UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
x Quarterly Report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2005
¨ Transition report pursuant section 13 or 15(d) of the Securities Exchange Act of 1934
Commission file number0-9040
AUCXIS CORP.
(Name of small business issuer in its charter)
| Nevada | Pending |
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
| Suite 500-666 Burrard Street | |
| Vancouver, British Columbia CANADA | V6C 3P6 |
| (Address of principal executive offices) | (Zip Code) |
Issuer's telephone number, including area code:604-639-3109
Check whether the issuer:
(1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by court. Yes ¨ No x
As of June 27, 2005 there were 62,773,051 shares of the Registrant's common stock, par value $0.001 per share outstanding.
Transitional Small Business Disclosure Format (check one);
Yes ¨ No x
AUCXISCORP.
FORM 10-QSB
INDEX
2
ITEM 1. Financial Statements
Aucxis Corp.
(a Nevada Corporation)
Consolidated Financial Statements
(Unaudited)
March 31, 2005
(expressed in U.S. dollars)
3
AUCXIS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
4
| AUCXIS CORP. CONSOLIDATED BALANCE SHEETS (Expressed in U.S. dollars) |
| March 31, | December 31, | |||||
| 2005 | 2004 | |||||
| (Unaudited) | (Audited) | |||||
| ASSETS | ||||||
| CURRENT ASSETS | ||||||
| Cash and equivalents | $ | 286,189 | $ | 402 | ||
| Amounts receivable | 1,651 | 1,304 | ||||
| Total Assets | $ | 287,840 | $ | 1,706 | ||
| LIABILITIES | ||||||
| CURRENT LIABILITIES | ||||||
| Accounts payable (Note 3) | $ | 292,005 | $ | 780,849 | ||
| Accrued liabilities | 61,726 | 64,886 | ||||
| Due to unrelated parties | 559,248 | 624,412 | ||||
| Convertible debt (Note 4) | - | 471,525 | ||||
| Total Current Liabilities | 912,979 | 1,941,672 | ||||
| Mandatory Redeemable Shares of Common Stock (Note 5) | 4,215,914 | 4,215,914 | ||||
| 5,128,893 | 6,157,586 | |||||
| Subsequent Events (Note 8) | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||
| Common stock, $0.001 par value; 250,000,000 shares | ||||||
| authorized, 62,773,051 issued and outstanding | 62,773 | 62,773 | ||||
| Additional paid-in capital | 18,736,200 | 18,736,200 | ||||
| Accumulated other comprehensive income | 569,910 | 494,631 | ||||
| Deficit | (24,209,936 | ) | (25,449,484 | ) | ||
| Total Stockholders’ Deficit | (4,841,053 | ) | (6,155,880 | ) | ||
| Total Liabilities and Stockholders’ Deficit | $ | 287,840 | $ | 1,706 | ||
(The accompanying notes are an integral part of these consolidated financial statements)
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AUCXIS CORP. |
| Three Months Ended | ||||||
| March 31, 2005 | March 31, 2004 | |||||
| REVENUE | - | - | ||||
| EXPENSES | ||||||
| Selling, general and administrative | 32,125 | 37,066 | ||||
| Depreciation | - | 2,400 | ||||
| Total Operating Expenses | 32,125 | 39,466 | ||||
| Operating loss | (32,125 | ) | (39,466 | ) | ||
| Legal settlement (Note 6) | (616,898 | ) | - | |||
| Gain on recovery of advances (Note 7) | 1,888,571 | - | ||||
| Net income (loss) for the period | $ | 1,239,548 | $ | (39,466 | ) | |
| Basic and diluted income (loss) per share | 0.02 | (0. 01 | ) | |||
| Net Income (loss) for the period | $ | 1,239,548 | $ | (39,466 | ) | |
| Other comprehensive income (loss) | 75,279 | 117,426 | ||||
| Comprehensive income | $ | 1,314,827 | $ | 77,960 | ||
| Weighted average shares outstanding | 62,773,051 | 62,773,051 | ||||
| Shares used in computing fully diluted earnings per share | 62,773,051 | 62,773,051 | ||||
(The accompanying notes are an integral part of these consolidated financial statements)
6
AUCXIS CORP. |
| Three Months Ended | ||||||
| March 31, 2005 | March 31, 2004 | |||||
| OPERATING ACTIVITIES | ||||||
| Net income (loss) for the period | $ | 1,239,548 | $ | (39,466 | ) | |
| Adjustment to reconcile net loss to net cash used in operating activities | ||||||
| Depreciation | - | 2,400 | ||||
| Change in operating assets and liabilities | ||||||
| Amounts receivable | $ | (347 | ) | $ | 7,778 | |
| Accounts payable and accrued liabilities | (492,004 | ) | (7,550 | ) | ||
| CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 747,197 | (36,838 | ) | |||
| CASH USED IN INVESTING ACTIVITIES | - | - | ||||
| FINANCING ACTIVITIES | ||||||
| Repayment of convertible debt | (471,525 | ) | - | |||
| CASH USED IN FINANCING ACTIVITIES | (471,525 | ) | - | |||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH AND | ||||||
| CASH EQUIVALENTS | 10,115 | 26,693 | ||||
| CHANGE IN CASH AND CASH EQUIVALENTS | 285,787 | (10,145 | ) | |||
| CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD | 402 | 19,724 | ||||
| CASH AND CASH EQUIVALENTS END OF PERIOD | $ | 286,189 | $ | 9,579 | ||
| Non-cash investing and financing activities | - | - | ||||
| Supplemental disclosures | ||||||
| Interest paid | - | - | ||||
| Income taxes paid | - | - | ||||
(The accompanying notes are an integral part of these consolidated financial statements)
7
AUCXIS CORP. |
| THREE MONTHS ENDED MARCH 31, 2005 (unaudited) |
| 1. | BASIS OF PRESENTATION |
| These unaudited interim consolidated financial statements of Aucxis Corp. have been prepared by the Company in accordance with the instructions to Form 10-QSB, and accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of items of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004. The year end balance sheet was derived from the audited consolidated financial statements but does not include all disclosures required by generally accepted accounting principles. | |
| The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The actual results experienced by the Company may differ from management’s estimates. | |
| These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. | |
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Comprehensive income | |
| SFAS No. 130, “Reporting Comprehensive income,” establishes standards for the reporting and display of comprehensive income and its components on the financial statements. | ||
| (b) | Comparative figures | |
| Certain of the comparative figures have been reclassified to conform to the current year’s presentation. | ||
| (c) | Recent Accounting Pronouncements | |
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123R, “Share Based Payment”. SFAS 123R is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and Emerging Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”. | ||
SFAS 123R does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans”. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award – the requisite service period (usually the vesting period). SFAS 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The scope of SFAS 123R includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Public entities that file as small business issuers will be required to apply SFAS 123R in the first interim or annual reporting period that begins after December 15, 2005. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position. | ||
8
AUCXIS CORP. |
| THREE MONTHS ENDED MARCH 31, 2005 (unaudited) |
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
In December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29”. The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions”, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted and companies must apply the standard prospectively. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position. | |
| The FASB has also issued SFAS No. 152, but it will not have any relationship to the operations of the Company. Therefore, a description and its impact on the Company’s operations and financial position have not been disclosed. | |
| In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107 ("SAB 107") to give guidance on the implementation of SFAS No. 123R. The Company will consider SAB 107 during the implementation of SFAS No. 123R. | |
| 3. | RELATED PARTY TRANSACTIONS |
| The Company incurred the following amounts to related parties during the three-month period ended March 31, 2005 and 2004, respectively: | |
| March 31, | March 31, | ||||
| 2005 | 2004 | ||||
| Consulting fees to a company controlled by an officer | $ | 12,239 | $ | 25,039 | |
| Due to directors and officers: |
| Included in the accounts payable is $571 (2004 - $533) due to a firm in which a director is a partner. | ||
| Included in accounts payable is $8,955 (2004 - $140,081) due to a company controlled by an officer. |
| 4. | CONVERTIBLE DEBT |
| On April 16, 2002, the Company and three lenders, ABN Capital (Belgium) NV, Bodin Saphir Pension Scheme, and J.J. Mennillo, entered into a Convertible Bridge Loan Agreement for $125,000 each, representing an aggregate loan by the lenders to the Company of $375,000. The loan bears interest at a rate of 12.5% per annum, which accrues until the loan is repaid or converted to shares. Subject to certain terms and conditions of this agreement, each of the lenders is entitled to convert only such amounts as have been drawn down from its respective part of the principal of the loan into shares at $.01 per share. Interest has been capitalized to the loan balances. The entire loan was drawn down and was due to be repaid or converted on December 31, 2002. Since the repayment date has passed, the loan been classified as a current liability. | |
| On January 11, 2005 the entire balance was paid to the lenders from the funds received from Aucxis NV (see note 7). | |
| 5. | MANDATORY REDEEMABLE SHARES OF COMMON STOCK |
| On January 10, 2000, the Company completed and closed the purchase of 100% of the issued and outstanding shares of ATS. The Company acquired the shares of ATS in exchange for 3,636,364 shares of common stock and cash of $4,000,000. The shares of common stock were valued at $3,636,364, based on their estimated fair value at January 10, 2000. Fair value was determined based on the cash price paid for stock in a contemporaneous private placement, the put feature related to the shares issued to acquire ATS and the market price of the Company’s stock around the acquisition date. The Company accreted $938,000 and $243,817 to the mandatory redeemable shares of common stock during the years ended December 31, 2000 and 2001, respectively. The accretions were recorded under a straight-line assumption based on a two-year amortization. | |
9
AUCXIS CORP. |
| THREE MONTHS ENDED MARCH 31, 2005 (unaudited) |
| 5. | MANDATORY REDEEMABLE SHARES OF COMMON STOCK (continued) |
| The terms of the purchase agreement also provided the vendors with a put feature, which allowed the vendors to sell the shares back to the Company at $1.65 per share at the time of release if they were not freely tradable. Since the 3,636,364 shares issued to the vendors were subject to a put feature, which is beyond the Company’s direct control, they were classified as mandatory redeemable shares of common stock. | |
| Under the terms of the purchase agreement, the vendors agreed not to sell or transfer any of their shares except on the basis of a time-release formula which presumes that the shares will be freely tradable at the time of release for sale or transfer. Under the time release formula, 454,545 shares were to be released on each of the 6, 12, 18 and 24 month anniversary dates of the closing and 606,061 shares are to be released on each of the 36, 48 and 60 month anniversary dates of the closing. The first 454,545 shares were not free trading on July 10, 2000, the first anniversary date of the acquisition and during 2002 the vendors sought to exercise their right to retract 909,090 shares, representing the first two tranches under the time release agreement, on the basis that they were not free trading on their respective release dates. | |
| During the year ended December 31, 2003, the Company finalized the disposition of a 7.5% interest in ATS pursuant to a court order allowing the former owners of ATS to reacquire a 7.5% interest in exchange for the transfer for cancellation of the first tranche of 454,545 shares. Accordingly, the Company reduced the mandatory redeemable shares of common stock by $602,267 (454,545 shares), increased its non-controlling interest by $59,972, representing the carrying amount of the portion of ATS disposed of and recognized a gain on cancellation of mandatory redeemable common shares for the balance of $542,295. | |
| Subsequent to March 31, 2005, the mandatory redeemable shares have been returned to treasury as part of the settlement with Schelfout. | |
| 6. | LEGAL SETTLEMENT |
| Terms of the settlement with the former owners of ATS (“Schelfhout”) included a one-time cash payment of $538,015 (EUR 409,230) and payment of Schelfhouts’ 50% of the $78,883 (EUR 60,000) CEPINA deposit. CEPINA was the arbitration panel that was engaged in the prior year to assist in settling the legal disputes between Aucxis and the former owners of ATS. In return for the settlement proceeds, Schelfhout agreed to drop all claims against the Company and to return 3,636,364 shares of the Company’s common stock held in certificates in his names of the former owners of ATS. Once the fee dispute is resolved, CEPINA will return to Aucxis any excess funds relating to Aucxis’ 50% of the CEPINA deposit, however since management is unable to determine the amount, if any, that will be returned, the Company has expensed its 50% portion as part of the legal settlement expense amount. | |
| 7. | GAIN ON RECOVERY OF ADVANCES |
| During the quarter ended March 31, 2005, the Company realized a gain on the recovery of the $9,250,000 in net advances that it had made to Aucxis NV to purchase ATS. In the prior years, the Company had written off the entire amount. From the proceeds that Aucxis NV received from the sale of its subsidiary, ATS, Aucxis was able to recover $1,888,571 during the quarter. | |
| 8. | SUBSEQUENT EVENTS |
| Subsequent to the quarter end, Management retuned to its transfer agent the Schelfhout certificates representing 3,636,364 shares of the Company’s common stock. This was part of the legal settlement with Schelfhout as mentioned in Note 6. On April 13, 2005 these shares were cancelled and returned to the Company’s treasury, thus reducing the number of issued and outstanding shares to 62,773,051. | |
| Management has also taken steps toward settling its outstanding creditor claims. In April 2005, correspondence was sent to creditors in an attempt to clear outstanding payables. The Company must settle all existing claims in order for it to move forward and become self sustaining in the future. | |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
When used herein, the words “may”, “will”, “expect”, “anticipate”, “continue”, “estimate”, “project”, “intend”, “plan” and similar expressions are intended to identify forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding events, conditions and financial trends that may affect the Company's future plans of operations, business strategy, operating results and financial position. All statements, other than statements of historical facts, included or incorporated by reference in this Form 10-QSB which address activities, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof), business strategy, expansion and growth of the Company’s business and operations, and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. Such statements are not guarantees of future performance and are subject to risks and significant uncertainties and that actual results may differ materially from those included within the forward-looking statements as a result of various factors. The occurrence of any unanticipated events may cause actual results to differ from those expressed or implied by the forward-looking statements contained herein. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this report.
Overview
Aucxis Corp. (“Aucxis” or the “Company”) was originally incorporated in Nevada on January 8, 1998 under the name Kazari International, Inc. (Kazari). On February 26, 1999, Kazari and e-Auction Global Trading Inc. (Barbados) entered into a share exchange agreement pursuant to which agreement Kazari purchased e-Auction (Barbados) shares on a one for one basis. Kazari had no viable business activities at the time of the share exchange agreement. On June 10, 1999, Kazari amended its name to e-Auction Global Trading Inc. During fiscal year 2000, Aucxis acquired Schelfhout Computer Systemen N.V., Kwatrobox B.V., and I-Three, Inc. On June 12, 2001 the Company amended its charter to change its name to Aucxis Corp. Aucxis had a wholly owned subsidiary, e-Auction (Barbados), which in turn had one wholly owned subsidiary, Aucxis Corp. (Canada). Both of these companies are inactive that have not conducted any active business from inception to date that the current management is aware of.
The Company also owns directly but no longer controls Aucxis Corp. (Belgium) (“Aucxis NV”). On April 11, 2003 Aucxis NV, voluntarily filed for bankruptcy. A trustee in bankruptcy had been entrusted with Aucxis NV’s management and the realization of its assets for the benefit of its creditors. Accordingly, the Company ceased consolidating the operations of Aucxis NV effective April 11, 2003.
On May 28, 2004, the company reached a settlement with the former owners of the Company’s subsidiary, ATS, with regard to all disputes and claims alleged against the company by the former owners of ATS. The former owners of ATS agreed to withdraw all claims against the Company in exchange for a portion of the proceeds received by Aucxis upon the eventual sale of ATS and a withdrawal by Aucxis of any claims against the former owners. The Commercial Court of Dendermonde granted its approval of the settlement on June 23, 2004.
On October 29, 2004, the Company announced that it had received confirmation from its Belgium counsel that the bankruptcy trustee had finalized the sale of its 92.5% ownership in Aucxis Trading Solutions, N.V. (“ATS”) (formerly Schelfhout Computer Systemen N.V.), a Belgium company. The sale was finalized late in 2004 and the Aucxis proceeds were received in January 2005. It is expected that Aucxis NV will be wound up since it no longer has assets or a business.
Aucxis Corp. currently has no business operations aside from maintaining its listing while actively seeking new business opportunities.
11
Highlights of the Quarter
Early in the quarter, the bankruptcy trustee received court approval for Aucxis NV to release the proceeds from the sale of its 92.5% interest in ATS. Of the gross proceeds received and after settling the obligations of Aucxis NV, the net amount available to Aucxis Corp. for its $9,250,000 in advances, was $1,888,571. After settling amounts with secured creditors the net amount received was $342,217. The main secured creditor claims included repayment of bridge loans with accrued interest, the Schelfhout litigation settlement payment and Belgium legal fees. There also was a potentially partial refundable payment made to CEPINA to be applied toward any final charges from CEPINA, the Belgium arbitration tribunal utilized during the Schelfhout litigation process.
Revenues
Effective April 11, 2003, the Company had voluntarily relinquished control of Aucxis NV to a bankruptcy trustee and, accordingly, had deconsolidated the subsidiary and ceased consolidating the operations of ATS. As a result, with no other active operation, there has been no revenue to report for the current quarter or the same quarter last year.
Expenses
Selling, general and administrative expenses for the quarter ended March 31, 2005 were $32,125 compared to $37,066 for the quarter ended March 31, 2004. In the current quarter, $12,213 was paid to Ontario Health Tax authorities for Employee Health Taxes, which were due for the December 31, 2001 year that current management believed had been paid by the former management. However after a lengthy process of communication with the Ontario Employee Health Tax authorities and a thorough review of the company’s records, management discovered that these taxes were in fact not paid.
The other $24,853 of selling, general and administrative expenses incurred in the current quarter relate primarily to maintaining the public listing. Selling, general and administrative expenses for the quarter ended March 31, 2004, were higher due to a higher contract fee accrued to Q4 Financial and the accrual of interest expense on the bridge loans. Since October of 2004, Q4 Financial has reduced its consulting fees and no interest expense was incurred as the interest on the bridge loans was frozen on after the quarter ended June 30, 2004. In January 2005 the bridge loans were fully paid from the Aucxis NV proceeds.
Depreciation and amortization expense for the three months ended March 31, 2005 was nil, compared to $2,400 for the same period last year. This was due to the write off property and equipment in the fourth quarter of the prior year.
Net Income (Loss)
Net income for the three months ended March 31, 2005 was $1,239,548 compared to a loss of $39,466 for the three months ended March 31, 2004. The increase in net income in the current quarter was due to the $1,888,571 gain on the recovery of advances to Aucxis NV for the purchase of ATS, which was offset by $616,898 in legal settlement expenditures with regard to the final settlement of claims with Schelfhout.
Liquidity and Capital Resources
The Company has not generated revenues since being inactive and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations and the attainment of profitable operations. As at March 31, 2005, the Company has a working capital deficiency of $656,202 (December 31, 2004 - $1,939,966) and has accumulated losses of $24,209,936 since inception. The corresponding financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. Management is considering various revenue and cost management alternatives and is examining a variety of options to re-organize the Company. It is not possible at this time to predict with any assurance the success of these initiatives.
12
Critical Accounting Policies
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is normally discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion on the application of the Companies’ other accounting policies, see Note 2 in the Notes to the Consolidated Financial Statements as at December 31, 2004.
Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.
Foreign currency translation. The Company’s function currency is the Canadian dollar. SFAS No. 52 “Foreign Currency Translation” requires the use of the current rate method to translate the Company’s financial statements into U.S. dollars. Under the current rate method, all assets and liabilities are translated at the period-end rate, while equity accounts are translated at the historical rate. Revenue and expenses are translated at the weighted average rate for the period. Translation gains/losses is reported as a component of accumulated other comprehensive income. Foreign currency transaction gains/losses are included in the determination of net income.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 123R, “Share Based Payment”. SFAS 123R is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” and its related implementation guidance. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS 123 as originally issued and Emerging Issues Task Force Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”. SFAS 123R does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership Plans”. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award – the requisite service period (usually the vesting period). SFAS 123R requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. The scope of SFAS 123R includes a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Public entities that file as small business issuers will be required to apply SFAS 123R in the first interim or annual reporting period that begins after December 15, 2005. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.
In December 2004, FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29”. The guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions”, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of
13
the entity are expected to change significantly as a result of the exchange. The provisions of SFAS No. 153 are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Early application is permitted and companies must apply the standard prospectively. The adoption of this standard is not expected to have a material effect on the Company’s results of operations or financial position.
The FASB has also issued SFAS No. 152, but it will not have any relationship to the operations of the Company. Therefore, a description and its impact on the Company’s operations and financial position have not been disclosed.
In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107 ("SAB 107") to give guidance on the implementation of SFAS No. 123R. The Company will consider SAB 107 during the implementation of SFAS No. 123R.
Item 3. Controls and Procedures
The Company’s principal executive and financial officers have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of March 31, 2005. They have determined that such disclosure controls and procedures are effective to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 with respect to the Company is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and is accumulated and communicated to our management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
The Company has made no significant changes in its internal controls over financial reporting during the most recent fiscal quarter covered by this Report that materially affected or are reasonably likely to materially affect our internal controls over financial reporting.
PART II - OTHER INFORMATION
Item 4. Legal Proceedings
In 2002, the former owners of ATS (Schelfhout) filed a lawsuit against Aucxis, alleging that the Company deliberately committed a number of misrepresentations both prior to and subsequent to the closing of the ATS share purchase agreement. Based on their interpretations of certain clauses in the agreement, Schelfhout tried to force Aucxis to repurchase the Aucxis shares (received by Schelfhout as part of the ATS sale) for cash or to return up to 40% of the ATS shares to Schelfhout in lieu of cash payments for the Aucxis shares. Aucxis held firm on its position that this was an incorrect interpretation of the agreement. The dispute went to arbitration with CEPINA and continued for about two and a half years. CEPINA was the Belgium arbitration panel that was engaged to assist in settling the legal disputes between Aucxis and the former owners of ATS. Also in 2002, Aucxis NV brought an action against the former owners of ATS relating to certain irregularities in the deletion of a non-compete clause from ATS’ articles of association. This claim was dismissed by the court and an appeal was filed in March 2003. Aucxis NV declared bankruptcy in April of 2003 and as a result the proceedings were stayed to allow the trustee in bankruptcy to make a decision regarding continuation.
The reciprocal claims and disputes were ongoing until May of 2004, when the Company finally reached a settlement with Schelfhout. Schelfhout agreed to withdraw the claims against the Company in exchange for a portion of the proceeds to be received by Aucxis upon the sale of ATS and a withdrawal by Aucxis of any claims against Schelfhout. Terms of the settlement with the former owners of ATS (“Schelfhout”) included a one-time cash payment of $538,015 (EUR 409,230) and payment of Schelfhouts’ 50% of the $78,883 (EUR 60,000) CEPINA deposit. In return for the settlement proceeds, Schelfhout agreed to drop all claims against the Company and to return 3,636,364 shares of the Company’s common stock held in certificates in the names of the Schelfhouts.
In October of 2004, the Company received confirmation from its Belgium counsel that the sale of ATS had been finalized. The trustee realized proceeds of just over $2 million for the ATS shares. Of the gross proceeds received from the sale, $1,888,571 was available to Aucxis NV to satisfy the Aucxis Corp claim of $9,250,000 (representing the net amount that Aucxis had advanced to Aucxis NV to purchase ATS).
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Item 5. Subsequent Events
Subsequent to the quarter end, Management retuned to its transfer agent the Schelfhout certificates representing 3,636,364 shares of the Company’s common stock. This was part of the legal settlement with Schelfhout as mentioned above. On April 13, 2005 these shares were cancelled and returned to the Company’s treasury.
Management has also taken steps toward settling with outstanding unsecured creditors. It has been successful to date in settling the claims of many of the creditors. Without favourable settlements with its creditors the Company will be unable to finance the company to move forward and become self-sustaining in the future.
Item 6. Exhibits and Reports On Form 8-K
| (a) | Exhibits. | |
| 31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| (b) | Reports on Form 8-K - The Company has no reports on Form 8K to file. |
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the Company has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Date: June 27, 2005 | Aucxis Corp. |
| (Registrant) |
| By: | /s/ Dennis E. Petke | |
| Dennis E. Petke, | ||
| Chief Financial Officer and Acting President and CEO |
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