UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORTS OF SMALL BUSINESS ISSUERS
[X] Quarterly report pursuant section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000
[ ] Transition report pursuant section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number
e-Auction Global Trading Inc.
-----------------------------
(Exact name of small business issuer as specified in its charter)
Nevada
------
(State or other jurisdiction)
Pending
-------
(IRS Employer of incorporation or organization Identification No.)
220 King Street, West Suite 200 Toronto, Ontario, M5M 1K4 Canada.
-----------------------------------------------------------------------
(Address of principal executive offices)
416-644-4725
------------
(Issuer's telephone number)
Check whether the issuer
(1) filed all reports required to be filed by Section 13 or 15(d) of
the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes...X...No........
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes......No....X....
Applicable only to corporate issuers
As of October 11, 2000 there were 65,745,915 shares of the Registrant's common
stock outstanding.
Transitional Small Business Disclosure Format (check one);
Yes......No....X....
E-AUCTION GLOBAL TRADING INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 3
Consolidated Balance Sheet at June 30, 2000 and June 30, 1999 4
Consolidated Statements of Operations and Deficit for the six months ended June 30, 2000 6
and 1999
Consolidated Statements of Cash Flows for the six months ended June 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8
Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations 23
Part II. Other Information 25
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 26
2
ITEM 1. Financial Statements
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
3
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED BALANCE SHEET - JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------------------------------------------
2000 1999
$ $
(NOTE 14)
- --------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and short-term deposits 10,207,204 1,024
Accounts receivable 1,196,821 -
Inventory 253,222 -
Work in progress 30,011 -
Prepaid expenses 207,345
------- ------
11,894,603 1,024
CAPITAL ASSETS (NOTE 4) 723,840 34,247
DEPOSITS ON ACQUISITION OF KWATROBOX (NOTE 6) 1,062,125 -
GOODWILL (NOTE 5) 6,541,159 -
- --------------------------------------------------------------------------------------------------------------------
20,221,727 35,271
- --------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
4
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED BALANCE SHEET - JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------------------------------------------
2000 1999
$ $
(NOTE 14)
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accruals 1,591,774 307,697
Short-term loan 83,469 -
Due to Ventures North Investment Partners (NOTE 8) 47,945 365,824
Deferred revenue (NOTE 7) 721,212 -
Current portion of long-term debt (NOTE 9) 53,029 -
-
Current portion of obligations under capital lease (NOTE 10) 8,304 -
---------- -----------
2,505,733 673,521
LONG-TERM DEBT (NOTE 9) 181,221 -
OBLIGATIONS UNDER CAPITAL LEASE (NOTE 10) 26,467 -
---------- -----------
2,713,421 673,521
---------- -----------
REDEEMABLE COMMON STOCK (NOTES 5 AND 12) 3,636,364 -
---------- -----------
NON-CONTROLLING INTEREST (NOTE 11) 779,668 -
---------- -----------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (NOTE 12) 65,146 1
CONTRIBUTED SURPLUS (NOTE 12) 17,222,258 -
DEFICIT (4,195,130) (638,251)
---------- -----------
13,092,274 (638,250)
- --------------------------------------------------------------------------------------------------------------------
20,221,727 35,271
- --------------------------------------------------------------------------------------------------------------------
CONTINGENCIES (NOTE 15)
SEE ACCOMPANYING NOTES
5
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- ----------------------------------------------------------------------------------------------------------------------------------
APR. 1 TO JAN. 1 TO APR. 1 TO JAN. 1 TO
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 2000 1999 1999
$ $ $ $
(NOTE 14)
- ----------------------------------------------------------------------------------------------------------------------------------
REVENUE 951,083 1,979,919 - -
COST OF GOODS SOLD 564,363 1,282,051 - -
------- --------- ------- -------
GROSS MARGIN 386,720 697,868 - -
EXPENSES
Salaries and benefits 563,544 1,043,603 208,057 272,966
Sales, general and administrative 344,877 593,464 297,717 365,285
Depreciation and amortization 397,416 781,748 - -
Interest on long-term debt 4,399 11,965 - -
Interest income (55,135) (65,572) - -
Belgian taxes 9,248 12,192 - -
------- --------- ------- -------
1,264,349 2,377,400 505,774 638,251
------- --------- ------- -------
LOSS BEFORE NON-CONTROLLING INTEREST (877,629) (1,679,532) (505,774) (638,251)
NON-CONTROLLING INTEREST (NOTE 11) 97,781 138,834 - -
------- --------- ------- -------
NET LOSS (779,848) (1,540,698) (505,774) (638,251)
RETAINED EARNINGS (DEFICIT),
beginning of period (3,415,282) (2,654,432) (132,477) -
- ----------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT),
end of period (4,195,130) (4,195,130) (638,251) (638,251)
==================================================================================================================================
EARNINGS (LOSS) PER SHARE (0.01) (0.01) (0.01) (0.02)
==================================================================================================================================
SEE ACCOMPANYING NOTES
6
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- ----------------------------------------------------------------------------------------------------------------------------------
JAN. 1 TO JAN. 1 TO
JUNE 30, JUNE 30,
2000 1999
$ $
(NOTE 14)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss (1,540,698) (638,251)
Add items not affecting cash
Depreciation and amortization 781,748 -
Non-controlling interest (138,834) -
-------- --------
(897,784) (638,251)
Net changes in non-cash operating accounts
Accounts receivable (467,692) -
Inventory 39,667 -
Work in progress (30,011) -
Prepaid expenses (164,030) -
Accounts payable 42,435 307,697
Deferred revenue 138,600 -
Short-term loan 67,999 -
-------- --------
(1,270,816) (330,554)
-------- --------
FINANCING ACTIVITIES
Due to related parties (812,848) 365,824
Issuance of share capital 11,947,046 -
Capital lease obligations 34,771 -
Long-term debt 234,250 -
Non-controlling interest 918,502 -
Shareholder loan 2,200,000 -
-------- --------
14,521,721 365,824
-------- --------
INVESTING ACTIVITIES
Purchase of fixed assets (89,774) (34,247)
Purchase of Schelfhout (3,000,000) -
Deposits on the acquisition of Kwatrobox (322,241) -
-------- --------
(3,412,015) (34,247)
-------- --------
INCREASE IN CASH 9,838,890 1,023
CASH, beginning of period 368,314 1
- -----------------------------------------------------------------------------------------------------------------------------------
CASH, end of period 10,207,204 1,024
====================================================================================================================================
SEE ACCOMPANYING NOTES
7
E-AUCTION GLOBAL TRADING INC.
.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS
- --------------------------------------------------------------------------------
The Company is an e-business services provider to perishable commodity
marketplaces. Through its subsidiaries, the Company is focused on the
installation and maintenance of clock and cooling systems for internet
auction halls. To date, the Company continues to focus on streamlining
and increasing the capabilities of electronic commerce processing for
internet auction halls.
- --------------------------------------------------------------------------------
2. ORGANIZATION AND BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
a) Reverse takeover
Pursuant to a Share Exchange Agreement dated February 26, 1999,
e-Auction Global Trading Inc. (formerly Kazari International Inc.)
("Nevada"), a Nevada company, acquired 100% of the issued and
outstanding shares of e-Auction Global Trading Inc., ("Barbados"),
a Barbados company, for the issuance of 34,500,000 common shares.
As a result of the transaction, control of the Company passed to
Barbados. Accordingly, the share exchange has been accounted for as
a reverse takeover of Nevada by Barbados.
Application of reverse takeover accounting results in the
following:
i) The consolidated financial statements of the combined entity are
issued under the name of the legal parent, e-Auction Global
Trading Inc. (formerly Kazari International Inc.), but are
considered a continuation of the financial statements of the
legal subsidiary (Barbados).
ii) As Barbados is deemed to be the acquirer for accounting
purposes, its assets and liabilities are included in the
consolidated financial statements of the continuing entity at
their carrying value.
iii)The 34,500,000 shares issued are deemed to be issued on April
30, 1998, the date of incorporation of Barbados.
b) Principles of consolidation
The accompanying financial statements consolidate the accounts of
the Company and its wholly owned subsidiaries: Aucxis N.V.
(formerly e-Auction Belgium N.V.), and their wholly owned
subsidiary; Schelfhout Computer Systemen N.V. and their 99% owned
subsidiary SDL Invest N.V.; e-Auction Global Trading Inc.
(Barbados) and their wholly owned subsidiary Aucxis Corp. (formerly
e-Auction Global Trading Inc. (Canada)); V-Wholesaler.com B.V. and
the Company's 50.01% interest in e-Auction Australasia Limited.
8
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
a) Foreign currency translation
The Company's functional currencies are Euros, Australian dollars,
and U.S. dollars; and its reporting currency are U.S. dollars. The
Company follows SFAS 52 where all foreign currency transactions
are translated using the exchange rate in effect at the date of
the transaction. At each balance sheet date, recorded balances
denominated in a currency other than U.S. dollars are adjusted to
reflect the period end exchange rate.
b) Loss per common share
The weighted average number of shares used for calculating loss
per share is 60,074,118 (1999 - 28,955,359).
c) Measurement uncertainty
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant areas requiring the use of management
estimates relate to the determination of impairment of assets and
useful lives for depreciation and amortization. Financial results
as determined by actual events could differ from those estimates.
d) Financial instruments
The Company's financial instruments consist of cash, short term
deposits, accounts receivable, accounts payable, financial debts,
short-term loan, due to related parties and obligations under
capital lease, the fair market value of which approximates their
carrying value.
e) Amortization
Amortization of capital assets and goodwill. Amortization is
provided at the following annual rates:
Land and buildings Straight-line over 20 years
Software Straight-line over 5 years
Furniture and fixtures Straight-line over 5 to 15 years
Tools and equipment Straight-line over 3 to 5 years
Vehicles Straight-line over 5 years
Goodwill Straight-line over 5 years
f) Related party transactions
Related party transactions are recorded at their exchange amounts
which approximate fair market value.
9
E-AUCTION GLOBAL TRADING INC.
.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES - CONT'D
- --------------------------------------------------------------------------------
g) Non-controlling interest
Non-controlling interest, as stated on the balance sheet,
represents the carrying value in the net assets of minority
shareholders of the Company's subsidiaries. The balance is
increased or decreased by the minority shareholders' percentage of
the subsidiaries' earnings or losses during the period.
h) Income taxes
The Company would record a deferred tax asset subject to an
evaluation allowance where that asset is impaired or not expected
to be realized. At December 31, 1999 the Company had deferred tax
assets of approximately $1,194,494. The Company's valuation
allowance would be equal to the amount of the deferred tax assets.
Therefore, there have been no amounts booked in the accounts of
the Company.
i) Revenue recognition
The Company recognizes revenue from license fees upon the signing
of the specific agreement and the delivery of software to the
purchaser. Royalties are recognized in the period it is earned.
The Company follows the completed contract method for recognizing
revenues earned from clock and cooling systems installation. The
application is reasonable given majority of contracts are short
term in nature. Cost of sales relating to the clock and cooling
systems installation include only costs directly related to the
specific contracts. Revenue earned from maintenance contracts are
recognized on a straight line basis over the life of the contract.
j) Inventory and work in progress
Raw materials and consumables inventories are stated at the lower
of cost or market with cost being determined using the weighted
average method. Obsolete or defective inventories have been
reduced to net realizable value. Write-downs of inventories are
recorded on the basis of age and turnover of inventory according
to the judgment of management.
The work in progress includes only direct costs (i.e. raw materials
and labour costs).
10
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
4. CAPITAL ASSETS
- --------------------------------------------------------------------------------
2000 1999
$ $
----------------------------------------- ------------------
Accumulated
Cost Amortization Net Net
---- ------------ --- ---
Land and buildings 483,916 25,321 458,595 -
Equipment and furniture 75,454 6,372 69,082 -
Software * 12,329 - 12,329 34,247
Vehicles 216,797 32,963 183,834 -
------- ------ ------- ------
788,496 64,656 723,840 34,247
======= ====== ======= ======
* The software is currently not in use and therefore no
amortization has been claimed.
Included in vehicles are assets under capital lease with a cost of
$83,627. Accumulated amortization on these vehicles totals $6,704.
- --------------------------------------------------------------------------------
5. ACQUISITION OF SHELFHOUT COMPUTER SYSTEMEN N.V.
- --------------------------------------------------------------------------------
2000 1999
---- ----
$ $
Goodwill 7,267,159 -
Less: accumulated amortization 726,000 -
--------- ------------
6,541,159
========= ============
On January 7, 2000 the Company completed the purchase of 100% of the
issued and outstanding shares of Schelfhout Computer Systemen N.V.
("Schelfhout"). The acquisition has been accounted for using the purchase
method.
11
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
5. ACQUISITION OF SHELFHOUT COMPUTER SYSTEMEN N.V. - CONT'D
- --------------------------------------------------------------------------------
The following represents a summary of the acquisition of Schelfhout:
$ $
---------- ----------
Purchase price 7,636,364
Net tangible assets of SCS acquired
Total assets 2,231,733
Less: Liabilities (1,862,528) 369,205
---------- ----------
Excess of purchase price over net tangible assets, being goodwill 7,267,159
=========
The purchase price is $7,636,364 and is to be paid as follows:
$
Refundable deposit 1,000,000 paid
Cash on closing 3,000,000 paid
Common shares at fair value
issued on closing (3,636,364) 3,636,364 issued
---------
7,636,364
=========
The 3,636,364 common shares are not free trading and are subject to a
timed release formula which allows for release of 454,545 shares worth
$750,000 on each of the 6, 12, 18 and 24 month anniversary of the closing
and 606,061 shares with a deemed value of $1,000,000 on each of the 36,
48 and 60 month anniversary of the closing. If the Company's shares are
not freely trading on any given release date the equivalent cash is to be
paid by the Company and the shares returned to the treasury.
The 3,636,364 common shares issued to the vendors on closing has been
valued at $1 per share for accounting purposes; however, should the
Company decide to redeem the shares, the redemption price would be $1.65
per share.
As at October 2, 2000 the shares of the Company are not freely trading
and the Company has not advanced the required sum of $750,000 in lieu of
the release of 454,545 common shares per the purchase agreement.
- --------------------------------------------------------------------------------
6. DEPOSITS ON ACQUISITION OF KWATROBOX
- --------------------------------------------------------------------------------
2000 1999
$ $
Cash issued to date (750,000 Dutch Guilders) 322,241 -
Shares issued to date (500,000) 739,884 -
-------
-
1,062,125 -
========= ==========
12
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
6. DEPOSITS ON ACQUISITION OF KWATROBOX - CONT'D
- --------------------------------------------------------------------------------
On June 5, 2000 the Company entered into a pledge agreement to purchase
100% of the issued and outstanding shares of Kwatrobox B.V. ("Kwatrobox")
under the terms and conditions of the draft share purchase agreement. The
pledge agreement stipulated the purchase of Kwatrobox was to be completed
on or before August 31, 2000. The completion date was extended to
November 30, 2000 by both parties in an agreement dated August 30, 2000.
For the purpose of the payment schedule, the parties agreed the closing
date of the share purchase agreement is deemed to be June 30, 2000. As at
October 2, 2000 the purchase is not yet complete.
In connection with the purchase agreement, the Company agreed to pay the
vendors 10,500,000 Dutch Guilders ($4,506,600 at the June 5, 2000
exchange rate or 0.4292). The purchase price is payable in cash and
common shares of the Company as follows:
Date Dutch Guilders Common Shares
June 5, 2000 750,000 (paid) 500,000 (issued)
June 5, 2001 2,250,000 450,000
June 5, 2002 1,000,000 150,000
The amounts paid and shares issued at June 5, 2000 are non-refundable.
Additionally, the Company is also committed to issuing up to 200,000
common shares to the vendors subject to Kwatrobox meeting performance
requirements for a three-year period commencing June 5, 2000. As at
October 2, 2000 no shares have been issued as the requirements have not
been met.
- --------------------------------------------------------------------------------
7. DEFERRED REVENUE
- --------------------------------------------------------------------------------
2000 1999
---- ----
$ 0 $
Deferred revenue 721,212 -
======= ========
Deferred revenue relates to the Company's European operations of
installation of clock and cooling systems.
13
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
8. DUE TO RELATED PARTIES
- --------------------------------------------------------------------------------
2000 1999
$ $
Ventures North Investment Partners Inc. ("Ventures") 47,945 365,824
====== =======
The majority of the Company's operations during 1999 were funded by
Ventures. During the first quarter, Ventures converted approximately
$591,000 of debt owed to it into common shares at a price of $0.50 per
share. Ventures is related through significant common shareholdings. The
amounts advanced were non-interest bearing with no fixed terms of
repayment.
- --------------------------------------------------------------------------------
9. LONG-TERM DEBT
- --------------------------------------------------------------------------------
2000 1999
$ $
---- ----
Various bank loans for automobile purchases bearing interest at
rates of 3.67% to 5.59%. Monthly payments of 4,129 euro. Due
dates extend to June 15, 2003 100,142 -
Bank loan with interest at 5.65% per annum. Monthly payments of
1,359 euro. Due December 25, 2007 92,844 -
Directors loan with interest at 5.65% per annum. Monthly payments of
446 euro. Due July 1, 2009 41,264 -
-------- --------
234,250 -
Less: current portion 53,029 -
-------- --------
181,221 -
======= ============ =
14
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
10. OBLIGATIONS UNDER CAPITAL LEASE
- --------------------------------------------------------------------------------
2000 1999
$ $
Obligations under capital lease 34,771 -
Less: current portion 8,304 -
------- -------
26,467 -
======= =======
Future minimum payments due:
$
2001 10,819
2002 8,928
2003 8,928
2004 7,740
-----
36,415
Less: amount representing interest 1,644
---------
34,771
======
- --------------------------------------------------------------------------------
11. NON-CONTROLLING INTEREST
- --------------------------------------------------------------------------------
The Company is the majority owner (50.01%) of e-Auction Australasia
Limited ("Australasia"). The non-controlling interest represents the
interest of the minority shareholders of Australasia as at June 30, 2000
as follows:
Non-controlling interest at acquisition $ 918,502
Less: share of current period earnings(loss) (138,834)
--------
Non-controlling interest, end of period $ 779,668
========
15
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
12. SHARE CAPITAL AND CONTRIBUTED SURPLUS
- --------------------------------------------------------------------------------
a) Authorized - 250,000,000 common shares with a par value of $0.001
NUMBER OF CONTRIBUTED TOTAL
SHARES $ SURPLUS $
---------- ------ ---------- ----------
b) Issued - balance, beginning of period 39,820,000 39,820 (39,819) 1
--------- ----- --------- ---------
Private placement (iii) 16,591,815 16,592 8,279,315 8,295,907
Commission 327,878 328 163,612 163,940
Less: issue costs and commission (327,332) (327,332)
Millenium advisors (iv) 197,219 197 999,803 1,000,000
Schelfhout Acquisition (v) 3,636,364 3,636 3,632,728 3,636,364
Deposits on acquisition of Kwatrobox (vi) 1,100,000 1,100 1,626,654 1,627,754
Private placement 4,072,639 4,073 7,495,927 7,500,000
Less: issue costs - - (85,000) (85,000)
--------- ----- --------- ---------
25,925,915 25,926 21,785,707 21,811,633
--------- ----- --------- ---------
65,745,915 65,746 21,745,888 21,811,634
Less: allocated to redeemable common stock - - (3,636,364) (3,636,364)
held in treasury (vi) (600,000) (600) (887,266) (887,866)
--------- ----- --------- ---------
Balance, end of period 65,145,915 65,146 17,222,258 17,287,404
========== ====== ========== ==========
c) Share capital and contributed surplus since inception
CONTRIBUTED SURPLUS
DATE ISSUED NUMBER OF SHARES $ $
----------- ---------------- ------- -------------------
April 30, 1998 (i) 34,500,000 34,500 (34,500)
February 26, 1999 (ii) 5,320,000 5,320 (5,319)
January 7, 2000 (iii) 16,919,693 16,920 8,115,595
January 7, 2000 (iv) 197,219 197 999,803
January 10, 2000 (v) 3,636,364 3,636 3,632,728
June 5, 2000 (vi) 500,000 500 739,388
June 22, 2000 4,072,639 4,073 7,410,927
--------- ----- ---------
65,145,915 65,146 20,858,622
========== ====== ==========
(i) For reverse takeover accounting purposes these shares have
been deemed to have been issued on April 30, 1998, the date of
incorporation of Barbados.
16
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
12. SHARE CAPITAL AND CONTRIBUTED SURPLUS - CONT'D
- --------------------------------------------------------------------------------
(ii) Shares issued by Nevada prior to the incorporation of
Barbados. For reverse takeover accounting purposes these have
been deemed to have been issued on February 26, 1999, the date
of the reverse takeover transaction.
(iii)On January 7, 2000 the Company completed a private placement
of 16,919,693 shares at $0.50/share. 7,625,916 of the shares
were issued to Ventures North Investment Partners Inc., a
company related through significant common shareholdings and
four companies related to them in exchange for the settlement
of the Company's debts with Millenium Advisors Inc. for
$1,000,000, with the shareholders loan for $2,200,000 plus
interest of $21,968 and a finders fee to the shareholder of
$200,000 and with Ventures North Investment Partners Inc. for
$591,260. The remaining shares were issued for cash.
(iv) On August 13, 1999, in consideration for a loan of $1 million
by Millennium Advisors Inc. to e-Auction, Millennium received
197,219 common shares of the Company with a deemed value of
$1,000,000 as a financing and interest fee. These shares were
issued in January, 2000.
(v) On January 10, 2000, the Company issued 3,636,364 shares of
common stock to the former shareholders of Schelfhout as
partial consideration for the purchase by the Belgium
subsidiary of the Company of all of the shares of Schelfhout.
The deemed price per share for accounting purposes was $1.00.
As there are put provisions in the purchase agreement the
Company has recorded a portion of the shares under the heading
`Redeemable common stock'.
(vi) During the period the Company issued 1,100,000 shares in
connection with its acquisition of Kwatrobox. 500,000 of the
shares were released to the vendors and the remaining 600,000
are being held in treasury subject to the release conditions.
As at October 2, 2000 the acquisition is not yet complete.
(SEE NOTE 6)
17
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
12. SHARE CAPITAL AND CONTRIBUTED SURPLUS - CONT'D
- --------------------------------------------------------------------------------
d) Stock options
On March 1, 1999, and amended on March 13, 2000 the Company adopted
a stock option plan which reserved 9,000,000 shares. Vesting
requirements are determined by a Committee when the options are
granted. No option may be exercisable after 10 years. The exercise
price of an option may not be less than the fair market value on
the date of grant.
DATE OF GRANT NUMBER EXERCISE PRICE EXPIRY DATE RESTRICTIONS
------------- ------ -------------- ----------- ------------
March 1, 1999 1,000,000 $0.01 December 1, 2003 None
December 1, 1999 3,000,000 $0.85 December 1, 2009 None
December 1, 1999 50,000 $0.85 December 1, 2009 Vest over 3 years
January 20, 2000 300,000 $2.00 January 20, 2010 None
April 24, 2000 100,000 $2.00 April 24, 2010 Vest over 3 years
May 2, 2000 1,825,000 $2.00 May 2, 2010 Various
The weighted average exercise price of the options is $1.13/share.
The weighted average grant date fair value of options granted during
the period is as follows:
- Exercise price equals fair market value $2.22
- Exercise price exceeds fair market value $0.70
- Exercise price less than fair market value $0.00
The Company has not recognized compensation expense for its
stock-based awards to employees. The following reflects proforma net
income and loss per share had the Company elected to adopt the fair
value approach of SFAS 123:
2000 1999
$ $
---- ----
Net loss
As reported (1,540,698) -
Proforma (3,366,906) 2,890,300)
Basic and diluted loss per share
As reported (0.03) -
Proforma (0.05) (0.12)
The estimated fair value of each option granted is calculated using
the Black-Scholes option-pricing model. The weighted average
assumptions used in the model were as follows:
2000 1999
Risk-free interest rate 6% 5%
Expected years until exercise 8 8
Expected stock volatility 36.85% 36.8%
Dividend yield 0% 0%
18
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
2000 1999
$ $
------- ------
Expenses paid on behalf of the Company and allocations of expenses charged
to the Company by companies with significant common
shareholdings and common directors 67,145 132,477
Financing fee paid to Millennium Advisors Inc., a company related through
a common director. Paid through the issuance of 197,219 common shares 1,000,000 -
A finders fee in connection with the shareholder's loan was paid to a
shareholder 200,000 -
Interest in connection with the shareholder's loan was paid 21,698 -
Management fees paid to a company controlled by two directors 158,400 -
Included in accounts payable and accrued liabilities is $431,398 and
included in long-term debt is $41,264 owing to two directors of
Schelfhout.
- --------------------------------------------------------------------------------
14. COMPARATIVE FIGURES
- --------------------------------------------------------------------------------
Comparative figures are for the period from January 1, 1999 to June 30,
1999 of e-Auction Global Trading Inc. Certain of the comparative figures
have been reclassified to conform to the current presentation. The
comparative figures were prepared by management.
19
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
15. CONTINGENCIES
- --------------------------------------------------------------------------------
a) A shareholder derivative action was brought against the Company on
November 17, 1999 in the United States District Court against the
Company, its subsidiaries, two of its directors and several other
companies and individuals.
The action alleges Sanga International, Inc.'s ("Sanga") reputation
was damaged by the Defendants (i) engaging in conversion (ii)
engaging in fraud (iii) interfering with Sanga's prospective business
advantage (iv) breach of contract (v) violating California usury laws
and (vi) breach of fiduciary duty.
The plaintiff claims the defendants' actions have not only damaged
Sanga but also the plaintiff and the remaining shareholders of Sanga
by as much as $100 million dollars.
The Action was stayed on November 29, 1999 as a result of Sanga
filing for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court.
It is management's option that the likelihood of a material loss is
remote.
b) On February 7, 2000 a second action was brought against the Company,
its subsidiaries, two of its former directors, QFG Holdings Limited,
Ventures North International Inc. and several other individuals and
companies in the United States District Court.
The action alleges they breached their fiduciary duty to the
plaintiff, a shareholder of Sanga International Inc. The plaintiff
claims that the defendants' actions have damaged the plaintiff
totaling several millions of dollars.
Sanga International, Inc. has filed a motion seeking to intervene in
the lawsuit and is seeking to substitute itself as the real party
plaintiff.
It is management's option that the likelihood of a material loss is
remote.
20
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
16. SEGMENTED INFORMATION
- --------------------------------------------------------------------------------
INDUSTRY A
NORTH AMERICA
2000 1999
$ $
---- ----
Revenue outside the Company - -
Segmented operating loss (1,408,485) (638,251)
Identifiable assets 10,685,661 35,271
Capital expenditure 39,731 -
Amortization 728,400 -
INDUSTRY B
EUROPE
2000 1999
$ $
---- ----
Revenue outside the Company 1,979,919 -
Segmented operating profit 6,565 -
Identifiable assets 8,969,272 -
Capital expenditure 50,179 -
Amortization 51,522 -
INDUSTRY C
AUSTRALIA
2000 1999
$ $
---- ----
Revenue outside the Company - -
Segmented operating loss (277,612) -
Identifiable assets 566,794 -
Capital expenditure 62,582 -
Amortization 1,826 -
21
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
16. SEGMENTED INFORMATION - CONT'D
- --------------------------------------------------------------------------------
TOTAL
2000 1999
$ $
---- ----
Revenue outside the Company 1,979,919 -
Segmented operating loss (1,679,532) -
Identifiable assets 20,221,727 (638,251)
Capital expenditure 152,492 35,271
Amortization 781,748 -
For the purpose of segmented information as presented above, goodwill
arising from the acquisitions of subsidiaries are included in the
identifiable assets of the geographic segments of the subsidiaries.
- --------------------------------------------------------------------------------
17. SUPPLEMENTAL NON-CASH INFORMATION
- --------------------------------------------------------------------------------
During the period the Company issued 3,636,364 common shares with a
deemed value of $3,636,364 in connection with the acquisition of
Schelfhout Computer Systemen N.V.
The Company issued 197,219 common shares with a deemed value of
$1,000,000 to Millennium Advisors Inc. as payment of a financing and
interest fee.
The Company issued 8,026,456 common shares to a related party to settle
various debts totaling $4,013,228 and issued 327,878 shares with a deemed
value of $163,940 to pay commission on a private placement.
The Company issued 500,000 common shares with a deemed value of $739,884
in connection with its investment in Kwatrobox B.V.
The Company acquired a vehicle with a cost of $42,362 through a capital
lease.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
------------------------------------------------------------------------
OF OPERATIONS
-------------
When used herein, the words "may", "will", "expect," anticipate,"
"continue," "estimate," "project," "intend", "plan" and similar expressions are
intended to identify forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended, regarding events, conditions and financial trends that may
affect the Company's future plans of operations, business strategy, operating
results and financial position. Forward-looking statements are not guarantees of
future performance and are subject to risks and significant uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors. The occurrence of any
unanticipated events may cause actual results to differ from those expressed or
implied by the forward-looking statements contained herein. You are cautioned
not to place undue reliance on these statements, which speak only as of the date
of this report.
OVERVIEW
The Company was incorporated in the State of Nevada on January 8, 1998
under the name Kazari International, Inc. On February 26, 1999, Kazari,
e-Auction Global Trading Inc. (Barbados) entered into a share exchange
agreement. Pursuant to the agreement, Kazari purchased e-Auction (Barbados)
shares on a one for one basis. Kazari had no viable business activities at the
time of the share exchange agreement. On June 10, 1999, Kazari amended its name
to e-Auction Global Trading Inc.
The Company currently has a wholly owned subsidiary, e-Auction
(Barbados), which in turn has one wholly owned subsidiary, Aucxis Corp.
(Canada). The Company also owns Aucxis Corp. (Belgium), directly, which in has
one wholly owned subsidiary, Schelfhout Computer Systemen N.V., a Belgium
company. The Company has a 50.01% ownership interest in e-Auction Australasia
Pay Limited, an Australian Company.
HIGHLIGHTS OF THE QUARTER
Revenue for the six months ended June 30, 2000 was $1,979,919 compared
to $0 for the six months ended June 30, 1999. Revenue for the three months ended
June 30, 2000 was $951,084 compared to $0 in the three months ended June 30,
1999. The increase in revenue was a result of the Company's acquisition of
Schelfhout Computer Systemen, N.V. in January 2000. Schelfhout derives its
revenues from the development and installation of clock systems, cooling
installations and maintenance for auction halls.
Net loss for the six months ended June 30, 2000 was $1,540,698, as
compared to a loss of $638,251 in the corresponding six month period ended June
30, 1999. Net loss for the three months ended June 30, 2000 was $779,848, as
compared to $505,774 in the similar three months
23
ended June 30, 1999. The increase in net loss for the six months is largely
attributable to an increase in depreciation and amortization of $781,748.
The Company completed a strategic partnership with ABN AMRO Capital
Investments (Belgie) N.V. to provide integrated financial services to our
perishable commodity auction houses. The Company and ABN AMRO will jointly
develop the Internet-based system to provide financial services including
foreign exchange, credit management and settlement services.
LIQUIDITY AND CAPITAL RESOURCES
During the second quarter ended June 30, 2000, the Company successfully
raised new capital through the issuance of 4,072,639 shares of its common stock,
generating gross proceeds of approximately $7,500,000. The deal was fully
underwritten by ABN AMRO Capital Investments (Belgium) NV, the Belgian venture
capital vehicle of ABN AMRO. The Company will use the equity investment to
further its business plan. In addition, Bart Sonck, Managing Director of the ABN
AMRO Capital Investments (Belgium) NV, joined the Company's board of directors.
24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
(a) A shareholder derivative action was brought on November 17, 1999 in
the United States District Court in California against the Company, its
subsidiaries, two of its directors and several other companies and individuals.
The proceeding alleges that the reputation of Sanga International,
Inc.'s ("Sanga") was damaged and that the defendants are liable for: (i)
engaging in conversion; (ii) engaging in fraud; (iii) interfering with Sanga's
prospective business advantage; (iv) breach of contract; (v) violating
California usury laws; and (vi) breach of fiduciary duty. The plaintiff claims
the defendants' actions have not only damaged Sanga but also the plaintiff and
the remaining shareholders of Sanga by as much as $100 million dollars.
The proceeding was stayed on November 29, 1999 as a result of Sanga
filing for Chapter 11 bankruptcy protection in the United States Bankruptcy
Court. It is management's opinion that the likelihood of a material loss is
remote.
(b) On February 7, 2000, a second proceeding was brought against the
Company, its subsidiaries, two of its former directors, QFG Holdings Limited,
Ventures North International Inc. and several other individuals and companies in
the United States District Court.
The proceeding alleges defendants breached their respective fiduciary
duties to the plaintiff, a shareholder of Sanga International Inc. The plaintiff
claims that the defendants' actions have damaged the plaintiff in the sum of
several million dollars. It is management's opinion that the likelihood of a
material loss is remote.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
On June 22, 2000, the Company issued 4,072,639 shares of common stock
to ABN AMRO Capital Investments (Belgie) N.V. The purchase price for the shares
of the common stock was $1.842, resulting in proceeds to the Company of
approximately $7,500,000. The offering was made in an off-shore transaction to
the purchaser who certified that it (i) was not a U.S. person, (ii) was not
acquiring the securities for the account or benefit of any U.S. person, (iii)
was an accredited or sophisticated purchaser and (iv) agreed to resell the
securities only in compliance with Regulation S ("Regulation S") as promulgated
by the SEC under the Securities Act of 1933, as amended (the "Act"). The
Investor understands that it must hold the shares for an indefinite period of
time unless the sale or other transfer thereof is subsequently registered under
the Securities Act or an exemption from such registration is available at that
time. In issuing the above referenced securities, the Company relied on the
exemption afforded by Section 4(2) of the Act and Regulation S, as transactions
by an issuer not involving any public offering to a non-US person in an
off-shore transaction.
25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
There were no matters submitted for a vote of securities holders during
the three months ended June 30, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
EXHIBIT # EXHIBIT NAME
- --------- ------------
Exhibit 27 Financial Data Schedule
In accordance with the requirements of the Exchange Act 0f 1934, as
amended, the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 11, 2000 e-Auction Global Trading Inc.
By: /s/ David W.A. Hackett
---------------------------------------
David W.A. Hackett
Chief Financial Officer (Duly Authorized
Officer)
26