AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION MAY 22, 2001
REGISTRATION NO. 333-31276
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(AMENDMENT NO. 2)
-------------------------------
E-AUCTION GLOBAL TRADING INC.
(Exact name of registrant as specified in its charter)
NEVADA 7389 (services- Business services) n/a
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
220 KING STREET WEST, SUITE 200
TORONTO, ONTARIO
CANADA M5H 1K4
(416) 214-1587
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
DAVID HACKETT
220 KING STREET WEST, SUITE 200
TORONTO, ONTARIO
CANADA M5H 1K4 (416) 214-1587
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable following the date on which this registration statement
becomes effective
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462
(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462
(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
- --------------------------------------- ----------------------- ------------------ --------------------- ---------------------
Title of Each Class of securities to Amount to be Offering Price Aggregate Offering Amount of
be registered Registered Per Unit Price registration Fee
- --------------------------------------- ----------------------- ------------------ --------------------- ---------------------
Common Stock, par value $0.001 per 43,064,567 shares $0.18(1) $7,751,622 $1,937.91(2)
share
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the high and low sales price of the
Common shares on May 18, 2001.
(2) No fee is currently due, based upon prior payment by the Company of a
fee, in the amount of $53,373.35, in connection with its registration
statement on Form S-1 (No. 333-31276) filed February 28, 2000, to which
registration statement this Form SB-2 is being filed as an amendment.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFIC ALL Y STATES THAT THIS
REGISTRATION STATEMENT SHALL THERE AFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (SUBJECT TO COMPLETION)
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E-AUCTION GLOBAL TRADING INC.
43,064,567 SHARES OF COMMON STOCK
----------------------------------------------------------
This prospectus relates to the sale by the selling shareholders of up
to 43,064,567 shares of common stock, $0.001 par value per share, of e-Auction
Global Trading Inc.
The shares of our common stock being registered were issued by us to
the selling shareholders in certain private placements during the last two
years.
We will not receive any of the proceeds from the sale of the shares of
common stock by the selling stockholders.
Since October 25, 2000, our shares of common stock are quoted on the
OTC Bulletin Board under the symbol "EAUC". On May 18, 2001, the closing price
for shares of our common stock as reported on the OTC Bulletin Board was $0.18
per share.
THE SECURITIES OFFERED IN THIS PROSPECTUS INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE FACTORS DESCRIBED UNDER THE HEADING
"RISK FACTORS" COMMENCING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR ACCURATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-------------------------------------------------------
The Date of this prospectus is May 22, 2001
-1-
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION IMPORTANT
TO OR NEEDED BY AN INVESTOR WHEN MAKING AN INVESTMENT DECISION IN OUR COMPANY.
REFERENCE SHOULD ALSO BE MADE TO THE MORE DETAILED INFORMATION AND THE
CONSOLIDATED FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION AND NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS, INCLUDING THE INFORMATION UNDER
"RISK FACTORS."
ABOUT OUR COMPANY
e-Auction Global Trading Inc. is becoming an e-business services
provider to perishable commodity markets, evolving from being a technology
solutions provider to providing additional services around the perishable
commodity auction space. The worldwide market for perishable commodities is
estimated at over US $400 billion dollars, with approximately 20% sold through
auctions. Our goal is to provide multi-functional Internet-enabled, real-time
electronic trading systems that integrate financial, logistics, information and
infrastructure services. Our short term objective is to deliver these integrated
electronic trading systems in the perishable commodities marketplace. In the
longer term, we intend to expand our products and services to electronic
commodity auctions generally. Through acquisitions and additional personnel, we
believe that our current technology can be readily adapted, without substantial
cost or time, to provide services to other commodity auctions.
In working towards these goals, we have made strategic acquisitions,
including the purchase of the proprietary internet auctioning technology of
Generated Solutions Ltd. on February 1, 1999 and the acquisition of Schelfhout
Computer Systemen N.V. on January 10, 2000. Schelfhout is a technology solutions
provider to perishable commodity auction houses, having access to over 150
perishable commodity auctions in Europe. More recently, on November 1, 2000, we
acquired the Dutch company Kwatrobox B.V., the parent company of Nieaf Systems
B.V. and Automatiseringsbureau Palm B.V., and on November 27, 2000 we acquired
i-Three Inc., a professional services firm specializing in real-time,
business-to-business infrastructure technology.
Through our newly acquired wholly-owned subsidiary, Schelfhout, we
intend to leverage Schelfhout's existing European market share to launch a new
product called "EuroNet Trading Portals." In December 2000, we launched a pilot
project with a group of six (6) fish auction houses in the Dutch electronic fish
market to test our credit reservation system. We expect that this pilot project
will be completed during the second quarter of 2001, after which time we intend
to make such services commercially available to our other customers. EuroNet
Portals will act as a pan-European network designed to link Schelfhout's
existing standalone European systems, which currently trade approximately US
$7.0 billion in perishable commodities per year. These EuroNet Portals are
intended to become "end-to-end" solutions, providing clients with efficient and
centralized financial settlement, foreign exchange and credit services and, more
importantly, all owing individual buyers to participate in the auction process
remotely. To our knowledge, no such end-to-end solutions are currently available
to the perishable commodity auction market.
Our Company was incorporated in the State of Nevada on January 8, 1998
under the name "Kazari International Inc." Pursuant to a share exchange
agreement dated February 26, 1999 among e-Auction Global Trading Inc.
(Barbados), QFG Holdings Limited, Inc. and us, the shareholders of e-Auction
(Barbados) completed a reverse-takeover of our Company, at which time we changed
our name to e-Auction Global Trading Inc.
Our principal Executive offices are located at 220 King Street West,
Suite 200, Toronto, Ontario, Canada M5H 1K7. Our telephone number is (416)
214-1587.
-2-
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus. The consolidated statement of
operations data for the twelve (12) month period ended December 31, 1999 and
December 31, 2000 and the consolidated balance sheet data at December 31, 1999
and December 31, 2000 are derived from the audited and unaudited interim
consolidated financial statements included elsewhere in this Prospectus.
Historical results are not necessarily indicative of results to be expected in
the future.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
YEAR ENDED QUARTER ENDED
YEAR ENDED DECEMBER 31, MARCH 31, 2001
DECEMBER 31, 1999 2000 (UNAUDITED)
----------------- ----------------- --------------
Revenue: $ 0 $4,858,963 $1,966,175
Cost of Goods Sold 0 1,969,666 1,001,509
Gross Margin 0 2,889,297 964,666
Expense:
Sales, General and Administration 2,654,432 5,698,828 2,518,766
Research and development costs 0 0 415,265
Depreciation and Amortization 0 1,749,312 737,832
Net Income (Loss) for the Year $ (2,654,432) (4,665,934) (2,436,170)
Pro forma basic and diluted net income (loss) per
share (1) (0.07) (0.09) (0.04)
Shares used in computing pro forma basic 34,432,329 59,196,743 62,714,551
CONSOLIDATED BALANCE SHEET DATA:
AS AT AS AT
DECEMBER 31, AS AT MARCH 31,
1999 DECEMBER 31, 2001
2000 (UNAUDITED)
--------------------- ---------------- -------------
Cash and cash equivalents $ 179,394 6,205,169 4,039,187
Deposit 1,000,000
Investment 0 514,835 692,866
Total Assets 5,213,641 21,411,771 19,316,793
Payables and Accruals 749,050 2,703,079 2,670,120
Loans payable and shareholder loans 4,200,000 0 0
Deferred Revenue 200,000 1,323,874 1,454,906
Long-term debt, less current portion 0 392,718 429,240
Mandatorily redeemable shares of common stock 0 4,574,364 4,574,364
Shareholders' Equity (Deficit) $ (2,654,431) $ 10,415,200 8,355,147
(1) See "Notes to Consolidated Financial Statements" for an explanation of the
determination of the shares used in computing pro forma basic and diluted
net loss per share.
-3-
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
This financial information has been prepared in connection with our
acquisition of Kwatrobox B.V. in a purchase agreement dated November 1, 2000.
The condensed unaudited pro forma income statement reflects the combined
operations for the year ended December 31, 2000 as if the acquisition had taken
place at January 1, 1999.
The financial information for the respective companies is based on
audited financial statements. The Kwatrobox financial information was prepared
in accordance with US generally accepted accounting principles. The exchange
rate used to convert Kwatrobox's historical income statement was 0.4182, this is
the average exchange rate for 2000 between Guilders and U.S. dollars.
SUMMARY PRO FORMA STATEMENT OF OPERATIONS DATA: (UNAUDITED)
PROFORMA
E-AUCTION(1) KWATROBOX ADJUSTMENTS PROFORMA
YEAR ENDED 10 MONTHS ENDED YEAR ENDED
DECEMBER 31, 2000 OCTOBER 31, 2000 DECEMBER 31, 2000
Revenue 4,858,963 3,176,078 - 8,035,041
Cost of goods sold (1,969,666) (2,546,279) - (4,515,945)
------------------------------------------------------------------------
2,889,297 629,799 - 3,519,096
OPERATING EXPENSES
Sales, general and administrative 5,698,828 1,947,059 - 7,628,392
Depreciation and amortization 1,749,312 81,466 827,473 2,675,746
------------------------------------------------------------------------
7,448,140 2,028,525 827,473 10,304,138
LOSS BEFORE THE UNDERNOTES (4,558,844) (1,398,726) (827,473) (6,785,042)
Non-controlling interest 1,417 - - 1,417
Share of loss of equity investment (193,168) (193,168)
Interest Income (189,392) 23,595 - (165,797)
------------------------------------------------------------------------
Loss before income taxes (4,561,203) (1,422,321) (827,473) (6,810,997)
Income tax expense 104,731 - - 104,731
------------------------------------------------------------------------
LOSS FOR THE YEAR (4,665,934) (1,422,321) (827,473) (6,915,728)
Accretion on mandatorily redeemable (938,000) - - (938,000)
common stock to redemption value
------------------------------------------------------------------------
Loss availoable to common shareholders (5,603,934) (1,422,321) (827,473) (7,853,728)
Unrealized foreign exchange gain (124,822) - - (124,822)
------------------------------------------------------------------------
COMPREHENSIVE LOSS (4,790,756) (1,422,321) (827,473) (7,040,550)
------------------------------------------------------------------------
Proforma (0.13)
(1) e-Auction Global Trading Inc statement of operations for the year ended
December 31, 2000 including 2 months of the results of operations of
Kwatrobox B.V.
-4-
RISK FACTORS
WE HAVE A LIMITED OPERATING HISTORY AND AN Although the completion of our acquisition of Schelfhout
EVOLVING BUSINESS MODEL Computer Systemen N.V. provides us with more extensive operating
knowledge, we have a limited operating history under the
current business model upon which we can be evaluated. Because
our business model relies on use of the Internet, our
prospects must also be considered in light of the risks and
uncertainties encountered by companies that operate in the new
and rapidly evolving Internet market. There can be no
assurance that we will be successful in addressing the risks
inherent in our business model and the failure to do so could
depress our business operations and lead to financial
hardship.
THE COMPANY HAS NEVER BEEN PROFITABLE AND MAY We have not made a profit to date and may not be able to
NOT BE PROFITABLE IN THE FUTURE do so in the future. The Company is operating at a net loss, and
we expect to continue to experience losses for the foreseeable future.
We cannot be certain when we will become profitable, if at all. Our
failure to achieve and maintain profitability could adversely affect
the market price of our common stock as well as our ability to finance
continued operations.
IF WE DO NOT RECEIVE ADDITIONAL FINANCING TO Our lack of operating history and the uncertainty of the
OPERATE OUR BUSINESS WE WILL NOT BE ABLE TO Internet market make any prediction of our future results of
EXPAND OUR OPERATIONS OR ADEQUATELY RESPOND TO operations difficult or impossible. Nonetheless, our business
COMPETITIVE PRESSURES plan demands that we incur significant operating expenses in
order to develop and extend our business model and operations, as
well as respond to unanticipated competitive pressures or take
advantage of unanticipated opportunities, including
acquisitions of complementary businesses or technologies.
Anticipated rapid growth may also require additional funds to
expand our operations or enlarge our organization. We do not
expect that our revenue will cover those expenses. As a
result, we intend to raise additional capital through public
or private debt or the sale of equity and/or debt securities.
We cannot assure you that additional financing will
be available on terms favorable to us, or that additional
financing will be available at all. If adequate funds are not
available or are not available on acceptable terms, we may not
be able to take advantage of unanticipated opportunities,
develop new technologies or other-wise respond to
unanticipated competitive pressures, or continue to fund our
operations.
OUR USE OF THE INTERNET PRESENTS SYSTEM Our software products are based on programming
DEVELOPMENT AND OPERATIONAL RISKS languages which, to date, have been used primarily for
specialized applications on the desktop. Our future success
will depend, in large part, on the development of specialized
programming languages geared to facilitate Internet based
applications with a particular emphasis on widespread
commercial use in a server
-5-
based environment. In addition, rapid technological change,
dynamic demands and frequent introductions of new products and
product enhancements characterize the market for our services.
Customer requirements for services can change rapidly as a
result of innovations and changes within the computer hardware
and software industries and the customers' vertical markets,
the introductions of new products and technologies and the
emergence, evolution or widespread adoption of industry
standards. The actual or anticipated introduction of new
services can render existing services obsolete or unmarketable
or result in delays in the purchase of such services. Delays
in the development or adoption of new standards or protocols
required to handle increased levels of Internet activity and
increased governmental regulation or taxation of Internet
commerce may restrict the growth of the Internet. Capacity
constraints within our systems could result in: (1) system
disruptions; (2) inaccessibility of our network; (3) long
response times; (4) impaired quality; and (5) loss of
important reporting data.
Our future success will depend in large part on our
ability to improve our current services and to develop and
market new services that address these changing markets and
market requirements on a timely basis. We will be required to
add additional software and hardware and further develop and
upgrade our existing technology, transaction processing
capability and network infrastructure to accommodate increased
traffic over our supported networks due to increased auction
volumes as we expand our business. Any inability to do so may
cause system disruptions, slower response times and
degradation in auction service levels. There can be no
assurance that we will be able to upgrade our systems as
necessary in a timely manner or to integrate smoothly any
newly developed or purchased upgrades or enhancements to our
current systems or that the necessary infrastructure or
complementary products and services are not developed. Any
inability to do so could adversely effect our ability to
adequately compete or continue our operations.
THE MARKET MAY NOT ACCEPT OUR SOLUTIONS, The majority of our revenues will be derived from the
RESULTING IN LOST BUSINESS AND REDUCED BUSINESS implementation of software solutions around the perishable
PROSPECTS commodity auction process. Our success will depend on the
acceptance of financial services and settlement services
application software and services by the market, as well as
our ability to enhance our products and services to meet the
evolving needs of customers on a timely basis. While we
believe that the commodity auction market place will embrace
the advent of integrated financial services and settlement
software applications and, further, that we will be able to
develop these products efficiently (and through our business
relationship with ABN AMRO), there can be no assurance that
the perishable commodity auction market place and the business
to business electronic commerce market place will continue to
exist, of the market's acceptance of our solutions, or our
ability to meet customers' needs.
-6-
IF THE COMPANY'S ONLINE SERVERS BECAME We could lose users and customers for our online
ISP UNAVAILABLE, WE COULD LOSE CUSTOMERS portal and business if we do not have ready access to our
online servers, or if our online servers and computer systems
do not perform reliably and to our customers' satisfaction.
Network interruptions or other computer system shortcomings,
including inadequate capacity, could reduce customer
satisfaction with our services or prevent customers from
accessing our services and seriously damage our reputation.
Our computer and communication systems are also vulnerable to
computer viruses, physical or electronic break-in and other
disruptions. These problems could lead to interruptions,
delays, loss of data or the ineffective operation of the our
server. Any of these outcomes could seriously harm our
business.
THERE ARE INHERENT SECURITY RISKS IN OUR We rely on encryption and authentication technology
E-COMMERCE BUSINESS licensed from third parties to provide the security and
authentication necessary to effect secure transmission of
confidential information, such as customer credit information.
There can be no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or
other events or developments will not result in a compromise
or breach of the algorithms used by the Company to protect
customer and supplier transaction data. In the event an
unauthorized party is able to circumvent the Company's
security measures, such party could misappropriate proprietary
information or cause interruptions in our operations. Any
compromise of our security could have a material adverse
effect on our business, requiring us to expend significant
capital and other resources to protect against such security
breaches or to alleviate problems caused by such breaches. To
the extent that activities of the Company or third-party
contractors involve the storage and transmission of
proprietary information, such as credit information, security
breaches could damage the our reputation and expose us to a
risk of loss or litigation and possible liability.
GOVERNMENTAL REGULATION OF THE INTERNET AND To our knowledge, the operation of e-Auction is not
ONLINE COMMERCE currently subject to direct regulation by any domestic or
foreign governmental agency, other than regulations applicable
to businesses generally, and laws or regulations directly
applicable to access to online commerce. However, due to the
increasing popularity and use of the Internet and other online
services, it is possible that a number of laws and regulations
may be adopted with respect to the Internet or other online
services covering issues such as user privacy, pricing,
content, copyrights, distribution, and characteristics and
quality of products and services. Furthermore, the growth and
development of the market for online commerce may prompt more
stringent consumer protection laws that may impose additional
burdens on those companies conducting business online. The
adoption of any additional laws or regulations may decrease
the growth of the Internet of other online services which
could, in turn, decrease the demand for our products and
services and increase our cost of doing business.
-7-
Moreover, the applicability to the Internet and other
online services of existing laws in various jurisdictions
governing issues such as property ownership, sales and other
taxes and personal privacy is uncertain and would take time to
resolve. In addition, as the Company's service is available
over the Internet in multiple states and foreign countries,
and as the Company sells to numerous consumers residing in
such states and foreign countries, such jurisdictions may
claim that the Company is required to qualify to do business
as a foreign corporation in each such state and foreign
country. Failure by the Company to qualify as a foreign
corporation in a jurisdiction where it is required to do so
could subject the Company to taxes and penalties for the
failure to qualify. Any such new legislation or regulation,
the application of laws and regulations from jurisdictions
whose laws do not currently apply to the Company's business,
or the application of existing laws and regulations to the
Internet and other online services could have a material
adverse effect on our results of operations and financial
condition
DUE TO THE RAPID CHANGES AND INTENSE COMPETITION The e-commerce business to business market is highly
IN OUR INDUSTRY, OUR ABILITY TO COMPETE AND competitive, is rapidly changing, and is significantly
GENERATE REVENUE MAY BE HINDERED affected by new product introductions and geographical
regional market growth. Barriers to entry into this market are
relatively low and we expect that competition will intensify
in the future. Specific factors upon which we compete include,
but are not limited to, functionality of our applications and
services, technological sophistication, ease of use, timing
for implementation, quality of support and services, price and
breadth of experience. We believe that we will compete
favorably on all of these competitive factors. However, there
remains significant risk that competitive forces may affect
our ability to compete and generate revenue. Some of our
potential competitors, as well as a number of potential new
competitors, have longer operating histories, greater brand
name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than we
do.
Our competitors include:
o in the fish commodity space, Fishmonger, Gofish, French
Fish and OES;
o in the flower commodities space, WCOL, American Clock,
and OES; and
o in the fruits and vegetables commodities space, WCOL and
OES.
Such competition could result in reduced margins,
lower growth or loss of market share.
OUR PAST AND FUTURE ACQUISITIONS MAY AFFECT OUR We intend to engage in selective acquisitions of
BUSINESS PROSPECTS perishable commodity businesses in the future, which may
include software vendors, auction houses and information
technology service companies. There can be no assurance,
however, that we will be successful in identifying, financing
and completing any acquisitions.
-8-
Moreover, there can be no assurance that we will
successfully integrate any of the acquired businesses into our
operations, including our acquisition of Schelfhout and more
recently, of Kwatrobox B.V. and I-Three. Any acquired business
may not achieve desired levels of revenue, profitability or
productivity or otherwise perform as expected. In addition,
growth through acquisition of existing companies involves
risks such as diversion of management's attention,
difficulties in the integration of acquired operations,
difficulties in retaining personnel, increased off limits
conflicts, assumption of liabilities not known at the time of
acquisition and tax and accounting issues, some or all of
which could have a material adverse effect on our business and
our ability to expand and create further revenue streams.
The success of our proposed plan of operation depends
to a great extent on the operations, financial condition and
management of Schelfhout, Kwatrobox and i-Three as well as
other acquired or to be acquired companies or business
operations. While business combinations with entities having
established operation histories are preferred, there are no
assurances that we will be successful in locating candidates
meeting such criteria. In the event that we complete business
combinations, the success of our operations will depend on the
management of the acquired companies and numerous other
factors.
OUR CONTINUED GROWTH MAY STRAIN OUR Any future growth may place a significant strain on
RESOURCES our managerial, operational and financial resources. To manage
our growth, we will be required to implement and improve our
managerial controls and procedures and operational and
financial systems. In addition, our success will depend on our
ability to hire and retain qualified personnel and to train,
integrate and manage our work force, particularly our
technical support, advertising, sales and business development
staff. Locating and retaining qualified personnel in our
business is extremely competitive. Although we can expect to
hire new employees in the foreseeable future, we can give no
assurances that we have adequately allowed for the costs and
risks associated with our proposed expansion or that our
systems, procedures or controls will be adequate to support
our operations, or that our management will be able to
successfully offer and expand our services. We can also give
no assurances that we will be able to successfully locate,
train and integrate personnel into our work force. If we are
unable to manage our growth effectively, our results of
operations and plans for continued growth will likely be
impeded.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL Our success depends, in part, upon the protection of
PROPERTY RIGHTS, AND ASSERTING OUR INTELLECTUAL proprietary rights in our products, technology and trade
PROPERTY RIGHTS MAY SUBJECT THE COMPANY TO secrets. We rely on a combination of patent, copyright, and
LITIGATION WHICH COULD HARM ITS OPERATING RESULTS trademark laws, confidentiality procedures and licensing
arrangements to protect our proprietary rights.
-9-
There can be no assurance, however, that the confidentiality
and license agreements on which we rely to protect our trade
secrets and proprietary technology will be adequate. Further,
the laws of certain countries in which we do business do not
protect our proprietary rights to the same extent as the laws
of the United States. Legal protections of our proprietary
rights may be ineffective in such countries. Policing
unauthorized use of our products is difficult, and litigation
to defend and enforce our intellectual property rights could
result in substantial costs and diversion of resources.
Despite our efforts to safeguard and maintain our proprietary
rights both in the United States and abroad, there can be no
assurance that we will be successful in doing so, or that the
steps taken by us in this regard will be adequate to deter
misappropriation or independent third party development of our
technology or to prevent an unauthorized third party from
copying or otherwise obtaining and using our products or
technology. Any failure in the protection of our proprietary
rights could hinder our operations and lead to costly
litigation.
WE MAY BE SUBJECT TO INFRINGEMENT CLAIMS As the number of industry specific packaged
OF THIRD PARTIES application and service vendors in the industry increases and
the functionality of these products further overlaps, software
development and services companies like ours may increasingly
be come subject to claims of infringement or misappropriation
of the intellectual property rights of others. There can be no
assurance that third parties will not assert infringement or
misappropriation claims against us in the future with respect
to current or future products. Any claims or litigation, with
or without merit, could be time consuming, result in costly
litigation, divert management's attention and cause product
shipment delays or require us to enter into royalty or
licensing arrangements. Such royalty or licensing
arrangements, if required, may not be available on terms
acceptable to us, if at all, which could have a material
adverse effect on our business, financial condition and
results of operations. Adverse determinations in such claims
or litigation could impede our ability to successfully compete
within our industry.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT The continued services of our founders and other key
AND RETAIN EMPLOYEES personnel are deemed important to our proper operation. The
loss of the services of one or more of them could have a
material adverse effect on our business, financial condition,
results of operations and prospects. Except for Daniel
McKenzie and David Hackett, the Chief Executive Officer and
Chief Financial Officer of our Company, respectively, none of
our key management personnel has entered into employment
agreements obligating them to remain employed by us for any
specific term nor are our key employees party at this time to
non-solicitation, confidentiality or noncompetition agreements
with us. In addition, we do not maintain "keyman" life
insurance policies on any of our founders or other key
personnel, and we may not be able to recover from the
unexpected loss of any of their services.
-10-
If we lose such employees or other employees leave to work for
our competitors or start their own competing business, such
loss will likely have a materially adverse affect our
business, results of operations and financial condition. We
will need to continue to recruit and retain additional members
of senior management to manage anticipated growth, but there
can be no assurance that we will be able to recruit or retain
additional members of senior management on terms suitable to
us.
FUTURE ISSUANCE OF COMMON STOCK COULD ADVERSELY Sales of substantial amounts of the common stock in
AFFECT THE MARKET AND DILUTE CURRENT SHAREHOLDERS the public market, or the prospect of these sales, could
depress the prevailing market price of our common stock and
its ability to raise equity capital in the future. At the time
of filing, we had outstanding 66,350,915 shares of common
stock as well as options and other equity and/or debt
securities outstanding exercisable or convertible to purchase
up to an additional 8,213,000 shares of our common stock,
assuming the maximum number of shares to be issued upon such
exercise or conversion.
THE PRICE OF OUR COMMON STOCK MAY BE DEPRESSED Of the 66,350,915 shares of our common stock issued
DUE TO POSSIBLE FUTURE SALES UNDER RULE 144 AND and outstanding as of the time of filing, 60,910,915 shares
UPON THE EFFECTIVENESS OF THIS REGISTRATION are "restricted securities" as defined by Rule 144 of the
STATEMENT Securities Act. Under Rule 144, restricted securities which
have been beneficially owned for at least one year maybe sold
in brokers' transactions or directly to market makers, subject
to certain quantity and other limitations. Generally, once
restricted securities are eligible for sale under Rule 144, a
person may sell, in any three month period, an amount equal to
the greater of (i) the average weekly trading volume, if any,
of the common stock during the four calendar weeks preceding
the sale or (ii) 1% of the outstanding shares of our common
stock. Shares beneficially owned for two years by
non-affiliates of our Company may be sold. A substantial
number of shares of common stock are already available for
sale in the public market under Rule 144 of the Securities Act
and additional shares may become available for sale in the
near future. Sale of substantial amounts of such stock could
have a depressive effect on the price of the common stock in
any market which may develop.
If and when this registration statement becomes
effective, 43,064,567 restricted securities will be eligible
to be sold without limitation. No prediction can be made as to
the effect, if any, that sales of shares of common stock or
the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the
possibility that substantial amounts of common stock may be
sold in the public market would likely have a material adverse
effect on prevailing market prices for the common stock and
could impair our ability to raise capital through the sale of
our equity securities.
-11-
OUR SECURITIES ARE SUBJECT TO "PENNY STOCK" Our common stock may be deemed to be "penny stock" as
RULES AND MAY BE DIFFICULT TO RESELL that term is defined in Rule 3a51-1 of the Securities and
Exchange Commission. Penny stocks are stocks (i) with a price
of less than $5.00 per share; (ii) that are not traded on a
"recognized" national exchange; (iii) whose prices are not
quoted on the NASDAQ automated quotation system (NASDAQ listed
stocks must still meet requirement (i) above); or (iv) of
issuers with net tangible assets less than $2,000,000 (if the
issuer has been in continuous operation for at least three
years) or $5,000,000 (if in continuous operation for less than
three years), or with average revenues of less than $6,000,000
for the last three years. Section 15(g) of the Securities
Exchange Act of 1934, as amended, and Rule 15g-2 of the
Securities and Exchange Commission require broker/dealers
dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the document
before effecting any transaction in a penny stock for the
investor's account.
Moreover, Rule 15g-9 of the Securities and Exchange
Commission requires broker/dealers in penny stocks to approve
the account of any investor for transactions in such stocks
before selling any penny stock to that investor. This
procedure requires the broker/dealer to (i) obtain from the
investor information concerning his or her Financial
situation, investment experience and investment objectives;
(ii) reasonably determine, based on that information, that
transactions in penny stocks are suitable for the investor and
that the investor has sufficient knowledge and experience as
to be reasonably capable of evaluating the risks of penny
stock transactions; (iii) provide the investor with a written
statement setting forth the basis on which the broker/dealer
made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor,
confirming that it accurately reflects the investor's
financial situation, investment experience and investment
objectives. Compliance with these requirements may make it
more difficult for investors in our common stock to resell
their shares to third parties or to otherwise dispose of them.
LIMITATIONS ON THE LIABILITY OF OUR DIRECTORS Our bylaws contain provisions limiting the liability
AND OFFICERS REDUCES THE LIKELIHOOD OF of our directors for monetary damages to the fullest extent
DERIVATIVE SUITS UNDER CIRCUMSTANCES permissible under Nevada law. This is intended to eliminate
WHERE SUCH SUITS WOULD BE APPROPRIATE the personal liability of a director for monetary damages on
an action brought by or in the right of our Company for breach
of a director's duties to us or to our stockholders except in
certain limited circumstances. Our bylaws also contain
provisions requiring us to indemnify our directors, officers,
employees and agents serving at our request, against expenses,
judgments (including derivative actions), fines and amounts
paid in settlement. This indemnification is limited to actions
taken in good faith in there as on able belief that the
conduct was lawful and in or not opposed to the best interests
of our Company.
-12-
The bylaws provide for the indemnification of directors and
officers in connection with civil, criminal, administrative or
investigative proceedings when acting in their capacities as
agents for our Company. These provisions may reduce the
likelihood of derivative litigation against directors and
executive officers and may discourage or deter stockholders or
management from suing directors or executive officers for
breaches of their duties to the Company, even though such an
action, if successful, might otherwise benefit the Company and
our stockholders.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOUR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: ALL STATEMENTS, OTHER THAN
HISTORICAL FACTS, INCLUDED IN THE FOREGOING NEWS RELEASE REGARDING E-AUCTION'S
BUSINESS STRATEGY AND PLANS OF MANAGEMENT FOR FUTURE OPERATIONS ARE "FORWARD
LOOKING STATEMENTS". THESE STATEMENTS, WHICH INCLUDE, BUT ARE NOT LIMITED TO,
WORDS SUCH AS "EXPECT," "ANTICIPATE," "PLAN" AND "INTEND," ARE BASED ON
MANAGEMENT'S BELIEFS AND ASSUMPTIONS, AND ON INFORMATION CURRENTLY AVAILABLE TO
MANAGEMENT. THESE STATEMENTS INVOLVE CERTAIN KNOWN AND UNKNOWN RISKS,
UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY THESE FORWARD-LOOKING
STATEMENTS. THESE FACTORS INCLUDE, AMONG OTHERS, E-AUCTION'S ABILITY TO
SUCCESSFULLY INTEGRATE ANY PRIOR AND FUTURE ACQUISITIONS; ANY UNCERTAINTIES
RELATING TO BUSINESS AND ECONOMIC CONDITIONS IN MARKETS IN WHICH E-AUCTION
OPERATES; ANY UNCERTAINTIES RELATING TO CUSTOMER PLANS AND COMMITMENTS; THE
TIMELY DEVELOPMENT AND MARKET ACCEPTANCE OF E-AUCTION'S PRODUCTS AND
TECHNOLOGIES; THE HIGHLY COMPETITIVE ENVIRONMENT IN WHICH E-AUCTION OPERATES;
AND OTHER FACTORS SET FORTH ABOVE UNDER "RISK FACTORS."
-13-
MARKET PRICE OF OUR COMMON STOCK
Our common stock are currently quoted on the OTC Bulletin Board under
the symbol "EAUC."
From January 19, 2000 to October 25, 2000, our common stock was quoted
on the quotation system operated by the National Quotation Bureau, LLC, known as
the "Pink Sheets" after our shares of common stock were delisted from quotation
on the OTC Bulletin Board due to our inability to become a reporting issuer
prior to the deadline imposed by the National Association of Securities Dealers,
Inc.
The following table sets forth the closing prices for the common stock
during the periods indicated, as reported by the OTC Bulletin Board prior to
January 19, 2000 and after October 24, 2000, and during the interim, as reported
by the National Quotation Bureau, LLC Pink Sheets. The bid prices reflect
inter-dealer quotations, do not include retail mark-ups, markdowns, or
commissions and do not necessarily reflect actual transactions. To our
knowledge, prior to February 26, 1999, no broker dealer made an active market or
regularly submitted quotations for our common stock. During this period, there
were only an infrequent number of trades and virtually no trading volume.
YEAR ENDING DECEMBER 31, 1999 COMMON STOCK
----------------------------- ------------
PRICE HIGH PRICE LOW
---------- ---------
First Quarter (commencing February 26, 1999 ) 9.05 4.70
Second Quarter 11.38 6.60
Third Quarter 9.25 1.187
Fourth Quarter 1.78 0.906
YEAR ENDING DECEMBER 31, 2000
-----------------------------
PRICE HIGH PRICE LOW
---------- ---------
First Quarter 6.375 1.343
Second Quarter 2.875 1.15
Third Quarter 1.45 0.59
Fourth Quarter (prior to October 25, 2000) 1.01 0.57
Fourth Quarter (after October 25, 2000) 0.88 0.30
YEAR ENDING DECEMBER 31, 2001
-----------------------------
PRICE HIGH PRICE LOW
---------- ---------
First Quarter 0.84 0.30
Second Quarter (through May 16, 2001) 0 0.18
As of May 18, 2001, we had 66,350,915 shares of common stock
outstanding held by approximately 258 record holders.
DIVIDEND POLICY
We have never declared or paid a cash dividend on our common stock. It
is our present policy to retain earnings, if any, to finance the development and
growth of our business. Accordingly, we do not anticipate that cash dividends
will be paid until our earnings and Financial condition justify such dividends,
and there can be no assurance that we can achieve such earnings.
USE OF PROCEEDS
We are not receiving any of the proceeds from the sale of the shares of
our common stock being registered hereunder.
-14-
OUR COMPANY
We were originally incorporated in the State of Nevada on January 8,
1998 under the name "Kazari International, Inc." On February 26, 1999, we
purchased all of the outstanding shares of common stock of e-Auction Global
Trading Inc. (Barbados). Pursuant to the terms of the stock exchange agreement,
we issued to the 11 shareholders of e-Auction (Barbados), on an one for one
exchange basis, thirty-four million five-hundred thousand (34,500,000) shares of
our common stock. We had no viable business activities at the time of the
exchange agreement.
On June 10, 1999, Kazari amended its articles of incorporation to
change its name from "Kazari International, Inc." to "e-Auction Global Trading
Inc." and increased the number of authorized shares of our common stock from
forty million (40,000,000) shares to two hundred and fifty million (250,000,000)
shares of common stock, par value $0.001 per share.
We currently own the following:
o a 100% ownership interest in e-Auction Global Trading Inc.
(Barbados), which in turn has a wholly owned subsidiary,
Aucxis Corp. (Canada). Prior to May 11, 2000, this subsidiary
was known as e-Auction Global Trading Inc. (Canada).
o a 100% ownership interest in Aucxis Corp. (Belgium) N.V.,
which in turn has a wholly owned subsidiary, Schelfhout
Computer Systemen N.V. Prior to May 12, 2000, this subsidiary
was known as e-Auction Belgium N.V.
o a 99% ownership interest in SDL Invest N.V. a new legal entity
formed March 22, 2000, in which we made a contribution in kind
of certain real property and liabilities. In connection with
the formation of SDL Invest N.V., we granted an option to Luc
Schelfhout and Hilde De Laet to purchase the shares of SDL
Invest N.V. for a nominal price equal to the book value.
o a 100% ownership interest in v-Wholesaler N.V., which has a
wholly-owned subsidiary, Kwatrobox B.V., which in turn
includes 100% of Palm Veilingsystemenn b.v., 100% of Nieaf
Systems b.v, 100% of Automatiseringsbureau, Palm b.v. and 80%
of Scoop Software b.v.
o a 100% ownership interest in i-Three Inc.
o a 48.2% equity interest in Aucxis Ltd., a publicly traded
company on the Australian Stock Exchange under the symbol AXL.
OUR BUSINESS STRATEGY
Electronic and remote (on line) auctions, which constitute
approximately 10% of the entire auction market, represent an out growth of the
auction market which had chiefly consisted of live auctions (see chart below).
According to Forrester Research Inc.(1) ("Forrester"), the remote or on
line auction market is divided into the following three categories: (i)
commodity auctions; (ii) independent auctions selling goods; and (iii) private
auctions. We intend to specialize in commodity auctions which Forrester
estimates to account for approximately 50% of the total value of business
auction transactions.
The online auction model has emerged as a significant channel and
electronic commerce methodology in the business to consumer market ("B2C"), also
referred to as "Independent Auctions", with such companies as e-Bay, Onsale,
uBid and Bid.com currently providing such services.
-15-
EVALUATION OF THE AUCTION SYSTEM MODEL
[GRAPH APPEARS HERE]
- --------------------
(1) Forrester Research Inc., Business Trade & Technology
Strategies, March 1998.
However, according to Forrester, the real potential for electronic
auctions lies in the business to business market ("B2B") also referred to as
"Commodity Auctions". Forrester predicts the trade in Commodity Auctions will
reach US $32.2 billion by the year 2002 (versus only US $5.5 billion dollars for
Independent Auctions ).
We believe that an enormous opportunity awaits the Company which can
successfully integrate and efficiently deliver the various components and
services of a dynamic global trading solution. We intend to deliver such a
global trading system in the form of an entirely new distribution channel which
will:
o improve economic efficiency in the management of sales and
distribution;
o improve information flow and product availability to potential
purchasers; and
o lower the cost of sales by exploiting Internet technologies
and sharing a technology platform.
Our management believes that we have the potential to be successful and
profitable because we are targeting low risk established high volume B2B auction
and commodity exchange markets. Our management further believes that our high
value and high margin transactional revenue model will help ensure sustainable
growth for the long term.
With the capabilities acquired by our acquisitions of Schelfhout,
Kwatrobox and its subsidiaries, Nieaf and Palm, and i-Three and our strategic
alliance with ABN AMRO Bank N.V., we shall be able to provide real time,
electronic auction and related financial services to auctioneers selling
commodities. Our intent is to become a world leader in the electronic perishable
commodity auctions in the short term, and expand our world leadership into the
electronic commodity auctions in the longer term. We currently have the
knowledge base, skills, equipment and software that is needed to provide
electronic services for perishable commodity auction businesses. Our knowledge,
skills, equipment and software, however, is not yet sufficient to provide
electronic services for other commodity auction businesses.
In accomplishing our goals, our intent is not to remove the traditional
auction house from the electronic auction process, but rather to make the
process more transparent to those involved in the auction process. Currently,
-16-
there are multiple steps in the auction process (from the actual auction to
providing foreign exchange services, settlement services, the insurance of goods
in transit and the delivery of the goods). Therefore, individual buyers and
sellers currently have to arrange the ancillary services around the auction
themselves. We propose to provide a "cradle to grave" solution for the buyers
and sellers.
Initially, we will focus on the financial services component which
includes foreign exchange services and settlement services. Towards this end, we
entered into a strategic alliance with ABN AMRO on May 9, 2000, to jointly
develop an internet based system to provide foreign exchange, credit management
and settlement services, to our perishable commodity auction customers.
OUR PRODUCTS AND SERVICES
Our trading platform is fully operational and used by over 150
customers worldwide. Through our acquisitions of Schelfhout and Nieaf, we now
have a complete trading platform for perishable commodity auctions. This allows
the Company to offer auction houses the ability to conduct remote and
simultaneous auctions. Our trading platform consists of the following components
(all of which are currently operational):
ELECTRONIC AUCTION CLOCKS
Since 1985, Schelfhout has been a constant innovator in auctions based
on the "Dutch clock". The "Dutch Clock" is the electronic time-piece utilized in
the Dutch auction system. Starting with (now primitive) projection systems, and
evolving into digital and LED based clocks, the goal has always been to provide
clock systems that maximize usability and auction throughput. Auction throughput
refers to the number of transactions that occur over a stated period of time in
an individual auction environment. Many auctions now employ several Schelfhout
clocks simultaneously, substantially increasing the number of lots that can be
sold on any given auction day.
In some auctions, the clock is mobile: the so called "Moby Clock". This
clock was developed to meet the specific needs of the fishing industry, where
buyers and the clock can move through a fish market and conduct sales over the
actual product.
AUCTION CONTROLLER
The auction master console runs the electronic clock and the digital
displays of the auction. It also registers the winning bid made by either a
local buyer or a buyer using a remote workstation. The console is a PC running
Microsoft Windows (3.1, 9x, NT), and bids are logged into a local SQL database.
At the time a bid is made, the controller also checks the credit position of the
buyer to ensure that they have sufficient credit to cover the purchase. This
credit information is also stored in a SQL database, and is one of the principal
integration points between the existing Schelfhout systems and the Financial
services offered by e-Auction.
In some high volume auctions, a multi-transaction controller is used
all owing several transactions to be processed every time the auction clock is
stopped.
REMOTE BIDDING SYSTEMS
A number of auctions support buying through remote workstations, so
that the buyers do not have to be physically present at the auction. In some
cases, these remote terminals are actually in the auctions themselves, replacing
the main electronic clock. In either case, the remote terminals connect to the
main auction using dial up or ISDN, and make socket connections to the
"syncrator", a dedicated server whose sole task is to determine which bid is the
highest. Through logic that takes into account transmission delays, the
syncrator ensures that, regardless of whether or not the bidder is physically
present, the auction is always fair.
As with the auction controller, the remote bidding clients are
currently using PC based applications.
-17-
MEDIATION SYSTEMS
While most of Schelfhout's auction customers operate on a Dutch clock,
there are some circumstances under which a different type of bidding is
required. In these cases, a mediation system is used, where a server collects
bids, relates them to asking prices by producers and their agents, and assigns
lots to the relevant buyers. Schelfhout has been working on the development of a
new, integrated trading system that builds on the vast experience gained over
the last 15 years. The basic principle is that, to obtain the optimum price for
a particular product, a variety of tools must be available to the selling
organization, as well as detailed information services. The Multi-Trade product
is designed to provide some or all of these tools at the sellers' discretion. On
June 20, 2000, Schelfhout, through a wholly owned subsidiary, installed the
first such multi-transaction electronic trading system in New Zealand for
Turners & Growers Flower Group/Floramax of New Zealand ("Floramax"). The
Floramax auction, which represents an estimated 60% of all New Zealand's
domestic flower sales, can process more than 800 transactions an hour and uses
the electronic market place to eliminate inefficiencies and boost flower-trading
capabilities.
Since the "new" Schelfhout system will allow individual buyers to
conduct their auction purchases on the Internet in their own domestic currency,
we will generate revenue from both the foreign exchange and the settlement
services. Meanwhile, the existing Schelfhout computer system will continue to
provide software solicitors to an existing customer base with international
trade.
OTHER CONTROLLERS
Schelfhout has also developed a range of other controllers with
microprocessors customized for the following market segments:
o (ultra low oxygen) preservation of hard fruit;
o Short term preservation of soft fruit, exotic fruit,
vegetables, plants and flowers; and
o General temperature control for preservation of deep frozen
and cooled products.
Schelfhout's controllers are also used to control condensers, gas
analysis, energy management, etc.
Schelfhout has developed a graphic modular display panel on which text,
logos and drawings can be displayed. This innovative concept offers numerous
advantages over standard systems:
o unlimited dimensions;
o storage capacity of more than 100 graphic images; and
o various special effects are included as standard: scrolling,
blinking and animation via fast displays of successive images
Our recent acquisition of Kwatrobox and its subsidiary,
Automatiseringsbureau Palm B.V., enables us to offer software products launched
in 2000 by Palm specifically designed to facilitate information flow management
and logistics solutions to the flower industry. These products include:
-18-
PBS VERDEEL
Targeted to small businesses in the flower trade, Verdeel is a
Windows-based logistics application that facilitates quick order entry
processing, while automatically tracking available flower stock. The software is
capable of linking to electronic auction systems, so that market activity is
instantly fed through to the application, thus saving time and providing
efficient tracking of business processes
PBS INTERNET BESTEL SYSTEEM (IBS)
IBS is an Internet trading system that enables flower trade companies
to conduct business with their customers via the Web. This Web-based tool is
compatible with all Palm systems and is designed to allow customers to complete
order entry online, while providing businesses with a seamless interface to the
back office.
PBS KEURMERK
Keurmerk is designed as a registration tool that tracks and traces
buying and selling information to be used for effective customer relationship
management. This information database helps companies locate the most relevant
information, internal contact, buying history and claims procedures, thus
promoting reliable and efficient service for all customers.
With our acquisition of i-Three, Inc. in December 2000, we complement
the foregoing trading platform product offerings with an increased ability to
gather, sort and transmit large amounts of information over the internet and our
trading platforms through various software applications having been developed by
i-Three, as follows:
AGGREGATION ENGINE
The i-Three Aggregation Engine is a next-generation web-based
enterprise technology for delivering aggregated information components on a
single web page. Each request for an information component is processed
successively by a task scheduler within the Aggregation Engine. Noting that a
single web page may contain many information components, the Aggregation Engine
uses distributed queue and multicast technology to distribute these tasks among
many computers, incorporating fault-tolerance and high scalability at modest
incremental cost. Through this facility an individual web page may be
constructed in multiple pieces by dozens of computers simultaneously. This
results in some of the best page build times in the industry from the simplest
to the most complex web pages.
LDAP ADAPTER FOR TIBCO
i-Three's LDAP Adapter is a software application that creates the
integration medium to join a TIBCO's broadcast messaging bus (TIB) - a
proprietary infrastructure middleware technology that transmits messages in real
time - and a Lightweight Directory Access Protocol (LDAP) Server. Specifically,
i-three's LDAP Adapter creates a link between an LDAP server and the TIB. The
TIB transmits commands (directory lookup, search, remove, add, modify) via the
LDAP Adapter that then translates the command into the LDAP protocol for
LDAP-compatible servers. In turn, the results of the command on the LDAP server
are returned to the TIB through the Adapter. The i-Three LDAP Adapter software
enables events in an LDAP database to be broadcast onto the TIB as they occur to
be used by other databases and applications.
CUSTOM ADAPTERS FOR TIBCO
TIBCO's infrastructure middleware, specifically the Information Bus(R)
(TIB) platform and TIBCO's Rendezvous software (the programming API used to
create TIB-enabled applications) facilitate business-to-business real-time,
event-to-action applications. While TIBCO offers a number of adapters for
standard technologies (oracle, SAP, Power Builder for example), many legacy
systems (systems already deployed within an organization) are unable to interact
with TIBCO products because no adapters exist to perform translation. i-Three's
custom adapters are software applications that creates the integration medium to
join a TIB and other technologies. i-Three's custom adapters make possible the
inter-operability of software applications and TIBCO's messaging applications
-19-
through the TIB infrastructure. The adapters offer messaging classes of services
and messaging payloads that can be configured depending upon application
requirements. The adapters are capable of translating and mirroring data types
between TIB messages and other data forms.
I3 DEVELOPMENT SANDBOX
I3 Development Sandbox is a Java programmer's tool to streamline and
facilitate the development process. The main functionality of the SandBox is to
load and execute java classes from a remote repository. The repository is a
module capable of loading and caching class files according to an Extinsible
Markup Language (XML) file, which files encode the rules for interpreting
formatting instructions. Sandbox permits the startup parameters for each module
to be specified, including the location of files, the execution order or
configuration, the distribution order and the number of instances of application
required to run simultaneously.
HTTP ADAPTER FOR TIBCO
The i-Three http Adapter is a software product that provides a
bi-directional bridge between web servers and TIB messaging environments,
specifically by taking http requests and translating them into TIBCO-readable
(Rendezvous) messages. At the centre of the product is the i-Three http Adapter
connector, a single application running as both a TIB publisher and subscriber,
with a connection to the LDAP server, that acts as a two-way gateway for
exchange of information between the environments. The http Adapter enables
applications to both publish information to other systems in a TIB-enabled
enterprise, and to subscribe to events of interest published by other systems.
When an outbound message is sent by an application, the http Adapter
performs a basic data type conversion (if required) and publishes the message
onto the TIB. Similarly, for an inbound message, the Adapter receives the
message and performs any conversions that are necessary to publish such message.
HTTPS ADAPTER FOR TIBCO
Like the http Adapter, the https Adapter provides a bi-directional
bridge between web servers and TIB messaging environments. The Adapter enables
applications to both publish information to other systems in a TIB-enabled
enterprise, and to subscribe to events of interest published by other systems.
The https provides a layer of security to the messaging environment for the
transmission of http requests.
ORACLE DATABASE ADAPTER (DBADAPTER) FOR TIBCO
dbAdapter for Oracle software is a bi-directional gateway between
Oracle JDBC driver and the TIB/Rendezvous messaging system. dbAdapter for Oracle
takes advantage of the scalability (the capacity of applications to be
replicated without affecting performance levers) of TIB/Rendezvous environment
and the JDBC platform independence, providing fault tolerant and highly
efficient control of the database. The software transparently converts
TIB/Rendezvous messages into SQL queries or PL/SQL stored procedure calls and
notifies TIB/Rendezvous applications of the results of execution of queries or
stored procedures. The messaging protocol is optimized for the exchange between
TIB/Rendezvous and Oracle data types and allows the software to be easily
integrated with other TIB/Rendezvous applications. Each request is processed
independently in a separate "thread" fetched from a "thread pool" - or an
individual strands of potentially numerous strands of a running operation -
using a database connection from a database connections pool. All dbAdapter for
Oracle parameters can be set using command line arguments. dbAdapter for Oracle
can be configured to connect to a specific database, to subscribe to
TIB/Rendezvous messages and to redirect error messages to specified client. The
system can be configured to run multiple instances of the dbAdapter in a "fault
tolerance group" - that is, if one dbAdapter fails for whatever reason, another
identical application will start up to take its place with no loss of
performance time. The fault tolerance group also allows the synchronous
monitoring of backup databases.
-20-
I3 RV SCHEDULER
The RV Scheduler is a tool for Java developers to streamline the
process of sending and receiving TIBCO Rendezvous messages. RV Scheduler is a
facility that schedules TIB Rendezvous messages to be sent on a specified
subject. Each message is processed and sent in a separate task (RV task) running
as a background thread. RV tasks may be scheduled for one-time execution, or for
repeated execution at regular intervals. If the task is scheduled for repeated
execution, each execution is scheduled relative to the scheduled execution time
of the initial execution (fixed-rate execution) as opposed to when each
execution is scheduled relative to the actual execution time of the previous
execution (fixed-delay execution).
Messages are put together and placed in order of execution according to
the XML description of RV tasks contained in text files. When RV Scheduler is
started, it attempts to convert to RV messages all files found in the directory
that the application is pointed to and all of its subdirectories, and schedules
valid RV tasks for execution. The source directory is specified as a command
line argument. If the source directory is not specified or does not exist, RV
Scheduler will assign system defined user's current directory as a source
directory.
I3 COLLATERAL MANAGEMENT UTILITY
i3 Collateral Management Utility is a set of Java applications that
together manage the whole credit process. The system includes a method for
distributing credit (payment guarantees, credit insurance, etc.) in the form of
'tokens' on behalf of buyers, at speeds up to near real time (approx sub
150mSec), from a central source (or sources) to an unlimited number of sellers.
It also contains a real-time credit reservation mechanism that links to a firm
guarantee of payment (or to credit insurance, etc.), providing a medium to
enable the user to set parameters for credit risk.
The i3 Collateral Management Utility is made up of a number of
inter-dependent modules, each of which receive, process and transmit Rendezvous
messages. The FINANCIAL SERVICES MODULE is used to process credit operations
(request, adjustment or cancellation). The rendezvous message that this module
received has data about the kind of credit operation that has to be executed.
The CREDIT TOKEN MANAGEMENT modules create, distribute, close and retire credit
"tokens" or discreet units of credit that can be allocated to various vendors.
The CREDIT REQUEST MODULE is used to send a credit request to appropriate module
that will process it and forward it to the appropriate financial institution.
The CREDIT RECEIPT QUERY MODULE and CREDIT RECEIPT TRACKING MODULE are used to
list all credit receipts for particular organization from database, so that
updated reports and accounting functions can be executed. The CREDIT RESERVATION
ADJUSTMENT MODULE is used to send a credit cancellation or credit adjustment
request to appropriate module that will process it. The ADD BANK GUARANTEE
MODULE is used to add new bank guarantees into database or to modify the old
one. The LIST BANK GUARANTEE MODULE queries the database to enable users to
generated updated reports relating to bank guarantees. Together these modules
perform the operations of obtaining, distributing and tracking credit through
the entire credit cycle.
EURONET TRADING PORTAL
Through our wholly owned subsidiary, Schelfhout Computer Systemen,
N.V., we are developing EuroNet Trading Portals to be launched later this year
following the completion of our pilot program (and its analysis) scheduled for
the second quarter of 2001. EuroNet Trading Portals can be described as a
pan-European network targeted to link Schelfhout's existing standalone European
systems, which, when aggregated, currently trade approximately US $7.0 billion
dollars in perishable commodities per year.
The networks will be launched into the following three vertical
markets:
o 38 Fish Auctions Approximately US $2.0 billion in trade volume annually
o 29 Fruits and Vegetables Auctions Approximately US $2.4 billion in trade volume annually
o 11 Flower Auctions Approximately US $2.4 billion in trade volume annually
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The EuroNet Trading Portals will link existing Schelfhout clients using
the Internet, extranet and X.25 networks, as well as clients interested in
migrating to Internet Protocol ("IP") based networks.
The EuroNet Trading Portals for fish, fruit, vegetables and flower will
consist of the development of European auction networks which will offer
Financial settlement services and foreign exchange services as their main
services. The Internet will enable individual buyers to participate in the
auction process remotely.
The current European landscape of auctions is highly fragmented (see
square boxes representing auction houses in chart below). This fragmentation has
not allowed for economies of scale to occur as each auction house has been
saddled with expenses. These expenses will be reduced significantly with the
implementation of our business proposition. We intend to link existing
standalone auction houses in each perishable commodity vertically, which in turn
will benefit from the centralization of ancillary services around the auction
process, such as foreign exchange services and financial settlement services
(see rectangle box in chart below). Standalone auction houses currently do
credit checks and receive letters of credit for each buyer. The buyers, in turn,
must repeat the process with each auction house they deal with. Our plan is to
eliminate these redundancies by implementing a centralized financial settlement
solution which will benefit all the parties involved.
The solution will make it possible for remote buyers to participate in
auctions using their own currency while the auction ho uses and producers will
also be paid in their own local currencies. Hence, a foreign currency service is
an integral part of the bundled financial services we offer.
The whole financial settlement for both buyer and seller (auction house
and producer) should be as understandable and as customer friendly as possible.
All of these services will be offered on the basis of a transaction fee. The
advantage with this cost structure is that auctions will not need to make
substantial investments in information Technology ("IT") and infrastructure. The
use of these services is therefore a variable cost.
[GRAPH APPEARS HERE]
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As reflected in the diagram below, benefits to the auction houses
participating in the Trading Portal include the following:
o Increased numbers of buyers and sellers;
o Focuses on core competency rather than issues such as credit
checks and limits;
o Offers value added service;
o Offers competitive advantage over other European auction
houses; and
o Serves as a deterrent for non- payment, since only buyers with
credit approval may participate in the auctions.
Benefits to buyers participating in the Trading Portal include:
o Need only one letter of credit or a single escrow account;
o Can purchase from all the auction houses on the network;
o Receive better quality product; and
o Better selection available.
Benefits to sellers participating in the Trading Portal include:
o Better prices through transparency;
o Increased number of purchasers; and
o Guaranteed payment.
BENEFITS OF EURONET TRADING PORTALS
[GRAPH APPEARS HERE]
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Benefits to Auction Houses on Network
o Increased numbers of buyers and sellers;
o Focuses on core competency rather than issues such as credit
checks and limits;
o Offers value added service;
o Offers competitive advantage over other European auction
houses; and
o Serves as a deterrent for non-payment, since only buyers with
credit approval may participate in the auctions.
We are currently piloting the new technology with a group of six (6)
fish auction houses in the Dutch electronic fish market. Once a network has been
established with the Schelfhout customers, it is our objective to extend that
network to include the remaining European auctions which are not currently
Schelfhout's clients, as well as adding additional international demand.
OUR BUSINESS ACQUISITIONS
KWATROBOX B.V.
On November 1, 2000, we purchased all of the issued and outstanding
shares of Kwatrobox B.V. a Netherlands corporation, in exchange for a cash sum
of US$1,573,250 (Four Million (4,000,000) Guilders) and an aggregate of One
Million Two Hundred and Fifty Thousand (1,250,000) shares of our common stock
and, subject to future earnings, possible options exercisable at the third
anniversary date to purchase additional shares of our common stock having an
aggregate value of US$393,313 (One Million (1,000,000) Guilders).
Kwatrobox B.V. is the parent company of the following operating
companies 1) Nieaf Systems B.V. and 2) Automatiseringsbureau Palm B.V.
NIEAF SYSTEMS B.V.
Nieaf Systems is a developer of electronic trading systems for
perishable commodity market places. The Company has over 100 years of experience
developing innovative trading systems to the perishable commodity market and
building relationships within the industry. Based in the Netherlands, two of
Holland's largest flower auctions, Aalsmeer flower auction and Bloemenveiling
Holland in Naaldwijk, are customers of Nieaf Systems. Aalsmeer, which is
considered the world's largest flower auction, conducts approximately US $1.2
billion dollars in transactions per year.
AUTOMATISERINGSBUREAU PALM B.V.
Palm develops specialized enterprise resource planning (ERP) software
and IT Infrastructure Systems for Exporters and Wholesalers in the US $6 Billion
Dutch flower industry. Palm Business Solutions (PBS) software allows its clients
the ability to manage the flow of produce from the auction floor to their
respective customers. PBS software divides, tracks, integrates, and supplies
information to client's back off ice systems. Palm seamlessly integrates
web-based logistic applications and Internet trading systems to allow clients to
have complete control over all facets of their business. With offices in the two
largest flower auctions and an installed base of over 400 applications, Palm has
become a recognized leader in the Dutch flower industry.
In November of 2000, Palm entered into a three-year agreement to sell
the IBS product to the Dutch Flower Group ("D.F.G."), a leading European flower
and plant exporter based in the Netherlands. The D.F.G. consists of up to 20
companies involved in the worldwide plant and flower export business.
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I-THREE, INC.
On November 27, 2000, we purchased all of the issued and outstanding
shares of I-Three, Inc. in exchange for an aggregate of 455,000 shares of our
common stock (representing approximately 0.69% of our issued and outstanding
shares at that time). I-Three is an e-commerce solutions provider focused on
delivering globally scaleable, event driven applications for B2B enterprises
that fully leverage the opportunities of information gathering and sorting from
the Internet. With I-Three's existing line of B2B applications, and strategic
partnerships with industry leaders such as Sun-Netscape Alliance, TIBCO Software
Inc. and Oracle, we believe that I-Three will provide us with the capability to
develop internally our financial service and portal applications.
In addition to the adapters discussed previously, I-Three's product
line includes the following :
I3 MESSAGE BOARD: a desktop interface that enhances corporate
communication and streamlines decision-making processes. It
includes a real-time internal employee roll-call application
and an inter-company contact and resource manager.
I3 PORTAL ENGINE: an application that enables users to develop
their own customizable portal site. I-Three's Portal Engine
application constructs each page for users as they request it.
All elements of page look-and-feel are template-driven and
defined by user preferences stored in an LDAP database. The
Portal Engine's architecture is able to increase the number of
transactions acted upon by the software, load balanced and
fault tolerant.
I3 TICKER: I-Three's Ticker creates an applet that displays
scrolling bars containing data such as stock and commodity
prices. Generic, customizable and adaptable, Ticker can
present static, real-time or periodically updating data in
single, double or multiple lines.
I3 CHART APPLICATION: an application that creates dynamic
charts that diagrammatically present data, for example, the
value of stocks over a certain time period. The chart
application creates a number of image layers containing grids,
lines, labels and date-time values corresponding to the
fluctuations of stock values, and allows users to drill down
through data such as intra-day charts.
I-Three's commitment to providing event driven, fast, easy to use, and
scaleable web portal solutions can be seen in its finished product
"WallStreetview.com". Hired to develop an integrated portal for Wall
Streetview.com, I-Three developed and delivered a comprehensive financial
services portal that offers current financial data, including real-time quotes,
the latest business news, historical charts and stock ticker, and additional
content from industry leaders such as Reuters, Standard & Poors, Comstock and
Morningstar.
SCHELFHOUT COMPUTER SYSTEMEN N.V.
By a share purchase agreement dated as of January 10, 2000 among Luc
Schelfhout, Hilde De Laet and our subsidiary, Aucxis (Belgium), we acquired all
of the shares of Schelfhout Computer Systemen N.V., a Belgium Company. A
purchase price for the shares of Schelfhout of $10 million was stipulated in the
share purchase agreement representing the fair value of the consideration at the
time the agreement to purchase Schelfhout Computer Systemen N.V. was initially
contemplated. Our consideration included (i) $4 million cash ($1 million of
which was paid in 1999) and (ii) an aggregate of 3,636,364 shares of our common
stock to Luc Schelfhout and Hilde De Laet, of which 1,818,182 common shares were
issued to Luc Schelfhout, a current officer of our Company, and 1,818,182 common
shares were issued to Mr. Schelfhout's spouse, Hilde de Laet. The fair value of
common shares of e-Auction Global Trading, Inc. was $1.00 at the date of
acquisition and, accordingly, the total final fair value consideration for the
purchase was $7,636,364. As part of the transaction, we agreed not to sell or
otherwise to transfer the shares of Schelfhout during the 12 month period ending
on January 10, 2001. As security for the covenant not to sell the shares and for
other matters, the company pledged the shares of Schelfhout in favor of Luc
Schelfhout and Hilde De Laet.
Over the past 17 years, as a solutions provider for perishable
commodity (fish, flower, fruits and vegetables) auction houses, Schelfhout had
developed over 150 electronic trading systems for numerous selling
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organizations all over the world. These electronic trading systems facilitate an
estimated 125,000 transactions per hour. The acquisition of Schelfhout provides
the Company with electronic trading hubs with approximately US $15 billion
dollars in annual turnover, including European trade of more than US $7 billion
dollars. Schelfhout delivers the tools to bring together supply and demand under
optimum conditions and thus create a better market situation. Because of its
experience in the marketing of perishable goods and the development of
customized hardware and software solutions in this niche market, Schelfhout
takes pride in its knowledge of the sector. We believe that the hardware and
software employed by Schelfhout can be adapted, without substantial cost or
time, to provide services to other commodity auctions.
Since its establishment in 1983, Schelfhout has focused on two market
sectors: (i) the computerization of auctions and (ii) automation for the
preservation of perishable products. As an ancillary to the auction system, a
modular graphic display panel was developed by Schelfhout in 1992 and added to
the product range.
In November of 2000 Schelfhout delivered an electronic trading platform
to streamline the buying and selling processes for FloraNet in Holambra, Sao
Paulo, Brazil. At the time, FloraNet, a flower marketing organization consisting
at such date of 32 flower producers representing 15% of flower production for
the region, anticipated over 130 buyers to be utilizing the system by the end of
the year 2000. At the end of calendar year 2000, FloraNet had generated revenue
of approximately US $9.5 million from the system. With this implementation, the
Company further expanded its reach into the South American perishable commodity
market.
GENERATED SOLUTIONS LTD.
Upon the completion of our share exchange agreement with e-Global
(Barbados) in February 1999, we acquired the rights of e-Global (Barbados) to
market and exploit the internet auctioning software and other technologies of
Generated Solutions Ltd. (GSL) and National Electronic marketing Inc. (NEMI).
The purchase price paid by us and attributable to GSL's technology rights was
Cdn $50,000 in cash. E-Global (Barbados) had previously acquired from NEMI the
exclusive license rights granted by GSL to NEMI to market GSL's internet
auctioning software outside of North America as well as the non-exclusive market
rights within North America. The price paid by e-Global (Barbados) for the NEMI
rights was Cdn $300, in the form of a grant of options to purchase up to 30,000
shares of the common stock of e-Global (Barbados), at an exercise price of
$0.01. On December 1, 1998, NEMI received additional options to purchase up to
65,000 additional shares of common stock of e-Global (Barbados), at $0.01 per
share. All of these options were assumed by us under our stock option plan and
became our obligations following the completion of the share exchange.
As part of the earlier transaction between e-Global (Barbados) and
NEMI, e-Global (Barbados) entered into a consulting agreement with Canadian
Caging Corporation, a Company associated with the vendor, for Cdn $5,000 per
month. Our subsidiary, acting through its wholly owned subsidiary, Aucxis Corp.
(Canada), continues to pay for services under the consulting agreement. The
consulting agreement ends February 1, 2001.
STRATEGIC ALLIANCE WITH ABN AMRO BANK N.V.
By a letter Agreement dated as of May 27, 2000 between Aucxis Corp.
(Canada) and ABN AMRO Bank N.V., we entered into a strategic alliance with ABN
AMRO to develop and provide integrated financial services to our perishable
commodity auction customers. Through this arrangement, ABN AMRO and our Company
intend to jointly develop an Internet-based system to provide financial services
including foreign exchange, credit management and settlement services. Marketing
activities in support of the offered services will also be undertaken jointly.
The services are scheduled to be offered as part of a pilot project in Holland,
in the form of a financial system platform for the Urk Fish Auction enabling
real time portable credit reservation and settlement services. The Urk Fish
Auction is one of the largest electronic fish auctions in the world,
representing 145 Million Euro in transactions annually, and is the driving force
behind EFICE (Electronic Fish Information Center Europe), a trading network
linking seven (7) Dutch fish markets. Management believes that we are well
positioned to exploit opportunities to provide integrated on line financial
services to the perishable commodity e-market place because of our knowledge and
experience in electronic perishable commodity auctions and ABN AMRO's financial
services expertise, technological innovation and global reach.
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ALLIANCE WITH ELECTRONIC DATA SYSTEMS LIMITED
By an Agreement entered into in February 2001 between our subsidiary,
Aucxis Corp. (Canada), and Electronic Data Systems Limited (EDS), EDS will
provide state-of-the-art hosting and network management infrastructure required
to support the rollout and critical demands of Aucxis eFinance Hub, the core
component of Aucxis' recently announced Real-Time Commerce Platform. EDS well
also provide Aucxis with systems integration services to assist in the rapid
installation and rollout of the Hub to new and existing customers. By this
agreement, EDS and our Company intend to leverage EDS' existing channels to
market and launch into new verticals, delivering a technology platform that will
increase liquidity in electronic marketplaces by eliminating payment risk
between business-to-business trading partners. In return for its services, EDS
will receive a fee from Aucxis as well as share in the revenue generated by the
eFinance Hub services.
OUR INTELLECTUAL PROPERTY
Other than the patent regarding "method and system for real time credit
reservation and distribution" currently under review by the United States Patent
and Trademark Office, we have neither any registered patents or trademarks nor
any licenses, franchises, concessions or royalty agreements. There has been
approximately Cdn $1,000,000 spent since inception on the preliminary project
work for Euronet Platform. Since February 1999, our development team has been
working on the auction platform.
OUR COMPETITION
The electronic auction market is highly competitive, is changing
rapidly, and is significantly affected by new product and service introductions.
Companies are increasing the demand for industry specific solutions to meet
their needs in providing products and services to customers and trading
partners. Barriers to entry into this market are relatively low, and we expect
that competition will intensify in the future. The market environment in which
we operate is extremely dynamic and is characterized by constantly evolving
standards and new market entrants.
Our primary competition currently comes from traditional auction
suppliers of hardware and software services such as OES and Agro Marche
Internationaux. OES is North Americas largest traditional auction builder
specializing on flowers and tobacco. Agro Marche focuses on the food production
industry as well as the international seafood sector.
Our secondary competition comes from new internet companies such as
World Commerce On-line (WCOL), Decofrut, Farms.com, Pan European Fish Auction
(PEFA), Vertical Net, Moai, OpenSite Technologies, FairMarketSM, Inc, Ariba and
Trade'ex, Gofish, Fishmonger, Free markets and many other. A brief description
is included below:
WCOL delivers Internet based, global e-commerce solutions to large
international organizations and worldwide vertical industries. Decofrut provides
the verification of the quality of fruits shipped into the world's largest port,
Rotterdam, and Philadelphia. Farms.com will shortly be offering a Bid-Ask market
place. Commodity traders will be able to participate in Real Time Bid-Ask
trading with bids exchanged instantaneously. Pan European Fish Auction (PEFA)
operates a network of electronic Fish Auctions spread over Europe. These
auctions are linked together and accessible to the buyers via the internet, thus
creating a virtual market place on a "business-to-business" level. VerticalNet,
Inc. is a creator and operator of vertical trade communities. VerticalNet
leverages the interactive features and global reach of the Internet to create
multinational, targeted business-to-business communities. Moai provides commerce
solutions for the Internet. Moai provides companies with the technology and
services for customized on line auctions and trading exchanges. OpenSite
Technologies: provides online auction solutions. Since 1996, OpenSite has
offered online auction software with quick implementation and ease of
management.
FairMarketSM, Inc. is a provider of networked, online dynamic pricing
solutions that are designed to allow customers to expand their distribution
channels and create new on-line revenue opportunities. Their primary service
offering is an outsourced, private label auction solution that is used by some
of merchants and portals on the Web. Ariba and Trade'ex: the evolution of the
Internet economy and the creation of new Digital marketplaces will streamline
the commerce process and to tally transform the way businesses exchange goods,
services, and
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information. Sorcity is an Internet hosted, business-to-business reverse auction
service for buyers and sellers of both direct and indirect items. Respond.co is
a online shopping service, a way of matching buyers and sellers of a wide range
of products and services. Gofish: creates a single resource for every one
connected with the seafood industry. Where buyers and sellers can do business
faster and easier than ever before with feature reporting.
FishMonger is based adjacent to the bustling seafood industry of
Seattle, the Puget Sound, and the North Pacific. It has been developed by
combining the talent from the seafood industry with exceptional expertise from
the world of e commerce. Free markets creates business to business on line
auctions for buyers of industrial parts, raw materials, commodities and
services. Since 1995, it has created auctions for goods and services in more
than 50 product categories, including injection molded plastic parts, commercial
machinings, metal fabrications, chemicals, printed circuit boards, corrugated
packaging and coal.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than us, greater
name recognition, more strategic relationships and a larger installed base of
customers. In addition, certain competitors have well-established relationships
with our current or potential customers. As a result, our competitors may be
able to devote greater resources to the development, promotion and sale of their
services, may have more direct access to corporate decision makers based on
previous relationships and may be able to respond more quickly to new or
emerging technologies and changes in customer requirements. There can be no
assurance that we will be able to compete successfully against current or future
competitors or that competitive pressure will not have a material adverse effect
on our business, operating results and financial condition.
GOVERNMENT REGULATION; GOVERNMENT APPROVAL
The Company is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses generally.
There are currently few laws or regulations directly applicable to access to, or
commerce on, the Internet. However, due to the increasing popularity of and use
of the Internet, it is possible that a number of laws and regulations may be
adopted with respect to issues such as the protection of databases, user
privacy, pricing and characteristics and quality of products and services. The
adoption of laws or regulations in the future may decrease the growth of the
Internet, which in turn could decrease the demand for the Company's services and
products and increase the Company's costs of doing business or otherwise have an
adverse effect on the Company's business, operating results and financial
condition. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, libel and personal privacy is
uncertain and could expose us to substantial liability, for which the Company
might not be indemnified.
Due to the global nature of the Internet, it is possible that the
governments of various states of the United States or foreign countries may
attempt to regulate various states of the United States or foreign countries may
attempt to regulate our transmissions or to prosecute us for violations of their
laws. Violations of local laws may be alleged or charged by state or foreign
governments. We may unintentionally violate these laws and these laws may be
modified, or new laws enacted, in the future. It is also possible that states or
foreign countries may seek to impose sales taxes on out-of-state companies that
engage in commerce over the Internet. In the event that states or foreign
countries succeed in imposing sales or other taxes on Internet commerce, the
growth of the use of the Internet for commerce could slow substantially.
PRELIMINARY PROJECT STAGE EXPENSES
The Company has not incurred significant research and development
costs. During fiscal 2000, we have incurred costs related to the preliminary
project stages of the EuroNet Trading Portal. During fiscal 2001, we expect to
complete a pilot project concerning the EuroNet Trading Portal and, following
our assessment of such program, develop for commercial production our financial
services products. We are confident that we have the internal development
resources to complete this task. We do not expect to have any purchase or sale
of plant and significant equipment. We do not expect to have any significant
changes in the number of employees.
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COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company is not involved in a business which involves the use of
materials in a manufacturing stage where such materials are likely to result in
the violation of any existing environmental rules and/or regulations. Further,
the Company does not own any real property which would lead to liability as a
land owner. Therefore, the Company does not anticipate that there will be any
costs associated with the compliance of environmental laws and regulations.
OUR EMPLOYEES
As of March 2001, we had one hundred and twenty-one (121) full time
employees and four (4) part time employees. None of our employees is represented
by a labor union or are covered by a collective bargaining agreement. We
consider our labor and employee relations to be good. Competition for qualified
personnel in our industry is intense, particularly among software development
and other technical staff. We believe that our future success will depend in
part on our continued ability to attract, hire and retain qualified personnel.
OUR FACILITIES
We have offices located at 220 King Street West, Suites 200 and 300,
Toronto, Ontario, Canada, M5H 1K4 and at Bormte 204/A, Stekene, Belgium 9190.
The offices at 220 King Street West are leased by i-Three, which lease ends
September 3, 2004 and provides for rent payments of Cdn$161,105 per year.
Schelfhout's real property was divested prior to our acquisition. As
part of the acquisition, however, Schelfhout shall be entitled to remain on the
premises where it currently conducts its business operations for a twelve (12)
month period ending January 7, 2001 rent free and thereafter, for an additional
term of 10 years, at a rate of 2,400 BEF per square meter for office space,
1,800 BEF per square meter for the work room and 1,200 per square meter for the
warehouse.
Our subsidiary, Kwatrobox, rents through its subsidiaries the following
offices:
(1) Palm has three rented offices located at: (i) 3 Laan van Verhoef,
office B3.83, Rijnsburg, The Netherlands, at the rate of NLG 13,359 per year for
a two year term, commencing on July 1, 2000; (ii) 29 Middel Broekweg, office
H191, Naaldwijk, The Netherlands, at the rate of NLG 46,739 per year for a one
year term, commencing on January 1, 1999, which term shall automatically be
renewed unless or until either party gives three (3) months notice to quit; and
(iii) 1 Hornweg, Aalsmeer, The Netherlands, at the rate of NLG 15,364 per year
for a five year term, commencing on August 1, 1998, which term may be extended
for additional 5 year terms unless and until either party gives twelve (12)
months notice to quit.
(2) Nieaf has rented an office located 22 Kanaalweg, Utrecht, The
Netherlands, the lease price is NLG 246,188 at a rate of June 1, 1999 for a
period of 5 years (with extensions for another period of 5 years) until one of
the parties give notice to quit with a term of notice of twelve months.
Our Company does not own any real property other than (a) the building
contributed by us to our subsidiary, SDL Invest N.V., which ownership interest
is subject to an option to purchase granted to such subsidiary's minority
shareholders and (b) a three story office and small warehouse building located
at the 2 Molenvlietweg; Aalsmeer that is owned by our subsidiary, Kwatrobox.
Annual property taxes to Kwatrobox are approximately 1,302 Guilders. We have not
entered into any agreements to acquire any properties.
LEGAL PROCEEDINGS
Except as described below, we are currently neither a party to any
litigation nor aware of any other litigation threatened against us.
(1) A shareholder derivative action was brought against the Company on
November 17, 1999 in the United States District Court of California against the
Company, its subsidiaries, two of its directors and several other
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companies and individuals, including Shane Maine (former director and Chief
Executive Officer of the Company) and Ventures North Investment Partners, Inc.
and QFG Holdings Limited, Inc., both stockholders of the Company, among others.
The proceeding alleges that the reputation of Sanga International, Inc.
("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 plaintiff sought preliminary and permanent injunctive relief from
engaging in any of the following activities: (a) use of plaintiff's proprietary
Internet auction technology, (b) use of plaintiff's proprietary financial
services technology, (c) representing the right to utilize plaintiff's Internet
auction technology or proprietary financial services technology, or (d)
transferring, hypothecating, selling, licensing or otherwise engaging in a
transaction regarding plaintiff's financial services technology.
The foregoing proceeding was stayed on November 29, 1999 as a result of
Sanga filing for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court.
A competitor of SCS has filed three claims totaling approximately
$150,000 (FRF1,000,000) against SCS during 2000. In addition, certain customers
of a subsidiary have filed claims totaling $70,000 against the subsidiary. At
present, there is insufficient information available to ascertain the likelihood
of these claims being successful. Accordingly, no recognition of this contingent
loss has been made.
Except as described above, management does not have knowledge of any
material litigation pending, threatened or contemplated, or unsatisfied
judgments against the Company or its affiliates, or any proceedings in which the
Company or its affiliates is a party. Similarly, management is without knowledge
as to any legal actions pending or threatened or judgments entered against the
Company's executive officers and directors in their capacity as such, other than
to the extent such individuals are named in the above actions.
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PLAN OF OPERATION
Over the next twelve months, we intend to continue to grow rapidly,
consolidating our operations and building upon our acquisitions during fiscal
year 2000 of Schelfhout Computer Systemen N.V. (January 2000), Kwatrobox B.V.
and its subsidiaries including Palm and Nieaf Systems (November 2000) and
I-Three, Inc. (November 2000). Also during fiscal year 2000 we started to
develop new services for our customers to help buyers and sellers with credit
reservations and foreign exchange. We anticipate additional cash will be needed
to fund such growth and fully intend to engage in further financing to meet
expanded operating capital needs.
At December 31, 2000, we had approximately US $6.2 million in cash. In
addition, the operations of our wholly-owned subsidiary, Schelfhout, generated a
modest amount of positive cash flow.
Presently, we generate revenues by providing electronic trading
(auction/bid ask) systems (Schelfhout), wholesale distribution (Kwatrobox), and
industry specific domain consulting (both Schelfhout and Kwatrobox). With our
acquisition of I-Three in late November 2000, we are also able to provide
high-end consulting and software integration services targeting
business-to-business web portal applications.
As a provider of electronic trading solutions and value added
e-commerce services to the perishable commodity marketplace, we continue to
focus on the following perishable commodities - fish, fruits & vegetables, and
flowers. Our acquisitions of Schelfhout and Palm/Nieaf during fiscal year 2000
provide a customer base of over 150 electronic auction sites with thousands of
buyers and sellers. We expect to continue to realize revenues from this
historical customer base.
We also intend to provide additional financial services to this
customer base by creating industry specific electronic marketplaces that supply
a full range of business services to market participants. Such an electronic
marketplace will support all manner of trading (spot, forward and futures) and
will provide market participants with access to a broad array of value-added
ancillary services. On December 18, 2000, we filed a patent application with the
US Patent and Trademark Office regarding the "method and system for real time
credit reservation and distribution," which patent application relates to a
process designed to provide credit from a buyer to a seller through a central
source. Our intention is to derive further revenues by charging customers a
usage fee for the additional services we will be providing. We are currently
piloting this new technology with a group of six (6) fish auction houses in the
Dutch electronic fish market. Once completed, we intend to roll out the new
product and services to our other customers. We anticipate this rollout to occur
in the second quarter of 2001. As the new services are adopted, we expect to
move towards a transaction-based revenue model whereby we anticipate earning
revenue based on continuing value-added services.
We anticipate that completion of our financial services technology roll
out will require approximately $750,000 in capital expenditures. The majority of
the funds required will go toward setting up the hardware and software to allow
transactions to occur across our network. Because the technology will be
scaleable, we do not expect significant costs to be incurred as we roll out the
technology to our installed customer base. Our chief expenditures will include
hiring qualified programmers to continue to develop our technology, as well as
hiring a larger sales and marketing staff to grow our business and effectively
service our clientele. It is also anticipated that we will spend approximately
$500,000 out of our current working capital in fiscal year 2001 to purchase new
computer equipment for the increased staff. It is anticipated that our accounts
payable and accruals will be satisfied out of our working capital.
During fiscal year 2000, we raised the following funds:
In January 2000, we raised approximately $4.34 million of new capital
through the private placement of 9,293,777 shares of our common stock.
Of this $1.9 million was received in advance of the issue in late 1999.
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In June 2000, we raised approximately $7.4 million in additional
capital through a private placement of 4,072,639 shares of our common
stock to ABN AMRO Capital Investments (Belgie) N.V.; and
In January 2000, we retired $3.8 million in debt held by Halium
Hongorzul, Millennium Advisors Inc. and Ventures North Investment
Partners Inc. by issuing an additional 7,625,916 shares of our common
stock.
PRELIMINARY PROJECT STAGE
During the next twelve months we expect to complete the pilot project
and commence commercial production of our financial services products. This will
entail getting feedback from the users of the pilot project and implementing the
design specifications into the final code version. We are confident that we have
the internal development resources to complete this task. We do not expect to
have any purchase or sale of plant and significant equipment. We do not expect
to have any significant changes in the number of employees.
RESULTS OF OPERATIONS
COMPARISON OF THREE (3) MONTHS ENDED MARCH 31, 2001 TO THREE (3) MONTHS
ENDED MARCH 31, 2000
REVENUES
Revenue for the three months ended March 31, 2001 was $1,966,175
compared to $1,028,836 in the similar period in 2000. Increases in revenue were
driven by the Company's acquisition of Kwatrobox in November 2000 as well as
continued growth in the installation of auction clock systems. On a proforma
basis, if Kwatrobox had been acquired on January 1, 2000, the revenues for the
three months ended March 31, 2000 would have been $2,026,032. Schelfhout derives
its revenues from the development and installation of clock systems, cooling
installations and associated maintenance contracts for auction halls. Kwatrobox
derives its revenues as a provider of electronic auction infrastructure and
enterprise resource planning software. The interim financial statements disclose
the proforma revenues, loss and net assets as if Kwatrobox had been included in
operations for the first quarter. We purchased Schelfhout and Kwatrobox
primarily in order to obtain access to their existing customer base, their core
technology and their employees.
EXPENSES
Selling, general and administrative for the quarter was $2,518,766
compared to $728,646 in the corresponding period in 2000. The increase is due,
in large part, to the inclusion of Kwatrobox and I-Three in the 2001 quarter.
The company has incurred research and development costs in the quarter of
$415,265 in developing new products for auction customers. There were no such
activities in the quarter ending March 31, 2000.
NET LOSS/EARNINGS
Net loss for the three months was $2,436,170 compared to a loss of $760,850 in
the corresponding period in 2000. Included in the loss was$178,000 share of
income from Aucxis (Australia). Much of this income related to the sale of
mining tenements. We do not anticipate this to be a recurring part of the
operations and expect that Aucxis (Australia) will incur losses over the coming
quarters. The increase in net loss for the three months is partly attributable
to an increase in depreciation and amortization to $715,000 and the charge for
stock based compensation of $326,000. On a proforma basis, if Kwatrobox had been
acquired on January 1, 2000, the net loss for the three months ended March 31,
2000 would have been $4,248,869.
LIQUIDITY AND CAPITAL RESOURCES
As at March 31, 2001, the company had cash of $4.0 million. During the
quarter ended March 31, 2001, cash decreased by $2.1 million. Of this,
approximately $1.6 million was to fund ongoing operations, and accounts
receivable increased by approximately $325,000, accounts payable and accrued
liabilities increased by approximately $94,000, inventory increased by
approximately $73,000 and deferred revenues decreased by approximately $195,000.
COMPARISON OF YEAR ENDED DECEMBER 31, 2000 TO YEAR ENDED DECEMBER 31,
1999
REVENUES.
Revenue for the year ended December 31, 2000 was $4.8 million, as
compared to $0 in the year ended December 31, 1999. Increases in revenue were
driven by the Company's acquisition of Schelfhout on January 10, 2000, Kwatrobox
on November 1, 2000 and I-Three on November 27, 2000. (On a proforma basis,
Schelfhout had revenues of approximately $3.8 million and $2.9 million for the
fiscal years ended 2000 and 1999, respectively, and Kwatrobox had revenues of
approximately US $4.2 million and $4.9 million for such fiscal periods).
Schelfhout derives its revenues from the development and installation of clock
systems, cooling installations and maintenance for auction halls. Kwatrobox
specializes in the manufacturing and servicing of auction clock systems used in
the auction of perishable commodities as well as the development of software
specific to auctions and industries associated with auctions, including
importers and exporters, the wholesale trade, line drivers and growers. The sale
of hardware and software related to these operations forms part of this service.
NET LOSS/EARNINGS.
Net loss for the year ended December 30, 2000 was $4,665,934, as
compared to a loss of $2,654,432 for the corresponding period ended December 31,
1999. This increase in net loss is partly attributable to an increase in
depreciation and amortization costs, to approximately $1.7 million, and
inclusion of our percentage of Aucxis Ltd. (Australia) loss of approximately
$190,000. (On a proforma basis, Schelfhout had net income of approximately
$8,000 and $54,000 for the years ended December 31, 2000 and December 31, 1999,
respectively, and Kwatrobox had net losses of approximately $1.7 million and
$300,000 for such fiscal periods).
OPERATING EXPENSES.
Selling general and administrative expenses for the year ended December
31, 2000 were $5,698,828, as compared to $2,654,432 for the corresponding period
ended December 31, 1999. This increase in operating expenses was chiefly
attributable to efforts taken by the Company to consolidate its market space and
to acquire companies management believed would form the building blocks for
bringing additional services into the perishable market place. For the year
ended December 31, 2000, we acquired Schelfhout (January 10, 2000), Kwatrobox
(November 1, 2000) and I-Three (November 27, 2000). With such acquisitions came
additional costs. On a proforma basis for fiscal year 2000, Schelfhout had
operating costs of approximately $2.1 million; Kwatrobox, approximately $2.7
million; and I-Three, approximately $530,000. We also incurred increased costs
for travel due to operations in both North America and Europe, increased legal
and accounting costs due to regulatory compliance matters upon becoming a
publicly reporting company and increased salaries and benefits due to the ramp
up of research and development to move the company's product and service
offering to the next level.
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LIQUIDITY AND CAPITAL RESOURCES
Changes in non-cash working capital at December 31, 2000 was
approximately $322,000 compared to $949,000 for the year ended December 31,
1999. The decrease in working capital was due primarily to a decrease in
deferred revenue of approximately $671,000, an increase in accounts receivable
of approximately $175,000, an increase in accounts payable and accrued
liabilities of approximately $265,000 and a decrease in inventory of
approximately $217,000. At year end the Company held cash of $6.2 million.
PRELIMINARY PROJECT STAGE EXPENSES
During the fiscal year 2001, we expect to complete the pilot project
and commence commercial production of our financial services products. At
December 31, 2000 we were still in the preliminary stages of developing this
model and our costs for the preliminary project stages of the EuroNet Trading
Portal of approximately $1 Million were charged to expense. Activities in 2001
will include getting feedback from the users of a pilot project and implementing
the design specifications into the final code version. We are confident that we
have the internal development resources to complete this task.
ACQUISITIONS
During fiscal year 2000, the company completed the following three
acquisitions:
SCHELFHOUT COMPUTER SYSTEMEN N.V.
By a share purchase agreement dated as of January 10, 2000 among Luc
Schelfhout, Hilde De Laet and our subsidiary, Aucxis (Belgium), we acquired all
of the shares of Schelfhout Computer Systemen N.V., a Belgium Company. A
purchase price for the shares of Schelfhout of $10 million was stipulated in the
share purchase agreement. Our consideration included (i) $4 million cash ($1
million of which was paid in 1999) and (ii) an aggregate of 3,636,364 shares of
our common stock issued to Luc Schelfhout and Hilde De Laet, the sole
stockholders of Schelfhout. We paid a premium to book value in light of
Schelfhout's 17 years of operating history and the access afforded us to an
installed customer base already using electronic auction systems. For accounting
purposes, the purchase price per share was $1.00 and total consideration for the
purchase of Schelfhout Computer Systemen N.V. was $7,636,364. As part of the
transaction, we agreed not to sell or otherwise to transfer the shares of
Schelfhout during the 12 month period ending on January 10, 2001. As security
for the covenant not to sell the shares and for other matters, we pledged the
shares acquired in Schelfhout in favor of Luc Schelfhout and Hilde De Laet.
KWATROBOX B.V.
On November 1, 2000, we purchased all of the issued and outstanding
shares of Kwatrobox B.V. a Netherlands corporation, in exchange for (i) a cash
sum of $1,573,250 (4 Million Guilders); (ii) an aggregate of 1,250,000 shares of
our common stock; and (iii) subject to future earnings, possible options
exercisable at the third anniversary date to purchase additional shares of our
common stock having an aggregate value of 1 Million Guilders. Kwatrobox B.V. is
the parent company of 1) Nieaf Systems B.V., a developer of electronic trading
systems for perishable commodity market places and 2) Automatiseringsbureau Palm
B.V., which develops specialized enterprise resource planning (ERP) software and
IT Infrastructure Systems for Exporters and Wholesalers in the $6 Billion Dutch
flower industry. Kwatrobox has had financial difficulties in the past, having a
net loss in each of the past two years. Kwatrobox had recorded goodwill on the
purchase of Nieaf Systems (in April 1998), which upon review in December 1999
was written off as Nieaf had incurred losses due to no new contracts to install
new auctioning systems since April 1998. Furthermore, the Company provided
Kwatrobox with a letter of support to ensure it had adequate funds to continue
operations. We acquired Kwatrobox as they are one of the leading suppliers of
auction solutions to the perishable commodity auction community. We paid a
premium to book value as they have an extensive operating history and it
provides us with access to an installed customer base who is already using
electronic auction systems.
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I-THREE, INC.
On November 27, 2000, we purchased all of the issued and outstanding
shares of I-Three, Inc. in exchange for an aggregate of 455,000 shares of our
common stock. I-Three is an e-commerce solutions provider focused on delivering
globally scaleable, event driven applications for B2B enterprises that fully
leverage the opportunities of information gathering and sorting from the
Internet. With I-Three's existing line of B2B applications, and strategic
partnerships with industry leaders such as Sun-Netscape Alliance, TIBCO Software
Inc. and Oracle, our management believes that I-Three will provide the Company
with the capability to develop internally our financial service and portal
applications. Over the next twelve months, we intend to grow rapidly. We will
need additional cash to fund such growth and fully intend to engage in
additional financing to meet expanded operating capital needs.
-34-
MANAGEMENT
The following table sets forth the names, positions and ages of the
executive officers and directors of our Company as at time of filing. Directors
are elected at our annual meeting of shareholders and serve for one year or
until their successors are elected. Officers are elected by the board of
directors and their terms of office are, except to the extent governed by
employment contracts, at the discretion of the board of directors.
NAME AGE TITLE
- -------------------------------------- --------- -----------------------------------------------------
Daniel McKenzie 45 President, C.E.O. and Director
Phillip MacDonnell 58 Chairman of the Board
David Hackett 34 Chief Financial Officer
Jeff Turner 35 Vice-President, Marketing
Thomas Jakubowski 41 Vice-President, Business Development
Paul King 37 Managing Director, Europe
Luc Schelfhout 38 President, Schelfhout Computer Systemen N.V.
Philip Lapp 71 Director
Mark Milazzo 43 Director
Bart Sonck 35 Director
Ken Reid 60 Director
BIOGRAPHIES
DAN A. MCKENZIE, PRESIDENT, C.E.O. AND CHAIRMAN.
Since January 2000, Dan McKenzie has served as the President, Chief
Executive Officer and a director of the Company. From 1990 until 1998, Mr.
McKenzie served as President and Chief Executive Officer of EveryWare
Development Inc., a software company providing cross-platform development tools
for creating dynamic Web-based applications he founded in 1990. When EveryWare
became a publicly traded company in 1995, Mr. McKenzie also served in the
capacity of Chairman of the Board. In November 1998, EveryWare was acquired by
Pervasive Software Inc. All told, Mr. McKenzie brings 19 years of high tech
management experience, including 15 years served in an owner/manager capacity,
as well as experience in growing and merging early stage technology companies.
Mr. McKenzie is a director of Aucxis Ltd., an affiliated company listed on the
Australian Stock Exchange.
PHIL MACDONNELL, DIRECTOR
Phil MacDonnell has served as the Chairman of the Board of Directors of
the Company since [January 25, 2000.] Mr. MacDonnell also serves as a Vice
President and a director of Hawk Capital Corporation and Hawk Partners Ltd.,
which companies provide financial services to Canadian companies. He has held
such positions since 1998 and 1997, respectively. He also currently serves as:
(i) President and director of P.G. MacDonnell Services Ltd. since 1997; (ii)
director of Constitution Insurance Company since 1987; (iii) director of Syntex
Systems Ltd., a publicly traded Company on the American Stock Exchange, since
1997; (iv) director of World Wide Warranty (CDNX); and (v) director of Palco
Communications, a private company since 1999. In 1969, Mr. MacDonnell became a
founding partner in Loewen Ondaattje McCutheon & Co. Ltd., an international
institutional stock brokerage company publicly traded on the Toronto Stock
Exchange (TSE). Mr. MacDonnell has sat on the board of the Vancouver Stock
Exchange and was a director of Grand Field Pacific Ltd. (a publicly traded hotel
company on the TSE 1996-1998) and EveryWare Development Inc. (a publicly traded
software company on the American Stock Exchange 1997-1998). Mr. MacDonnell
obtained an Honors Business Administration Degree in 1960 while at the
-35-
University of Western Ontario, and he later obtained a Chartered Accountants
Degree from the Institute of Chartered Accountants in 1964.
DAVID HACKETT, CHIEF FINANCIAL OFFICER
Since June 1999, David Hackett has been the Chief Financial Officer of
the Company. Prior to being employed by the Company, Mr. Hackett served as Chief
Executive Officer of EveryWare Development Inc., a provider of middleware
database conductivity tools, in which capacity he served from 1996 until the
sale of EveryWare to Pervasive Software Inc. in November 1988. As Chief
Financial Officer of EveryWare, Mr. Hackett was responsible for the finance and
administration department as well as the day-to-day operations of EveryWare and
its subsidiaries. In 1992, Mr. Hackett co-founded 323-2323-The Infotainment
Line, a movie, restaurant, kids and special events information telephone
service. From 1994 to 1996, Mr. Hackett was a consultant for the television
production industry with Alliance Atlantis Communications Inc. (formerly
Atlantis Communications Inc.) and CanWest Global Communications Corp. Mr.
Hackett is a director of Aucxis Ltd., an affiliated company listed on the
Australian Stock Exchange and in which the Company holds a 48.2% ownership
interest. Mr. Hackett attained his Chartered Accountant designation in 1989
while at Ernst & Young. He also holds a Master of Business Administration from
the University of Western Ontario, Canada.
JEFF TURNER, VICE-PRESIDENT, MARKETING
Jeff Turner has served in the capacity of Vice-President, Marketing at
the Company since March 2000. Prior to coming to the Company, Mr. Turner served
as a consultant for technology-related companies, focusing on marketing and
strategic planning principally with respect to computer software, Internet B2C
and B2B, and Application Service Providers. Mr. Turner brings more than 12 years
of experience as a consultant in marketing, advertising and strategic planning
with companies such as Bell Canada (1987 to 1991), AT&T (1992 to 1995),
Investorline (1997 to 1998), Nesbitt Burns (1996 to 1998), HomeProject.com (1999
to 2000), Harris Bank Corp. (1994 to 1996), and Bank of Montreal (1995 to 1997).
THOMAS JAKUBOWSKI, VICE-PRESIDENT, BUSINESS DEVELOPMENT
Since March 2000, Thomas Jakubowski has served as Vice-President,
Business Development at the Company. Previously, he spent more than 15 years
(1984 to 2000) at Nortel Networks in a variety of senior positions. From 1998 to
2000, he was the Director of Business Intelligence, in which capacity he managed
a corporate group focused on market and competitive analysis. He also served as
Director of Investor Relations for Nortel from 1996 to 1998. While also at
Nortel, he was involved in the acquisition of Bay Networks in 1998 and the
integration of that company into Nortel. Mr. Jakubowski holds a Master of
Business Administration from York University and a Master of Applied Science
(Engineering) from the University of Toronto.
PAUL KING, MANAGING DIRECTOR, EUROPE
Since March 2000, Paul King has served as the Managing Director of
Sales for Europe. Previously, he served from 1999 to 2000 as the Director of
Sales and Marketing at emailtopia, a software firm targeting the internet
messaging market. From 1995 to 1999, Mr. King held a variety of sales and
marketing positions at EveryWare Development, Inc. Mr. King brings more than 15
years of sales and marketing experience to the Company.
LUC SCHELFHOUT, PRESIDENT, SCHELFHOUT COMPUTER SYSTEMEN N.V.
Since being acquired by the Company in January 2000, Luc Schelfhout has
served as the President of the Company's wholly-owned subsidiary, Schelfhout
Computer Systemen N.V.. Schelfhout Computer Systemen N.V. was founded by Mr.
Schelfhout in 1983 and acquired by the Company in January 2000. Under Mr.
Schelfhout's tutelage from 1983 to 1999, when he served as Managing Director of
the Company, Schelfhout Computer Systemen N.V. became a leader in the
development and implementation of electronic trading systems. Prior to 1983, Mr.
Schelfhout worked for Stafa Control Systems, a company specializing in control
and measurement systems, in various capacities for two years.
-36-
PHILIP A. LAPP, DIRECTOR
Philip Lapp has been a director of the Company since January 25, 2000.
From 1969 to 1998 Dr. Lapp was President of Philip A. Lapp Limited, a consulting
firm. Dr. Lapp previously served in the capacity of Senior Vice President and
Director of SPAR Aerospace Limited, where he was responsible for all engineering
and technical programs from 1967 until 1969. While also at SPAR Aerospace, Dr.
Lapp established and developed entry into the medical and technological markets.
From 1955 to 1966, Dr. Lapp served as both Director of Technical Operations and
as Chief Engineer of de Havilland Aircraft of Canada. Dr. Lapp currently holds
numerous directorships, including on the boards of CDM Information Inc.,
InfoWest Services Inc., Kenneth Molson Foundation (Chairman), EMR Microwave
Technology Corporation, PCI Enterprises Inc., Mind the Store Inc. (Chairman) and
VisuaLabs Inc. He is also a Honorary Governor at York University. His
professional affiliations include: Canadian Council of Professional Engineers
(President 1987-1988); Fellow of the Royal Society of Canada; Fellow of the
Canadian Academy of Engineering (President 1988); Member of the Association of
Professional Engineers of Ontario (President 1982-1983); Senior Member of the
Institute of Electrical and Electronics Engineers; Fellow of Canadian
Aeronautics and Space Institute (President 1967-1968); Member of Canadian Remote
Sensing Society; and Senior Member of American Aeronautics and Astronautics.
MARK F. MILAZZO, DIRECTOR
Mark Milazzo has been a director of the Company since March 6, 2000.
Mr. Milazzo also currently serves in the capacity of Director, Wireless Market
Development, Service Provider Line of Business, at Cisco Systems Inc. in San
Jose, California, which company he joined in 1992. From 1998 to 1999, he was the
Director, Service Provider Global Alliances, for Cisco Systems Inc., responsible
for building Cisco's Global Alliances with key service providers. Mr. Milazzo
served as a Region Manager from 1995 to 1998 at Cisco Systems Inc. and, from
1994 to 1995, as an Account Manager to an assigned territory which included the
BCE group, Nortel, Bell Canada and Bell Mobility. Prior to 1994, Mr. Milazzo
worked at Cisco Systems Canada as Channel Manager, where he was responsible for
developing the public carriers channel of business in Canada. He was also
responsible for strategy development and Cisco's global sales channel support in
Cisco's Mobile Wireless area. From 1987 until 1992, Mr. Milazzo was the General
Manager for Computer Logics Ltd., where he managed a software development firm
developing PC to mainframe gateway software to corporate clients worldwide. Mr.
Milazzo holds a Bachelor of Science (B.Sc.) and a Master of Science (M.Sc.) in
Microbiology & Immunology from the University of Western Ontario in London,
Ontario.
KEN REID, DIRECTOR
Ken Reid has served as director of the Company since June 23, 2000.
Concurrently, Mr. Reid has served since 1997 in his present role of President &
CEO of Ontario Flower Growers Inc., one of North America's largest suppliers of
cut flowers and plant products to the wholesale and retail market place.
Additionally, Mr. Reid serves as the General Manager (1994 to present) of
Ontario Flower Growers Co-Operative Limited, the largest concentration of
growers in Canada.
BART SONCK, DIRECTOR
Bart Sonck has been a director of the Company since June 16, 2000. Mr.
Sonck has also served in the following positions at ABN AMRO and its affiliated
companies since 1994: (i) Senior Account Manager Corporate Banking for ABN AMRO
Bank N.V. (Belgian Branch) Antwerp Office, where he was responsible for customer
relations management and business development (1994 to 1998); (ii) Regional
Manager Corporate Banking for ABN AMRO Bank N.V. (Belgian Branch) Brussels
Office, where he was responsible for management of team of senior account
managers for Customer Relations Management & Business Development (1999 to
1999); and (iii) Managing Director of ABN AMRO Capital Investments, where he was
responsible for the development of the Private Equity and Venture Capital
operations of ABN AMRO in Belgium (2000 to present). Mr. Sonck has been involved
in the banking community for over ten years, having held positions with JP
Morgan, Bank Brussel Lambert and, most recently, with ABN AMRO. Mr. Sonck holds
a Master in Arts from Vrije Universiteit Brussel and a
-37-
Master of Business Administration, Vrije Universiteit Brussel Solvay Business
School. Mr. Sonck has also lectured at Hogere Taal- & Handelsleergangen in the
areas of Quality Management in the Banking Industry, Trade & Export Finance,
Interest and Currency Risk Hedging and Credit Negotiation for Relationship
Managers.
DIRECTOR COMPENSATION
Currently, each director of the Company receives options to purchase up
to 50,000 shares of our common stock under the 1999 stock option plan adopted by
the Company and the stockholders on March 22, 1999. In addition, we compensate
each of our directors Cdn$5,000 per annum and Cdn$500 for each meeting held for
which such director attends.
STOCK OPTION PLAN
We established a stock option plan on March 1, 1999, which plan was
amended on March 13, 2000 (the "1999 Plan") subject to stockholder approval. The
purpose of the 1999 Plan is to further the interest of our Company and our
stockholders by providing incentives in the form of stock or stock options to
attract, retain and motivate key employees and directors who contribute to our
success. The grant of options recognize and reward outstanding individual
performances and contributions and give such persons a proprietary interest in
our Company, thus enhancing their personal interest in our continued success and
progress. To date, options to purchase up to an aggregate of 8,213,000 shares of
our common stock have been granted under the 1999 Plan, as follows:
NUMBER OF SHARES
DATE OF GRANT UNDERLYING OPTIONS EXERCISE PRICE EXPIRATION DATE
------------- ------------------ -------------- ---------------
December 1, 1998 155,000 $0.01 per share November 30, 2003
December 30, 2000 8,058,000 $0.35 per share December 29, 2010
----------------------
TOTAL: 8,213,000
On March 26, 2001 our board of directors adopted the 2001 Stock Option
Plan (the "2001 Plan"), subject to approval by the stockholders at the annual
meeting scheduled to be held May 31, 2001. The 2001 Plan is meant to update the
Company's existing stock option plan to reflect current legal and tax
requirements and is designed to work in tandem with the 1999 Plan so that the
aggregate number of shares available to be exercised under our program of stock
options does not exceed, at any one time, an aggregate of 10,000,000 shares
(previously 9,000,000), or roughly 15% of the issued and outstanding stock of
the Company as of the date the 2001 Plan was adopted by our board of directors.
The 2001 Plan makes any grant of options to purchase shares of Common Stock
subject to the amount of options granted and still outstanding under the 1999
Plan and is intended to continue to make available to our officers, directors,
key employees, consultants and other independent contractors, who perform
services for us, the opportunity to participate in the value and/or appreciation
in value of the our Common Stock through the granting of stock options. To date,
no options to purchase shares of our common stock have been granted under the
2001 Plan, which remains subject to shareholder vote. EXECUTIVE COMPENSATION
The following table sets forth certain information for the years ended
December 31, 2000 and 1999 (from date of inception on April 30, 1998) regarding
the compensation of our Chief Executive Officer and each of our other most
highly compensated executive officers whose compensation on an annualized basis
(salary and bonus) for services rendered in all capacities to our Company during
the year ended December 31, 2000 exceeded US$100,000 (collectively, the "Named
Executive Officers").
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- -----------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ----------------------------- ------ ---------------------------------- ---------------------------------- ------------
Annual compensation Long-term compensation
------------------------ --------- ------------
Awards Payouts
---------- --------- ------------- ---------- ------------- --------- ------------
Other Restricted Securities
annual stock underlying LTIP All other
Salary Bonus compensation awards options/ payouts compensation
Name and Principal Position Year (Cnd$) (Cnd$) (Cnd$) (Cnd$) SARs (#) (Cnd$) (Cnd$)
- ----------------------------- ------ ---------- --------- ------------- ---------- ------------- --------- ------------
Fred Tham, CEO and 1999 - - - - - - -
President(1)
- ----------------------------- ------ ---------- --------- ------------- ---------- ------------- --------- ------------
Shane Maine, CEO and 2000 - - - - - -
President (2) 1999 1,000,000 (3)
- ----------------------------- ------ ---------- --------- ------------- ---------- ------------- --------- ------------
David Hackett, Chief 2000 $100,000 - - - - -
Financial Officer 1999 $58,333 1,000,000 (4)
- ----------------------------- ------ ---------- --------- ------------- ---------- ------------- --------- ------------
Dan McKenzie, President, 2000 $150,000 - - - 1,500,000 (6) - -
CEO and Chairman (5)
- ----------------------------- ------ ---------- --------- ------------- ---------- ------------- --------- ------------
- -------------------
(1) Fred Tham resigned as Chief Executive Officer and President on February 26,
1999.
(2) Shane Maine resigned as acting Chief Executive Officer and director on
January 17, 2000.
(3) Options to purchase 1,000,000 shares of the Company's common stock canceled
December 29, 2000
(4) Options to purchase 1,000,000 shares of the Company's common stock canceled
December 29, 2000, after which time on December 30, 2000 new options to
purchase 1,000,000 shares of the Company's common stock were granted at an
exercise price of $0.35 per share.
(5) Dan McKenzie was named Chief Executive Officer on January 17, 2000.
(6) Options to purchase 1,500,000 shares of the Company's common stock canceled
December 29, 2000, after which time on December 30, 2000 new options to
purchase 1,500,000 shares of the Company's common stock were granted at a
exercise price of $0.35 per share.
Shane Maine, a former director and CEO of our Company, does not receive
any compensation, other than options as indicated below, for his services, which
options were subsequently canceled on December 29, 2000. He has not received
such compensation in the past, and is not accruing any compensation pursuant to
any agreement with us.
On December 30, 2000, Dan McKenzie entered into an employment agreement
to serve as President and Chief Executive Officer of the Company, effective
January 2000, in addition to serving on the Board of Directors of the Company.
Mr. McKenzie's employment agreement provides for a base salary of CDN $200,000
per year, payable in equal semi-monthly payments, plus a bonus of CDN $50,000
subject to meeting certain benchmarks outlined in the agreement. He will also be
provided with insurance benefits and other perquisites, including car allowance,
professional fees and employee loans, along with four weeks vacation per annum,
and the reimbursement of normal and reasonable business expenses. Under the
agreement, Mr. McKenzie is also granted options to purchase up to an aggregate
of 1,500,000 shares of the Company's common stock. These options vest upon date
of grant and are exercisable at approximately US $0.35 per share. If we
terminate Mr. McKenzie without just cause he will receive a severance amount
equal to the greater of (i) the past 12 months compensation and (ii) $200,000,
plus bonuses earned over the 12 months preceding his termination. The employment
agreement also provides for a one (1) year non-competition clause and a one (1)
year non-solicitation clause
On December 30, 2000, David Hackett entered into a restated and amended
employment agreement with respect to his capacity as Chief Financial Officer of
the Company, effective May 1, 1999. Mr. Hackett's employment agreement provides
for a base salary of CDN $165,000 per year, payable in equal semi-monthly
payments, plus a bonus of CDN $35,000 subject to meeting certain benchmarks
outlined in the agreement. He will also be provided with insurance benefits and
other perquisites, including car allowance, professional fees and employee
loans, along with four weeks vacation per annum, and the reimbursement of normal
and reasonable business expenses. Under the agreement, Mr. Hackett is granted
options to purchase up to an aggregate of 1,000,000 shares of the Company's
common stock. These options vest upon date of grant and are exercisable at
approximately US $0.35 per share. If the Company terminates Mr. Hackett without
just cause he will receive a severance amount equal to the greater of (i) the
past 12 months compensation and (ii) $165,000, plus bonuses earned
-39-
over the 12 months preceding his termination. The employment agreement also
provides for a one (1) year non-competition clause and a one (1) year
non-solicitation clause.
No retirement, pension, annuity benefits have been adopted by our
Company for the benefit of our employees with the exception of a defined
contribution plan within Nieaf Systems B.V., a subsidiary of Kwatrobox B.V.
-40-
INCENTIVE STOCK OPTIONS GRANTED TO NAMED EXECUTIVE OFFICERS
DURING THE FINANCIAL YEAR ENDED DECEMBER 31, 2000
The following table sets forth the particulars of individual grants of
options to purchase shares of our common stock made to each of the Named
Executive Officers who were granted options during the Financial year ended
December 31, 2000:
% OF TOTAL
OPTIONS GRANTED MARKET VALUE OF SECURITIES
SECURITIES UNDER TO EMPLOYEES IN UNDERLYING OPTIONS ON
NAME OPTION GRANTED FISCAL YEAR EXERCISE PRICE DATE OF THE GRANT EXPIRATION DATE
------ ----------------- ----------- -------------- ----------------- ---------------
Dan McKenzie 1,500,000 21% $0.85 $0.84 December 1, 2009(1)
David Hackett 1,000,000 21% $0.85 $0.84 December 1, 2009(1)
Shane Maine 1,000,000 21% $0.85 $0.84 December 1, 2009(1)
Dan McKenzie 1,500,000 23% $0.80 $0.59 August 24, 2009 (2)
David Hackett 1,000,000 16% $0.80 $0.59 August 24, 2009 (2)
Shane Maine 1,000,000 16% $0.80 $0.59 August 24, 2009 (3)
Dan McKenzie 1,500,000 19% $0.35 $0.30 December 30, 2010
David Hackett 1,000,000 12% $0.35 $0.30 December 30, 2010
- ------------------
(1) these options were canceled on August 24, 2000, at which time new options to
purchase the same number of shares of the Company's common stock were
granted, at a repriced exercise price of $0.80 per share.
(2) these options were canceled on December 29, 2000, after which time new
options to purchase the same number of shares of the Company's common stock
were granted on December 30, 2000, at a repriced exercise price of $0.35 per
share.
(3) these options were canceled on December 29, 2000.
-41-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We believe that the terms and conditions of the following transactions
were no less favorable to us than terms attainable from unaffiliated third
parties:
On February 26, 1999, we entered into a stock exchange agreement with
the stockholders of e-Auction Global Trading, Inc. (Barbados). In the
transaction, we issued a total of 34,500,000 shares of our common stock to the
stockholders of e-Auction (Barbados) in exchange for all of the issued and
outstanding shares in the capital of e-Auction (Barbados). The terms and
conditions of the agreement were determined by the parties through arms-length
negotiations. As a result of the agreement, the e-Auction (Barbados)
shareholders received 86.6% of the shares of our common stock. The transaction
was treated as an acquisition of e-Auction (Barbados) and a recapitalization of
our Company whereby e-Auction (Barbados) was deemed the acquirer for accounting
purposes. At the time of the transaction, there were only an infrequent number
of trades and virtually no trading volume of our common stock and we were unable
to estimate the market value of our common stock to determine resulting
valuations of the transaction.
The majority of our operations during the 1999 fiscal year were funded
by Ventures North Investment Partners Inc. As of December 31, 1999, we owed
Ventures North approximately $860,793. The amounts advanced were non-interest
bearing, with no fixed terms of repayment. The entire balance owing was repaid
in January, 2000. A significant percentage of the ownership interest of Ventures
North is owned by shareholders of our Company. In addition, Ventures owns
2,000,000 of the issued and outstanding shares of our common stock.
Under an agreement dated March 1, 1999 with Millennium Advisors Inc.,
we agreed to pay to Millennium a management fee of $20,000 per month for advice
and services with respect to mergers and acquisitions, corporate structuring,
corporate administration, and financing. We also entered into a contract for
service whereby Millennium would be paid 25% of any funds it raised by the sale
of our equity or issuance of debt by us in excess of the amount required to
complete the acquisition of Schelfhout. No amounts were paid under this
agreement, which agreement has now expired. As of March 20, 2000, our Company
and Millennium agreed to terminate the March 1, 1999 agreement. As part of such
settlement, we agreed to pay, and did pay, Millennium $120,000 as full and final
settlement under the March 1, 1999 agreement. Michael Gilley, a former director
and officer of our Company, is President of Millennium.
On August 12, 1999, we received a loan of $1,000,000 from Millennium
Advisors Inc. The loan was to be repaid within 30 days. In consideration for the
loan, Millennium received 197,219 shares of our common stock, with a deemed
value of $1,000,000 as a financing fee. The number of shares of our common stock
issued was based on the weighted average closing price over the five (5) trading
days prior to the date the loan was granted. The shares were issued in January,
2000.
On August 29, 1999, Michael Gilley received stock options to purchase
up to 250,000 shares of our common stock which options were to vest over 3 years
at an exercise price of $5.00 per share. At the time these options were granted,
Mr. Gilley was a director of our Company. These options were canceled as part of
the settlement with Millennium.
On January 10, 2000, acting through our subsidiary e-Auction Belgium
N.V. (now Aucxis N.V. (Belgium)), we purchased all of the shares of Schelfhout.
A purchase price for the shares of Schelfhout of $10 million was stipulated in
the share purchase agreement representing the fair value of the consideration at
the time the agreement to purchase Schelfhout Computer Systemen N.V. was
initially contemplated. The purchase price was satisfied by (i) the payment of
US$4 million in cash (US$1 million was paid in August 1999 and the US$3 million
balance was paid on completing the acquisition in January 2000) and (ii) the
issuance of 3,636,364 shares of our common stock, with a fair value $1.00. There
was no cash paid for the shares by Schelfhout. Of the shares issued, 1,818,182
shares of our common stock were issued to Luc Schelfhout, a current officer of
our Company, and 1,818,182 shares of our common stock were issued to Mr.
Schelfhout's spouse, Hilde de Laet.
-42-
On March 22, 2000, we formed a new subsidiary, to be owned 99% by us
and 1% by Luc Schelfhout, a current officer of our Company, and his spouse,
Hilde de Laet. As part of this transaction, Mr. Schelfhout and his spouse were
granted an option to purchase our ownership interest in SDL Invest, N.V. at a
nominal price, based upon the book value of our contribution to capital.
On August 24, 2000, Messrs. McKenzie and Hackett, directors and
officers of our Company, and Mr. Maine, a former director and Chief Executive
Officer of our Company, received options to purchase up to an aggregate of
1,500,000 and 1,000,000 shares of our common stock, respectively. The options
vest on the date of grant and are exercisable at an exercise price of $0.80 per
share. We subsequently canceled all of these options as of December 29, 2000,
after which time on December 30, 2000 Messrs. McKenzie and Hackett, each a
director and officer of our Company, received new options to purchase up to an
aggregate of 1,500,000 and 1,000,000 shares of our common stock, respectively,
at the repriced exercise price of $0.35 per share.
-43-
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the shares of our common stock as of the date of this Prospectus by
(i) each person who is known by us to own beneficially more than five percent
(5%) of our issued and outstanding shares of common stock, (ii) each of the
Named Executive Officers, and (iii) each of our directors.
NUMBER OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) CLASS
- ------------------------------------ --------- -----
J. Andrews in Trust for the Shareholders of Sanga International Inc.(2) 16,500,000 24.9%
c/o Pachulski, Stong, Ziehl, Yang & Jones P.C.
10100 Santa Monica Blvd., Suite 1100, Los Angeles, CA 90067
ABN AMRO Capital Investments (Belgie) N.V. 4,072,639 6.1%
Regentlaan 53, 1000 Brussels, Belgium
Luc Schelfhout 3,636,364 (3) 5.5%
Bornte 204/A, Stekene, Belgium 9190
Daniel McKenzie 2,436,987 (4) *
RR5, Georgetown, Ontario L5G 4S8
David Hackett 1,236,987 (5) *
20 Astley Avenue, Toronto, Ontario M4W 3B4
Philip Lapp 50,000 (6) *
c/o 220 King Street West, Suite 200, Toronto, Ontario M5H 1K7
Mark Milazzo 50,000 (6) *
c/o 220 King Street West, Suite 200, Toronto, Ontario M5H 1K7
Phillip MacDonnell 100,000 (7) *
c/o 220 King Street West, Suite 200, Toronto, Ontario M5H 1K7
Ken Reid 50,000 (6) *
c/o 220 King Street West, Suite 200, Toronto, Ontario M5H 1K7
Bart Sonck 50,000 (6) *
c/o 220 King Street West, Suite 200, Toronto, Ontario M5H 1K7
All executive officers and directors as a group (11 persons) 7,610,338 11.0%
(4)(5)(6)(7)
- -------------
* Less than 5%
1. The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rule,
beneficial ownership includes any share as to which 33 the individual or
entity has voting power or investment power. Unless otherwise indicated,
each person or entity has sole voting and investment power with respect to
shares shown as beneficially owned. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days,
whether pursuant to the exercise of options, conversion of securities or
otherwise.
2. The shares are beneficially owned by Sanga International Inc. which is
currently undergoing a restructuring pursuant to Chapter 11 of United States
Bankruptcy laws. Sanga does not have any controlling shareholder. The sole
officer of Sanga is John Andrews and its directors are John Andrews, Mitch
Stein and Masood Jabor.
3. Includes 1,818,182 shares held by Mr. Schelfhout's spouse, Hilde de Laet.
-44-
4. Includes 161,987 shares held by a holding Company and 1,500,000 shares
issuable upon exercise of stock options, re-priced at $0.35 per share on
December 30, 2000.
5. Includes 136,987 common shares held by a holding Company for Mr. Hackett's
wife and children and 1,000,000 shares issuable upon exercise of stock
options, re-priced at $0.35 per share on December 30, 2000.
6. Consists of options enabling the holder to purchase up to 50,000 shares,
re-priced at an exercise price of $0.35 per share on December 30, 2000.
7. Consists of options enabling the holder to purchase up to 100,000 shares,
re-priced at an exercise price of $0.35 per share on December 30, 2000.
-45-
SELLING STOCKHOLDERS
The following table provides certain information regarding the selling
stockholders and the number of shares of our common stock being offered by them
as of the date of this prospectus.
SHARES BENEFICIALLY OWNED PRIOR TO OFFERING
PERCENTAGE
OF COMMON
STOCK SHARES THAT MAY
NAME AMOUNT OUTSTANDING BE SOLD (1)
- -------------------------------------------------------- ------------- ------------- --------------
ABN AMRO Capital Investments (Belgie) NV 4,072,639 9.46 % 4,072,639
QFG Holdings Limited 2,964,408 6.88 % 2,964,408
Flynn Von Shubert & Associates Attorneys Escrow Account 2,250,000 5.22 % 2,250,000
E-Ventures Investments Inc 2,000,000 4.64 % 2,000,000
Institute of Global Trading Communities Limited 2,000,000 4.64 % 2,000,000
Online Global Commodities Exchange Limited 2,000,000 4.64 % 2,000,000
V-Wholesalercom Inc 2,000,000 4.64 % 2,000,000
Ventures North Investment Partners Inc 2,000,000 4.64 % 2,000,000
Hilde De Laet 1,818,182 4.22 % 1,818,182
Luc Schelfhout 1,818,182 4.22 % 1,818,182
E-Auction Global Trading Inc (BVI) 1,500,000 3.48 % 1,500,000
FIDRA Holdings Ltd. 1,500,000 3.48 % 1,500,000
Zorba Holdings Limited 1,500,000 3.48 % 1,500,000
BFM Enterprises Inc 1,420,000 3.30 % 1,420,000
Troy Lalonde 1,101,530 2.56 % 1,101,530
Platinum Capital Management Inc in Trust for John
Andrews 1,000,000 2.32 % 1,000,000
Hartford Group Holdings Limited 830,000 1.93 % 830,000
Dan McKenzie 775,000 1.80 % 775,000
WEB CCB (BV) 750,000 1.74 % 750,000
Assayriska Investments Limited 642,500 1.49 % 642,500
Tradewinds Investments Ltd 550,000 1.28 % 550,000
Hartford Holdings Limited 500,000 1.16 % 500,000
Sabe Holdings Inc. 476,304 1.11 % 476,304
Egger & Co 359,590 0.84 % 359,590
John O'Toole & Victoria O'Toole 326,295 0.76 % 326,295
Peces BV 312,500 0.73 % 312,500
Rendex BV 312,500 0.73 % 312,500
Van Veen Boy's BV 312,500 0.73 % 312,500
Wodan BV 312,500 0.73 % 312,500
Trinity Capital Limited 255,007 0.59 % 255,007
Red Sands Capital Management 210,000 * 210,000
Meta Partners Ltd. 206,934 * 206,934
Parkplace Finance Limited as TTEE for the Park Place
Trust 205,479 * 205,479
HSBC Securities Trinity Account 159 HSCB A/C 162462F 200,000 * 200,000
696063 Ontario Inc. 200,000 * 200,000
Edith M. Michel 200,000 * 200,000
-46-
PERCENTAGE
OF COMMON
STOCK SHARES THAT MAY
NAME AMOUNT OUTSTANDING BE SOLD (1)
- -------------------------------------------------------- ------------- ------------- --------------
Sami Rashid 200,000 * 200,000
Millenium Advisors Inc. 197,219 * 197,219
Ron Engineering & Construction (Eastern) Ltd 150,000 * 150,000
Brian Antonen 140,480 * 140,480
HSBC Securities ACCT #TCL 194 101,096 * 101,096
National Bank Financial 100,000 * 100,000
Trendafile Ahmet 100,000 * 100,000
David Hackett 100,000 * 100,000
Albert Haloute 100,000 * 100,000
Elias Haloute 100,000 * 100,000
Mike Lam 100,000 * 100,000
Jeannine Ottewill & Bruce A Ottewill 100,000 * 100,000
Shenkman Corporation in Trust 100,000 * 100,000
Warren Thompson 100,000 * 100,000
Tina Whiting 100,000 * 100,000
Rick Howard 83,543 * 83,543
J David Wilson TTEE FBO The Wilwoods Trust 71,168 * 71,168
Larry Sisnett 70,000 * 70,000
Barry Boatman 68,493 * 68,493
Thomas Jakubowski 68,493 * 68,493
Rubicon Capital Corp 63,139 * 63,139
Jan Loebber 60,000 * 60,000
Sheena Smith 54,795 * 54,795
Bob Standing 54,795 * 54,795
Sandra Usherwood 50,685 * 50,685
Sam Angel 50,000 * 50,000
Ken Friedman 50,000 * 50,000
Stephen Greenberg 50,000 * 50,000
James Kilpatrick 50,000 * 50,000
John Loy 50,000 * 50,000
John Naime 50,000 * 50,000
Whitman Tucker 50,000 * 50,000
Sally Martyniuk 47,945 * 47,945
S&O Building Partnership 40,000 * 40,000
Soloway Holdings Limited 40,000 * 40,000
Michael Williamson 28,693 * 28,693
Eric Hey 38,321 * 38,321
Laetitia Jones 38,321 * 38,321
Micheael O'Quinn 36,000 * 36,000
Stierheim TTEE FBO Frederick H Stierheim Revocable
Living Trust 33,000 * 33,000
Rebound Resources 30,666 * 30,666
Isabel Cruise & John Cruise 28,000 * 28,000
Wessco 26,800 * 26,800
Giuseppe Clementi 25,000 * 25,000
Kevin Gabri 25,000 * 25,000
-47-
PERCENTAGE
OF COMMON
STOCK SHARES THAT MAY
NAME AMOUNT OUTSTANDING BE SOLD (1)
- -------------------------------------------------------- ------------- ------------- --------------
Michael Prytz 25,000 * 25,000
Ana Teresa Segarra 24,000 * 24,000
Efthymios Kyriakopoulos 22,800 * 22,800
Brian Heringer 22,000 * 22,000
David Williamson 21,000 * 21,000
Apollo Nominees Inc. 20,000 * 20,000
Fadi Haram 20,000 * 20,000
Murray Hill Investments Limited 20,000 * 20,000
Nancy Sicurella 20,000 * 20,000
Norris Williamson 20,000 * 20,000
Bill Wilson 20,000 * 20,000
Debbie Cairns 17,000 * 17,000
Mary L AL Jaar 16,000 * 16,000
William Shenkman 15,581 * 15,581
Christopher Cuff 15,000 * 15,000
Janet Hoyt 15,000 * 15,000
Brendan Murphy 15,000 * 15,000
Janice Murphy 15,000 * 15,000
Sheila Kaplan 14,850 * 14,850
Scott Family Investments 13,602 * 13,602
Christian Rojkjaer 13,567 * 13,567
Bruno Figliuzzi 13,082 * 13,082
Jeff Figliuzzi 13,082 * 13,082
Louis Al Jaar 12,000 * 12,000
Tareq L Al Jaar 12,000 * 12,000
Peter F Anderson 12,000 * 12,000
FR Holdings LTD 12,000 * 12,000
Dennis A Lavia 12,000 * 12,000
DWR C/F Jiri Malasek 11,679 * 11,679
Dario Di Renzo 10,959 * 10,959
Richard Bingham 10,949 * 10,949
Gabriel Albina 10,000 * 10,000
Luke D'Angelo 10,000 * 10,000
John E Doerr 10,000 * 10,000
Richard G Harrington JR 10,000 * 10,000
Larry Humenik 10,000 * 10,000
Rick Kumar 10,000 * 10,000
Rika Lam 10,000 * 10,000
Frank Landi 10,000 * 10,000
LJ Inc of Central Florida 10,000 * 10,000
Andy Smith 10,000 * 10,000
Michael Smith 10,000 * 10,000
Andy Smith & Martha Smith 10,000 * 10,000
Jim Sutton 10,000 * 10,000
Linda Morrison 9,600 * 9,600
Francois Marceau 8,819 * 8,819
-48-
PERCENTAGE
OF COMMON
STOCK SHARES THAT MAY
NAME AMOUNT OUTSTANDING BE SOLD (1)
- -------------------------------------------------------- ------------- ------------- --------------
Andre Bourgon 8,000 * 8,000
Robert Childerhose 8,000 * 8,000
Maria D'Angelo 8,000 * 8,000
Veronica Munks 8,000 * 8,000
Daphne Tapp 8,000 * 8,000
Richard Valentine 8,000 * 8,000
Bill Duffy 7,800 * 7,800
Julie Duffy 7,800 * 7,800
Terri Mcmenamin 7,500 * 7,500
First Clearing Corp as C/F William E Racine IRA Rollover 7,200 * 7,200
Sterling A Farmer 7,000 * 7,000
Paul Schneider 6,750 * 6,750
Mark Alex Marchque 6,667 * 6,667
George Barakat 6,600 * 6,600
Larry Eyler 6,569 * 6,569
Suzanne Williamson 6,378 * 6,378
Frank Marceau 6,181 * 6,181
Donald Dandelski 6,000 * 6,000
Robert Dorsey 6,000 * 6,000
Brian Griffin 6,000 * 6,000
Patrick Mcnerney 6,000 * 6,000
Gerry Tapp 6,000 * 6,000
Arter & Hadden LLP 5,000 * 5,000
Gerry Bachman 5,000 * 5,000
Laila Barakat 5,000 * 5,000
Scott C Basnan 5,000 * 5,000
Reay Cairns 5,000 * 5,000
Dorsey TTEE FBO Hugh P. Dorsey Jr. Trust UAD 9/18/98 6,000 * 6,000
Margaret Heringer & Alf Heringer 5,000 * 5,000
Lee Jensen 5,000 * 5,000
Douglas Andrews 4,800 * 4,800
Bob Peterson 4,800 * 4,800
Mary Mcmenamin 4,700 * 4,700
Keith Fournier 4,400 * 4,400
Mark Morrison 4,080 * 4,080
Gary Windt 4,080 * 4,080
Lee D'Epasquale 4,000 * 4,000
David Griffin 4,000 * 4,000
Lance Johnston 4,000 * 4,000
Sandra Johnston 4,000 * 4,000
Chris Kelly 4,000 * 4,000
Geoff Mather 4,000 * 4,000
Charlotte Sparks 4,000 * 4,000
Karin Von Nickisch 4,000 * 4,000
-49-
PERCENTAGE
OF COMMON
STOCK SHARES THAT MAY
NAME AMOUNT OUTSTANDING BE SOLD (1)
- -------------------------------------------------------- ------------- ------------- --------------
294616 BC LTD 3,000 * 3,000
436618 BC LTD 3,000 * 3,000
436620 BC LTD 3,000 * 3,000
Leo Markle 3,000 * 3,000
Laurent Maurier 3,000 * 3,000
Ken Mulvaney & Brian Mulvaney Jtwros 3,000 * 3,000
John Paterson 3,000 * 3,000
DWR C/F Wadezda Malasek 2,920 * 2,920
Mary Jo Mcmenamin 2,800 * 2,800
Robert Cairns 2,500 * 2,500
Mike Marshall 2,400 * 2,400
Tredafile Rose Ahmet 2,199 * 2,199
Anton Hammerschmidt 2,000 * 2,000
Michelle Saber & Jeff Knight Jtwros 2,000 * 2,000
Gretchen Bastian 1,999 * 1,999
Robert Davies 1,920 * 1,920
Bruce Andree 1,680 * 1,680
Jandy Kerby-Miller 1,666 * 1,666
Mark Alex Maidique 1,333 * 1,333
Sheila Davies 1,200 * 1,200
John Morrison 1,200 * 1,200
Tim Over 1,200 * 1,200
Scott C Bastian 1,000 * 1,000
Kasie Worrell 1,000 * 1,000
Victor Chapman 400 * 400
Jane Kerby-Miller 333 * 333
Cindy Phoel 240 * 240
---------- ----------
TOTAL: 43,064,567 100% 43,064,567
========== ==========
- -------------------
(1) Assumes the sale of all of the Shares offered by each of the Selling Shareholders.
(*) Less than 0.50%
-50-
PLAN OF DISTRIBUTION
The shares may be sold or distributed from time to time by the selling
stockholders or by pledgees, donees or transferees of, or successors in interest
to, the selling stockholders, directly to one or more purchasers (including
pledgees) or through brokers, dealers or underwriters who may act solely as
agents or may acquire shares as principals, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, at negotiated
prices or at fixed prices, which may be changed. The distribution of the shares
may be effected in one or more of the following methods:
o ordinary brokers transactions, which may include long or short
sales,
o transactions involving cross or block trades or otherwise on
the quotation system operated by the National Quotation
Bureau, LLC, known as the Pink Sheets, or on one or more other
securities markets and exchanges, in privately negotiated
transactions,
o purchases by brokers, dealers or underwriters as principal and
resale by such purchasers for their own accounts pursuant to
this prospectus,
o "at the market" to or through market makers or into an
existing market for the common stock,
o in other ways not involving market makers or established
trading markets, including direct sales to purchasers or sales
effected through agents,
o through transactions in options, swaps or other derivatives
(whether exchange listed or otherwise), or
o any combination of the foregoing, or by any other legally
available means.
In addition, the selling stockholders may enter into hedging
transactions with broker-dealers who may engage in short sales of shares in the
course of hedging the positions they assume with the selling stockholders. The
selling stockholders may also enter into option or other transactions with
broker-dealers that require the delivery by such broker-dealers of the shares,
which shares may be resold thereafter pursuant to this prospectus.
Brokers, dealers, underwriters or agents participating in the
distribution of the shares may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of shares for whom such broker-dealers may act as agent or to whom they may sell
as principal, or both (which compensation as to a particular broker-dealer may
be in excess of customary commissions). The selling stockholders and any
broker-dealers acting in connection with the sale of the shares hereunder may be
deemed to be underwriters within the meaning of Section 2(11) of the Securities
Act of 1933, and any commissions received by them and any profit realized by
them on there sale of shares as principals may be deemed underwriting
compensation under the Securities Act of 1933. Neither the selling stockholders
nor us can presently estimate the amount of such compensation. We know of no
existing arrangements between the selling stockholders and any other
stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of the shares.
We will not receive any proceeds from the sale of the shares pursuant
to this prospectus. We have agreed to bear the expenses (other than broker's
commissions and similar charges) of the registration of the shares, including
legal and accounting fees.
The selling stockholders may also use Rule 144 under the Securities Act
of 1933 to sell the shares if they meet the criteria and conform to the
requirements of such Rule.
Offers or sales of the shares have not been registered or qualified
under the laws of any country other than the United States. To comply with
certain states' securities laws, if applicable, the shares will be offered or
sold in such jurisdictions only through registered or licensed brokers or
dealers.
There can be no assurance that the selling stockholders will sell any
or all of the shares offered by them hereunder.
-51-
DESCRIPTION OF CAPITAL STOCK
The following is a summary description of our capital stock and the
material provisions of our articles of incorporation and by-laws, copies of
which have been incorporated by reference as exhibits to the registration
statement of which this prospectus forms a part, and to which such discussion is
qualified in its entirety.
GENERAL
Our authorized capital stock consists of 250,000,000 shares of common
stock, par value $.001 per share. At the present time, no preferred stock is
authorized under our Articles of Incorporation. We have also reserved 9,000,000
shares of our common stock for issuance pursuant to options granted pursuant to
our 1999 Plan, dated March 1, 1999 and amended effective March 13, 2000 subject
to the approval of the stockholders at the annual meeting scheduled for May 31,
2001. The number of shares of common stock reserved for issuance was amended to
10,000,000 shares by our 2001 Plan, dated March 26, 2001 subject to the approval
by our stockholders at the May 2001 meeting. As of May 18, 2001, we had
66,350,915 shares of common stock issued and outstanding and 0 shares of
preferred stock issued and outstanding.
COMMON STOCK
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders. Our articles
of incorporation and by-laws do not provide for cumulative voting rights in the
election of directors. Accordingly, holders of a majority of the shares of
common stock entitled to vote in any election of directors may elect all of the
directors standing for election. Holders of our shares of common stock are
entitled to receive ratably such dividends as may be declared by the board of
directors out of funds legally available therefore. In the event of our
liquidation, dissolution or winding up, holders of common stock are entitled to
share ratably in the assets remaining after payment of liabilities. Holders of
common stock have no preemptive, conversion or redemption rights. All of the
outstanding shares of common stock are fully paid and nonassessable. The
election of directors and other general stockholder action requires the
affirmative vote of a majority of shares represented at a duly held meeting at
which a quorum is represented, except that pursuant to the by-laws, a written
consent to corporate action by a majority of stockholders entitled to vote on a
matter is permitted. The outstanding shares of common stock are validly issued,
fully paid and nonassessable.
PREFERRED STOCK
At the present time, no preferred stock is authorized in the Articles
of Incorporation.
OPTIONS AND WARRANTS
We have approved the issuance of options to purchase up to 10,000,000
shares of common stock in the Company pursuant to our 1999 Plan, as adopted on
March 1, 1999 and subsequently amended by the Board of Directors on March 20,
2000 subject to stockholder approval and, pending stockholder approval at our
May 2001 annual meeting, our 2001 Plan, as adopted by the Board of Directors on
March 26, 2001. At the time of filing the registration statement, there were
options outstanding under the 1999 Plan to purchase up to an aggregate of
8,193,000 shares of our common stock.
NEVADA ANTI-TAKEOVER LAW
A corporation is subject to Nevada's control share law if it has more
than 200 stockholders, at least 100 of whom are stockholders of record and
residents of Nevada, and if it does business in Nevada or through an affiliated
corporation. Sections 78.378 through 78.3793 of the Nevada General Corporation
Law generally provide that any "control shares" acquired by a person in the
direct or indirect acquisition of a "controlling interest" in a Nevada
corporation, greater than a level of "controlling interest" previously
authorized by the corporation's stockholders, (i) shall be divested of all
voting rights, except to the extent that the retention of voting rights is
authorized by the stockholders of the corporation other than the acquiring
person and associated persons, and (ii) may be redeemed, in whole but not in
part, by the corporation at the average price paid for the control shares. These
sections define "control shares" as those voting shares which an acquiring
person and associated persons acquire in the acquisition of a "controlling
interest", greater than the level of controlling interest previously authorized
by the corporation's
-52-
stockholders, or within 90 days immediately preceding the date the acquiring
person acquired such greater controlling interest. A "controlling interest" is
defined in the statutes as the ownership of voting shares sufficient, but for
the provisions of Sections 73.378 through 78.3793, to enable a person, directly
or indirectly and individually or in association with others, to exercise (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority or more, of all voting power of the corporation
in the election of directors. These provisions could have the result of delaying
or preventing an acquirer from being able to elect a majority of the board of
directors, or otherwise obtain control of our Company.
NEVADA BUSINESS COMBINATION PROVISIONS
In addition to the above control share law, we are governed by the
provisions of Section 78.438 of the Nevada General Corporation Law. In general,
this statute prohibits certain business combinations between Nevada corporations
that have 200 or more stockholders and "interested stockholders" for three years
after the "interested stockholder" first becomes an "interested stockholder"
unless the corporation's board of directors approves the combination in advance.
Section 78.423 defines "interested stockholder" to be any person who is (i) the
beneficial owner, directly or indirectly, of 10 percent or more of the voting
power of the outstanding voting shares of the resident domestic corporation, or
(ii) an affiliate or associate of the resident domestic corporation and at any
time within 3 years immediately before the date in question was the beneficial
owner, directly or indirectly, of 10 percent or more of the voting power of the
then outstanding shares of the resident domestic corporation. For purposes of
Nevada law, "business combination" includes, without limitation, mergers,
consolidations, stock sales and asset-based transactions and other transactions
resulting in a financial benefit to the interested stockholder. The effect of
this law is to potentially discourage parties interested in taking control of
the Company from doing so if it cannot obtain the approval of our board of
directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Under Nevada Revised Statutes Section 78.7502 and 78.751, our articles
of incorporation and bylaws provide us with the power to indemnify any of our
directors, officers, employees or agents. The director, officer, employ or agent
must have conducted himself in good faith and reasonably believe that his
conduct was in, or not opposed to our best interests. In a criminal action the
director, officer, employee or agent must not have had a reasonable cause to
believe his conduct was unlawful. Advances for expenses may be made if the
director affirms in writing that he believes he has met the standards and that
he will personally repay the expense if it is determined he did not meet the
standards.
We will not indemnify a director or officer adjudged liable due to his
negligence or willful misconduct toward us, adjudged liable to us, or if he
improperly received personal benefit. Indemnification in a derivative action is
limited to reasonable expenses incurred in connection with the proceeding.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to our directors, officers and controlling persons
pursuant to the provisions described above, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than our payment of expenses
incurred or paid by our director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 66,350,915 shares of our common stock outstanding, 5,440,000 are
freely tradeable shares as of the date of filing this registration statement and
60,910,915 shares of common stock are restricted securities as that term is
defined in Rule 144 promulgated under the Securities Exchange Act of 1934.
-53-
Rule 144 governs resale of restricted securities for the account of any
person, other than the issuer, and restricted and unrestricted securities for
the account of an "affiliate" of the issuer. Restricted securities generally
include any securities acquired directly or indirectly from an issuer or its
affiliates, which were not issued or sold in connection with a public offering
registered under the Securities Exchange Act of 1934. An "affiliate" of the
issuer is any person who directly or indirectly controls, is controlled by, or
is under common control with the issuer. Affiliates of our Company may include
our directors, executive officers and persons directly or indirectly owning 10%
or more of the outstanding common stock. Under Rule 144, unregistered resale of
restricted common stock can not be made until it has been held for a minimum of
one year from the later of its acquisition from us or an affiliate of ours.
Thereafter, shares of common stock may be resold without registration subject to
Rule 144's volume limitation aggregation, broker transaction, notice filing
requirements, and requirements concerning publicly available information about
our Company. Resale by our affiliates of restricted and unrestricted common
stock is subject to the above requirements. The volume limitations provide that
a person, or persons who must aggregate their sale cannot, within any three (3)
month period, sell more than the greater of (i) one percent (1%) of our then
outstanding shares of common stock, or (ii) the average weekly reported trading
volume during the four (4) calendar weeks preceding each such sale. A person who
is not deemed an "affiliate" of ours and who has beneficially owned shares for
at least two years would be entitled to sell such shares under Rule 144 without
regard to such requirements.
Any employee of the Company who has been granted options to purchase
shares or who has purchased Common Shares pursuant to a written compensatory
plan or written contract prior to the date of this offering pursuant to Rule 701
will be entitled to rely on the resale provisions of Rule 701, which permits
such persons who are not "affiliates" of the Company to sell such Common Shares
without compliance with the public information, holding period, volume
limitation or notice provisions of Rule 144 and permits such persons who are
"affiliates" to sell such Common Shares without compliance with the Rule 144
holding period restrictions, in each case commencing 90 days after the date of
this Prospectus.
Shortly after this registration statement becomes effective, the
Company intends to file a registration statement on Form S-8 under the
Securities Act to register shares of our common stock reserved for issuance
under the 1999 Plan and 2001 Plan, in some cases, shares of our common stock for
which an exemption under Rule 144 or Rule 701 would also be available, thus
permitting the resale of shares of our common stock issued under the 1999 Plan
and 2001 Plan by non-affiliates in the public market without restriction under
the Securities Act. Such registration statement will become effective
immediately upon filing. As of the filing date, stock options to purchase
8,213,000 shares of our common stock were outstanding.
CHANGES IN ACCOUNTANTS
On October 10, 2000, the client-accountant relationship between our
Company and Dale Matheson Carr-Hilton ("DMCH") ceased and we engaged
PricewaterhouseCoopers LLP, as our independent accountants for the fiscal year
ending December 31, 2000. The decision to engage PricewaterhouseCoopers LLP was
approved by our board of directors, upon the recommendation of our board of
directors. DMCH's reports on the consolidated financial statements of the
Company for fiscal year 1999 did not contain any adverse opinion or a disclaimer
of opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. During fiscal year 1999 and the subsequent interim period
preceding the resignation of DMCH, there were no disagreements with DMCH
regarding any matters of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of DMCH, would have caused DMCH to make reference to the
subject matter of the disagreements in connection with its report. We requested
that DMCH furnish us with a letter addressed to the Securities and Exchange
Commission stating whether it agrees with the above statements.
EXPERTS
The consolidated financial statements as of December 31, 2000 and for
the year then ended included in this Prospectus have been so included in
reliance on the report of PricewaterhouseCoopers LLP, independent
-54-
accountants, given on the authority of said firm as experts in auditing and
accounting.
The validity of the shares of common stock offered in this prospectus
has been passed upon for us by the Law Office of Kirk Schumacher, 6100 Neil
Road, Suite 500, Reno, Nevada 89505. Its telephone number is (775) 688-3013.
TRANSFER AGENT AND REGISTRAR
Interwest Transfer Co., Inc., located at 100-1981 East Murray Holiday
Road, Salt Lake City, Utah, 84117 was appointed transfer agent, registrar and
dividend disbursing agent for all of the shares of our common stock on April 15,
1999 and continues to act in those capacities as of the date of filing this
registration statement.
WHERE YOU CAN GET MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy any report, proxy
statement or other information we file with the Commission at the Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices at 75 Park Place, Room 1400, New York, New York
10007 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. In addition, we file
electronic versions of these documents on the Commission's Electronic Data
Gathering Analysis and Retrieval, or EDGAR, System. The Commission maintains a
website at http://www.sec.gov that contains reports, proxy statements and other
information filed with the Commission.
You should note that statements contained in this prospectus that refer
to the contents of any contract, agreement or other document disclose only the
material terms of such content and are not necessarily complete statements of
such contract, agreement and documents. Such statements are qualified by
reference to the copy of such contract, agreement or other document filed as an
exhibit to the registration statement or any amendments thereto, including
exhibits filed as part thereof, filed with the SEC. No person is authorized to
give any information or to make any representation with respect to the matters
described in this prospectus other than those contained herein and, if given or
made, the information or representation must not be relied upon as having been
authorized by us. You may inspect and copy the registration statement and any
amendments thereto, including exhibits filed as part thereof, at the SEC's
offices as described above.
-55-
E-AUCTION GLOBAL TRADING INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
E-AUCTION GLOBAL TRADING INC.
- -----------------------------
CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED MARCH 31, 2001
Consolidated Balance Sheet as of March 31, 2001 and 2000.................................... F-3
Consolidated Statements of Operations, Deficit and Comprehensive Loss for the 3 months ended
March 31, 2001 and 2000..................................................................... F-4
Consolidated Statements of Cash Flows for the 3 months ended March 31, 2001 and 2000....... F-5
Notes to Consolidated Financial Statements.................................................. F-6
E-AUCTION GLOBAL TRADING INC.
- -----------------------------
CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED DECEMBER 31, 2000
Report of Pricewaterhouse Coopers LLP, Independent Acountants................................ F-12
Consolidated Balance Sheet as of December 31, 2000 and 1999................................. F-13
Consolidated Statements of Operations, Deficit and Comprehensive Loss for the year ended
December 31, 2000 and 1999.................................................................. F-14
Consolidated Statements of Cash Flows for the year ended December 31, 2000 and 1999........ F-15
Notes to Consolidated Financial Statements.................................................. F-16
KWATROBOX B.V. AND SUBSIDIARIES
- -------------------------------
CONSOLIDATED FINANCIAL STATEMENTS FOR YEARS ENDED 1998 AND 1999
Report of PricewaterhouseCoopers N.V........................................................ F-37
Consolidated Balance Sheet as of December 31, 1999 and 1998................................. F-38
Consolidated Statements of Operations for the years ended December 31, 1999 and 1998 and
the 10 months ended October 31, 2000........................................................ F-39
Consolidated Statements of Stockholders' Equity as at December 31, 1999 and 1998 and
the 10 months ended October 31, 2000........................................................ F-40
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 and the
10 months ended October 31, 2000............................................................ F-41
Notes to Consolidated Financial Statements.................................................. F-42
E-AUCTION GLOBAL TRADING INC.
- -----------------------------
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS FOR YEAR ENDED DECEMBER 31, 2000
Pro Forma Consolidated Income Statement for Year Ended December 31, 2000.................... F-54
Note to Pro Forma Consolidated Financial Statements......................................... F-55
F-1
E-AUCTION GLOBAL TRADING INC.
(a Nevada Corporation)
Consolidated Financial Statements
MARCH 31, 2000
(expressed in U.S. dollars)
F-2
E-AUCTION GLOBAL TRADING INC.
CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 2000
- --------------------------------------------------------------------------------------------------------------
(expressed in U.S. dollars)
MARCH 31,
2001
$
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents 4,039,187
Accounts receivable 1,832,823
Inventory 648,493
Prepaid expenses 130,574
-----------------------------------------
6,651,077
INVESTMENT 692,866
FIXED ASSETS 1,957,829
ACQUIRED WORKFORCE 153,351
ACQUIRED CORE TECHNOLOGY 1,156,620
GOODWILL 8,705,050
-----------------------------------------
19,316,793
-----------------------------------------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 379,499
Accounts payable and accrued liabilities 2,670,120
Due to related parties 843,891
Deferred revenue 1,454,906
Current portion of long-term debt 231,032
-----------------------------------------
5,579,448
DUE TO RELATED PARTIES 375,063
LONG-TERM DEBT 429,240
NON-CONTROLLING INTEREST 3,531
-----------------------------------------
6,387,282
-----------------------------------------
MANDATORILY REDEEMABLE SHARES OF COMMON STOCK 4,574,364
-----------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
62,714,551 (December 31, 2000 - 62,714,551) shares of common stock - $0.001 par value 62,715
ADDITIONAL PAID-IN CAPITAL 19,047,204
ACCUMULATED OTHER COMPREHENSIVE LOSS (60,236)
DEFICIT (10,694,536)
-----------------------------------------
8,355,147
-----------------------------------------
19,316,793
-----------------------------------------
CONTINGENCIES (note 10)
GOING CONCERN (note 1)
The accompanying notes form an integral part of these financial statements.
F-3
E-AUCTION GLOBAL TRADING INC.
CONSOLIDATED STATEMENT OF OPERATIONS, DEFICIT AND COMPREHENSIVE LOSS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
- -------------------------------------------------------------------------------------------------------------------
(expressed in U.S. dollars)
2001 2000
$ $
(Unaudited)
REVENUE 1,966,175 1,028,836
COST OF GOODS SOLD 1,001,509 717,688
-----------------------------------------
964,666 311,148
-----------------------------------------
EXPENSES
Selling, general and administrative 2,518,766 728,646
Depreciation and amortization 737,832 384,332
Research and development costs 415,265 -
-----------------------------------------
3,671,863 1,112,978
-----------------------------------------
LOSS BEFORE THE UNDER-NOTED (2,707,197) (801,830)
SHARE OF INCOME OF EQUITY INVESTMENT 178,031 -
INTEREST INCOME 94,843 2,871
-----------------------------------------
LOSS BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST (2,434,323) (798,959)
INCOME TAX EXPENSES (1,847) (2,944)
NON-CONTROLLING INTEREST - 41,053
-----------------------------------------
LOSS FOR THE PERIOD (2,436,170) (760,850)
ACCRETION OF MANDATORILY REDEEMABLE COMMON STOCK TO
REDEMPTION VALUE - (234,500)
-----------------------------------------
LOSS AVAILABLE TO COMMON SHAREHOLDERS (2,436,170) (995,350)
DEFICIT - BEGINNING OF PERIOD (8,258,366) (2,654,432)
-----------------------------------------
DEFICIT - END OF PERIOD (10,694,536) (3,649,782)
-----------------------------------------
BASIC AND DILUTED LOSS PER SHARE (0.04) (0.01)
-----------------------------------------
LOSS FOR THE PERIOD (2,436,170) (760,850)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS AND OTHER COMPREHENSIVE LOSS 64,586 -
-----------------------------------------
COMPREHENSIVE LOSS (2,371,584) (760,850)
-----------------------------------------
SHARES USED IN COMPUTING BASIC AND FULLY DILUTED EARNINGS PER SHARE 62,714,551 55,620,226
The accompanying notes form an integral part of these financial statements.
F-4
E-AUCTION GLOBAL TRADING INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
- -------------------------------------------------------------------------------------------------------------------
(expressed in U.S. dollars)
2001 2000
$ $
(Unaudited)
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Loss for the period (2,436,170) (760,850)
Add: Items not affecting cash
Depreciation and amortization 737,832 384,332
Foreign exchange 60,210 -
Stock based compensation 311,531 -
Non-controlling interest - (41,053)
Share of income of equity investment (178,031) -
Net change in non-cash working capital (124,494) (554,336)
-----------------------------------------
(1,629,122) (971,907)
-----------------------------------------
FINANCING ACTIVITIES
Bank indebtedness (16,524) -
Due to related parties (100,837) (266,140)
Issuance of share capital - 2,461,328
Long-term debt 49,570 46,891
Cash contribution of minority investor - 918,499
Non-controlling interest (211) -
-----------------------------------------
(68,002) 3,160,578
-----------------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets (441,214) (93,962)
Purchase of businesses - net of cash acquired - (2,687,109)
-----------------------------------------
(441,214) (2,781,071)
-----------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD (2,138,338) (592,400)
EFFECT OF FOREIGN EXCHANGE ON CASH (27,644) (29,378)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 6,205,169 4,179,394
-----------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD 4,039,187 3,557,616
-----------------------------------------
The accompanying notes form an integral part of these financial statements.
F-5
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1. NATURE OF BUSINESS AND GOING CONCERN
The company is currently developing e-business services for perishable
commodity marketplaces primarily in Europe. In addition, through its
newly acquired subsidiaries Schelfhout Computer Systemen N.V.,
Kwatrobox B.V. and I-Three Inc. the company is engaged in the
installation and maintenance of auction clock and cooling systems for
traditional auction halls and the development of software for auctions,
including Internet-based auction systems.
These financial statements are prepared on a going concern basis which
assumes that the company will realize its assets and discharge its
liabilities in the normal course of business. The company incurred an
operating loss of $2,436,170 for the three months ended March 31, 2001
(2000 - $760,850). In addition, projected cash flows from the company's
current operations may not be sufficient to finance the company's
working capital requirements over the next year. These circumstances
lend significant doubt as to the ability of the company to continue in
the normal course of operations.
In recognition of these concerns, management are considering various
revenue and cost management alternatives and may consider raising
additional cash through external financing activities. It is not
possible at this time to predict with any assurance the success of
these initiatives.
The ability of the company to continue as a going concern is dependent
upon effective implementation of revenue and cost management
alternatives and the success of potential future external financing
initiatives. Should the company be unable to continue as a going
concern, assets and liabilities would require restatement on a
liquidation basis, which could differ materially from the going concern
basis.
2. UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited consolidated balance sheet as at March 31, 2001 and the
unaudited consolidated statements of operations and deficit and
comprehensive loss and cash flows for the three months ended March 31,
2001 and 2000 have been prepared in the opinion of management on the
same basis as the audited consolidated financial statements as at
December 31, 2000 and include all adjustments necessary for the fair
statement of the results of the interim periods. All adjustments
reflected in the financial statements are of a normal recurring nature.
The data disclosed in the notes to the financial statements for this
period is also unaudited. Results for the three months ended March 31,
2001 are not necessarily indicative of the results to be expected for
the full year.
3. ACCOUNTING POLICY
RESEARCH AND DEVELOPMENT
Research and development costs are charged as expenses until technical
feasibility has been established.
4. PRO FORMA RESULTS
The company acquired Kwatrobox B.V. and I-Three Inc. in the fourth
quarter of 2000.
F-6
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
The following table sets forth the pro forma consolidated results for
the three months ended March 31, 2001 and 2000 and net assets at March
31, 2001 as if Kwatrobox B.V. and I-Three Inc. had been acquired on
January 1, 2000:
2001 2000
$ $
Revenue 1,966,175 2,026,032
Loss (2,436,170) (4,284,869)
Loss per share 0.04 0.06
Net assets 8,355,147 7,187,493
5. SHARE CAPITAL
Authorized
250,000,000 shares of common stock with a par value of $0.001
ADDITIONAL
PAID IN
NUMBER AMOUNT CAPITAL TOTAL
OF SHARES $ $ $
Balance - December 31, 1999 39,820,000 39,820 (39,819) 1
Issued shares of common stock (i) 7,625,916 7,626 3,657,799 3,665,425
Issued on exchange of warrants (i) 8,965,899 8,966 4,300,528 4,309,494
Issued as commission (i) 327,878 328 157,268 157,596
Issued as a financing fee (ii) 197,219 197 999,803 1,000,000
Acquisition of Kwatrobox 1,250,000 1,250 1,308,750 1,310,000
Private placement (iii) 4,072,639 4,073 7,410,927 7,415,000
Acquisition of I-Three Inc. 455,000 455 217,945 218,400
Dilution gain - - 708,003 708,003
Stock-based compensation expense - - 14,469 14,469
--------------------------------------------------------------
Balance - December 31, 2000 62,714,551 62,715 18,735,673 18,798,388
Stock-based compensation - - 311,531 311,531
--------------------------------------------------------------
Balance - March 31, 2001 62,714,551 62,715 19,047,204 19,109,919
--------------------------------------------------------------
i.) On January 7, 2000, through a private placement, the company issued
7,625,916 shares of common stock and 8,965,899 share purchase warrants,
net of cash costs of $163,391 and an additional 327,878 shares of common
stock issued as a commission to an agent to the transaction. The company
raised net cash proceeds of $4,319,557 of which $1,858,229 was received
in 1999. In addition the company issued shares to five companies that
collectively settled the company's debt with a face value of $3,812,958.
The 8,965,899 share purchase
F-7
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
warrants were immediately exchanged for shares of common stock on a basis
of one common share for each share purchase warrant. The investors
included a related party and four parties related to this party through
common shareholdings.
ii.) In consideration for a loan of $1 million provided on August 13, 1999 by
Millennium Investors Inc. to e-Auction, Millennium received 197,219
shares of common stock of the company with a fair value of $1,000,000 as
a financing and interest fee. These shares were issued in January 2000.
iii.) On June 22, 2000, the company completed a private placement of 4,072,639
shares at $1.842 per share of common stock for proceeds of $7,415,000,
net of costs of $85,000.
STOCK OPTIONS
On March 1, 1999, as amended on March 13, 2000, the company adopted a
stock option plan that reserved 9,000,000 shares. The options have a
term of ten years, and the exercise price is set at the estimated fair
market value at the date of grant. There were no options issued prior
to March 1, 1999. No additional options have been granted in the three
months period ended March 31, 2001. The following table summarizes the
continuity of stock options:
WEIGHTED
AVERAGE
OPTIONS FOR EXERCISE PRICE
SHARES OF PER SHARE
COMMON STOCK $
Balance - December 31, 1999 4,300,000 0.90
Cancelled (845,000) (0.01)
Cancelled (3,050,000) (0.85)
Cancelled (250,000) (5.00)
Issued - December 30, 2000 8,058,000 0.35
---------------------
Balance - December 31, 2000 8,213,000 0.34
Cancelled (20,000) (0.35)
---------------------
Balance - March 31, 2001 8,193,000 0.34
---------------------
6. CHANGE IN NON-CASH WORKING CAPITAL
3 MONTHS ENDED MARCH 31,
------------------------------------------
2001 2000
$ $
Accounts receivable (325,859) (363,945)
Inventory (72,789) (58,237)
Prepaid expenses (15,800) (4,760)
Accounts payable and accrued liabilities 94,822 (50,584)
Deferred revenue 195,132 (76,810)
------------------------------------------
(124,494) (554,336)
------------------------------------------
F-8
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
7. SEGMENTED INFORMATION
The company operates in one operating segment, this being the
installation of auction clocks and cooling systems.
GEOGRAPHIC INFORMATION
3 MONTHS ENDED MARCH 31,
------------------------------------------
2001 2000
$ $
Revenue
Canada 76,571 -
Belgium 882,119 1,028,836
Netherlands 1,007,485 -
------------------------------------------
1,966,175 1,028,836
------------------------------------------
MARCH 31, 2001 DECEMBER 31, 2000
$ $
Long-lived assets
Canada 3,258,869 1,147,883
Belgium 5,937,649 7,658,629
Netherlands 2,776,331 3,554,029
------------------------------------------
11,972,849 12,360,541
------------------------------------------
8. LOSS PER COMMON SHARE
The weighted average number of shares of common stock used for
calculating the basic loss per share is 62,714,551 (2000 - 55,620,226).
Fully diluted loss per share is the same as the basic loss per share
for the period ended March 31, 2001 and 2000. Loss per share is
determined based on the loss available to common shareholders as
presented in the statement of operations, deficit and comprehensive
loss.
F-9
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 AND 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
The 8,193,000 outstanding stock options and 200,000 contingently
issuable shares were not included in the computation of earnings per
share as they are anti-dilutive for the periods presented.
9. SUPPLEMENTAL NON-CASH INFORMATION
During the three months ended March 31, 2000, the company issued
3,636,364 shares of mandatorily redeemable common stock with a fair
value of $3,636,364 in connection with the acquisition of Schelfhout
Computer Systemen N.V.
In January 2000, the company issued 197,219 shares of common stock with
a fair value of $1,000,000 to Millennium Inc. as payment of a financing
and interest fee.
The company issued 7,625,916 shares of common stock in January 2000,
for which the proceeds were paid to various creditors, and cash was not
received by the company. Debts settled totalled $3,812,958. The company
also issued 327,878 shares with a fair value of $157,596 to pay
commission on a private placement.
10. CONTINGENCIES
a) A competitor of SCS has filed three claims totalling
approximately, $150,000 (FRF1,000,000) against SCS during
2000. At present, there is insufficient information available
to ascertain the likelihood of these claims being successful.
Accordingly, no recognition of this contingent loss has been
made.
b) Certain customers of a subsidiary have filed claims totalling
$70,000 against the subsidiary company. At present, there is
insufficient information available to ascertain the likelihood
of these claims being successful. Accordingly, no recognition
of this contingent loss has been made.
c) A shareholder derivative action was brought against the
company, its subsidiaries and two of its directors for claims
totalling $100 million.
The action was stayed on November 29, 1999 as a result of the
plaintiff's filing for Chapter 11 Bankruptcy protection in the United
States Bankruptcy Court, therefore, there is no recognition of the
contingent loss in the period.
F-10
E-AUCTION GLOBAL TRADING INC.
(a Nevada Corporation)
Consolidated Financial Statements
DECEMBER 31, 2000
(expressed in U.S. dollars)
F-11
- --------------------------------------------------------------------------------
| PRICEWATERHOUSECOOPERS LLP
| CHARTERED ACCOUNTANTS
| P.O. Box 82
| Royal Trust Tower Suite 3000
| Toronto Dominion Centre
| Toronto Ontario
| Canada M5K 1G*
| Telephone +1 416 863 1133
| Facsimile +1 416 365 8215
March 21, 2001
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS OF
E-AUCTION GLOBAL TRADING INC.
In our opinion, the accompanying consolidated balance sheet as at December 31,
2000 and the related consolidated statements of operations, deficit and
comprehensive loss and consolidated statement of cash flows present fairly, in
all material respects, the financial position of E-AUCTION GLOBAL TRADING INC.
at December 31, 2000, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America. These financial statements are the
responsibility of the company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. The financial statements of
the company as at December 31, 1999 and for the year then ended were audited by
other independent accountants whose report dated February 1, 2000 expressed an
unqualified opinion on those statements.
/s/ PricewaterhouseCoopers LLP
Toronto, Ontario
PricewaterhouseCoopers refers to the Canadian form of PricewaterhouseCoopers LLP
and other members of the worldwide PricewaterhouseCoopers organization.
F-12
E-AUCTION GLOBAL TRADING INC.
Consolidated Balance Sheet
AS AT DECEMBER 31, 2000
- ----------------------------------------------------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999
$ $
ASSETS
CURRENT ASSETS
Cash and cash equivalents 6,205,169 4,179,394
Accounts receivable 1,600,871 -
Inventory 608,537 -
Prepaid expenses 121,819 -
-----------------------------------------
8,536,396 4,179,394
INVESTMENT 514,835 -
DEPOSIT - 1,000,000
FIXED ASSETS 1,732,521 34,247
ACQUIRED WORKFORCE 161,351 -
ACQUIRED CORE TECHNOLOGY 1,226,920 -
GOODWILL 9,239,748 -
-----------------------------------------
21,411,771 5,213,641
-----------------------------------------
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 423,432 -
Accounts payable and accrued liabilities 2,703,079 749,050
Due to related parties 944,728 860,793
Deferred revenue 1,323,874 200,000
Current portion of long-term debt 255,571 -
Shareholder loan - 2,200,000
Subscriptions receipts - 1,858,229
Related party loan payable - 2,000,000
-----------------------------------------
5,650,684 7,868,072
DUE TO RELATED PARTIES 375,063 -
LONG-TERM DEBT 392,718 -
NON-CONTROLLING INTEREST 3,742 -
-----------------------------------------
6,422,207 7,868,072
-----------------------------------------
MANDATORILY REDEEMABLE SHARES OF COMMON STOCK 4,574,364 -
-----------------------------------------
SHAREHOLDERS' EQUITY
SHARE CAPITAL
62,714 ,551(1999 - 39,820,000) shares of common stock - $0.001 par value 62,715 -
ADDITIONAL PAID-IN CAPITAL 18,735,673 -
ACCUMULATED OTHER COMPREHENSIVE LOSS (124,822) -
DEFICIT (8,258,366) (2,654,432)
-----------------------------------------
10,415,200 (2,654,431)
-----------------------------------------
21,411,771 5,213,641
-----------------------------------------
CONTINGENCIES (note 27)
The accompanying notes form an integral part of these financial statements.
F-13
E-AUCTION GLOBAL TRADING INC.
Consolidated Statement of Operations, Deficit and Comprehensive Loss
AS AT DECEMBER 31, 2000
- -----------------------------------------------------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999
$ $
REVENUE 4,858,963 -
COST OF GOODS SOLD (1,969,666) -
-----------------------------------------
2,889,297 -
-----------------------------------------
EXPENSES
Selling, general and administrative 5,698,828 2,654,432
Depreciation and amortization 1,749,312 -
-----------------------------------------
7,448,140 2,654,432
-----------------------------------------
LOSS BEFORE THE UNDER-NOTED (4,558,843) (2,654,432)
SHARE OF LOSS OF EQUITY INVESTMENT (193,168) -
INTEREST INCOME 189,392 -
-----------------------------------------
LOSS BEFORE INCOME TAXES AND NON-CONTROLLING INTEREST (4,562,619) (2,654,432)
INCOME TAX EXPENSE (104,732) -
NON-CONTROLLING INTEREST 1,417 -
-----------------------------------------
LOSS FOR THE YEAR (4,665,934) (2,654,432)
ACCRETION OF MANDATORILY REDEEMABLE COMMON STOCK TO REDEMPTION VALUE (938,000) -
-----------------------------------------
LOSS AVAILABLE TO COMMON SHAREHOLDERS (5,603,934) (2,654,432)
DEFICIT - BEGINNING OF YEAR (2,654,432) -
-----------------------------------------
DEFICIT - END OF YEAR (8,258,366) (2,654,432)
-----------------------------------------
BASIC AND DILUTED LOSS PER SHARE (0.09) (0.07)
-----------------------------------------
LOSS FOR THE YEAR (4,665,934) (2,654,432)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS AND ACCUMULATED OTHER COMPREHENSIVE
LOSS (124,822) -
-----------------------------------------
COMPREHENSIVE LOSS (4,790,756) (2,654,432)
-----------------------------------------
SHARES USED IN COMPUTING BASIS AND FULLY DILUTED EARNINGS PER SHARE 59,196,743 34,432,329
The accompanying notes form an integral part of these financial statements.
F-14
E-AUCTION GLOBAL TRADING INC.
Consolidated Statement of Cash Flows
AS AT DECEMBER 31, 2000
- --------------------------------------------------------------------------------------------------------------------------------
(expressed in U.S. dollars)
F-6
2000 1999
$ $
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Loss for the year (4,665,934) (2,654,432)
Add: Items not affecting cash
Interest 21,698 -
Depreciation and amortization 1,749,312 -
Foreign exchange (32,364) -
Stock options issued to non-employees 14,469 -
Non-controlling interest (1,417) -
Share of loss of equity investment 193,168 -
Net change in non-cash working capital (322,361) 949,050
-----------------------------------------
(3,043,429) (1,705,382)
-----------------------------------------
FINANCING ACTIVITIES
Bank indebtedness 38,375 -
Due to related parties (269,533) 860,793
Issuance of share capital 9,876,328 4,058,229
Long-term debt (103,201) 2,000,000
Demand loan receivable (749,688) -
-----------------------------------------
8,792,281 6,919,022
-----------------------------------------
INVESTING ACTIVITIES
Purchase of fixed assets (713,388) (34,247)
Purchase of businesses - net of cash acquired (2,982,164) (1,000,000)
-----------------------------------------
(3,695,552) (1,034,247)
-----------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS DURING THE YEAR 2,053,300 4,179,393
EFFECT OF FOREIGN EXCHANGE ON CASH (27,525) -
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 4,179,394 1
-----------------------------------------
CASH AND CASH EQUIVALENTS - END OF YEAR 6,205,169 4,179,394
-----------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid 54,020 -
Taxes paid 11,882 -
The accompanying notes form an integral part of these financial statements.
F-15
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1 NATURE OF BUSINESS
The company is currently developing e-business services for perishable
commodity marketplaces primarily in Europe. In addition, through its
newly acquired subsidiaries (note 4), the company is engaged in the
installation and maintenance of auction clock and cooling systems for
traditional auction halls and the development of software for auctions,
including Internet-based auction systems. These activities are primarily
located in Europe. To date the company has not earned revenue from the
e-business services model. The success of the e-business model is
dependent upon completing a working prototype and developing new services
that will be commercially accepted, and upon obtaining adequate financing
to support the final stages of development of this business model. The
outcome of these matters cannot be determined at this time.
2 BASIS OF PRESENTATION
The company commenced operations in 1999, and accordingly, the
consolidated statement of operations, deficit and comprehensive loss is
only presented for 1999 and 2000.
CONSOLIDATION
The accompanying financial statements consolidate the accounts of the
company and its wholly owned subsidiaries: Aucxis Corp. (Belgium) N.V.
(formerly e-Auction Belgium N.V.) and its wholly owned subsidiary,
Schelfhout Computer Systemen N.V. (SCS) and its 99% owned subsidiary in
SDL Invest N.V., e-Auction Global Trading Inc. (Barbados) and its wholly
owned subsidiary Aucxis Corp. (Canada), (formerly e-Auction Global
Trading Inc. (Canada)), V-Wholesaler B.V. and its wholly owned
subsidiary, Kwatrobox B.V. and the subsidiaries of Kwatrobox B.V., 100%
of Automatiserngbureau Palm B.V., 80% of Scoop Software B.V., 100% of
Palm Veilingsystemen B.V., 100% of Nieaf Systems B.V, and 100% of
I-Three, Inc.
The financial statements also include the company's share of the net
assets and earnings or loss of the company's 48.2% investment in Aucxis
(Australia) Ltd., (formerly Hunter Capital Limited) accounted for by the
equity method.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FOREIGN CURRENCY TRANSLATION
The company's functional currency is the U.S. dollar, except as noted
below. Foreign denominated non-monetary assets, liabilities and other
items are measured in U.S. dollars using the exchange rate prevailing at
the respective transaction dates. Monetary assets and liabilities
denominated in foreign currencies are measured at exchange rates
prevailing at the balance sheet date. Resulting remeasurement adjustments
are included in income. The functional currencies of the company's
subsidiaries are euros, Netherland guilders and Australian dollars.
Accordingly, the company applies the current exchange rate to translate
the subsidiaries' assets and liabilities, and average exchange rate for
the year to translate revenues, expenses and gains and losses, into U.S.
dollars. The resulting translation adjustments are included as a separate
component of comprehensive loss within shareholders' equity.
F-16
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
USE OF ESTIMATES
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Financial results as determined by
actual events could differ from those estimates.
FINANCIAL INSTRUMENTS
The company's financial instruments consist of cash and cash equivalents
and bank indebtedness, accounts receivable, accounts payable and accrued
liabilities, due to related parties, deferred revenue and long-term debt,
the fair market values of which approximate their carrying values due to
the short-term nature and normal trade terms.
FIXED ASSETS
Fixed assets are recorded at cost less accumulated depreciation. Fixed
assets are depreciated from the date of acquisition using the following
rates:
Building straight-line over 40 years
Furniture and fixtures straight-line over 10 years
Leaseholds Straight-line over 4 years
Tools and equipment Straight-line over 5 years
Vehicles Straight-line over 5 years
Software Straight-line over 5 years
ACQUIRED WORKFORCE
Acquired workforce is recorded at cost and amortized on a straight-line
basis over its expected life, which approximates five years.
ACQUIRED CORE TECHNOLOGY
Acquired core technology is recorded at cost and amortized on a
straight-line basis over its expected life, which approximates five
years.
GOODWILL
Goodwill represents the cost of acquired businesses in excess of the fair
values of the underlying net identifiable assets acquired. Goodwill is
amortized on a straight-line basis over its expected life which
approximates five years.
F-17
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
IMPAIRMENT OF LONG-LIVED ASSETS
The company evaluates its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Recoverability of assets held and
used is measured by a comparison of the carrying amount of any asset to
future net undiscounted cash flows expected to be generated by the
assets. If such an asset is considered to be impaired, the impairment to
be recognized is measured as the amount by which the carrying amount of
the asset exceeds its estimated fair value. Assets to be disposed of are
reported at the lower of the carrying amount or fair value, less costs to
sell.
INTERNAL USE SOFTWARE
The company has acquired and is developing software for internal use in
its e-business services. At December 31, 2000, the company was in the
preliminary stages of developing its e-business services software and,
accordingly, all related costs have been charged to expense in the year.
INCOME TAXES
The company provides for income taxes under the asset and liability
method in accordance with Statement of Financial Accounting Standard No.
109, ACCOUNTING FOR INCOME TAXES. Under this method, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and income taxes bases of assets and liabilities and are
measured using enacted tax rates and laws. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amounts
more likely than not to be realized. To date, the company's deferred tax
assets, relating principally to losses carried forward, have been
considered not more likely than not to be realized and, accordingly, a
valuation allowance equal to the deferred tax assets has been recorded.
REVENUE RECOGNITION
The company derives revenue from the development and installation of
clock systems, cooling installations and maintenance services related to
these systems. Clock and cooling system installations take three to four
months to complete and are accounted for using the percentage of
completion method in accordance with Statement of Position 81-1. For
contracts with customers that include customer acceptance provisions that
are not confirmed until the delivery and installation of the systems, the
company defers revenue recognition until the installation is complete and
customer acceptance has occurred under the completed contract method of
accounting.
Revenues from the sale of customized hardware and software applications
are recognized when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed and collectibility is reasonably
assured.
Maintenance contracts to service installed clock and cooling systems are
sold separately from these systems. Revenues from maintenance contracts
are recognized ratably over the contract period during which services are
performed, as vendor specific objective evidence of fair value for
maintenance contracts exists.
F-18
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
INVENTORY
Inventory is stated at the lower of cost or market value with cost being
determined using the weighted average cost method. Obsolete or defective
inventories are reduced to net realizable value.
The work-in-progress inventory represents direct costs, including raw
materials, labour and an allocation of overhead.
STOCK OPTIONS
The company has a broad-based employee stock option plan. The company
uses the intrinsic value method of Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES to value stock-based
compensation expense for employees and complies with the disclosure
provisions of Statement of Financial Accounting Standards No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. Under this method, options are
considered compensatory to the extent that the fair value of the stock
exceeds the exercise price at the measurement date, which is the date at
which the share option entitlement and exercise price is known. The
compensation cost is recognized over the vesting period, and recorded as
a component of salaries and benefits expense.
The company has compensated external service providers with company stock
options. The compensation expense recorded is determined based on the
fair value method as prescribed in Statement of Financial Accounting
Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
The company has modified the terms of its option plan for certain
employees and, in accordance with Financial Accounting Standards Board
Interpretation No. 44 (FIN 44), ACCOUNTING FOR CERTAIN TRANSACTIONS
INVOLVING STOCK COMPENSATION, the company has adopted variable plan
accounting for these options. Under variable plan accounting,
compensation expense is and recorded each period from the date of
modification to the date of measurement.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on deposit and highly liquid
short-term, interest bearing securities, having original terms to
maturity of three months or less.
WARRANTY PROVISION
One of the company's subsidiaries provides a warranty for some of the
products sold. A provision for estimated warranty costs is charged to
operations on the basis of management's estimate of costs to be incurred
servicing warranty claims.
4 ACQUISITIONS
A) SCHELFHOUT COMPUTER SYSTEMEN N.V.
On January 10, 2000, the company completed the purchase of 100% of
the issued and outstanding shares of Schelfhout Computer Systemen
N.V. (SCS), a Belgian company that supplies clocks and cooling
systems to auction houses. The company acquired the shares of SCS
in exchange for 3,636,364 shares of common stock and cash of
$4,000,000. The shares of common stock have been valued at
F-19
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
$3,636,364, based on their estimated fair value at January 10,
2000. Fair value has been determined based on the cash price paid
for stock in a contemporaneous private placement, the put feature
related to the shares issued to acquire SCS and the market price
of the company's stock around the acquisition date.
The results of operations of SCS have been included in the
consolidated financial statements from the date of acquisition.
The following table summarizes the purchase:
$
Consideration received
Identifiable tangible assets 369,205
Acquired core technology 726,716
Goodwill, representing excess of consideration period over
identifiable net assets acquired 6,540,443
------------------
7,636,364
------------------
The net tangible assets of SCS at January 10, 2000 consist of the
following: cash of approximately $0.3 million, other working
capital amounts of approximately $0.2 million, fixed assets of
approximately $0.2 million and loans payable of approximately $0.3
million.
The purchase price of $7,636,364 was paid as follows:
$
Refundable deposit paid in 1999 1,000,000
Cash on closing (January 2000) 3,000,000
Shares of common stock at fair value issued in January 2000 3,636,364
------------------
7,636,364
------------------
The 3,636,364 shares of common stock issued were to be freely
tradable at the time of issue and are subject to a timed release
formula which allows for release of 454,545 shares, redeemable at
$1.65 per share, on each of the 6, 12, 18 and 24-month anniversary
dates of the closing, and the release of 606,061 shares,
redeemable at $1.65 per share, on each of the 36, 48 and 60-month
anniversary dates of the closing. If the company's shares are not
freely tradable on any given release date, the vendors may demand
redemption of the shares at their redemption price of $1.65 per
share. The shares issued to acquire the business have been
classified as manditorily redeemable shares of common stock as
redemption is outside the control of the company. Subsequent to
the acquisition of the company, these shares are accreted up to
their redemption value of $1.65 per share over the period to the
redemption date. The accretion in the period of $938,000 has been
charged to a component of shareholders' equity.
As at July 10, 2000, the first anniversary date of the
acquisition, the shares of the company were not freely tradable.
However, the vendors did not exercise their right to demand
redemption of the shares.
F-20
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
The $750,000 due to the vendors is included in the balance of the
mandatorily redeemable shares of common stock.
B) PURCHASE OF KWATROBOX B.V.
Effective November 1, 2000, the company acquired 100% of the
issued and outstanding shares of Kwatrobox B.V. (Kwatrobox), a
provider of electronic auction infrastructure and enterprise
resource planning software, for cash and shares of the company.
The consideration includes cash of $1,573,250 and 1,250,000 shares
of common stock of the company, plus performance related
contingent consideration of up to 200,000 shares of common stock
of the company. The total consideration, excluding the
contingently issuable shares is $2,883,250.
An additional 750,000 shares were issued upon closing on November
1, 2000, and will be held in escrow subject to the time release
included in the table below. The remaining cash payments included
in the table below are recorded as due to related party at the
year-end, based on year-end exchange rates.
An initial deposit of $321,902 of cash and 500,000 shares, with a
fair value of $740,000, were issued to the vendor on June 5, 2000.
SHARE CONSIDERATION CASH CONSIDERATION
----------------------------------------- -----------------------------------------
NUMBER $ NLG $
June 5, 2001 600,000 456,000 2,250,000 866,318
June 5, 2002 150,000 114,000 1,000,000 385,030
---------------------------------------------------------------------------------------
750,000 570,000 3,250,000 1,251,348
---------------------------------------------------------------------------------------
The performance shares are contingent upon Kwatrobox and its
subsidiaries earning combined pre-tax income of not less than $1.4
million for the period commencing on June 5, 2000 through to July
4, 2003 (the three-year period). To the extent that the earnings
are less than $1.4 million but greater than $1 million for the
three-year period, the performance payment shall be reduced by the
deficit between earnings and $1.4 million. No additional
consideration is required where pre-tax earnings are less than $1
million for the three-year period. The performance shares have not
been included in the purchase consideration at this time. Any
additional consideration arising in the future will be based on
the fair value of the shares issued at that time and will be
recorded as an increase in goodwill.
The following table summarizes the transaction:
$
Consideration received
Goodwill, representing excess of consideration period
over identifiable net assets acquired 4,137,369
Net identifiable tangible liabilities (1,254,119)
------------------
2,883,250
------------------
F-21
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
The net tangible assets of Kwatrobox at November 1, 2000 consist
of the following: cash and other working capital amounts of
approximately $(0.8) million, fixed assets of approximately $0.8
million and long-term debt of approximately $1.4 million.
c) PURCHASE OF I-THREE, INC.
Effective November 27, 2000, the company acquired 100% of the
issued and outstanding shares of I-Three, Inc. (I-Three) for
455,000 shares of the company. I-Three is a professional services
firm specializing in real-time, business-to-business
infrastructure technology. The total consideration is $218,400.
The following is a summary of the transaction:
$
Consideration received
Fair value of net identifiable tangible liabilities (616,092)
Acquired core technology 667,594
Acquired workforce 166,898
------------------
218,400
------------------
The net identifiable tangible liabilities consist of cash and
working capital of approximately $(0.8) million and fixed assets
of approximately $0.2 million.
d) Due to the timing of the acquisitions of I-Three and Kwatrobox,
the company is in the process of evaluating its purchase price
allocation, specifically the existence of any in-process research
and development and the allocation to core technology. As a result
of the evaluation, the purchase price allocation may change.
e) The following table sets forth the pro forma consolidated results
and net assets as if SCS, Kwatrobox and I-Three had been acquired
on January 1, 1999 (unaudited):
2000 1999
$ $
Revenue 8,035,041 7,844,199
Loss (6,574,087) (5,439,974)
Loss per share (0.11) (0.09)
Net assets 10,415,200 7,157,687
5 ACCOUNTS RECEIVABLE
Accounts receivable consist of the following amounts:
F-22
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2000 1999
$ $
Accounts receivable 1,683,130 -
Allowance for doubtful accounts (82,259)
-----------------------------------------
1,600,871 -
-----------------------------------------
6 INVENTORY
Inventories consist of the following:
2000 1999
$ $
Raw materials 304,143 -
Work-in-progress 99,331 -
Finished goods 205,063 -
-----------------------------------------
608,537 -
-----------------------------------------
7 INVESTMENT
The company has recorded dilution gains in the year ended December 31,
2000 totalling $708,003 (1999 - $nil) which is charged to shareholders'
equity. $459,158 of the gain resulted from e-Auction Australia Limited
(EAA) issuing shares to new investors, in exchange for AUD$1.5 million
cash. As a result, the company's share of EAA decreased from 100% to
50.01% and a gain was recorded for the amount by which consolidated
assets were increased net of amounts attributed to non-controlling
interests.
The second dilution gain of $248,845 occurred on October 27, 2000 when
the company's 50.01% interest in EAA was acquired by Hunter Capital
Limited (Hunter), an Australian public company, through the issue of
Hunter shares. Hunter then changed its name to Aucxis (Australia) Ltd.
After the completion of this transaction, the company held 48.20% of the
shares of Aucxis (Australia) Ltd., a continuation of the former EAA.
As a result of this dilution in shareholding, the company has accounted
for the investment by the equity method.
8 FIXED ASSETS
2000 1999
$ $
COST
Land 85,178 -
Building 504,075 -
Leaseholds 64,093 -
Furniture and fixtures 147,758 -
Tools and equipment 416,353 -
Vehicles 334,528 -
F-23
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Software 318,847 34,247
----------------------------------------
1,870,832 34,247
----------------------------------------
ACCUMULATED DEPRECIATION
Land - -
Building 1,414 -
Leaseholds 3,472 -
Furniture and fixtures 8,953 -
Tools and equipment 24,010 -
Vehicles 72,230 -
Software 28,232 -
------------------------------------------
138,311 -
------------------------------------------
NET BOOK VALUE
Land 85,178 -
Building 502,661 -
Leaseholds 60,621 -
Furniture and fixtures 138,805 -
Tools and equipment 392,343 -
Vehicles 262,298 -
Software 290,615 34,247
------------------------------------------
1,732,521 34,247
------------------------------------------
9 ACQUIRED WORKFORCE
The acquired workforce, costing of $166,898 (1999 - $nil), had
accumulated amortization of $5,547 at December 31, 2000 (1999 - $nil).
10 ACQUIRED CORE TECHNOLOGY
The acquired core technology, with a cost of $1,394,310 (1999 - $nil) has
accumulated amortization of $167,390 at December 31, 2000 (1999 - $nil).
11 GOODWILL
Goodwill, costing of $10,677,812 (1999 - $nil), had accumulated
amortization of goodwill of $1,438,064 at December 31, 2000 (1999 -
$nil).
12 BANK INDEBTEDNESS
The company's bank indebtedness of $423,432 bears interest at 6.25%, and
is payable quarterly in arrears. The company has unutilized facilities of
$99,130 (NLG232,003) at December 31, 2000. The building, equipment and
inventory of the company's subsidiary, Kwatrobox, have been pledged as
security.
F-24
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
13 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
2000 1999
$ $
Trade payables 1,629,476 749,050
Payroll 652,556 -
Warranty accrual 61,000 -
Accrued liabilities 360,047 -
----------------------------------------
2,703,079 749,050
----------------------------------------
14 DUE TO RELATED PARTIES
2000 1999
$ $
Related party loan 100,837
Due to former Kwatrobox shareholders 1,218,954 -
Due to Ventures North Investment Partners - 860,793
----------------------------------------
1,319,791 860,793
Less: Current portion (944,728) (860,793)
----------------------------------------
375,063 -
----------------------------------------
The amount due to former Kwatrobox shareholders relates to the
acquisition of Kwatrobox. Under the purchase agreement, the company is
required to pay the vendor two payments of NLG2,250,000 and NLG1,000,000
on June 5, 2001 and June 5, 2002, respectively (note 4). The total
liability at year-end is $1,218,954.
The majority of the company's operations during 1999 were funded by
Ventures North Investment Partners Inc. (Ventures). Ventures is related
through significant common shareholdings. The amounts advanced are
non-interest bearing with no fixed terms of repayment. During 2000, these
related party advances were repaid in full.
A subsidiary of the company has four related party loans outstanding,
totalling $100,837. These loans bear interest at 6% and were repaid in
full in January 2001.
15 SHAREHOLDER LOAN
The company obtained a loan of $2,200,000 from a shareholder on December
14, 1999 to help finance the SCS acquisition. In February 2000, the loan
plus interest of $21,698 was settled through the proceeds from the issue
of 4,443,396 shares, with a fair value of $2,221,698.
F-25
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
16 RELATED PARTY LOAN PAYABLE
2000 1999
$ $
Loan payable - 1,000,000
Financing fee payable - 1,000,000
----------------------------------------
- 2,000,000
----------------------------------------
On August 12, 1999, the company received a loan of $1,000,000 from
Millennium Advisors Inc. (Millennium), a company related through a common
director. The $1,000,000 loan was repaid in January 2000 through the
proceeds of 2,000,000 shares issued for $1,000,000. The financing fee of
$1,000,000 was settled through the issue of 197,219 shares of common
stock of the company having a fair value of $1,000,000.
F-26
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
17. LONG-TERM DEBT
The following balances comprise long-term debt:
2000 1999
$ $
Loan - Tele Flower Auction B.V. (i) 160,229 -
Mortgage (ii) 187,682 -
Other loans (iii) 300,378 -
-----------------------------------------
648,289 -
Less: Current portion (255,571) -
-----------------------------------------
Long-term debt 392,718 -
-----------------------------------------
i) Tele Flower Auction B.V. loaned Kwatrobox $427,277
(NLG1,000,000) on May 22, 1998. This loan was repayable in
equal instalments of $53,410 (NLG125,000) over eight years,
bearing interest at a rate of 5% per annum, payable annually.
In November 2000, Kwatrobox paid Tele Flower Auction B.V.
$160,229 (NLG375,000), with the agreement that there will be
no further interest payment required. The remaining balance of
$160,299 (NLG375,000) is due for repayment in 2001. In
addition to interest, Tele Flower Auction B.V. is also
entitled to 10% of the annual after-tax profit of Nieaf
Systems B.V., a subsidiary of Kwatrobox, over the term of the
loan. As Nieaf Systems B.V. has not reported a profit, no
payments have been accrued or paid to date.
ii) The mortgage relates to a building owned by Kwatrobox, with an
original principal of $213,639 (NLG500,000). The mortgage
bears interest at 5.9%, payable monthly and the principal is
repayable in equal annual instalments of $11,536 and matures
in 16 years. The mortgage is secured by the building and land
to which it relates.
iii) SCS has various vehicle loans, with interest rates ranging
from 3.67% to 6.16%, and maturity dates ranging from March
2001 through August 2005, secured by the related vehicles.
The debt repayments over the next five years are as follows:
$
2001 359,712
2002 80,149
2003 56,885
2004 41,992
2005 39,276
Thereafter 198,892
The weighted average interest rate on borrowings for the year ended
December 31, 2000 is approximately 6%.
F-27
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
18 INCOME TAXES
2000 1999
$ $
Loss before taxes for the year (4,561,202) (2,654,432)
-----------------------------------------
Income tax recovery at enacted tax rate of 35% (1,596,421) (929,051)
Permanent non-tax deductible expense 6,982 -
Foreign tax rate differential (372,912) (237,572)
Net operating loss and temporary differences for which no benefit was
recognized 2,067,083 1,166,623
-----------------------------------------
104,732 -
-----------------------------------------
As at December 31, 2000, the company had available non-capital losses in
various countries that may be used to reduce income tax in future years,
expiring as follows:
USA FOREIGN
$ $
2014 2,654,432 -
2015 4,178,202 -
No expiry - 2,350,000
-----------------------------------------
6,832,634 2,350,000
-----------------------------------------
The significant components of future tax assets and liabilities are
summarized as follows:
2000 1999
$ $
Deferred tax assets
Non-capital loss carry-forward 3,213,000 929,000
Depreciation and amortization 71,500 -
Valuation allowance (3,284,500) (929,000)
-----------------------------------------
Net deferred tax assets - -
-----------------------------------------
The valuation allowance increased by $2,355,500 during 2000 (1999 -
$929,000). Realization of future tax benefits is dependent upon many
factors including the company's ability to generate taxable income in the
loss carry-forward periods.
F-28
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
19 SHARE CAPITAL
Authorized
250,000,000 shares of common stock with a par value of $0.001
Additional
paid in
Number capital Total
of shares $ $ $
Balance - December 31, 1998 34,500,000 34,500 (34,500) -
Resulting from reverse takeover acquisition 5,320,000 5,320 (5,319) 1
----------------------------------------------------------------------
Balance - December 31, 1999 39,820,000 39,820 (39,819) 1
Issued shares of common stock (i) 7,625,916 7,626 3,657,799 3,665,425
Issued on exchange of warrants (i) 8,965,899 8,966 4,300,528 4,309,494
Issued as commission (i) 327,878 328 157,268 157,596
Issued as a financing fee (ii) 197,219 197 999,803 1,000,000
Acquisition of Kwatrobox (note 4) 1,250,000 1,250 1,308,750 1,310,000
Private placement (iii) 4,072,639 4,073 7,410,927 7,415,000
Acquisition of I-Three, Inc. (note 4) 455,000 455 217,945 218,400
Dilution gain (note 7) - - 708,003 708,003
Stock-based compensation - - 14,469 14,469
----------------------------------------------------------------------
Balance - December 31, 2000 62,714,551 62,715 18,735,673 18,798,388
----------------------------------------------------------------------
i) On January 7, 2000, through a private placement, the company issued
7,625,916 shares of common stock and 8,965,899 share purchase warrants,
net of cash costs of $163,391 and an additional 327,878 shares of
common stock issued as a commission to an agent to the transaction. The
company raised net cash proceeds of $4,319,557 of which $1,858,229 was
received in 1999. In addition the company issued shares to five
companies that collectively settled the company's debt with a face
value of $3,812,958. The 8,965,899 share purchase warrants were
immediately exchanged for shares of common stock on a basis of one
common share for each share purchase warrant. The investors included a
related party and four parties related to this party through common
shareholdings.
ii) In consideration for a loan of $1 million provided on August 13, 1999
by Millennium to e-Auction, Millennium received 197,219 shares of
common stock of the company with a fair value of $1,000,000 as a
financing and interest fee. These shares were issued in January 2000.
iii) On June 22, 2000, the company completed a private placement of
4,072,639 shares at $1.842 per share of common stock for proceeds of
$7,415,000, net of costs of $85,000.
STOCK OPTIONS
On March 1, 1999, as amended on March 13, 2000, the company adopted a stock
option plan that reserved 9,000,000 shares. The options have a term of ten
years, and the exercise price is set at the estimated fair
F-29
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
market value at the date of grant. There were no options issued prior to March
1, 1999. The following table summarizes the continuity of stock options:
WEIGHTED AVERAGE
OPTIONS FOR EXERCISE PRICE
SHARES OF PER SHARE
COMMON STOCK $
Balance - December 31, 1998 - -
Issued - March 1, 1999 1,000,000 0.01
Issued - August 29, 1999 250,000 5.00
Issued - December 1, 1999 3,050,000 0.85
------------------
Balance - December 31, 1999 4,300,000 0.90
Cancelled (845,000) (0.01)
Cancelled (3,050,000) (0.85)
Cancelled (250,000) (5.00)
Issued - December 30, 2000 8,058,000 0.35
------------------
Balance December 31, 2000 8,213,000 0.34
------------------
At December 31, 1999, 2,550,000 options with an exercise price of $0.85
were exercisable.
The following table summarizes information about the company's share
options outstanding as at December 31, 2000.
NUMBER OUTSTANDING WEIGHTED AVERAGE NUMBER EXERCISABLE
EXERICSE PRICE AT REMAINING AT
$ DECEMBER 31, 2000 CONTRUACTUAL LIFE DECEMBER 31, 2000
0.01 155,000 3.2 -
0.35 8,058,000 10.0 3,518,333
The weighted average grant date fair value of options outstanding at December
31, 2000 is $0.42.
During the year, the company cancelled 4,145,000 stock options and subsequently
reissued 2,025,000 stock options to the same persons at a lower exercise price.
As a result of the modification (note 3), the stock-based compensation charge
for the year ended December 31, 2000 is $nil.
External consultants have been compensated with the issue of 48,333 stock
options. The charge for these consultants was $14,469 (1999 - $nil).
F-30
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
The following reflects pro forma net income and loss per share had the company
elected to adopt the fair value approach of Statement of Financial Accounting
Standard (SFAS) 123:
2000 1999
$ $
Loss
As reported 4,655,934 2,654,432
Pro forma 7,077,693 7,125,932
Basic and diluted loss per share
As reported 0.09 0.07
Pro forma 0.11 0.16
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 6.0% 5.0%
Expected years until exercise 9.9 years 8.0 years
Expected stock volatility 195.0% 36.8%
Dividend yield 0.0% 0.0%
20 CHANGE IN NON-CASH WORKING CAPITAL
2000 1999
$ $
Accounts receivable (175,272) -
Inventory 217,566 -
Prepaid expenses 41,272 -
Accounts payable and accrued liabilities 265,417 749,050
Deferred revenue (671,344) 200,000
-----------------------------------------
(322,361) 949,050
-----------------------------------------
21 SEGMENTED INFORMATION
The company operates in one operating segment, this being the
installation of auction clocks and cooling systems.
F-31
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
GEOGRAPHIC INFORMATION
2000 1999
$ $
Revenue
Canada 7,840 -
Belgium 3,804,318 -
Netherlands 1,046,805 -
-----------------------------------------
4,858,963 -
-----------------------------------------
Long-lived assets
Canada 1,147,883 34,247
Belgium 7,658,629 -
Netherlands 3,554,029 -
-----------------------------------------
12,360,541 34,247
-----------------------------------------
22 PENSION PLAN
One of the company's subsidiaries has a multi-employer defined
contribution pension plan, administered by the Foundation for the Metal
and Electrotechnical industry. The plan covers all 18 employees of the
subsidiary. Total premiums paid to the Fund accounted to approximately
$55,000 for the year ending December 31, 2000.
23 RELATED PARTY TRANSACTIONS
In addition to the related party amounts included in note 14, two of the
company's subsidiaries paid management fees of $280,644 and $237,216 to
related companies.
24 LOSS PER COMMON SHARE
The weighted average number of shares of common stock used for
calculating the basic loss per share is 59,196,743 (1999 - 34,432,329).
Fully diluted loss per share is the same as the basic loss per share for
the year ended December 31, 2000 and 1999. Loss per share is determined
based on the loss available to common shareholders as presented in the
statement of operations, deficit and comprehensive loss.
The 8,213,000 outstanding stock options and 200,000 contingently issuable
shares (note 4) were not included in the computation of earnings per
share as they are anti-dilutive for the periods presented.
25 SUPPLEMENTAL NON-CASH INFORMATION
During the period, the company issued 3,636,364 shares of common stock
with a fair value of $3,636,364 in connection with the acquisition of
SCS. (note 4(a)).
F-32
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
The company issued 197,219 shares of common stock with a fair value of
$1,000,000 to Millennium Inc. as payment of a financing and interest fee.
The company issued 7,625,916 shares of common stock in January 2000, for
which the proceeds were paid to various creditors, and cash was not
received by the company. Debts settled totalled $3,812,958. The company
also issued 327,878 shares with a fair value of $157,596 to pay
commission on a private placement.
The company issued 1,250,000 shares of common stock (note 4(b)) with a
fair value of $1,310,000 in connection with its investment in Kwatrobox.
The company issued 455,000 shares of common stock (note 4(c)) with a fair
value of $218,400 in connection with its acquisition of I-Three, Inc.
26 COMMITMENTS
The company incurred rental expenses under operating leases of $461,776
in 2000 (1999 - $385,625).
The company has future minimum lease payments under operating leases
relating to premises at December 31, 2000 as follows:
$
2001 303,816
2002 303,816
2003 303,816
2004 276,947
2005 73,871
------------------
1,262,266
------------------
27 CONTINGENCIES
a) A competitor of SCS has filed three claims totalling approximately
$150,000 (FRF1,000,000) against SCS during 2000. At present, there
is insufficient information available to ascertain the likelihood
of these claims being successful. Accordingly, no recognition of
this contingent loss has been made
b) Certain customers of a subsidiary have filed claims totalling
$70,000 against the subsidiary company. At present, there is
insufficient information available to ascertain the likelihood of
these claims being successful. Accordingly, no recognition of this
contingent loss has been made.
c) A shareholder derivative action was brought against the company,
its subsidiaries and two of its directors for claims totalling
$100 million.
The action was stayed on November 29, 1999 as a result of the
plaintiff's filing for Chapter 11 Bankruptcy protection in the
United States Bankruptcy Court. Therefore, there is no recognition
of the contingent loss in the period.
F-33
E-AUCTION GLOBAL TRADING INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
28 SUBSEQUENT EVENTS
On February 22, 2001, the company's equity investee, Aucxis (Australia)
Limited, disposed of its mining interests, including its subsidiary,
Hunter Mining & Exploration NL. Proceeds from this sale were US$813,100
(AUD$1.45 million) satisfied by the issue of 7,250,000 shares by the
purchaser.
29 NEW ACCOUNTING STANDARDS
The company will be required to adopt SFAS 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES for the 2001 fiscal year. At present,
the company does not use derivative financial instruments and does not
enter into hedging transactions Therefore, the impact of adopting SFAS
133 on financial reporting will not be material.
F-34
KWATROBOX B.V.
- --------------------------------------------------------------------------------
CONSOLIDATED ANNUAL REPORT FOR 1998 AND 1999
KWATROBOX B.V. AND SUBSIDIARIES
F-35
KWATROBOX B.V.
- --------------------------------------------------------------------------------
CONTENTS
1 Consolidated Financial Statements:
Auditors' report
1.1 Consolidated balance sheets
1.2 Consolidated statements of operations
1.3 Consolidated statements of stockholders' equity
1.4 Consolidated statements of cash flows
1.5 Notes to the consolidated financial statements
F-36
KWATROBOX B.V.
- --------------------------------------------------------------------------------
To the Board of Directors of Kwatrobox B.V., Aalsmeer
Report of the independent accountants
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the consolidated financial position of
Kwatrobox B.V. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Subsequent to December 31, 1999, the Company obtained a letter of support from
it's prospective new parent company (see note 1.5.1). The Company's plans
anticipate obtaining additional funding to fund it's working capital
requirements and future growth until such time as it is able to generate revenue
sufficient to support its expenditures.
Amsterdam, 25 September, 2000
/s/ PricewaterhouseCoopers N.V.
PricewaterhouseCoopers N.V.
F-37
1.1 CONSOLIDATED BALANCE SHEETS (IN NLG)
NOTES DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 3,923 29,247
Accounts receivable 1.5.4 2,258,666 1,348,482
Inventories 1.5.5 972,764 649,747
Prepaid expenses and other current assets 205,307 85,881
---------------- ----------------
Total current assets 3,440,660 2,113,357
PROPERTY AND EQUIPMENT 1.5.6 1,261,567 1,181,167
INTANGIBLES 1.5.3 - 889,417
DEFERRED TAX ASSETS 1.5.9 - -
----------------- ----------------
Total assets 4,702,227 4,183,941
----------------- ----------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Bank overdraft 1.5.7 1,233,327 204,749
Accounts payable and accrued expenses 1.5.8 1,593,593 1,198,767
Social securities and other taxes 296,817 240,604
Short term debt 1.5.10 248,000 256,000
Deferred revenues 363,818 355,653
------------------ ----------------
Total current liabilities 3,735,555 2,255,773
LONG-TERM OBLIGATIONS 1.5.10 1,252,250 1,500,250
Minority interest 7,740 5,600
COMMITMENTS AND CONTINGENCIES 1.5.15 - -
--------------- -----------------
Total liabilities 4,995,545 3,761,623
--------------- -----------------
STOCKHOLDER'S EQUITY
Common stock, 1.5.11 40,000 40,000
(NLG100 par value, authorised and issued
2000 and 400 shares)
Retained earnings 1.3 (333,318) 382,318
Total stockholder's equity (293,318) 422,318
Total liabilities and stockholders' equity 4,702,227 4,183,941
THE ACCOMPANYING ACCOUNTING POLICIES AND NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
F-38
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.2 CONSOLIDATED STATEMENTS OF OPERATIONS (IN NLG)
(UNAUDITED)
--------------
10 MONTHS
ENDED
OCTOBER 31, YEAR ENDED YEAR ENDED
NOTES 2000 DECEMBER 31, 1999 DECEMBER 31, 1998
--------- ----------------- -----------------
Revenue 1.5.12 7,594,097 11,686,964 10,247,111
Cost of sales 1.5.13 (6,088,229) (7,267,106) (7,095,106)
---------- ---------- ----------
GROSS PROFIT 1,505,868 4,419,858 3,152,005
OPERATING EXPENSES
Research and development 1,024,294 - -
Personnel expenses 1,784,541 2,389,362 1,448,969
General and administrative expenses 1,846,640 1,493,104 1,586,004
Amortization of intangibles 1.5.3 - - 136,833
Impairment of intangibles 1.5.3 - 889,417 -
Depreciation 194,788 248,634 236,134
---------- ----------- -------------
Total operating expenses 4,850,263 5,020,517 3,407,940
--------- --------- ---------
LOSS FROM OPERATIONS (3,344,395) (600,659) (255,935)
Net interest expense 56,416 (112,837) (174,564)
--------- --------- ---------
Loss before income taxes (3,400,811) (713,496) (430,499)
Provision for income taxes 1.5.9 - - (34,952)
--------- --------- ---------
RESULT AFTER INCOME TAX (3,400,811) (713,496) (465,451)
Outside shareholders' interest - (2,140) 2,398
--------- --------- ---------
NET LOSS ATTRIBUTABLE TO STOCKHOLDERS* 1.3 (3,400,811) (715,636) (463,053)
--------- --------- ---------
* Net loss attributable to stockholders is equal to comprehensive income
THE ACCOMPANYING ACCOUNTING POLICIES AND NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
F-39
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.3 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN NLG)
COMMON STOCK RETAINED
SHARES AMOUNT EARNINGS TOTAL
Balance as at January 1, 1998 400 40,000 845,371 885,371
Net loss for 1998 - - (463,053) (463,053)
-----------------------------------------------------------------
Balance as at December 31, 1998 400 40,000 382,318 422,318
Net loss for 1999 - - (715,636) (715,636)
-----------------------------------------------------------------
Balance as at December 31, 1999 400 40,000 (333,318) (293,318)
Net loss for 10 months to October 31,
2000 (unaudited) - - (3,400,811) (3,400,811)
-----------------------------------------------------------------
Balance as at October 31, 2000
(unaudited) 400 40,000 (3,734,129) (3,694,129)
THE ACCOMPANYING ACCOUNTING POLICIES AND NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
F-40
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.4 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN NLG)
(UNAUDITED)
10 MONTHS
ENDED
OCTOBER 31, YEAR ENDED YEAR ENDED
2000 DECEMBER 31, 1999 DECEMBER 31, 1998
--------- ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to stockholders (3,400,811) (715,636) (463,053)
Adjustments to reconcile net loss to net cash provided by
operating activities:
- Allowances and provisions 187,722 (115,240) 230,419
- Amortization of intangibles - - 136,833
- Impairment of intangibles - 889,417 -
- Depreciation of tangible fixed assets 194,788 248,634 236,134
Change in operating assets and liabilities, net of acquisitions :
- (Increase)/decrease in accounts receivable 473,872 (890,628) 1,241,733
- (Increase)/decrease in inventories (54,369) (177,664) -----------
711,397
- Increase/(decrease) in accounts payable and accrued expenses 340,530 350,779 (1,381,915)
- Increase/(decrease) in deferred revenue 1,220,267 8,165 (670,510)
- Other (77,695) (61,072) (1,820)
-------- --------
Net cash (used in)/provided by operating activities (1,115,696) (463,245) 502,271
CASH FLOWS FROM INVESTING ACTIVITIES :
Capital expenditure (241,150) (334,657) (234,371)
Acquisition of subsidiaries, net of cash acquired - - (238,038)
-------- -------- --------
Net cash used in investing activities (241,150) (334,657) (472,409)
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans repaid (70,500) (256,000) (248,000)
Loans received 1,778,031 - 873,250
Increase/(decrease) in bank overdraft (332,137) 1,028,578 (172,060)
Net cash provided by financing activities 1,375,394 772,578 453,190
Net (decrease)/increase in cash 18,548 (25,324) 19,999
Cash at beginning of period 3,923 29,247 9,248
Cash at end of period 22,471 3,923 29,247
THE ACCOMPANYING ACCOUNTING POLICIES AND NOTES ARE AN INTEGRAL PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS.
F-41
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.5.1 BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going-concern
basis and in compliance with US GAAP. All amounts are stated in Dutch Guilder,
unless stated otherwise. The going-concern basis basis contemplates the
realization of assets and the satisfaction of liabilities in the ordinary course
of business.
The Group reported a net loss of NLG 715,636 for the year ended December 31,
1999 and a deficit in stockholders' equity of NLG 293,318. Negative cash flows
from operations amounted to NLG 463,245 during 1999. Unutilised credit
facilities amounted to NLG 416,673 at December 31, 1999 whilst current
liabilities exceeded current assets by NLG 294,895.
Subsequent to December 31, 1999, the Group obtained a letter of support from
it's prospective new parent company (see note 1.5.17) to fund the Group's
expected working capital requirements to September 30, 2001. The support will
take on the form of a loan not extending to more than NLG 2,5 million. At
September 2000 funding in this regard amounted to NLG 1,7 million. Ultimately,
the Group's ability to continue in operation will be dependent upon obtaining
additional working capital and achieving profitable operations.
1.5.2 BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Kwatrobox B.V., ("the company") is jointly owned by QQC B.V., Peces B.V., Rendex
B.V. and Wodan B.V. . The principal activity of the company is the holding and
management of group companies. These group companies ("the group") specialise in
the manufacture and servicing of "auction clock" systems which are used in the
auction of perishable goods. In addition, the group also develops software
specific to auctions and industries associated to auctions such as importers and
exporters, the wholesale trade, line drivers and growers. The sale of hardware
and software related to these operation forms part of this service. The group
operates from 3 offices in the Netherlands. Revenue is mainly generated from
customers within the Netherlands.
THE PRINCIPAL ACCOUNTING POLICIES HAVE BEEN SET OUT BELOW :
(A) USE OF ESTIMATES
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, the 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.
Actual results could differ from those estimates.
F-42
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(B) PRINCIPLES OFCONSOLIDATION
The consolidated financial statements reflect the operations of the company and
its subsidiaries, where control exists. All significant inter-company accounts
and transactions have been eliminated upon consolidation.
Details of subsidiaries are as follows:
SHAREHOLDING %
1999 1998
---------- ----------
Automatiseringsbureau Palm BV 100 100
Palm Veilingsystemen BV 100 100
Nieaf Systems BV 100 100
Scoop BV 80 80
(C) REVENUE RECOGNITION
Net sales represent sales invoiced to customers, exclusive of value added tax
and net of discounts allowed.
Revenues for projects (time and materials-based arrangements and fixed-fee
arrangements) are recognized on the percentage-of-completion method of
accounting based on the ratio of costs incurred to total estimated costs. The
cumulative impact of any revision in estimates of the cost to complete and
losses on projects in process are reflected in the period in which they become
known. Revenues exclude reimbursable expenses charged to customers.
Revenues for maintenance contracts are deferred and recognized ratably over the
contractual periods during which services are performed.
Revenues for the sales of hardware and customized software applications are
recognized upon delivery.
Unbilled revenues represent labor costs incurred and estimated earnings, and
production in excess of contractual billings to-date. Deferred revenues
represent billings of production and other client reimbursable out-of-pocket
costs in excess of revenues recognized to-date.
(D) SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
For the year ended December 1998 one client, Bloemenveiling Holland (Naaldwijk),
accounted for more than 10% of revenue. (1999 : no client exceeded 10% of
revenue)
Financial instruments that subject the Group to credit risks consist primarily
of trade accounts receivable. The Group performs ongoing credit evaluations,
generally does not require collateral, and establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of customers, historical
trends, and other information. To date, such losses have been within
F-43
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
management's expectations. For the years ended December 1998 and 1999, no client
accounted for more than 10% of the Group's accounts receivable.
(E) CASH AND CASH EQUIVALENTS
Cash equivalents include commercial paper and other securities with original
maturities of 90 days or less. Book value approximates fair value due to the
short maturity of those instruments.
(F) INVENTORIES
Inventories are stated at the lower of cost or net realisable value. Cost is
determined by the first-in, first-out (FIFO) method. Net realisable value is the
estimate of the selling price in the ordinary course of business, less the costs
of completion and selling expenses.
(G) WARRANTY PROVISION
A warranty provision is raised in respect to the exposure of the company to
future warranty claims. This provision is calculated based upon actual past
warranty claims and sales of products under warranty.
(H) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Upon retirement or disposal, the cost of the disposed asset and
the related accumulated depreciation are removed from the accounts and any gain
or loss is reflected in income. The Group provides for depreciation of other
fixed assets over their estimated useful lives, using the straight-line method,
as follows:
YEARS
Buildings 40 years
Computer equipment 3 years
Office equipment 5 years
Motor vehicles 5 years
Additions which amount to less than NLG 2,000 are expensed in the year of
acquisition.
(I) INTANGIBLE ASSETS
Goodwill, which represents the excess of the purchase price over the fair value
of the net assets acquired, is included in intangible assets and is amortized
over a period of 5 years on a straight-line basis.
The amortization period is re-assessed in periods subsequent to the first year
of an acquisition when a permanent diminution in value has occurred.
F-44
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
(J) ACCOUNTING FOR LONG-LIVED ASSETS
The Group accounts for long-lived assets in accordance with the provisionsof
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." This statement establishes financial
accounting and reporting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable intangibles to
be disposed of.
(K) OPERATING LEASES
Expenses relating to operating leases are charged to the profit and loss account
in the year in which they occur.
(L) INCOME TAXES
The Group accounts for income taxes using the asset and liability method. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their tax bases for
operating profit and tax liability carry forward. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets or liabilities of a
change in tax rates is recognized in the period that the tax change occurs.
(M) COMPREHENSIVE INCOME
Effective with year-end 1998 reporting, the Company has adopted SFAS 130,
"Comprehensive Income". SFAS 130 requires net income to be adjusted for changes
in equity due to non-income sources. As there are no such items within equity
for the year-end 1998 or 1999 reporting, no comprehensive income has been shown.
(N) SEGMENT REPORTING
Effective with year-end 1998 reporting, the Company has adopted SFAS 131,
"Disclosures About Segments of an Enterprise and Related Information". SFAS 131
establishes standards for the reporting of operating segment information in both
annual reports and interim financial reports issued to shareholders. The Company
believes that it is operating in one segment, being the delivery of information
technology solutions to perishable goods auctions and industries associated to
these auctions.
(O) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No.
133, "Accounting for Derivatives and Hedging Activities, which establishes
accounting and reporting standards of derivative instruments, including certain
derivative instruments embedded in other
F-45
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
contracts, and for hedging activities. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. In July 1999, the FASB
issues SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB No. 133," which amends SFAS
No. 133 to be effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. The Company does not expect the adoption of this standard
to have a material effect on the Company's results of consolidated operations,
financial position, or cash flows.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial Statements
which provides guidance related to revenue recognition based on interpretations
and practices followed by the SEC. SAB 101 was effective the first fiscal
quarter of fiscal years beginning after December 15, 1999 and requires companies
to report any changes in revenue recognition as a cumulative change in
accounting principle at the time of implementation in accordance with Accounting
Principles Board Opinion 20, "Accounting Changes". In March 2000, the SEC issued
SAB 101A, "Amendment: Revenue Recognition in Financial Statements," which delays
implementation of SAB 101 until June 30, 2000. Subsequently the SEC issued SAB
101B, which further delays the implementation of SAB 101 to no later than the
4th quarter of the fiscal year beginning after December 31, 1999. The Group will
adopt SAB 101 and is currently in the process of evaluating the impact, if any,
SAB 101 will have on its financial position or results of operations.
1.5.3 INTANGIBLE FIXED ASSETS: ACQUISITIONS
At 30 April 1998 a wholley owned subsidiary of Kwatrobox B.V., Palm
Veilingsystemen B.V., purchased 100% of the issued share capital of Nieaf
Systems B.V. (the "acquired company"). The acquired company specialises in the
manufacture and servicing of "auction clock" systems which are used in the
auction of perishable goods.
Details of the assets and liabilities acquired and goodwill are as follows :
NLG
-------
Cash and cash equivalents 353,212
Accounts receivable 1,325,294
Inventories 1,069,266
Property and equipment 68,881
Accounts Payable (560,441)
Other liabilities (1,665,049)
Deferred revenue (1,026,163)
Goodwill 1,026,250
---------
Total purchase consideration discharged by cash 591,250
Less : Cash and cash equivalents in subsidiary acquired (353,212)
---------
Cash outflow on acquisition 238,038
---------
F-46
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
The acquisition has been accounted for under the purchase method of accounting
and, accordingly, the purchase price has been allocated to the tangible and
intangible assets acquired and liabilities assumed on the basis of their
respective fair values at the acquisition date. As a result of these
acquisitions, the Company has recorded goodwill of NLG 1.026.250, which is the
excess cost of net assets acquired and is being amortized over a useful life of
5 years.
The amortization period was re-assessed at December 1999, being the first period
subsequent to the first year of acquisition. Nieaf Systems B.V. had incurred
losses during 1999 and further losses were projected for 2000. These losses
resulted from the fact that no contracts to install new auctioning systems had
been established since the date of acquisition. As a result key programmers have
left the employ of the company.
It was determined that a permanent diminution in value had occurred. Accordingly
the unamortizised balance of goodwill amounting to NLG 889,417 was amortized in
one year.
Intangible fixed assets consist of the following :
1999 1998
----------- ----------
Goodwill 889,417 1,026,250
Less : Accumulated amortization - (136,833)
Less : Impairment (889,417) -
----------- ----------
0 889,417
----------- ----------
1.5.4 ACCOUNTS RECEIVABLE
Accounts receivable is shown net of allowance for doubtful accounts of NLG
56,134. (1998 : NLG 75,690). Accounts receivable has been pledged as security
for the credit facilities set out in note 1.5.7.
1.5.5 INVENTORIES
Inventories consist of the following :
1999 1998
Finished goods 1,238,210 1,171,496
Work in progress 243,332 132,382
----------- ----------
1,481,542 1,303,878
----------- ----------
Allowance for obsolete inventory (508,778) (654,131)
----------- ----------
F-47
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
972,764 649,747
----------- ----------
Inventories have been pledged as security for the credit facilities set out in
note 1.5.7.
1.5.6 PROPERTY AND EQUIPMENT
Property and equipment consist of the following :
1999 1998
--------- ---------
COST
Buildings 948,904 948,904
Computer equipment 821,567 996,328
Office equipment 659,939 429,511
--------- ---------
2,430,410 2,374,743
Accumulated depreciation (1,168,843) (1,193,576)
--------- ---------
NET PROPERTY AND EQUIPMENT 1,261,567 1,181,167
========= =========
The building and equipment have been pledged as security for the credit
facilities set out in note 1.5.7.
1.5.7 BANK OVERDRAFT
The group's bankers have extended credit facilities of NLG 2,116,250 (1998 : NLG
1,493,250) to the group in the form of a bank overdraft and mortgage loan. These
facilities have been secured by a first and second mortgage on the building as
well as by the accounts receivable, inventories and equipment of Nieaf Systems
B.V. and Automatiseringsbureau Palm B.V. . Interest on the bank overdraft is
determined at 6,25%, payable quarterly in arrears. Un-utilised facilities
amounted to NLG 416,673 (1998: NLG 795,251).
1.5.8 ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
1999 1998
--------- ---------
Accounts payable 1,066,143 633,089
Provision for warranty 148,811 104,764
Accruals 378,639 460,914
--------- ---------
1,593,593 1,198,767
========= =========
F-48
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
1.5.9 INCOME TAXES
Taxation from ordinary activities is calculated at the current taxation rate in
the Netherlands of 35%. The taxation expense consists of the following:
Current taxation - 34,952
Deferred taxation (108,498) (166,423)
-------- --------
(108,498) (131,471)
Valuation allowance 108,498 166,423
-------- --------
- 34,952
-------- --------
From August 14, 1998 Kwatrobox B.V. formed a fiscal unity with group company
PalmVeilingsystemen B.V.. From January 1, 1999 Kwatrobox B.V. also formed a
fiscal unity with all other group companies with the exception of Scoop B.V. .
Estimated losses which may be utilised for tax amounted to NLG 71,576 (1998 :
Nil). These losses do not expire. Provisional payments in respect of taxes
amounted to NLG 157,159 (1998 : NLG 64,401).
The tax effects of temporary differences that give rise to a significant portion
of the net deferred income tax assets (liabilities) are as follows:
1999 1998
-------- --------
Differences between fiscal and US GAAP reporting :
Provisions 80,885 135,078
Fixed assets depreciation 48,195 31,345
Intangible amortization (tax ruling obtained for portion) 110,833 -
Effect of estimated losses to be utilised for tax 25,052 -
Other 9,955 -
Net current deferred tax assets 274,920 166,423
-------- --------
Valuation allowance (274,920) (166,423)
-------- --------
- -
-------- --------
Deferred taxation has arisen mainly due to differences between the results
reported for statutory and fiscal purposes and the results reported for US GAAP
purposes. Deferred tax assets reflect the net tax effects of the tax credits,
net operating loss carry forwards and temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes.
F-49
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
The ultimate realization of the deferred tax assets is dependent upon the
generation of sufficient future taxable income. A valuation allowance has been
raised for the realisation of deferred tax assets due to the uncertainty that
sufficient future taxable income will be generated to realize these assets. This
uncertainty stems from the fact that losses were incurred in both 1998 and 1999.
Management expects that losses will continue for the foreseeable future.
A reconciliation of the difference between the statutory Dutch income tax rate
and the Group's effective tax rate follows:
1999 1998
------- -------
Statutory income tax rate -35% -35%
Capital investment deduction -2% -1%
Schooling deduction -2% -1%
Intangible amortization 23% 6%
Other 1% 1%
Effective tax rate before provision for impairment of deferred
tax assets -15% -30%
Valuation allowance 15% 38%
Effective tax rate 0% 8%
1.5.10 LONG-TERM LIABILITIES
Long term liabilities comprise:
1999 1998
------- -------
Loan Tele Flower Auction i 750,000 875,000
Loan to companies under the control of the directors ii 284,000 388,000
Mortgage iii 466,250 493,250
--------- ---------
1,500,250 1,756,250
Less : Short term portion (248,000) (256,000)
--------- ---------
1,252,250 1,500,250
--------- ---------
i On 22 May 1998, Tele Flower Auction B.V. provided the Group with a loan
of NLG 1 million repayable in equal instalments of NLG 125,000 over 8
years and bearing interest at a rate of 5%, payable annually.
F-50
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
In addition to the interest, Tele Flower Auction BV is also entitled to
10% of the annual after-tax profit of one of the Group companies (Nieaf
Systems B.V.) during the term of the loan. Payments in this regard
amounted to NLG nil in 1999 (1998 : NLG 8,838)
ii Loans from companies under the control of the directors can be
summarised as follows :
1999 1998
71,000 97,000
Van Veen Boy's B.V.
Peces B.V. 71,000 97,000
Rendex B.V. 71,000 97,000
Wodan B.V. 71,000 97,000
------- -------
284,000 388,000
======= =======
These loans were received in terms of a loan agreement dated May 30,
1995; bear interest at a rate of 6% and are repayable in equal monthly
instalments of NLG 2,000 per loan.
iii The mortgage concerns a loan from the group's bankers and is included
in the credit facilities of the group as set out in note 1.5.7. The
loan bears interest at 4,5% and is repayable in monthly instalments of
NLG 2,250 (exclusive of interest).
Maturities of long-term debt are as follows :
NLG
---------------
2000 27,000
2001 27,000
2002 27,000
2003 27,000
2004 27,000
Thereafter 331,250
---------------
466,250
---------------
1.5.11 STOCKHOLDER'S EQUITY
The authorised share capital amounts to NLG 200,000 divided into 2,000
shares of NLG 100 each. Of the authorised share capital 400 shares have
been issued and paid in (1998 : 400).
F-51
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
1.5.12 REVENUE
Revenue is generated as follows :
% of total % of total
---------- ----------
Netherlands 93 88
Rest of Europe 7 1
Other 0 11
---------- ----------
100 100
---------- ----------
Revenue can be categorised as follows:
1999 1998
Hardware 5,544,694 4,356,131
Software 2,581,508 2,207,546
Project 3,560,762 3,683,434
---------- ----------
11,686,694 10,247,111
---------- ----------
1.5.13 COST OF SALES
Cost of sales can be categorised as follows:
1999 1998
---------- ----------
Hardware 5,169,247 4,207,303
Software 913,896 703,592
Project 1,183,963 2,184,211
---------- ----------
7,267,106 7,095,106
---------- ----------
1.5.14 PENSION PLANS
One of the group companies, Nieaf Systems B.V., contributes to a multi-employer
defined contribution pension plan. The plan is administered by the Foundation
for the Metal and Electro-technical Industry and covers all of the 20 (1998 :
19) employees of the group company. Premiums paid to the fund have been
recognised as costs and amounted to NLG 123,363 (1998 : NLG 94,131).
F-52
KWATROBOX B.V.
- --------------------------------------------------------------------------------
1.5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
1.5.15 COMMITMENTS AND CONTINGENCIES
Operating leases
Commitments under operating leases which cannot be cancelled in respect of
premises amounted to NLG 868,098 at December 1999. These commitments expire as
follows :
NLG
--------------
2000 208,488
2001 196,804
2002 196,804
2003 190,402
2004 75,600
--------------
868,098
--------------
Total payments under operating lease in respect of motor vehicles (cancellable
leases) and property amounted to NLG 559,017 (1998 : NLG 456,547).
1.5.16 RELATED PARTY TRANSACTIONS
Kwatrobox B.V. has received loans from companies under the control of the
directors as set out in note 1.5.10 amounting to NLG 284,000 (1998: NLG
388,000). Management fees paid to these companies for the years ended December
1998 and 1999 amounted to NLG 638,660 (1998: NLG 617,848).
1.5.17 SUBSEQUENT EVENTS
In January 2000, e-Auction Global Trading Inc. through a wholly owned
subsidiary, V-Wholesaler.com B.V., entered into negotiations to purchase all the
shares of Kwatrobox B.V.. Management expect that this transaction will be
finalised by November 2000. By September 2000 e-Auction Global Trading Inc. had
lent funds totalling NLG 1,7 million to the Kwatrobox Group. In addition, it
provided a letter of support in terms of which it commits itself to fund the
Group's expected working capital requirements to September 30, 2001.
F-53
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 2000
E-AUCTION KWATROBOX PROFORMA PROFORMA
ADJUSTMENTS
Revenue 4,858,963 3,176,078 - 8,035,041
Cost of sales (1,969,666) (2,546,279) - (4,515,945)
------------------------------------------------------------------------
2,889,297 629,799 - 3,519,096
OPERATING EXPENSES
Sales, general and administrative 5,698,828 1,929,564 - 7,628,392
Depreciation and amortization 1,749,312 98,961 827,473 2,675,746
------------------------------------------------------------------------
Total operating expenses 7,448,140 2,028,525 827,473 10,304,138
LOSS FROM OPERATIONS (4,558,844) (1,398,726) (827,473) (6,785,042)
Non-controlling interest 1,417 - - 1,417
Share of loss of equity investment (193,168) (193,168)
Net interest expense (189,392) 23,595 - (165,797)
------------------------------------------------------------------------
Loss before income taxes (4,561,203) (1,422,321) (827,473) (6,810,997)
Provision for income taxes 104,731 - - 104,731
------------------------------------------------------------------------
NET LOSS (4,665,934) (1,422,321) (827,473) (6,915,728)
Accretion on mandatorily redeemable (938,000) - - (938,000)
common stock
------------------------------------------------------------------------
Loss available to common shareholders (5,603,934) (1,422,321) (827,473) (7,853,728)
Unrealized foreign exchange gain (124,822) - - (124,822)
------------------------------------------------------------------------
COMPREHENSIVE LOSS (4,790,756) (1,422,321) (827,473) (7,040,550)
------------------------------------------------------------------------
Proforma (0.13)
F-54
E-AUCTION GLOBAL TRADING INC.
(A NEVADA CORPORATION)
NOTE TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
(IN U.S. FUNDS)
1. BASIS OF PRESENTATION
These financial statements have been prepared in connection with the purchase
Kwatrobox B.V. ("Kwatrobox") by the Company in a purchase agreement dated
November 1, 2000.
The condensed pro forma income statement reflects the combined operations for
the year ended December 31, 2000 as if the acquisition had taken place at
January 1, 1999. The goodwill on the acquisition is calculated as follows:
Effective November 1, 2000, the company acquired 100% of the issued and
outstanding shares of Kwatrobox B.V. (Kwatrobox), a provider of electronic
auction infrastructure and enterprise resource planning software, for cash and
shares of the company. The consideration includes cash of $1,573,250 and
1,250,000 shares of common stock of the company, plus performance related
contingent consideration of up to 200,000 shares of common stock of the company.
The total consideration, excluding the contingently issuable shares is
$2,883,250.
An additional 750,000 shares were issued upon closing on November 1, 2000, and
will be held in escrow subject to the time release included in the table below.
The remaining cash payments included in the table below are recorded as due to
related party at the year-end, based on year-end exchange rates.
The performance shares are contingent upon Kwatrobox and its subsidiaries
earning combined pre-tax income of not less than $1.4 million for the period
commencing on June 5, 2000 through to July 4, 2003 (the three-year period). To
the extent that the earnings are less than $1.4 million but greater than $1
million for the three-year period, the performance payment shall be reduced by
the deficit between earnings and $1.4 million. No additional consideration is
required where pre-tax earnings are less than $1 million for the three-year
period. The performance shares have not been included in the purchase
consideration at this time. Any additional consideration arising in the future
will be based on the fair value of the shares issued at that time and will be
recorded as an increase in goodwill.
The following table summarizes the transaction:
Consideration received $
Goodwill, representing excess of consideration period over
identifiable net assets acquired 4,137,369
Net identifiable tangible liabilities (1,254,119)
--------------
2,883,250
--------------
Goodwill is to be amortized on a straight-line basis over 5 years
F-55
- ----------------------------------------------------------------------- -------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS 43,064,567 SHARES
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OTHER PERSON. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE COMMON SHARES OFFERED HEREBY, E-AUCTION GLOBAL
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TRADING INC.
TO BUY ANY OF THE SECURITIES OFFERED HEREBY, TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION
TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
TABLE OF CONTENTS Page
----
Prospectus Summary..............................................2
Selected Consolidated Financial Data............................3
Risk Factors....................................................5
Cautionary Statement Regarding Forward
Looking Statements.............................................13
Market Price of Common Stock...................................14
Use of Proceeds................................................14
Our Company....................................................15
Plan of Operations.............................................31
Management/Executive Compensation..............................35
Certain Relationships and Related Transactions.................42 PROSPECTUS
Principal Stockholders.........................................44
Selling Shareholders...........................................46
Plan of Distribution...........................................51
Description of Capital Stock...................................52
Shares Eligible for Future Sale................................53
Changes in Accountants.........................................54
Experts........................................................54
Transfer Agent and Registrar...................................55
Where you can get more information.............................55
Index to Financial Statements.................................F-1
Until____________(25 days after the date of this prospectus), all MAY 22, 2001
dealers effecting transactions in our common shares, whether or not
participating in this distribution, may be required to deliver a
prospectus. This delivery requirement is in addition to the
obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
- ----------------------------------------------------------------------- -------------------------------------------------
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Nevada Revised Statutes Section 78.7502 and 78.751, our articles
of incorporation and bylaws provide us with the power to indemnify any of our
directors, officers, employees or agents. The director, officer, employ or agent
must have conducted himself in good faith and reasonably believe that his
conduct was in, or not opposed to our best interests. In a criminal action the
director, officer, employee or agent must not have had a reasonable cause to
believe his conduct was unlawful. Advances for expenses may be made if the
director affirms in writing that he believes he has met the standards and that
he will personally repay the expense if it is determined he did not meet the
standards.
We will not indemnify a director or officer adjudged liable due to his
negligence or willful misconduct toward us, adjudged liable to us, or if he
improperly received personal benefit. Indemnification in a derivative action is
limited to reasonable expenses incurred in connection with the proceeding.
Article V of our articles of incorporation of Registrant provided that
the personal liability of the directors of the corporation is hereby eliminated
to the fullest extent permissible under the General Corporation Law of the State
of Nevada, as the same may be amended and supplemented. Article VI of our
articles of incorporation of Registrant provide that the corporation shall, to
the fullest extent permitted by the General Corporation Law of the State of
Nevada, as the same may be amended and supplemented (the "Law") indemnify and
any all persons whom it shall have power to indemnify under the Law from and
again stay and all of the expenses, liabilities, or other matters referred to in
or covered by the Law. The indemnification provided for herein shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of the heirs, executors and administrators.
Furthermore, Section 9 of e-Auction's Bylaws, which reads as follows,
provides for the indemnification of agents of and the purchase of liability
insurance:
For purposes of this Section 9, "agent" means any person who is or was
a director, officer, employee or other agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation of the Corporation or of another enterprise at the request of such
predecessor corporation; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" included without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under this Section 9.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable by the
Registrant in connection with the sale of Common Shares being registered. All
amounts are estimates except the SEC registration fee.
SEC registration fee.................................
Printing and engraving costs.........................
Legal fees and expenses..............................
Accounting fees and expenses.........................
Blue Sky fees and expenses...........................
Miscellaneous expenses...............................
Total................................................
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since the date of its incorporation, the following transactions were
effected by the Registrant in reliance upon exemptions from registration under
the Securities Act of 1933, as amended, (the "1933 Act"). Each certificate
issued for unregistered securities contained a legend stating that the
securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities.
On January 8, 1998, the Registrant issued 1,250,000 shares of common
stock equally to Fred Tham, Kam Chun Hui, Noni Wee, Kar Chun Chow and AiNgoh
Chiam for an aggregate and net purchase price of $1,250.00 pursuant to the
exemption from registration provided under Rule 504 of Regulation D promulgated
under the 1933 Act.
On January 30, 1998, the Registrant issued 4,000,000 shares of common
stock for an aggregate and net purchase price of $40,000.00 through an offering
circular under Rule 504 of Regulation D promulgated under the 1933 Act.
Registrant believes that the investors had knowledge and experience in financial
and business matters which allowed them to evaluate the merits and risks of the
receipt of these securities and that they were knowledgeable about the
Registrant's operations and financial condition.
On April 26, 1998, Registrant issued 70,000 shares of common stock at a
purchase price of three dollars ($3.00) per share for an aggregate purchase
price of $210,000.00 and net proceeds of $200,000.00 pursuant to an offering
under Rule 504 of Regulation D promulgated under the 1933 Act. The Registrant
believes that the investors had knowledge and experience in financial and
business matters which allowed them to evaluate the merits and risks of the
receipt of these securities and that they were knowledgeable about the
Registrant's operations and financial condition.
On February 26, 1999, the Registrant entered into a stock exchange
agreement with the stockholders of e-Auction (Barbados). The Registrant issued a
total of 34,500,000 shares of its common stock pursuant to Regulation S
promulgated under the 1933 Act to the e-Auction (Barbados) stockholders in
exchange for all of the outstanding shares of e-Auction (Barbados). There was no
cash exchanged in this transaction. The share exchange took place on a
one-for-one basis. The Registrant believes that the stockholders of e-Auction
(Barbados) had knowledge and experience in financial and business matters which
allowed them to evaluate the merits and risks of the receipt of these securities
and that they were knowledgeable about the Registrant's operations and financial
condition.
On August 13, 1999, in consideration for a loan of $1 million from
Millennium Advisors Inc. to the Registrant, Millennium received 197,219 common
shares of the Registrant, having a deemed value of $1,000,000, as a financing
and interest fee. The deemed price of the shares was based on the weighted
average closing price over the five (5) trading days immediately preceding the
date the loan was granted. The Registrant issued these shares in January 2000 to
Millennium Advisors Inc., which is a non-US person. In connection with the above
issuance, the Registrant relied on the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933, as amended (the "Act"), as
transactions by an issuer not involving any public offering, and Regulation S
promulgated under the Act, as an offshore transaction with a non-U.S. person
("Regulation S").
On January 7, 2000, the Registrant issued 8,965,899 special warrants to
various non-US purchasers. Each special warrant entitled the holder thereof to
acquire one (1) share of the Registrant's common stock for no additional
consideration. The holders of the special warrants exercised their special
warrants immediately following their issuance, pursuant to which exercise the
Registrant issued an aggregate of 8,965,899 shares of its common stock to such
holders. The offering of the special warrants and the issuance of the shares of
common stock of the Registrant resulting from the subsequent exercise of the
special warrants were made in reliance of the exemption from registration
afforded by Section 4(2) of the 1933 Act and Regulation S with respect to
offshore transactions to non-U.S. purchasers. Each such purchaser 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 investor and (iv)
had the requisite sophistication. Each such purchaser further agreed not to
resell the securities other than in compliance with Regulation S. The purchase
price for the special warrants was US$0.50, resulting in approximately
$4,482,948 in new capital to the Registrant.
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In connection with the foregoing, the Registrant issued an additional
327,878 shares of its common stock to various non-U.S. entities as commissions.
The issue price of the common shares used to pay the commissions was $0.50, for
a deemed value of $163,939. The issuance of such additional shares of the
Registrant's common stock was also made in reliance of Section 4(2) of the 1933
Act and Regulation S.
During the first quarter of the fiscal year 2000, the Registrant
settled various outstanding liabilities by issuing an aggregate of 7,625,916
shares of its common stock. The issuance price for the common stock was US $0.50
per share and the Registrant retired approximately $3,812,958 in outstanding
liabilities. All of the recipients of these shares were non-US persons, having
the requisite knowledge and experience in financial and business matters to
evaluate the merits and risks of the receipt of the Registrant's securities in
lieu of repayment in cash. In issuing these securities, the Registrant relied on
the exemption from registration afforded by Section 4(2) of the 1933 Act and
Regulation S.
On January 10, 2000, the Registrant issued 3,636,364 shares of its
common stock to the former shareholders of Schelfhout Computer Systemen, N.V.,
as partial consideration for the purchase by the Registrant's Belgium subsidiary
of all of the outstanding shares of capital stock of Schelfhout. For accounting
purposes, the purchase price per share was deemed to be $1.00. There was no cash
paid for the shares by Schelfhout. The offering was made in an offshore
transaction to foreign individual purchasers who each certified that they (i)
were not U.S. persons; (ii) were not acquiring the securities for the account or
benefit of any U.S. person, (iii) were an accredited or sophisticated purchaser;
and (iv) would resell the securities only in compliance with Regulation S. The
Registrant further believes that the stockholders of Schelfhout had knowledge
and experience in financial and business matters which allowed them to evaluate
the merits and risks of the receipt of these securities and that they were
knowledgeable about the Registrant's operations and financial condition. The
issuance of shares of the Registrant's common stock for and in consideration for
all of the outstanding capital stock of Schelfhout was made in reliance of the
exemption afforded by Section 4(2) of the 1933 Act and Regulation S, as
transactions by an issuer not involving any public offering to non US persons in
an offshore transaction.
On June 22, 2000, the Registrant 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 Registrant
of approximately $7,500,000. The offering was made in an offshore 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. The purchaser understands that
it must hold the shares for an indefinite period of time unless the sale or
other transfer there of is subsequently registered under the 1933 Act or an
exemption from such registration is available at that time. In issuing the above
referenced securities, the Registrant relied on the exemption afforded by
Section 4(2) of the 1933 Act and Regulation S, as transactions by an issuer not
involving any public offering to a non-US person in an offshore transaction.
On November 1, 2000, the Registrant issued an aggregate of 1,100,000
shares of common stock to the stockholders of Kwatrobox B.V. as partial
consideration for the purchase of all of the outstanding shares of capital stock
of Kwatrobox N.V. In connection with its purchase of the capital stock, the
Registrant paid a cash sum of 4,000,000 Guilders and granted options exercisable
at the three (3) year anniversary to purchase up to an additional number of
shares of common stock having an aggregate value equal to 1,000,000 Guilders,
based upon and subject to the future earnings of Kwatrobox B.V. An additional
150,000 shares of common stock were issued to the stockholders of Kwatrobox B.V.
at the purchase date. In issuing the above referenced securities, the Registrant
relied on the exemption afforded by Section 4(2) of the 1933 Act and Regulation
S, as transactions by an issuer not involving any public offering to a non-US
person in an offshore transaction.
On December 14, 2000, the Registrant issued an aggregate of 450,000
shares of common stock to the stockholders of i-Three, Inc. as partial
consideration for the purchase of all of the outstanding shares of capital stock
of i-Three, Inc. An additional 5,000 shares of common stock were issued at the
purchase date in lieu of certain fees incurred in connection with the purchase.
In issuing the above referenced securities, the Registrant relied on the
exemption afforded by Section 4(2) of the 1933 Act and Regulation D, as
transactions by an issuer not involving any public offering.
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ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
NUMBER DESCRIPTION
- ------ -----------
3.1(i) Articles of Incorporation of the Company, dated January 8, 1998
3.1(ii) Articles of Incorporation, as amended, of the Company (Incorporated
by reference to Exhibit 2(i) of the Registrant's Amended
Registration Statement on Form 10-SB12g/A (No. 00028741) filed with
the Securities and Exchange Commission on September 29, 2000.)
3.2 Bylaws of the Company (Incorporated by reference to Exhibit 3(ii) of
the Registrant's Amended Registration Statement on Form 10-SB12g/A
(No. 00028741) filed with the Securities and Exchange Commission on
September 29, 2000.)
4.1 Specimen Common Stock Certificate (Incorporated by reference to
Exhibit 4 of the Registrant's Amended Registration Statement on Form
10-SB12g/A (No. 00028741) filed with the Securities and Exchange
Commission on September 29, 2000.)
5.1 Opinion of the Law Office of Kirk Schumacher, Esq. regarding the
validity of the securities being registered.
10.1 Share Exchange Agreement dated as of February 26, 1999 between
Kazari International Inc. (now e-Auction Global Trading Inc.) and
QFG Holdings Limited, Inc. (Incorporated by reference to the
Registrant's Amended Registration Statement on Form 10-SB12g/A (No.
00028741) filed with the Securities and Exchange Commission on
September 29, 2000. Exhibit 6(i))
10.2 Share Purchase Agreement dated January 17, 2000 between e-Auction
Global Trading Inc., e-Auction Belgium N.V., Luc Schelfhout, and
Hilde De Laet (Incorporated by reference to Exhibit 6(iv) of the
Registrant's Amended Registration Statement on Form 10-SB12g/A (No.
00028741) filed with the Securities and Exchange Commission on
September 29, 2000.)
10.3 Pledge Agreement dated January 10, 2000 between e-Auction Belgium
N.V., Luc Schelfhout, and Hilde DeLaet*
10.4 Share Purchase Agreement dated November 1, 2000 between
v-Wholesaler.com and each of Peces B.V., Rendex B.V., Van Veen Boys
B.V. and Wodan B.V., as shareholders of Kwatrobox B.V. (Incorporated
by reference to Exhibit 2.1/A of the Registrant's Amended Current
Report on Form 8-K/A (No. 0001102233) filed with the Securities and
Exchange Commission on November 1, 2000. )
10.5 Agreement re: Postponement Signing SPA and Transfer Shares Kwatrobox
B.V. dated as of August 29, 2000 between e-Auction Global Trading
Inc. and each of Peces B.V., Rendex B.V., Van Veen Boys B.V. and
Wodan B.V., as shareholders of Kwatrobox B.V. (Incorporated by
reference to Exhibit 2.1/A of the Registrant's Amended Current
Report on Form 8-K/A (No. 0001102233) filed with the Securities and
Exchange Commission on November 1, 2000. )
10.6 Pledge Agreement dated as of June 5, 2000, between e-Auction Global
Trading Inc. and each of Peces B.V., Rendex B.V., Van Veen Boys B.V.
and Wodan B.V., as shareholders of Kwatrobox B.V. (Incorporated by
reference to Exhibit 2.1/A of the Registrant's Amended Current
Report on Form 8-K/A (No. 0001102233) filed with the Securities and
Exchange Commission on November 1, 2000. )
10.7 Share Purchase Agreement dated as of December 14, 2000 between
e-Auction Global Trading Inc. and i-Three, Inc.
10.8 Stock Option Plan, adopted March 1, 1999 and amended March 13, 2000
of the Company (Incorporated by reference to Exhibit 99.1 of the
Registrant's Registration Statement on Form S-8 (No. 333-50440)
filed with the Securities and Exchange Commission on November 21,
2000.)
10.9 Stock Purchase Agreement dated June 21, 2000 between e-Auction
Global Trading, Inc. and ABN AMRO Capital Investments (Incorporated
by reference to Exhibit 6(v) of the Registrant's Amended
Registration Statement on Form 10-SB12g/A (No. 00028741) filed with
the Securities and Exchange Commission on September 29, 2000.)
10.10 Amended and Restated Employment Agreement dated December 30, 2000
between David Hackett and the Company (Incorporated by reference to
Exhibit 10.10 of the Registrant's Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission on March 30, 2001.)
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(a) Exhibits
NUMBER DESCRIPTION
- ------ -----------
10.11 Employment Agreement dated December 30, 2000 between Daniel McKenzie
and the Company (Incorporated by reference to Exhibit 10.11 of the
Registrant's Annual Report on Form 10-KSB filed with the Securities
and Exchange Commission on March 30, 2001.)
10.12 Services Agreement dated February 16, 2001 between Aucxis Corp.
(Canada) and Electronic Data Systems (Incorporated by reference to
Exhibit 10.12 of the Registrant's Annual Report on Form 10-KSB filed
with the Securities and Exchange Commission on March 30, 2001.)
10.13 Addendum to Share Purchase Agreement dated as of December 1, 2000
between e-Auction Global Trading Inc., e-Auction Belgium N.V., Luc
Schelfhout, and Hilde De Laet (Incorporated by reference to Exhibit
10.1 of the Registrant's Report on Form 10-QSB filed with the
Securities and Exchange Commission on May 15, 2001.)
21.1 Subsidiaries of the Company
23.1 Consent of PricewaterhouseCoopers Bedrijfsrevisorenbcvba
23.2 Consent of PricewaterhouseCoopers N.V.
23.3 Consent of Dale, Matheson, Carr-Hilton
*Previously filed as an exhibit to the Registrant's Registration
Statement on Form S1 (No. 33331276) to which this registration statement
prospectus is an amendment.
(b) Financial Statement Schedules
All schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements of the Registrant or
related notes thereto contained elsewhere in this prospectus.
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ITEM 28. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933, as amended (the "Securities Act"),
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that clauses (a)(1)(i) and (a)(1)(ii) shall not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference into this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act that is incorporated by reference into this Registration
Statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of the
Registrant pursuant to the indemnification provisions summarized in Item 6
or otherwise, the Registrant has been advised that, in the opinion of the
SEC, such indemnification is against public policy as expressed in the
Securities Act, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SBA and authorized this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in Canada on the 21st day of May, 2001.
E-AUCTION GLOBAL TRADING INC.
By:/s/ David W.A. Hackett
----------------------
David W.A. Hackett,
Chief Financial Officer
(duly authorized officer)
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