the Company,
the Company will not be obligated under this Section 6(a) to reimburse legal
fees and expenses of more than one separate counsel for Holders.
(b) By Holders. Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, against all claims, losses, damages
and liabilities (or actions in respect thereof arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company, such Holders for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited in an amount equal to the public offering price
of the shares sold by such Holder, unless such registration liability arises out
of or is based on willful conduct by such Holder.
(c) Procedures. Each party entitled to indemnification under this
Section 6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action and provided further that the Indemnifying Party shall not
assume the defense for matters as to which there is a conflict of interest or
separate and different defenses. No
<PAGE>
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
7. INFORMATION BY HOLDER. Holders including any Registrable Securities
in any registration shall furnish to the Company such information regarding such
Holders as shall be necessary to enable the Company to comply with the
provisions hereof in connection with any registration, qualification or
compliance referred to in this Agreement.
8. RESTRICTIONS ON TRANSFERABILITY; RESTRICTIVE LEGEND.
(a) Each Holder agrees not make any disposition of all or any portion
of the Registrable Securities unless and until the transferee has agreed in
writing for the benefit of the Company to be by bound by this Section 8.
(b) Each certificate representing Registrable Securities shall be
stamped or otherwise imprinted with a legend substantially in the following
form, in addition to any legend that may now or hereafter be required by the
California Department of Corporations or any other state securities law or
regulation:
"THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN
RESTRICTIONS ON SALE, TRANSFER, AND HYPOTHECATION AS SET FORTH IN
A REGISTRATION RIGHTS AGREEMENT BETWEEN THE ISSUER CORPORATION AND
THE REGISTERED HOLDER, OR SUCH HOLDER'S PREDECESSOR IN INTEREST.
COPIES OF SUCH AGREEMENT ARE ON FILE AT THE PRINCIPAL OFFICE OF
THE ISSUER CORPORATION AND WILL BE FURNISHED UPON REQUEST TO SUCH
REGISTERED HOLDER."
9. MISCELLANEOUS.
(a) Governing Law. This Agreement will be governed by and construed under
the laws of Nebraska as applied to agreements among Nebraska residents entered
into and to be performed entirely within Nebraska.
(b) Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Holders of a majority of the
Registrable Securities, voting as a class. Any amendment or waiver effected in
accordance with this paragraph will be binding upon each holder of any
securities purchased under this Agreement at the time outstanding (including
securities into which such securities are convertible), each future holder of
all such securities and the Company.
(c) Severability. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be illegally invalid,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision. In such event, the parties shall negotiate, in good
faith, a legal, valid and binding substitute provision which most nearly effects
the intent of the parties in entering into this Agreement.
(d) Notices. All notices to Holders will be mailed by registered or
certified mail to the addresses maintained in the Company's records for such
Holders. Notices will be effective three (3) days after deposit in the U.S.
Mail.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
(f) Titles, Subtitles and Table of Contents. The titles, subtitles and
table of contents used in this Agreement are used for convenience only and are
not to be considered in construing or interpreting this Agreement.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
<PAGE>
ADEN ENTERPRISES, INC. MERCEXCHANGE, LLC
By: By:
Exhibit 10.2
TRANSFER AGREEMENT
By and Between
MercTravel, Incorporated and
MercExchange, LLC
THIS AGREEMENT TO TRANSFER PATENT RIGHTS FOR THE ONLINE TRAVEL SECTOR,
(hereinafter the "Agreement") is entered into this 7th day of January, 2000 by
and between MercTravel, Incorporated, a Delaware corporation ("MercTravel"),
having a principal place of business at 114 N. Alfred Street, Alexandria, VA
22314 and MercExchange, LLC, ("MercExchange") a limited liability company under
Delaware law, having a principal place of business at 114 N. Alfred Street,
Alexandria, VA 22314.
RECITALS
WHEREAS, MercTravel is embarking on the development and industry initiative to
build and deploy Internet Markets and Auctions that employ the pending and
issued Subject Patents; and
WHEREAS, MercTravel agrees that patent protection provides an important
commercial advantage and agrees to consult and confer with MercExchange to
assure a tight nexus between the commercial embodiments of the aforesaid
Internet Markets and Auctions and the claims of the pending and issued Subject
Patents; and
WHEREAS, MercExchange desires to transfer rights in its pending and issued
Subject Patents for the online travel services industry sector subject to the
terms and conditions as set forth herein;
NOW, THEREFORE, in consideration of the promises and of the mutual covenants
contained herein, the parties hereby agree as follows:
ARTICLE I
TRANSFER OF RIGHTS IN THE ONLINE TRAVEL SECTOR
1.1 Transfer. MercExchange hereby grants to MercTravel, during the term of this
Agreement, an exclusive License Grant to make, use and sell the inventions as
disclosed and claimed in the pending and issued Subject Patents within the field
of use of the Online Travel Sector.
1.2 Nexus. MercTravel shall use best efforts to develop Internet Markets and
Auctions that employ the pending and issued Subject Patents for use in the
Online Travel Sector. MercTravel shall confer with MercExchange to assure a
tight nexus between the commercial embodiment of the aforesaid Internet Markets
and Auctions with the claims of the pending and issued Subject Patents.
1.3 Legal Fees. MercTravel shall pay all reasonable legal and administrative
fees associated with the continuing prosecution and maintenance of the Subject
Patents before the U.S. Patent and Trademark Office. MercTravel shall also pay
all legal, administrative and filing fees associated with any Interference
Proceeding before the U.S. Patent and Trademark Office and any related
litigation in Federal or State Court. The parties shall confer on strategies
concerning the prosecution, enforcement and exploitation of the Subject Patents.
1.4 Stock. MercTravel hereby grants 1,000 shares of MercTravel, which is 100% of
its issued and outstanding shares, to MercExchange.
ARTICLE II
NON-MONETARY REMUNERATION
If the Subject Patents are licensed to third parties and MercExchange receives
non-monetary remuneration for any said license, including but not limited to,
web
<PAGE>
easements, discounted or free advertisement and linking agreements, then
MercTravel shall purchase in cash or equity said non-monetary remunerative
benefit from MercExchange at one-third the fair market value for said
non-monetary remunerate benefit within 60 days of the written offer of said
non-monetary remuneration from MercExchange to MercTravel.
ARTICLE III
ENFORCEMENT
3.1 Right to Enforce Within The Online Travel Sector. MercExchange hereby
assigns a non-exclusive right to MercTravel to enforce the Subject Patents, in
its own name, and at its own expense, in the Online Travel Sector. MercExchange
agrees to cooperate and join in said enforcement action if deemed a necessary
party and enter into all further agreements necessary to enforce the Subject
Patents. MercTravel shall reimburse MercExchange for expenses incurred by
MercExchange under this section. Nothing in this Article shall confer any rights
on MercTravel that prevents MercExchange from enforcing or continuing to enforce
the Subject Patents in the name of MercExchange. If any right granted in this
Article is construed so as to prevent MercExchange from enforcing the subject
Patents in the name of MercExchange against any third party then this Article
shall be null and void.
ARTICLE IV
DEFINITIONS
4.1 Definitions. For the purpose of this Agreement only, the following terms
shall have the meanings indicated:
4.1.1 The term "Subject Patents" means the following patents, patent
applications and all continuing patent applications that seek priority
therefrom:
A. U.S. Patent Application No. 08/427,820, Entitled:
"Consignment Nodes"
B. U.S. Patent Application No. 08/554,704, Now U.S. Patent No.
5,845,265, Entitled: "Consignment Nodes"
C. U.S. Patent Application No. 09/203,286 (Petition for
Interference with U.S. Patent No. 5,794,207) Entitled:
"Consignment Nodes"
D. U.S. Patent Application No. 09/166,779, Entitled "Method and
Apparatus for Facilitate Internet Commerce with Binding Offers
to Sell and Binding Counter-Offers to Buy in an Electronic
Market"
E. U.S. Patent Application No. 09/253,014, Entitled: "Method and
Apparatus for Facilitating Electronic Commerce Through
Internet Auctions"
F. U.S. Patent Application No.09/253,021, Entitled: "Method and
Apparatus for Facilitating Internet Commerce Through
Inter-networked Markets and Auctions"
G. U.S. Patent Application No.09/253,015, Entitled: "Methods
and Apparatus for Automatically Distributing Internet
Advertising"
H. U.S. Patent Application No. 09/253,057, Entitled: "Method and
Apparatus for Facilitating Electronic Commerce Through
Two-Tiered Electronic Markets and Auctions"
I. U.S. Patent Application No. 09/264,573, Entitled: "Method
and Apparatus for Using Search Agents to Search Plurality of
Markets for Items"
<PAGE>
4.1.2 The term "Online Travel Sector" means the right to make and use the
inventions as claimed and disclosed in the Subject Patents relating to the
Internet Market and Auctions in the travel service industry, including without
limitation, car rental, hotel booking, airline tickets, cruise, rail and travel
packages.
4.1.3 The term "License Grant" means the transfer of patent rights including the
right to make and use and sub-license the inventions as claimed and disclosed in
the Subject Patents, subject to this Agreement, in the Online Travel Sector.
4.1.4 The "Term" of this Agreement, unless earlier terminated as provided under
this Agreement, shall remain in full force and effect until the last claim of
any patent included in the Subject Patents expires.
ARTICLE V
OTHER PROVISIONS
5.1 Termination for Cause. If MercTravel shall materially breach any of its
obligations pursuant to this Agreement and shall fail to adequately correct such
breach within two (2) months from the effective date of the first written notice
to MercTravel, MercExchange may terminate License Grant pursuant to this Article
by written notice. The termination shall immediately cause the License Grant to
revert to MercExchange with no further step or action at law or equity required
by MercExchange
5.2 No Joint Venture. The relationship between the parties shall be limited to
the performance of their respective obligations as set forth in this Agreement.
Nothing in this Agreement shall be construed to create a partnership or joint
venture between the parties or to authorize either party to act as general agent
for the other party, or to permit either party to bind or otherwise bind the
other party. No party shall be liable for any of the actions, omissions, or
indebtedness of the other party.
5.3 Assignability. Except as otherwise provided herein, the rights granted by
each party to the other in this Agreement are personal to each party and may not
be assigned or otherwise transferred by one party without the prior written
consent of the other party. In the event of the sale and dissolution of
MercTravel or of all the outstanding shares of MercTravel, the acquiring party
shall take all rights, duties and obligations of this Agreement. The acquiring
party shall have no further rights to sell or assign this Agreement without the
prior written consent of MercExchange.
5.4 No Implied License. Nothing contained in this Agreement shall be construed
as granting by implication, estoppel or otherwise, any licenses, warranties
(implied in fact or law) or rights other than those expressly granted herein, or
creating any obligation other than those expressly granted herein.
5.5 No Warranty. Nothing in this Agreement shall be construed as a warranty or
representation by MercExchange as to the validity or scope of the Subject
Patents or that the exercise of the license rights under the Subject Patents
will not infringe upon the rights of any Third Party.
5.6 No Indemnification. MercExchange does not indemnify, warrant or otherwise
guarantee or hold harmless MercTravel from enforcement and/or legal action
brought by any Third Party. MercExchange make no warranties that any products
made under this Agreement are materially fit for their purpose or comport with
any other provision of the Uniform Commercial Code.
5.7 Notification. The parties shall notify each other in writing at the
following address which may be amended from time to time upon written
notification:
MercExchange:
<PAGE>
Thomas G. Woolston
Managing Member
MercExchange, LLC
114 N. Alfred Street
Alexandria, VA 22314
MercTravel:
Thomas G. Woolston
President
MercTravel, Incorporated
114 N. Alfred Street
Alexandria, VA 22314
5.8 Controlling Law. This Agreement shall be construed and enforced in
accordance with, and shall be governed by the laws of the Commonwealth of
Virginia without giving effect to the provision, policies, or principles thereof
relating to choice or conflict of laws.
5.9 Severability. Any provision of this Agreement that is illegal, invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such illegality, invalidity or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
5.10 Waiver. The failure of any party to enforce any of the provisions of this
Agreement, or of any rights with respect thereto, shall not be considered a
waiver thereof or in any way affect the validity of this Agreement. The failure
by any party hereto to enforce any of said provisions, rights or elections shall
not prejudice said party from later enforcing or exercising the same or any
other provisions, rights, of elections which it may have under this Agreement.
5.11 Integration. This Agreement contains the entire and only understanding
between the parties with respect to the subject matter hereof, and supersedes
all prior agreement and understandings, whether oral or written, with respect
thereto. No modification or wavier of this Agreement or any of its provisions
shall be binding unless in writing and signed by a duly authorized
representative of each of the parties hereto.
5.12 Bankruptcy or liquidation. The License Grant hereunder shall immediately
revert to MercExchange if MercTravel seeks protection under Bankruptcy laws or
is subject to liquidation under the laws of the United States.
5.13 Headings. Headings and section titles are for organization purposes only
and shall have no effect on the interpretation of this Agreement.
5.14 Legal Fees. All fees payable hereunder, such as legal fees for continuing
patent prosecution, shall be tendered by MercTravel within thirty (30) days of
receipt of notice from MercExchange.
5.15 Remedy for Breach. If MercTravel materially breaches any condition of this
Agreement and does not cure said breach within two (2) months notice of material
breach, then the License Grant of patent rights to the online travel sector
granted hereunder shall immediately become null and void and shall immediately
revert to MercExchange, or its lawful successor in interest.
5.16 This Agreement shall be binding to all parties and may be executed in part
by facsimile.
This Agreement is entered into the date and year first above written.
MercTravel, Incorporated
<PAGE>
By /s/ Thomas G. Woolston
Thomas G. Woolston
President & Chief Executive
Officer
MercExchange, LLC
By /s/ Thomas G. Woolston
Thomas G. Woolston
Managing Member
Exhibit 10.3
OPTION AGREEMENT
By and Between
Aden Enterprises, Inc. and
MercExchange, LLC
THIS OPTION AGREEMENT, (hereinafter the "Agreement") is entered into this 7th
day of January, 2000 by and between Aden Enterprises, Inc., a California
corporation ("Aden" or the "Company"), having a principal place of business at
13314 I Street, Omaha, Nebraska 68137 and MercExchange, LLC, ("MercExchange") a
limited liability company under Delaware law, with a principal place of business
at 114 N. Alfred Street, Alexandria, VA 22314.
RECITALS
WHEREAS, Aden is embarking on a major development and industry initiative to
build and deploy Internet Markets and Auctions that employ the pending and
issued Subject Patents; and
WHEREAS, Aden agrees that patent protection provides an important commercial
advantage and agrees to consult and confer with MercExchange to assure a tight
nexus between the commercial embodiments of the aforesaid Internet Markets and
Auctions and the claims of the pending and issued Subject Patents;
WHEREAS, MercExchange desires to license the pending and issued Subject Patents
subject to the terms and conditions as set forth herein;
NOW, THEREFORE, in consideration of the promises and of the mutual covenants
contained herein, the parties hereby agree as follows:
ARTICLE I
VERTICAL SECTOR LICENSE OPTION
1.1 In partial consideration of the license option granted herein, Aden agrees
to pay MercExchange the sum of $35,000 within five (5) days of the
execution of this agreement, receipt of which is hereby acknowledged.
1.2 The parties anticipate application of the aforesaid Internet Markets and
Auctions for a variety of Vertical Sectors. The parties hereby mutually agree to
the following terms and conditions regarding these Vertical Sectors.
1.3 MercExchange hereby grants an option to the Company to a non-exclusive
license for the pending and issued Subject Patents to Vertical Sectors. For each
Vertical Sector, the Company shall pay MercExchange an annual payment of the
greater of (1) the first $50,000 of any of the Gross Transactions collected or
earned by the Company from any third party or (2) a 1.5% (one point five
percent) continuing royalty of Gross Transactions generated by each Vertical
Sector.
1.4 In the event of a joint venture, marketing agreement, acquisition or any
other business combination between the Company and a third party, the Company
and MercExchange shall negotiate an equity position for MercExchange in said
venture or business combination, and in no event shall this equity position be
less that 15% (fifteen percent) on a fully diluted basis of said venture for
MercExchange.
1.5 Aden shall use best efforts to develop Internet Markets and Auctions that
employ the pending and issued Subject Patents for use in each Vertical Sector.
Aden shall confer with MercExchange to assure a tight nexus between the
commercial embodiment of the aforesaid Internet Markets and Auctions with the
claims of the pending and issued Subject Patents.
<PAGE>
ARTICLE II
PAYMENT AND ROYALTY REPORTS
2.1 Within forty-five days (45) following the end of each Fiscal Quarter,
beginning with the first Fiscal Quarter in which Company commences activity in
any Vertical Sector, the Company shall send to MercExchange reports of the Gross
Transactions conducted by Aden, in the preceding Fiscal Quarter, showing their
respective descriptions or other descriptive characteristics, including total
quantities for transaction, and the sale price of any products or goods sold
hereunder.
2.2 Each report shall be accompanied by the required payment in U.S. Dollars.
For the Purpose of calculating the royalties payable hereunder, respective
currencies for the Gross Transactions shall be converted to U.S. Dollars at the
rate of exchange quoted in The Wall Street Journal in force on the last working
day of the period for which payment of royalty is being made.
2.3 The Company shall maintain complete and accurate records of the Gross
Transactions conducted under this Agreement, showing their respective
descriptions or other descriptive characteristics, including model numbers, if
any, quantities, and calculations of unit royalties dues and payable thereon.
These records shall be maintained for a period of at least three (3) years
subsequent to Company's latest quarterly royalty report. Periodically during the
term of this Agreement and subsequent to the expiration or termination of this
Agreement for any reason, upon 30 days prior written notice to Company and upon
execution of a Confidentiality Agreement in Company's favor, MercExchange's
independent duly appointed Certified Public Accountant may inspect Company's
records which pertain to Gross Transactions during regular business hours for
the purpose of verifying the completeness and accuracy of all reports to
MercExchange. Such inspection shall occur no more frequently than once any
Contract Year. If said audit determines that there has been a shortfall in
royalties paid to MercExchange in excess of three percent (3%) of the amount
actually due for the period under audit, then Company shall reimburse
MercExchange for the reasonable expenses actually incurred by it for the audit.
ARTICLE III
NON-MONETARY REMUNERATION
If the Subject Patents are Licensed to third parties and MercExchange receives
non-monetary remuneration for said License, including but not limited to, web
easements, discounted or free advertisement and any linking agreements, then
Aden shall purchase in cash or equity said non-monetary remunerative benefit
from MercExchange at one-third the fair market value for said non-monetary
remunerate benefit within 60 days of the written offer of said non-monetary
remuneration from MercExchange to Aden.
ARTICLE IV
ENFORCEMENT
4.1 Right to Enforce Subject Patents. MercExchange retains the sole right to
enforce and control the enforcement of the Subject Patents against third
parties. The Company agrees to cooperate and join in said enforcement action if
deemed a necessary party.
4.2 Non-Monetary Recovery. In any enforcement proceeding to which MercExchange
enjoins a third party, Aden and MercExchange shall mutually determine the value
of said injunction to Aden or the aforesaid business combination. Aden shall pay
MercExchange 25% of the value of said injunction, in cash or equity to
MercExchange.
ARTICLE V
DEFINITIONS
5.1 Definitions. For the purpose of this Agreement only, the following terms
shall have the meanings indicated:
<PAGE>
5.1.1 The term "Subject Patents" means the following patents, patent
applications and all continuing patent applications that seek priority
therefrom:
A. U.S. Patent Application No. 08/427,820, Entitled:
"Consignment Nodes"
B. U.S. Patent Application No. 08/554,704, Now U.S. Patent No.
5,845,265, Entitled: "Consignment Nodes"
C. U.S. Patent Application No. 09/203,286 (Petition for
Interference with U.S. Patent No. 5,794,207) Entitled:
"Consignment Nodes"
D. U.S. Patent Application No. 09/166,779, Entitled "Method and
Apparatus for Facilitate Internet Commerce with Binding Offers
to Sell and Binding Counter-Offers to Buy in an Electronic
Market"
E. U.S. Patent Application No. 09/253,014, Entitled: "Method and
Apparatus for Facilitating Electronic Commerce Through
Internet Auctions"
F. U.S. Patent Application No.09/253,021, Entitled: "Method and
Apparatus for Facilitating Internet Commerce Through
Inter-networked Markets and Auctions"
G. U.S. Patent Application No.09/253,015, Entitled: "Methods
and Apparatus for Automatically Distributing Internet
Advertising"
H. U.S. Patent Application No. 09/253,057, Entitled: "Method and
Apparatus for Facilitating Electronic Commerce Through
Two-Tiered Electronic Markets and Auctions"
I. U.S. Patent Application No. 09/264,573, Entitled: "Method and
Apparatus for Using Search Agents to Search Plurality of
Markets for Items"
5.1.2 The term "Vertical Sector" means industry and service classifications of
customary usage and categories of commerce as defined by the United States
Department of Commerce eight digit SIC codes.
5.1.3 The term "Gross Transactions" means the gross transactional revenues
collected or earned by the Company for the operation of said Internet Markets
and Auctions in any and all Vertical Sectors. The transactional revenues for
transactions under this Agreement, for the purpose of calculating this amount,
shall be based on the actual amount charged, exclusive of any freight, handling,
duties, commissions, clearance network costs and taxes.
5.1.4 The term "Fiscal Quarter" means any period of three consecutive months
beginning on January 1, April 1, July 1, or October 1 in any year.
5.1.5 The term "Contract Year" shall means the first full twelve-month period of
four consecutive fiscal quarters, beginning May 1 and ending April 30 and each
like period thereafter during the term of this Agreement.
5.1.6 The "Term" of this Agreement, unless earlier terminated as provided under
this Agreement, shall remain in full force and effect until the last claim of
any patent included in the Subject Patents expires.
ARTICLE VI
OTHER PROVISIONS
6.1 Termination for Cause. If Aden shall materially breach any of its
obligations pursuant to this Agreement and shall fail to adequately correct such
breach within two (2) months from the effective date of the first written notice
<PAGE>
to Aden, MercExchange may terminate this Agreement pursuant to this Article by
written notice.
6.2 No Joint Venture. The relationship between the parties shall be limited to
performance of their respective obligations as set forth in this Agreement.
Nothing in this Agreement shall be construed to create a partnership or joint
venture between the parties or to authorize either party to act as general agent
for the other party, or to permit either party to bind or otherwise bind the
other party. No party shall be liable for any of the actions, omissions, or
indebtedness of the other party.
6.3 Assignability. Except as otherwise provided herein, the rights and licenses
granted by each party to the other in this Agreement are personal to each party
and may not be assigned, sub-licensed or otherwise transferred by one party
without the prior written consent of the other party.
6.4 No Implied License. Nothing contained in this Agreement shall be construed
as granting by implication, estoppel or otherwise, any licenses, warranties
(implied in fact or law) or rights other than those expressly granted herein, or
creating any obligation other than those expressly granted herein.
6.5 No Warranty. Nothing in this Agreement shall be construed as a warranty or
representation by MercExchange as to the validity or scope of the Subject
Patents or that the exercise of the license rights under the Subject Patents
will not infringe upon the rights of any Third Party.
6.6 No Indemnification. MercExchange does not indemnify, warrant or otherwise
guarantee or hold harmless Aden from enforcement and/or legal action brought by
any Third Party. MercExchange make no warranties that any products made under
this Agreement are materially fit for their purpose or comport with any other
provision of the Uniform Commercial Code.
6.7 Notification. The parties shall notify each other in writing at the
following address which may be amended from time to time upon written
notification:
MercExchange:
Thomas G. Woolston
Managing Member
MercExchange, LLC
114 N. Alfred Street
Alexandria, VA 22314
Aden:
Michael S. Luther
Aden Enterprises, Inc.
13314 I Street
Omaha, NE 68137
6.8 Controlling Law. This Agreement shall be construed and enforced in
accordance with, and shall be governed by the laws of the Commonwealth of
Virginia without giving effect to the provision, policies, or principles thereof
relating to choice or conflict of laws.
6.9 Severability. Any provision of this Agreement that is illegal, invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such illegality, invalidity or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
6.10 Waiver. The failure of any party to enforce any of the provision of this
Agreement, or of any rights with respect thereto, shall not be considered a
waiver thereof or in any way affect the validity of this Agreement. The failure
by any party hereto to enforce any of said provisions, rights or elections shall
not prejudice said party from later enforcing or exercising the same or any
other provisions, rights, of elections which it may have under this Agreement.
<PAGE>
6.11 Integration. This Agreement contains the entire and only understanding
between the parties with respect to the subject matter hereof, and supersedes
all prior agreement and understandings, whether oral or written, with respect
thereto. No modification or wavier of this Agreement or any of its provisions
shall be binding unless in writing and signed by a duly authorized
representative of each of the parties hereto.
6.12 Bankruptcy or liquidation. The license options granted hereunder shall
immediately revert to MercExchange if the Company seeks protection under the
Bankruptcy laws or is subject to liquidation under the laws of the United
States.
6.13 Non-refundable. All funds, payments and distributions made to MercExchange
hereunder are non-refundable.
6.14 Headings. Headings and section titles are for organizational purposes only
and shall have no effect on the interpretation of this Agreement.
6.15 Remedy for Breach. If the Company materially breaches any condition of this
Agreement and does not cure said breach within two (2) months notice of material
breach, then all licenses granted hereunder shall immediately become null and
void and these licenses, shall immediately revert to MercExchange, or its lawful
successor in interest.
6.16 This Agreement shall be binding to all parties and may be executed in part
by facsimile.
This Agreement is entered into the date and year first above written.
Aden Enterprises, Inc.
By /s/ Michael S. Luther
Michael S. Luther
President & Chief Executive
Officer
MercExchange, LLC
By /s/ Thomas G. Woolston
Thomas G. Woolston
Managing Member
Exhibit 10.4
Capital Contribution and Sale Agreement
By and Between
Aden Enterprises, Inc. and
MercExchange, LLC
THIS SALE AGREEMENT, (hereinafter the "Agreement") is effective on 30th day of
October, 1999 by and between Aden Enterprises, Inc., a California corporation
("Aden" or the "Company"), having a principal place of business at 13314 I
Street, Omaha, Nebraska 68137 and MercExchange, LLC, ("MercExchange"), a limited
liability company under Delaware law, with a principal place of business at 114
N. Alfred Street, Alexandria, VA 22314.
RECITALS
WHEREAS, MercExchange seeks capital contribution and Aden desires to purchase a
percentage of the membership units of MercExchange subject to the terms and
conditions as set forth herein;
NOW, THEREFORE, in consideration of the promises and of the mutual covenants
contained herein, the parties hereby agree as follows:
ARTICLE I
AGREEMENT
Aden hereby purchases 10% (ten percent) ownership of MercExchange in
consideration of two notes in a total amount of $4 million ($4,000,000), said
notes payable by wire transfer wherein the first note in the amount of $1
million ($1,000,000) shall be due and paid within thirty (30) days of the
effective date of this Agreement, and the second note in the amount of $3
million ($3,000,000) shall be due and paid within one hundred twenty (120) days
of the effective date of this Agreement. MercExchange hereby also grants an
option to Aden to purchase an additional 5% of MercExchange for $3 million
($3,000,000) within two years of the effective date of this Agreement.
ARTICLE II
OTHER PROVISIONS
2.1 Termination for Cause. If Aden shall materially breach any of its
obligations pursuant to this Agreement and shall fail to adequately correct such
breach within two (2) months from the effective date of the first written notice
to Aden, MercExchange may terminate this Agreement pursuant to this Article by
written notice. The termination of the agreement shall immediately cause the
membership interest and option in MercExchange to revert to MercExchange with no
further step or action at law or equity required by MercExchange.
2.2 No Joint Venture. The relationship between the parties shall be limited to
the performance of their respective obligations as set forth in this Agreement.
Nothing in this Agreement shall be construed to create a partnership or joint
venture between the parties or to authorize either party to act as general agent
for the other party, or to permit either party to bind or otherwise bind the
other party. No party shall be liable for any of the actions, omissions, or
indebtedness of the other party.
2.3 Assignability. Except as otherwise provided herein, the rights granted by
each party to the other in this Agreement are personal to each party and may not
be assigned, sub-licensed or otherwise transferred by one party without the
prior written consent of the other party.
2.4 No Implied License. Nothing contained in this Agreement shall be construed
as granting by implication, estoppel or otherwise, any licenses, warranties
<PAGE>
(implied in fact or law) or rights other than those expressly granted herein, or
creating any obligation other than those expressly granted herein.
2.5 No Indemnification. MercExchange does not indemnify, warrant or otherwise
guarantee or hold harmless Aden from enforcement and/or legal action brought by
any Third Party.
2.6 Notification. The parties shall notify each other in writing at the
following address which may be amended from time to time upon written
notification:
MercExchange:
Thomas G. Woolston
Managing Member
MercExchange, LLC
114 N. Alfred Street
Alexandria, VA 22314
Aden:
Michael S. Luther
Aden Enterprises, Inc.
13314 I Street
Omaha, NE 68137
2.7 Controlling Law. This Agreement shall be construed and enforced in
accordance with, and shall be governed by the laws of the Commonwealth of
Virginia without giving effect to the provision, policies, or principles thereof
relating to choice or conflict of laws.
2.8 Severability. Any provision of this Agreement that is illegal, invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such illegality, invalidity or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
2.9 Waiver. The failure of any party to enforce any of the provision of this
Agreement, or of any rights with respect thereto, shall not be considered a
waiver thereof or in any way affect the validity of this Agreement. The failure
by any party hereto to enforce any of said provisions, rights or elections shall
not prejudice said party from later enforcing or exercising the same or any
other provisions, rights, of elections which it may have under this Agreement.
2.10 Integration. This Agreement contains the entire and only understanding
between the parties with respect to the subject matter hereof, and supersedes
all prior agreement and understandings, whether oral or written, with respect
thereto. No modification or wavier of this Agreement or any of its provisions
shall be binding unless in writing and signed by a duly authorized
representative of each of the parties hereto.
2.11 Bankruptcy or liquidation. The membership interest and option granted
hereunder shall immediately revert to MercExchange if the Company seeks
protection under the Bankruptcy laws or is subject to liquidation under the laws
of the United States.
2.12 Non-refundable. Any payments made hereunder by Aden to MercExchange are
non-refundable.
2.13 Headings. Headings and section titles are for organization purposes only
and shall have no effect on the interpretation of this Agreement.
2.14 Remedy for Breach. If the Company materially breaches any condition of this
Agreement and does not cure said breach within 60 days of notice of material
breach, then all membership units and option in MercExchange shall immediately
revert to MercExchange, or its lawful successor in interest.
<PAGE>
2.15 Counterparts. This Agreement shall be binding to all parties and may be
executed in part by facsimile.
This Agreement is entered into the date and year first above written.
Aden Enterprises, Inc.
By /s/ Michael S. Luther
Michael S. Luther
President& Chief Executive
Officer
MercExchange, LLC
By /s/ Thomas G. Woolston
Thomas G. Woolston
Managing Member
Exhibit 21.1
SUBSIDIARIES OF COMPANY
The following corporations are the registrant's significant
subsidiaries as of the date of this report under Form 10-K.
<TABLE>
<CAPTION>
Name of Corporation State or Other Jurisdiction of Incorporation
- ------------------- --------------------------------------------
<S> <C>
Leftbid.com, Inc. Nevada
Navlet.com, Inc. Delaware
Cheapfares.com Incorporated Nevada
Liberty Court Travel, Inc. Nebraska
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ADEN
ENTERPRISES, INC. ANNUAL REPORT ON FORM 10-K FOR THE PERIOD ENDED APRIL 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 302
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 302
<PP&E> 34
<DEPRECIATION> 13
<TOTAL-ASSETS> 378
<CURRENT-LIABILITIES> 11,098
<BONDS> 0
0
0
<COMMON> 4,055
<OTHER-SE> (14,725)
<TOTAL-LIABILITY-AND-EQUITY> 378
<SALES> 98
<TOTAL-REVENUES> 98
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 666
<INCOME-PRETAX> (3,805)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,805)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,805)
<EPS-BASIC> (0.05)<F1>
<EPS-DILUTED> (0.05)
<FN>
<F1>REFLECTS BASIC EPS ACCORDING TO SFAS 128
</FN>
</TABLE>
