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.
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
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
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
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
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.
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.
(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
* 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.
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.
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
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.
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:
High Low
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
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.
(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
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.
Date of Average
No. of Shares Issuance or Expiration Exercise
(1) Commitment Date Price Valuation (2)
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
(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.
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.
Years ended April 30,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
(in thousands, except per share data)
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
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
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.
Years ended April 30,
1997 1998 1999
---- ---- ----
(Amounts in $000s)
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)
---------- ---------- ----------
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
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.
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
Aden Enterprises, Inc.
(A Development Stage Company)
Balance Sheets
April 30, 1999 and 1998
April April
30, 1999 30, 1998
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-
========= =======
The accompanying notes are an integral part of these financial statements
Aden Enterprises, Inc.
(A Development Stage Company)
Balance Sheets -Continued-
April 30, 1999 and 1998
April April
30, 1999 30, 1998
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-
=========== ==========
The accompanying notes are an integral part of these financial statements
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
Accumulated 1999 1998 1997
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
The accompanying notes are an integral part of these financial statements
Aden Enterprises, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity For the Period May 22,
1986 (Inception) to April 30, 1999
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
---------------------------------------------
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)
The accompanying notes are an integral part of these financial statements
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
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
---------------------------------------------
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
The accompanying notes are an integral part of these financial statements
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
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
---------------------------------------------
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
The accompanying notes are an integral part of these financial statements
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
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
--------------------------------------------------
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
The accompanying notes are an integral part of these financial statements
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
Common Stock Paid In Accumulated
Shares Amount Capital Deficit
--------------------------------------------------
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 ($15,497,621)
=====================================================
The accompanying notes are an integral part of these financial statements
Aden Enterprises, Inc.
(A Development Stage Company)
Statements of Cash Flows
Accumulated for the Period Amy 22, 1986 (Inception) to April 30, 1999 and
for the Years Ended April 30, 1999, 1998 and 1997
Accumulated 1999 1998 1997
----------- ---- ---- ----
Cash Flows from Operating Activities
Net Loss ............................................ ($ 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-
The accompanying notes are an integral part of these financial statements
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.
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;
Depreciation Accumulated
Cost Cost Expenses Depreciation
Assets 1999 1998 Life 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------
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-
================================================================================
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.
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;
1999 1998
---- ----
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
========== ==========
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.
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;
1999 1998
---- ----
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
========== ==========
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.
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:
Year of Loss Amount Expiration Date
------------------------------------------------
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
1999 1998
---- ----
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-
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.
Aden Enterprises, Inc.
(A Development Stage Company)
Notes to Financial Statements -Continued-
NOTE #12 - Stockholders' Equity-Continued-
Warrants Issued are as follows;
Warrants Expiration
Fiscal Year Ended Issued Date Expense
- ----------------------------------------------------------------------
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
NOTE #13 - Segments Accounting
Segment disclosure for the Company and its wholly owned subsidiaries are as
follows;
Aden Enterprises, Inc. Liberty Court Travel
---------------------- --------------------
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)
=========== ==========
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
========
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.
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.
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,
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.
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:
Year
Became a
Name Age Director Office and Title
- ---- --- -------- ----------------
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
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 $23,500 to the independent trustee of the Plan within thirty (30) days of
the entry of the judgment for distribution to the Plan's participants and/or
beneficiaries. The Company has made this payment on behalf of Mr. Luther. Mr.
Luther does not currently exercise any discretionary authority or responsibility
respecting any ERISA-covered pension or welfare benefit plan pertaining to the
Company.
Judith E. Sundberg has been associated with the Company since November
1995. Mrs. Sundberg has no experience in the management of a public company.
Mrs. Sundberg is also a director of Synergy Media, Inc.
Donald E. Rokusek has been associated with the Company since 1997. Mr.
Rokusek has also been associated with (1) Concepts, Inc. from 1980 to date as
its vice president, (2) Digital Products Corporation from 1997 to date as its
director of contracts administration, and (3) Sewing Concepts from 1985 to 1997
as its operations and financial manager. Mr. Rokusek has no experience in the
management of a public company.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the compensation
of each of the Company's last three completed fiscal years, at April 30, 1999,
of the principal executive officer. There were no other persons serving in an
executive capacity for the Company during such time period
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
--------------------- SECURITIES
NAME AND SALARY UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR ($) BONUS($) OPTIONS(#) COMPENSATION($)
------------------ ---- ------- ----------- ------------ ---------------
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
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.
Amount of
Beneficial
Ownership of
Common Stock as Percent of
Name and Address of 12/31/199 Total
- ---------------- ------------ -----
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
(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.
Amount of
Beneficial
Ownership of
Common Stock as Percent of
Name and Address of 12/31/1999 Total
- ---------------- ------------- -----
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)
(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.
(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
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).
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
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).