UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
=================
FORM 10-QSB
[X] Quarterly Report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2001
[ ] Transition report pursuant section 13 or 15(d) of the Securities Exchange
Act of 1934
0-9040
======
Commission file number
Aucxis Corp.
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(Exact name of small business issuer as specified in its charter)
Nevada
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(State or other jurisdiction)
Pending
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(IRS Employer of incorporation or organization Identification No.)
220 King Street West, Suite 200 Toronto, Ontario, M5H 1K4 Canada.
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(Address of principal executive offices)
416-214-1587
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(Issuer's telephone number)
e-Auction Global Trading, Inc.
------------------------------
(Former Name, Address and Former Fiscal Year, if Changed Since Last Report)
Check whether the issuer:
(1) filed all reports required to be filed by Section 13 or 15(d) of the
Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes...X...No........
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes......No....X....
As of November 14, 2001 there were 66,350,915 shares of the Registrant's common
stock, par value $0.001 per share outstanding.
Transitional Small Business Disclosure Format (check one);
Yes......No....X....
AUCXIS CORP. (FORMERLY E-AUCTION GLOBAL TRADING INC.)
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 2001 (Unaudited) and
December 31, 2000
Consolidated Statements of Operations, Deficit and Comprehensive
Loss (Unaudited) for the six months ended September 30, 2001 and
2000
Consolidated Statements of Cash Flows (Unaudited) for the six
months ended September 30, 2001 and 2000
Notes to Consolidated Financial Statements
Item 2. Managements' Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 5: Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Item 1. Financial Statements
Aucxis Corp.
Consolidated Balance Sheet
(Unaudited) The interim financial information included in this Form 10-QSB
filing has not been reviewed by the company's independent auditors.
- - --------------------------------------------------------------------------------
(expressed in U.S. dollars)
September 30, December 31,
2001 2000
$ $
(Audited)
Assets
Current assets
Cash and cash equivalents 759,997 6,205,169
Accounts receivable 1,210,217 1,600,871
Inventory 405,676 608,537
Prepaid expenses 79,562 121,819
---------------------------------
2,455,452 8,536,396
Investment 496,858 514,835
Fixed assets 742,605 1,732,521
Acquired workforce -- 161,351
Acquired core technology 459,212 1,226,920
Goodwill 4,266,947 9,239,748
---------------------------------
8,421,073 21,411,771
=================================
Liabilities
Current liabilities
Bank indebtedness -- 423,432
Accounts payable and accrued liabilities 1,818,298 2,703,079
Due to related parties 398,740 944,728
Deferred revenue 326,999 1,323,874
Current portion of long-term debt 45,479 255,571
---------------------------------
2,589,516 5,650,684
Due to related parties -- 375,063
Long-term debt 227,397 392,718
Non-controlling interest -- 3,742
---------------------------------
2,816,913 6,422,207
---------------------------------
Mandatorily redeemable shares of common stock 4,574,364 4,574,364
Shareholders' Equity
Share capital
62,714,551 (December 31, 2000 - 62,714,551) shares of
common stock - $0.001 par 62,715 62,715
Additional paid-in capital 18,740,468 18,735,673
Accumulated other comprehensive income (loss) (22,920) (124,822)
Deficit (17,750,467) (8,258,366)
---------------------------------
1,029,796 10,415,200
---------------------------------
8,241,073 21,411,771
=================================
Contingencies (note 13)
Going concern (note 1)
The accompanying notes form an integral part of these financial statements.
Aucxis Corp.
Consolidated Statements of Operations, Deficit and Comprehensive Loss
(Unaudited) The interim financial information included in this Form 10-QSB
filing has not been reviewed by the company's independent auditors.
- - --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
$ $ $ $
Revenue 1,984,138 877,208 5,571,147 2,826,077
Cost of goods sold 937,675 503,196 2,683,028 1,785,247
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1,046,463 374,012 2,888,119 1,040,830
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Expenses
Selling, general and administrative 1,810,746 1,581,616 6,015,966 2,913,430
Depreciation and amortization 482,072 402,458 1,874,505 1,161,825
Research and development costs (1,525) -- 972,390 --
Write-off of acquired workforce, core
technology and goodwill 3,576,702 -- 4,383,378 --
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5,867,997 1,984,074 13,246,239 4,075,255
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Loss before the undernoted (4,821,534) (1,610,062) (10,358,120) (3,034,425)
Share of income (loss) of equity investment (87,676) (34,065) 2,372 (172,843)
Interest income 16,163 113,812 137,811 148,447
Write-off of Kwatrobox's net liabilities 787,606 -- 787,606 --
---------------------------------------------------------------------
Loss before income taxes and non-controlling
interest (4,105,441) (1,530,315) (9,430,331) (3,058,821)
Income tax recovery (expense) (64,469) (56,571) (59,979) (68,763)
Non-controlling interest 904 -- (1,791) --
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Loss for the period (4,169,006) (1,586,886) (9,492,100) (3,127,584)
Accretion of mandatorily redeemable common
stock to redemption value -- (234,500) -- (703,500)
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Loss available to common shareholders (4,169,006) (1,821,386) (9,492,101) (3,831,084)
Deficit - Beginning of period (13,581,461) (4,664,130) (8,258,366) (2,654,432)
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Deficit - End of period (17,750,467) (6,485,516) (17,750,467) (6,485,516)
=====================================================================
Basic and diluted loss per share (0.07) (0.03) (0.15) (0.06)
=====================================================================
Loss for the period (4,169,006) (1,586,886) (9,492,101) (3,127,584)
Foreign currency translation adjustments
and other comprehensive income (56,333) 65,485 101,902 65,485
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Comprehensive loss (4,225,339) (1,521,401) (9,390,199) (3,062,099)
=====================================================================
Shares used in computing basic loss and
fully diluted earnings per share 62,714,551 61,509,551 62,714,551 58,199,487
Going concern (note 1)
The accompanying notes form an integral part of these financial statements.
Aucxis Corp. Consolidated Statement of Cash Flows (Unaudited) For the nine
months ended September 30, 2001
- - --------------------------------------------------------------------------------
(expressed in U.S. dollars) The interim financial information included in this
Form 10-QSB filing has not been reviewed by the company's independent auditors.
2001 2000
$ $
Cash provided by (used in)
Operating activities
Loss for the period (9,492,101) (3,127,584)
Add: Items not affecting cash
Foreign exchange (6,465) --
Depreciation and amortization 1,874,505 1,161,825
Write-off of acquired workforce, core technology and goodwill 4,383,378 --
Write-off of bank overdraft and long term debt (975,834)
Write-off of capital assets 646,378
Gain on settlement of payables (51,259)
Loss on disposal of assets 17,918
Stock-based compensation 4,795 --
Non-controlling interest 1,790 --
Share of (income) loss of equity investment (2,372) 172,843
Net change in non-cash working capital (1,272,173) (384,648)
--------------------------------
(4,871,440) (2,177,564)
--------------------------------
Financing activities
Bank indebtedness 437,186 --
Due to related parties (820,214) (266,140)
Issuance of share capital -- 9,876,217
Long-term debt 29,233 (228,459)
--------------------------------
(353,795) 9,838,536
--------------------------------
Investing activities
Purchase of fixed assets (504,132) (296,898)
Disposal of fixed assets 305,507
Purchase of businesses - net of cash acquired -- (3,000,000)
Deposits -- (1,071,793)
--------------------------------
(198,625) (4,368,691)
--------------------------------
Increase (decrease) in cash and cash equivalents during the
period 3,292,281
Effect of foreign exchange on cash and cash equivalents (21,312) 47,124
Cash and cash equivalents - Beginning of period 6,205,169 4,179,394
--------------------------------
Cash and cash equivalents - End of period 759,997 7,518,799
================================
Going concern (note 1)
The accompanying notes form an integral part of these financial statements.
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2001
(expressed in U.S. dollars)
1 Nature of business and going concern
e-Auction Global Trading Inc. changed its name to Aucxis Corp. (the
company) in June 2001.
The company is currently developing e-business services for perishable
commodity marketplaces primarily in Europe. In addition, through its newly
acquired subsidiaries, Aucxis Trading Solutions N.V. (ATS) (formerly
Schelfhout Computer Systemen N.V.), 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.
In September 2001, The company decided to discontinue its financial support
for the loss making Palm Automatisering (Aucxis Business Solutions) and
Nieaf companies, which continued to consume shareholder funds within a
business that no longer forms part of Aucxis' refocused business strategy.
As a result, Kwatrobox B.V. and it's operating subsidiaries, Aucxis
Business Solutions and Nieaf Systems, B.V, filed for bankruptcy. Under the
bankruptcy laws of the Netherlands, a trustee took control of the assets
and the operation from the parent company in October 2001.
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 a loss
of $9,492,101 for the nine months ended September 30, 2001 (2000 -
$3,127,584) and reported a deficit of $17,750,496 at September 30, 2001
(2000 - $6,485,516). In addition, projected cash flows from the company's
current operations are not sufficient to finance the company's working
capital requirements over the next 12 months. These circumstances lend
significant doubt to the ability of the company to continue as a going
concern.
In recognition of these concerns, management is considering various revenue
and cost management alternatives and is examining a variety of options to
raise additional financing, including but not limited to, consideration of
merging operations with another company. 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.
The interim financial information included in this Form 10-QSB filing has not
been reviewed by the company's independent auditors.
2 Unaudited interim financial statements
The amounts of assets, liabilities, revenues and expenses of Kwatrobox B.V.
included in the unaudited consolidated balance sheet as at September 30,
2001, the unaudited consolidated statements of operations, deficit and
comprehensive loss for the three months and nine months ended September 30,
2001 and the consolidated statement of cash flows for the nine months ended
September 30, 2001 include estimates made by the company's management since
the related books and records were held by the trustee of Kwatrobox B.V.,
and were, accordingly, unavailable. Financial results as determined by
actual events could differ from those estimates.
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
The unaudited consolidated balance sheet as at September 30, 2001, the
unaudited consolidated statements of operations, deficit and comprehensive
loss for the three months and nine months ended September 30, 2001 and 2000
and the consolidated statement of cash flows for the nine months ended
September 30, 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 consolidated financial statements are of a
normal recurring nature. The data disclosed in the notes to the
consolidated financial statements for this period is also unaudited. These
financial statements do not include all of the information and disclosures
required for annual financial statements, and the results for the three
months and nine months ended September 30, 2001 are not necessarily
indicative of the results to be expected for the full year. These financial
statements should be read in conjunction with the annual audited financial
statements of Aucxis Corp. for the year ended December 31, 2000.
3 Significant accounting policy
Research and development costs
Research and development costs that are incurred to develop software to be
marketed to external users are charged as expenses until the technical
feasibility of the related software has been established, and thereafter
these costs are to be capitalized and amortized. Technical feasibility is
established when there is a working model of the software and it has been
tested for conformity with the product design.
4 Impairment of assets
During the second quarter of fiscal 2001, it was determined that the
acquired workforce and acquired core technology resulting from the
acquisition of I-Three Inc. would be abandoned. During the third quarter,
the company decided to discontinue its financial support for the loss
making Palm Automatisering (Aucxis Business Solutions) and Nieaf companies,
and the subsidiary subsequently filed for bankruptcy (note 1). As a result,
the related goodwill arising from the acquisition of Kwatrobox has been
written off in the third quarter.
All such assets previously carried on the company's balance sheet have been
written off and related costs recorded as follows:
Write-off of goodwill (Kwatrobox) $ 3,576,702
Write-off of acquired workforce (I-Three Inc.) 161,335
Write-off of core technology (I-Three Inc.) 645,341
-----------
Impairment of assets recorded in operating expenses $ 4,383,378
===========
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
The assets of liabilities of Kwatrobox have been written off as follows:
Cash in bank accounts ($18,105)
Working capital balances - assets (856,181)
Fixed assets (646,378)
Non-controlling interest 1,796
Working capital balances - liabilities 1,330,640
Bank overdraft and long term debt 975,834
---------
Write-off of Kwatrobox's net liabilities $ 787,606
=========
5 Pro forma results
The company acquired Kwatrobox B.V. and I-Three Inc. in the fourth quarter
of 2000.
The following table sets forth the pro forma consolidated results for the
nine months ended September 30, 2001 and 2000 and net assets at September
30, 2001 as if Kwatrobox B.V. and I-Three Inc. had been acquired on January
1, 2000:
2001 2000
$ $
Revenue 5,571,147 6,193,054
Loss (9,741,141) (4,717,880)
Loss per share (0.15) (0.08)
Net assets 780,756 10,194,734
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
6 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 B.V. 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
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Balance - December 31, 2000 62,714,551 62,715 18,735,673 18,798,388
Stock-based compensation (iv) -- -- 4,795 4,795
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Balance - September 30, 2001 62,714,551 62,715 18,740,468 18,803,183
===================================================================
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 $1,000,000 provided on August 13, 1999
by Millennium Investors Inc. to e-Auction, Millennium Investors Inc.
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.
iv) External consultants have been compensated with the issue of 48,333
stock options. The charge for these consultants was $4,795 (2000 -
$nil).
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
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 nine months ended September 30,
2001. The following table summarizes the continuity of stock options:
Weighted
Options for average
shares of exercise price
common stock per share
$
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 (2,425,000) (0.35)
----------
Balance - September 30, 2001 5,788,000 0.34
==========
7 Change in non-cash working capital
Nine months ended
September 30,
--------------------------------
2001 2000
$ $
Accounts receivable 336,106 (468,688)
Inventory 103,946 67,228
Prepaid expenses 37,735 (20,267)
Accounts payable and accrued liabilities (801,267) 128,328
Deferred revenue (948,693) (91,249)
--------------------------------
(1,272,173) (384,648)
================================
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
8 Segmented information
The company has one operating segment, being the installation of auction
clocks and cooling systems, and related software for auctions.
Geographic information
Nine months ended
September 30,
------------------------------
2001 2000
$ $
Revenue
Canada 76,053 --
Belgium 2,768,005 2,826,077
Netherlands 2,727,089 --
-------------------------------
5,571,147 2,826,077
===============================
September 30, December 31,
2001 2000
$ $
Long-lived assets
Canada 2,059,312 1,147,883
Belgium 5,097,271 7,658,629
Netherlands 478,147 3,554,029
-------------------------------
7,634,730 12,360,541
===============================
9 Employee termination costs
During the period, as a result of cost saving measures, the company has
terminated 24 employees in the three months ended June 30, 2001
(termination costs - $50,683) and an additional 13 in the three-month
period ending September 30, 2001 (termination costs - $224,902). The total
cost of these terminations was $275,585 and included legal expenses related
to the terminations.
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
10 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 - 58,199,487) shares. Fully
diluted loss per share is the same as the basic loss per share for the
periods ended September 30, 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.
The 5,788,000 outstanding stock options and 200,000 contingently issuable
shares were not included in the computation of loss per share as they are
anti-dilutive for the periods presented.
11 Supplemental non-cash information
During the nine months ended September 30, 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 Investors 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.
In June 2000, the company issued 500,000 common shares with a fair value of
$739,884 in connection with its investment in Kwatrobox B.V.
12 Comparative figures
Comparative figures have been reclassified to conform to the current year's
presentation.
13 Contingencies
a) A competitor of ATS has filed three claims totalling approximately
$150,000 (FRF1,000,000) against ATS during 2000 claiming that the
company inappropriately used the competitor's equipment. 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 for alleged failure to deliver product
in accordance with an agreement. 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.
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
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.
d) During the second quarter, certain shareholders of the company have
requested that a subsidiary of the company repurchase 454,545 of their
Aucxis Corp. shares at $1.65 per share for an aggregate amount of
$750,000, citing the terms of an agreement with a subsidiary of the
company. To date the subsidiary has not repurchased the shares and
these shareholders plan to take the matter to arbitration. At present,
there is insufficient information available to ascertain the outcome
of any such arbitration process.
e) During the third quarter, there was a claim by Ossanna Consulting
Group ("Ossanna"). Ossanna has commenced an action in the Illinois
courts for breach of contract in the amount of $USD $16,725 plus
interest. In the Illinois action, Ossanna improperly named "e-Auction
Global Trading Inc., a corporation a/k/a Aucxis f/d/b/a I-Three Inc."
as the defendant. Any claim Ossanna has is against the Company.
Ossanna threatened to move for default judgment in the absence of a
defence being filed in the Illinois action. Counsel for Ossanna was
informed that it had named the wrong party in the claim and that if it
obtained default judgment in the Illinois action, the Company would
resist any proceedings in Ontario seeking an order to enforce such a
judgment. In light of this, counsel for Ossanna did not proceed with
its motion for default judgment.
Settlement discussions are now underway. With $13,809 previously
recorded in the accounts from 1999, the estimated range of potential
loss is $USD 4,000 - $5,000.
f) There is a potential claim by Parody Group Ltd. and Seabreeze Services
Ltd. The plaintiffs commenced an action in the Ontario Superior Court
of Justice naming e-Auction Global Trading Inc., a Canadian
corporation ("e-Auction Canada"), and three other defendants in this
claim relating to a loan by the plaintiffs in the amount of $USD
700,000. e-Auction Canada is a non-operating wholly owned subsidiary
of Aucxis Corp.
Counsel for the plaintiffs has been advised that any action the
plaintiffs may have is against the Nevada corporation, e-Auction
Global Trading Inc., and its successor in name, the Company. If and
when a statement of claim is issued naming the Company, it will defend
on the basis that the loan by the plaintiffs has been fully repaid in
shares of the Company. At this preliminary stage, no evaluation of the
success or failure of the plaintiffs' claim against the Company can be
made. The potential loss is $USD 700,000 if the plaintiffs succeed in
their claim.
g) Potential Claim by E-Auction Australia PTV Ltd. The Company in 1999
entered into a license arrangement with e-Auction Australia PTV Ltd.
("EAA"). Pursuant to the licensing arrangement, as amended, the
Company granted to EAA a license to use, market and sublicense certain
of the software of the Company on an exclusive basis in Australia and
New Zealand. As consideration for this license, among other things,
the Company was issued 50 million ordinary shares of EAA. In September
2000, EAA, by letter, alleged that the Company was in breach of its
obligations under the license arrangement, claiming, among other
things, that a subsidiary of the Company repudiated the license
granted to EAA. EAA has claimed damages for this breach. To date, no
lawsuit has yet been officially commenced. The Company has had
discussions with EAA about a possible resolution to the matter. The
outline of a possible settlement has been reached and the parties are
in the process of completing the legal agreements to implement the
settlement. While
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
not yet finalized, the terms of the proposed settlement is expected to
include the Company transferring a substantial part if its shares in
EAA to EAA for cancellation, and EAA converting its license rights to
certain of the Company's software from an exclusive license to a
non-exclusive basis.
h) The payment is in relation to a settlement reached between Mr. Elbi
and the Company regarding the termination of Mr. Elbi's contract with
the Company. Mr. Elbi, pursuant to a consulting agreement, provided
consulting services to the Company, which contract was subsequently
terminated by the Company. Mr. Elbi commenced an action against the
Company in the Ontario Superior Court of Justice alleging a breach by
the Company of his consulting contract. The original claim was for
169,557.05 Netherlands Guilders. A settlement was agreed to by Mr.
Elbi and the Company pursuant to which Mr. Elbi was paid $50,000. The
action has now been dismissed.
14 New accounting pronouncements
SFAS No. 142 - Goodwill and other intangible assets
Statement of Financial Accounting Standard (SFAS) 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Thus, amortization of goodwill, including goodwill recorded in
past business combinations, will cease upon adoption of that statement.
SFAS 142 will be applicable for fiscal years beginning after December 15,
2001; however, earlier adoption is permitted for companies with fiscal
years beginning on or after March 15, 2001. The effect of applying this new
standard would result in no additional amortization of goodwill and
acquired core technology charged to the statement of operations for the
nine months ending September 30, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
When used herein, the words "may", "will", "expect", "anticipate", "continue",
"estimate", "project", "intend", "plan" and similar expressions are intended to
identify forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, regarding events, conditions and
financial trends that may affect the Company's future plans of operations,
business strategy, operating results and financial position. All statements,
other than statements of historical facts, included or incorporated by reference
in this Form 10-QSB which address activities, events or developments which the
Company expects or anticipates will or may occur in the future, including such
things as future capital expenditures (including the amount and nature thereof),
business strategy, expansion and growth of the Company's business and
operations, and other such matters are forward-looking statements. These
statements are based on certain assumptions and analyses made by the Company in
light of its experience and its perception of historical trends, current
conditions and expected future developments as well as other factors it believes
are appropriate in the circumstances. Such statements are not guarantees of
future performance and are subject to risks and significant uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors. The occurrence of any
unanticipated events may cause actual results to differ from those expressed or
implied by the forward-looking statements contained herein. You are cautioned
not to place undue reliance on these statements, which speak only as of the date
of this report.
Overview
Aucxis Corp. ("Aucxis" or the "Company") was originally incorporated in Nevada
on January 8, 1998 under the name Kazari International, Inc. (Kazari). On
February 26, 1999, Kazari, e-Auction Global Trading Inc. (Barbados) entered into
a share exchange agreement pursuant to which agreement Kazari purchased
e-Auction (Barbados) shares on a one for one basis. Kazari had no viable
business activities at the time of the share exchange agreement. On June 10,
1999, Kazari amended its name to e-Auction Global Trading Inc. During fiscal
year 2000, Aucxis acquired Schelfhout Computer Systemen N.V., Kwatrobox B.V.,
and I-Three, Inc. On June 12, 2001 the Company amended its charter to change its
name to Aucxis Corp.
Aucxis currently has a wholly owned subsidiary, e-Auction (Barbados), which in
turn has one wholly owned subsidiary, Aucxis Corp. (Canada). The Company also
owns Aucxis Corp. (Belgium), directly, which in turn has one wholly owned
subsidiary, Aucxis Trading Solutions NV ("ATS") (formerly Schelfhout Computer
Systemen N.V., a Belgium company. ATS has a 99% ownership interest in SDL Invest
N.V. The financial statements also include the Company's 48.2% investment in
Aucxis Ltd. (Australia), (formerly Hunter Capital Limited) accounted for by the
equity method.
The Company also owns V-Wholesaler B.V. and its wholly owned subsidiary,
Kwatrobox B.V. and the subsidiaries of Kwatrobox B.V., 100% of Aucxis Business
Solutions ("ABS") (formerly Automatiserngbureau Palm B.V.), 80% of Scoop
Software B.V., 100% of Palm Veilingsystemen B.V., 100% of Nieaf Systems B.V.
("Nieaf"). During September 2001, the board of directors determined that Aucxis
would not support Kwatrobox or any of its subsidiaries. As a result, Kwatrobox
B.V. and it's operating subsidiaries, ABS and Nieaf, filed for voluntary
bankruptcy. Under the bankruptcy laws of the Netherlands, a trustee took control
of the assets and the operation from the parent company in October 2001. Due to
the loss of control the Company has written off the assets and liabilities in
the consolidated financials. Nieaf Systems and ABS developed and installed
electronic trading systems and application in the perishable commodity market
places in the Dutch flower industry.
ATS (formerly Schelfhout) is a solutions provider for perishable commodity
(fish, flower, fruits and vegetables) auction houses. Over the past 17 years ATS
has developed trading systems for numerous selling organizations all over the
world. Through ATS the company has the potential to access electronic trading
hubs representing billions of dollars in annual turnover, including European
trade of more than US $7 billion dollars. ATS delivers the tools to bring
together supply and demand under optimum conditions and thus create a better
market situation. ATS 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 ATS in 1992 and added to the product range.
Aucxis is developing e-business services for perishable commodity marketplaces
primarily in Europe. In addition, through its subsidiary ATS, Aucxis 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.
Aucxis' consolidated 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 projected cash flows for the
Company are based upon assumptions which include, amongst others, a revenue
stream from e-business and the success of future external financing initiatives.
Should these projects be delayed then the present working capital would not be
sufficient for 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 will need to raise additional cash through
external financing activities. It is not possible at this time to predict with
any assurance the success of these initiatives.
Highlights of the Quarter
Revenue for the nine months ended September 30, 2001 was $5,571,147 compared to
$2,826,077 in the same period in 2000. Revenue for the three months ended
September 30, 2000 was $1,984,138 compared to $887,208 for the similar three
month 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 through ATS. On a proforma basis, if Kwatrobox had been acquired on
January 1, 2000, the revenues for the nine months ended September 30, 2000 would
have been $5,571,147. ATS 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.
However, Kwatrobox was acquired primarily to obtain access to their existing
customer base. The interim financial statements disclose the proforma revenues,
loss and net assets as if Kwatrobox had been acquired on January 1, 2000.
Selling, general and administrative expense for the nine months ended September
30, 2001 was $6,015,966 as compared to $2,913,4320 for the corresponding six
month period in 2000. Selling, general and administrative expense for the three
months ending September 30, 2001 was $1,810,747 as compared to $1,581,616 for
the corresponding three month period in 2000. The increase is due largely to the
acquisitions of Kwatrobox and I-Three during the fourth quarter of 2000. In
addition, the Company reduced its number of employees in the second quarter of
2001 by 19 in Toronto and 16 in Amsterdam and by an additional 13 in Toronto in
the three months ended September 30, 2001. The costs associated with this
downsizing total $275,585 for the nine months ended September 30, 2001, of which
$224,902 is for the three months ended September 30, 2001.
Depreciation and amortization for the three months ended September 30, 2001
equals $1,879,505, an increase of over $700,000 from the same nine month period
last year. This increase is mainly due to the inclusion of Kwatrobox during
fiscal year 2001. Depreciation and amortization are down from the three months
ended June 30, 2001 by $172,000, as the goodwill related to the Kwatrobox
acquisition was written off due to the voluntary bankruptcy of Kwatrobox and its
subsidiaries declared on September 19, 2001 by Nieaf, September 26, 2001 by
Aucxis Business Solutions and October 3, 2001 by Kwatrobox. The $3,576,702 write
down of goodwill is offset by the write-off of the net assets and liabilities of
Kwatrobox of $787,606 for a net write down of approximately $2,789,100 during
the three months ended September 30, 2001. The interim financial statements
disclose the breakdown of the assets and liabilities written off. The Company
decided to discontinue its financial support for the loss making Palm
Automatisering (Aucxis Business Solutions) and Nieaf companies, which continued
to consume shareholder funds within a business that no longer forms part of
Aucxis' refocused business strategy.
Research and development costs were $0 for the three months ended September 30,
2001 as compared to $558,650 ($0 -June 30, 2000) for the three months ended June
30, 2001 and $415,265 ($0-March 31, 2000) for the three months ended March 31,
2001 due in part to temporary suspension of development of the Collateral
Management Utility and the discontinuance in May 2001 of the development of PBS
Verdeel Pro, a proprietary software application, when the delivery of the second
phase of the project was found to be unsatisfactory to the intended customer.
There were no further R&D expenses incurred related to the various
non-core Tibco based software due to a suspension in development pending a
licensing arrangement with Boomboat Inc., a company made up of 11 of the former
R&D staff in the Toronto office. The licensing agreement was finalized in August
2001.
The net loss for the three months ended September 30, 2001 (adjusted for the
write-down of goodwill and the write-off of net liabilities of Kwatrobox) was
$1,379,911 as compared to $1,821,386 for the three months ended September 31,
2000, which was $700,000 lower than the loss reported in the quarter ended June
30, 2001 (adjusted for write-down of acquired workforce and core technology).
This improvement in operating costs is attributed to ongoing cost management
initiatives. The cost reductions were offset by non-recurring costs related to
employee terminations which were higher in the third quarter 2001 by $174,000.
Cost in the three months ended September 30, 2001 totaled $224,902, of which
$118,000 related to the severance payment for the 11 R&D staff who are now
employees of Boomboat Inc. Other severance costs include settlements with
certain members of management and associated legal costs.
The three months ended September 30, 2001 also includes $51,200 in gains on
settlement of payables, the bulk of the which resulted from a settlement of
amounts owed to Electronic Data Systems Limited ("EDS"), a vendor that the
Company had partnered with to assist with the roll-out of the e-Finance Hub
services. The settlement included the return to EDS of computer equipment with a
book value of $276,000 plus a cash payment of $150,000 to satisfy obligations
recorded in the books of Aucxis totaling approximately $475,000.
Management is continuing its revenue and cost management initiatives while
simultaneously exploring various strategic options for the Company including
business combinations and joint ventures with other companies in the perishable
goods marketplace. The concentration of development on Aucxis Trading Solutions
(ATS), a wholly owned subsidiary, is justified by the continuing capture of new
business and the further consolidation of this company's leadership as the
premier supplier of electronic trading systems to perishable agriculture and
fish trading world-wide. Aucxis Trading Systems recently announced a contract
with CCI de Quimper. The Chamber of Commerce of Quimper administers Audierne,
Concarneau, Douarnenez, Le Guilvinec, Lesconil, Loctudy and Saint-Guenole, which
are situated at the Brittany's west coast. In 2000 the combined fish supply of
these 7 markets exceeded 63,000 tons worth 179,118,600 Euro. ATS has been
contracted to modernize the complete sales process of all these markets.
Liquidity and Capital Resources
As at September 30, 2001, the company had cash of $760,000. The projected cash
flows from the Company's current operations are not sufficient to finance the
Company's working capital requirements over the next 12 months, and accordingly
there is substantial doubt as to the ability of the Company to continue as a
going concern. During the nine months ended September 30, 2001, cash decreased
by $5,445,172. Of this amount of decrease, approximately $4,826,000 was from
operations, including $1,22,700 in change in working capital balances.
Additional cash outflows were a result of repayment of amounts due to related
parties of approximately $820,000, offset by an increase in long-term debt of
approximately $149,000. Bank indebtedness for Kwatrobox was estimated to have
increased by $220,000 to fund third quarter 2001 operations. Capital
expenditures in the three months ended September 30, 2001 were approximately
$500,000, offset by dispositions of $305,500.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
During the third quarter of 2001, Parody Group Ltd. and Seabreeze Services
Ltd.(the "plaintiffs") commenced an action in the Ontario Superior Court of
Justice naming e-Auction Global Trading Inc., a Canadian corporation ("e-Auction
Canada"), and three other defendants relating to a loan by the plaintiffs in the
amount of $700,000. e-Auction Canada (now Aucxis (Canada) Inc.) is a
non-operating wholly owned subsidiary of Aucxis Corp. and is not party to the
loan. Counsel for the plaintiffs has been so advised. If and when a claim is
issued naming the Company, management believes that the Company has good
defenses and intends to vigorously contest any such claims.
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.
Item 5. Other Information
-----------------
On August 13, 2001, two members of management of the Company indicated their
intention to resign from the company. In accordance with their respective
employment agreements, as amended, such members were required to continue to
work for the Company for a transition period for such duration as determined by
the Company's board of directors not to exceed six months. The board had up to
20 days following the receipt of the notice of intention to resign to determine
the applicable transition period by written notice (the "Transition Notice") to
the departing member of management. Notice was not given and the members filed a
statement of claim against the company for breach of contract in the amount of
approximately $298,000. In addition an injunction was filed that effectively
froze approximately $387,000 in cash and cash equivalents, based on the claim
that the Company was closing the Toronto office and moving the assets to Europe.
On September 19, 2001, a settlement was reached whereby the members agreed to
accept approximately $21,775 ($67,500 Canadian Dollars) each for their claim. To
finalize the settlement, the members and the Company signed full and final
mutual releases on October 9, 2001.
The business activities of the Company's subsidiary, I-Three, have been sold to
the management and employees of I-Three, who have formed a new company, Boomboat
Inc. By agreement, Boomboat shall provide on going information technology
support to Aucxis on an "as needed basis". This is to ensure access to support
services as and when required without the associated fixed costs. Aucxis retains
full ownership of all Intellectual Property ("IP") and is entitled to receive a
fee of one percent (1%) of all revenues actually received by Boomboat from the
sale of the Boomboat Toolbox Product (developed with the IP) up to and including
August 29, 2006. As a result of this shift in the R&D staffing infrastructure,
the Toronto-based operations will be reduced to a small head office and
operational management will be concentrated in Europe, where the company's main
business is based.
During September 2001, the board of directors discontinue its financial support
for the loss making Palm Automatisering (Aucxis Business Solutions) and Nieaf
companies, which continued to consume shareholder funds within a business that
no longer forms part of Aucxis' refocused business strategy. As a result,
Kwatrobox B.V. and it's operating subsidiaries, ABS and Nieaf, filed for
voluntary bankruptcy. Nieaf filed on September 19, 2001 followed by Aucxis
Business Solutions on September 26, 2001 and finally Kwatrobox on October 3,
2001. Under the bankruptcy laws of the Netherlands, a trustee took control of
the assets and the operation from the parent company in October 2001. Due to the
loss of control the Company has written off the assets and liabilities in the
consolidated financials as well as the goodwill related to the Kwatrobox
acquisition. The $3,576,702 write down of goodwill is offset by the write-off of
the net assets and liabilities of Kwatrobox of $787,606 for a net write down of
approximately $2,789,100. The interim financial statements disclose the
breakdown of the assets and liabilities written off.
Item 6. Exhibits And Reports On Form 8-K
--------------------------------
(a) Exhibits.
Exhibit # Exhibit name
--------- ------------
Exhibit 10.1 Letter Agreement dated August 29, 2001, regarding
Registrant's subsidiary, I-Three Inc.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
September 30, 2001.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, as
amended the Company has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 19, 2001 Aucxis Corp.
(Registrant)
By: /s/ Dennis E. Petke
-------------------
Dennis E. Petke,