UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
=================
FORM 10-QSB/A
[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.
------------
(Exact name of small business issuer as specified in its charter)
Nevada
------
(State or other jurisdiction)
Pending
-------
(IRS Employer of incorporation or organization Identification No.)
220 King Street West, Suite 200 Toronto, Ontario, M5H 1K4 Canada.
-----------------------------------------------------------------
(Address of principal executive offices)
416-214-1587
------------
(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 December 21, 2001 there were 66,409,415 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/A
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements F-2
Consolidated Balance Sheet at September 30, 2001 F-2
(Unaudited) and December 31, 2000
Consolidated Statements of Operations, Deficit and F-3
Comprehensive Loss (Unaudited) for the three and nine
months ended September 30, 2001 and 2000
Consolidated Statements of Cash Flows (Unaudited) for the
nine months ended September 30, 2001 F-4
Notes to Consolidated Financial Statements F-5
Item 2. Managements' Discussion and Analysis of Financial
Condition and Results of Operations 1
PART II. OTHER INFORMATION 4
Item 1. Legal Proceedings 4
Item 5: Other Information 4
Item 6. Exhibits and Reports on Form 8-K 5
Signatures 5
-i-
Aucxis Corp.
Consolidated Balance Statements
(Unaudited)
- ---------------------------------------------------------------------------------------------------
(expressed in U.S. dollars)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
September 30, December 31,
2001 2000
$ $
(Unaudited) (Audited)
Assets
Current assets
Cash and cash equivalents 759,997 6,205,169
Accounts receivable 1,210,220 1,600,871
Inventory 405,675 608,537
Prepaid expenses 79,561 121,819
-----------------------------------------
2,455,453 8,536,396
Investment 517,203 514,835
Fixed assets 742,604 1,732,521
Acquired workforce - 161,351
Acquired core technology 459,212 1,226,920
Goodwill 4,266,947 9,239,748
-----------------------------------------
8,441,419 21,411,771
=========================================
Liabilities
Current liabilities
Bank indebtedness - 423,432
Accounts payable and accrued liabilities 1,833,299 2,703,079
Due to related parties 375,063 944,728
Deferred revenue 326,999 1,323,874
Current portion of long-term debt 45,479 255,571
-----------------------------------------
2,580,340 5,650,684
Due to related parties - 375,063
Long-term debt 227,397 392,718
Non-controlling interest - 3,742
-----------------------------------------
2,808,237 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 value 62,715 62,715
Additional paid-in capital 19,359,767 18,735,673
Accumulated other comprehensive loss (43,004) (124,822)
Deficit (18,320,660) (8,258,366)
-----------------------------------------
1,058,819 10,415,200
-----------------------------------------
8,441,418 21,411,771
=========================================
Contingencies (note 14)
Going concern (note 1)
The accompanying notes form an integral part of these financial statements.
F-2
Aucxis Corp.
Consolidated Statements of Operations, Deficit and Comprehensive Loss
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
(expressed in U.S. dollars)
Three months ended September 30, Nine months ended September 30,
--------------------------------------- ---------------------------------------
2001 2000 2001 2000
$ $ $ $
Revenue 2,173,375 877,208 5,760,384 2,826,077
Cost of goods sold 1,034,925 503,196 2,780,278 1,785,247
--------------------------------------------------------------------------------
1,138,450 374,012 2,980,106 1,040,830
--------------------------------------------------------------------------------
Expenses
Selling, general and administrative 1,682,992 1,581,616 5,889,736 2,913,430
Depreciation and amortization 480,794 402,458 1,873,227 1,161,825
Research and development costs - - 972,390 -
Write-down of acquired workforce, core
technology and goodwill 3,576,702 - 4,383,378 -
--------------------------------------------------------------------------------
5,740,488 1,984,074 13,118,731 4,075,255
--------------------------------------------------------------------------------
Loss before the undernoted (4,602,038) (1,610,062) (10,138,624) (3,034,425)
Share of income (loss) of equity investment (87,676) (34,065) 2,372 (172,843)
Interest income 14,080 113,812 135,728 148,447
--------------------------------------------------------------------------------
Loss before income taxes and
non-controlling interest (4,675,634) (1,530,315) (10,000,525) (3,058,821)
Income tax recovery (expense) (64,469) (56,571) (59,979) (68,763)
Non-controlling interest 904 - (1,790) -
--------------------------------------------------------------------------------
Loss for the period (4,739,199) (1,586,886) (10,062,294) (3,127,584)
Accretion of mandatorily redeemable
common stock to redemption value - (234,500) - (703,500)
--------------------------------------------------------------------------------
Loss available to common shareholders (4,739,199) (1,821,386) (10,062,294) (3,831,084)
Deficit - Beginning of period (13,581,461) (4,664,130) (8,258,366) (2,654,432)
--------------------------------------------------------------------------------
Deficit - End of period (18,320,660) (6,485,516) (18,320,660) (6,485,516)
================================================================================
Basic and diluted loss per share (0.08) (0.03) (0.16) (0.06)
================================================================================
Loss for the period (4,739,199) (1,586,886) (10,062,294) (3,127,584)
Foreign currency translation adjustments
and other comprehensive income (loss) (76,417) 65,485 81,818 65,485
--------------------------------------------------------------------------------
Comprehensive loss (4,815,616 ) (1,521,401) (9,980,476) (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.
F-3
Aucxis Corp.
Consolidated Statement of Cash Flows
(Unaudited)
For the nine months ended September 30, 2001
- ----------------------------------------------------------------------------------------------------------------------------
(expressed in U.S. dollars)
2001 2000
$ $
Cash provided by (used in)
Operating activities
Loss for the period (10,047,294) (3,127,584)
Add: Items not affecting cash
Foreign exchange (40,426) -
Depreciation and amortization 1,873,227 1,161,825
Write-down of acquired workforce, core technology and goodwill 4,383,378 -
Loss on disposal of fixed assets 27,562 -
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 (635,236) (384,648)
-----------------------------------------
(4,434,576) (2,177,564)
-----------------------------------------
Financing activities
Bank indebtedness (76,857) -
Due to related parties (820,214) (266,140)
Issuance of share capital - 9,876,217
Long-term debt 104,740 228,459
-----------------------------------------
(792,331) 9,838,536
-----------------------------------------
Investing activities
Purchase of fixed assets (500,993) (296,898)
Cash effect of dilution gain 304,040 -
Purchase of businesses - net of cash acquired - (3,000,000)
Deposits - (1,071,793)
-----------------------------------------
(196,953) (4,368,691)
-----------------------------------------
Increase (decrease) in cash and cash equivalents during the period (5,423,860) 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.
F-4
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(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
subsidiary, 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.
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 $10,062,294 for the nine months ended September 30, 2001 (2000 -
$3,127,584) and reported a deficit of $18,305,660 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, 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. (Kwatrobox) and its
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 Kwatrobox and its subsidiaries in October 2001.
Furthermore, 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.
F-5
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2 Amended financial statements
The Company has amended the financial statements for the third quarter
ended September 30, 2001, previously filed on November 19, 2001. These
financial statements have been amended to correct amounts reported in
respect of Kwatrobox. Amendments did not affect the balance sheet at
December 31, 2001. The following table summarizes the amendments.
Pre-amendment As amended
Three months ended Nine months ended Three months ended Nine months ended
September 30, 2001 September 30, 2001
------------------------------------------------------------------------------------------------
Revenue 1,984,138 5,571,147 2,173,375 5,760,384
Loss before undernoted (4,821,534) (10,358,120) (4,602,038) (10,138,624)
Loss for the period (4,169,006) (9,492,100) (4,739,199) (10,062,294)
Loss available to (4,169,006) (9,492,100) (4,739,199) (10,062,294)
Common shareholders
3 Unaudited interim financial statements
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 except for the dilution gain explained in note 5.
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.
4 Significant accounting policies
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.
F-6
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Consolidation
The accounts of Kwatrobox from July 1, 2001 to October 2, 2001, the date of
loss of control due to its bankruptcy, are included in the Company's
consolidated statements of operations and cash flows for the three months
and nine months ended September 30, 2001. The accounts of Kwatrobox as at
September 30, 2001 have not been consolidated, rather they have been
carried at a net investment amount of nil.
5 Impairment of assets and dilution gain
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 terminated and abandoned respectively.
The third quarter of fiscal 2001, the Company decided to discontinue its
financial support for the loss making Palm Automatisering (Aucxis Business
Solutions) and Nieaf companies, and these subsidiaries, as well as
Kwatrobox B.V., 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 of fiscal 2001.
Goodwill, acquired workforce and core technology, related to I-Three and
Kwatrobox, previously carried on the Company's balance sheet, have been
written off. The related costs recorded are 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
===========
The assets and liabilities of Kwatrobox have been written off as follows:
Working capital balances - assets $ (395,741)
Fixed assets (647,677)
Non-controlling interest 1,796
Working capital balances - liabilities 1,028,219
Long term debt 328,662
-----------
Non-cash portion of net liability write-off 315,259
Cash in bank accounts (26,913)
Bank overdraft 330,953
-----------
Cash portion of net liability write-off 304,040
-----------
Dilution gain, charged to additional paid in capital $ 619,299
===========
F-7
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
6 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, 200 and net assets at September 30, 2000 as
if Kwatrobox B.V. and I-Three Inc. had been acquired on January 1, 2000:
2000
$
Revenue 6,193,054
Loss (4,717,880)
Loss per share (0.08)
Net assets 10,194,734
7 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
----------------------------------------------------------------------
Balance - December 31, 2000 62,714,551 62,715 18,735,673 18,798,388
Stock-based compensation (iv) - - 4,795 4,795
Dilution gain (note 5) - - 619,296 619,296
----------------------------------------------------------------------
Balance - September 30, 2001 62,714,551 62,715 19,359,764 19,422,479
======================================================================
F-8
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
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 Advisors Inc. to the Company, Millennium Advisors 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).
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:
Options for Weighted average
shares of exercise price
common per share
stock $
Balance - December 31, 1999 4,300,000 0.90
Expired or cancelled (845,000) (0.01)
Expired or cancelled (3,050,000) (0.85)
Expired or cancelled (250,000) (5.00)
Issued - December 30, 2000 8,058,000 0.35
---------
Balance - December 31, 2000 8,213,000 0.34
Expired or forfeited (2,425,000) (0.35)
---------
Balance - September 30, 2001 5,788,000 0.34
=========
F-9
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
8 Change in non-cash working capital
Nine months ended
September 30,
-----------------------------------------
2001 2000
$ $
Accounts receivable 107,799 (468,688)
Inventory (58,339) 67,228
Prepaid expenses (14,215) (20,267)
Accounts payable and accrued liabilities 274,879 128,328
Deferred revenue (945,360) (91,249)
-----------------------------------------
(635,236) (384,648)
=========================================
9 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 2,916,326 -
-----------------------------------------
5,760,384 2,826,077
=========================================
September 30, December 31,
2001 2001
$ $
Long-lived assets
Canada 371,492 1,147,883
Belgium 5,097,271 7,658,629
Netherlands - 3,554,029
-----------------------------------------
5,468,763 12,360,541
=========================================
F-10
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
10 Employee termination costs
As a result of cost saving measures, the Company terminated 35 employees in
the six 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 including legal expenses.
11 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.
12 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 Advisors 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.
13 Comparative figures
Certain comparative figures have been reclassified to conform to the
current period presentation.
F-11
Aucxis Corp.
Notes to Consolidated Financial Statements
(Unaudited)
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
14 Contingencies
a) A competitor of ATS has filed three claims totalling approximately
$150,000 (FRF1,000,000) against ATS during 2000 claiming that the ATS
inappropriately used that 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 have filed claims totalling $70,000 against the
Company for alleged failure to deliver product in accordance with an
agreement. Management believe that these allegations are without
merit, and accordingly no recognition of this contingent loss has been
made. The ultimate outcome of these claims cannot be determined at
this time.
c) During the second quarter of fiscal 2001, certain shareholders of the
Company 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.
d) Two parties have named a subsidiary of the Company, along with three
other parties, in an action to recover amounts related to a loan from
the two parties, of $700,000.
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, rather
than the subsidiary of 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. Potential
losses from this claim are $700,000, which has not been accrued.
15 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 charged to
the statement of operations for the nine months ending September 30, 2001.
F-12
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.
Amended financial statements
The Company has amended the financial statements for the third quarter ended
September 30, 2001, previously filed on November 19, 2001. The financial
statements have been amended to correct amounts reported in respect of Kwatrobox
B.V. As a result this 10QSB filing has been amended accordingly.
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 40% ownership interest in SDL
Invest N.V. The financial statements also include the Company's 48.2% investment
in Aucxis Limited. (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 of
Kwatrobox and its subsidiaries in October 2001. Due to the loss of control the
Company has written off the assets and liabilities in the consolidated
financials. Nieaf and ABS developed and installed electronic trading systems and
applications 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
-1-
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 USD$7 billion. 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 $5,760,384 compared to
$2,826,077 in the same period in 2000. Revenue for the three months ended
September 30, 2001 was $2,173,375 compared to $877,208 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 $6,193,054. ATS derives its revenues from the development and
installation of clock systems, cooling installations and associated maintenance
contracts for auction halls. Kwatrobox derived 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 expenses for the nine months ended September
30, 2001 were $5,889,736 as compared to $2,913,430 for the corresponding nine
month period in 2000. Selling, general and administrative expenses for the three
months ending September 30, 2001 were $1,682,992 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. Severance costs in
the three months ended September 30, 2001 totalled $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.
Depreciation and amortization for the nine months ended September 30, 2001
equals $1,873,227, 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. This was due to the goodwill related to the Kwatrobox
acquisition being written off as a result of the 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 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
-2-
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 $972,390 for the nine months ended September
30, 2001 as compared to $0 for the nine months ended September 30, 2001.
Analysis of Research and development costs for the past three quarters reveals
$0 for the three months ended September 30, 2001 as compared to $558,650 for the
three months ended June 30, 2001 and $415,265 for the three months ended March
31, 2001 due in part to the 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 nine months ended September 30, 2001 was $10,062,294 as
compared to $3,127,584 for the same period in 2000. The net loss for the three
months ended September 30, 2001 was $4,739,199 as compared to $1,586,886 for the
same period in 2000. The increase is due largely to the acquisitions of
Kwatrobox and I-Three during the fourth quarter of 2000. The three months ended
September 30, 2001 also includes $51,200 of gains resulting from settling a
payable amount for less than book value. Settlement of some payables included
exchanging certain fixed assets with a book value of approximately $276,000, for
certain accounts payable.
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 ATSs' leadership as the premier
supplier of electronic trading systems to perishable agriculture and fish
trading world-wide. ATS 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 west
coast of Brittany. In 2000, the combined fish supply of these seven 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. 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. During
the nine months ended September 30, 2001, cash decreased by $5,423,860. Of this
amount of decrease, approximately $4,435,000 was from operations, including
$635,236 resulting from a change in working capital balances. Additional cash
outflows were a result of repayment of amounts due to related parties of
approximately $820,000 and reductions in long-term debt of approximately
$105,000. An additional decrease in cash of $200,000 resulted from capital
expenditures in the six months ended September 30, 2001 of approximately
$500,000, offset by the cash effect of the dilution gain on the disposition of
Kwatrobox amounting to $305,500.
-3-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
A competitor of ATS has filed three claims totalling approximately $150,000
(FRF1,000,000) against ATS during 2000 claiming that the ATS inappropriately
used that competitor's equipment. At present, there is insufficient information
available to ascertain the likelihood of these claims being successful.
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.
During the second quarter of fiscal 2001, 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.
On August 31, 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. 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. The Company has not yet received any additional communication to date.
If and when a statement of claim is issued naming the Company, management
believes that the Company has a good defense and intends to vigorously contest
the claims asserted against it.
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. Prior to the delivery of the notice, 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 $21,775 ($33,969 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.
Certain assets of I-Three, with a net book value of approximately $48,000, have
been sold to the former management and employees of I-Three, who have formed a
new company, Boomboat Inc.(Boomboat). Boomboat has agreed to provide information
technology support to Aucxis upon request of Aucxis. This is to ensure access to
support services as and when required without the associated fixed costs. Aucxis
is entitled to receive a fee of one percent (1%) of all revenues received by
Boomboat from the sale of the Boomboat Toolbox Product, which is a product
developed from technology owned by Aucxis, up to and including August 29, 2006.
No such royalty revenue has been earned by the Company at September 30, 2001.
With the sale of this infrastructure and the termination of the I-Three staff,
the Toronto-based operations will be reduced to a small head office. Operational
management will be concentrated in Europe, where the company's main business is
based.
-4-
During 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 its operating subsidiaries, ABS and Nieaf, filed for
voluntary bankruptcy. Nieaf filed on September 19, 2001 followed by ABS 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
goodwill written of was $3,576,702. 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 between
Registrant's subsidiary I-Three Inc. and Boomboat (filed
as Exhibit 10.1 to the Company's Report on Form 10-QSB
for the quarter ended September 30, 2001)
(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: December 21, 2001 Aucxis Corp.
(Registrant)
By: /s/ Dennis E. Petke
-------------------------------
Dennis E. Petke,
Chief Financial Officer
(duly authorized officer)
-5-