UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] Quarterly Report pursuant Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2002
[ ] Transition report pursuant section 13 or 15(d) of the
Securities Exchange Act of 1934
0-9040
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Commission file number
Aucxis Corp.
============
(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.......
As of June 24, 2002 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....
1
AUCXIS CORP. (FORMERLY E-AUCTION GLOBAL TRADING INC.)
FORM 10-QSB
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements F-1
Consolidated Balance Sheet at March 31, 2002 (Unaudited) and F-2
December 31, 2001
Consolidated Statements of Operations, Deficit and F-3
Comprehensive Loss (Unaudited) for the three months ended
March 31, 2002 and March 31, 2001
Consolidated Statements of Cash Flows (Unaudited) for the F-4
three months ended March 31, 2002 and March 31, 2001
Notes to Consolidated Financial Statements F-5 to F-18
Item 2. Managements' Discussion and Analysis of Financial 2
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 6
Item 5: Other Information 7
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
1
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
---------------------------------------------------------------
AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
(a Nevada Corporation)
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(in U.S. dollars)
---------------------------------------------------------------
F-1
- --------------------------------------------------------------------------------------------------------------------
AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
CONSOLIDATED BALANCE SHEETS
(in U.S. dollars)
- --------------------------------------------------------------------------------------------------------------------
March 31, December 31,
2002 2001
- --------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 329,324 $ 310,050
Accounts receivable (Note 5) 1,354,001 1,230,348
Inventory (Note 6) 477,641 404,310
Prepaid expenses 102,219 113,528
---------------- ---------------
Total Current Assets 2,263,185 2,058,236
Investments (Note 7) 111,362 115,772
Property, plant and equipment (Note 8) 546,491 706,854
Acquired core technology (Notes 4 and 10) 411,933 449,381
---------------- ---------------
Total Assets $ 3,332,971 $ 3,330,243
================ ===============
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (Note 13) $ 1,701,908 $ 1,462,832
Due to related parties (Note 14) 351,992 352,335
Deferred revenue 757,786 711,551
Current portion of long-term debt (Note 16) 75,692 89,055
Deferred taxes 11,310 11,577
---------------- ---------------
Total Current Liabilities 2,898,688 2,627,350
Long-term debt (Note 16) 195,754 165,643
---------------- ---------------
Total Long-term Debt 3,094,442 2,792,993
Mandatory Redeemable Shares of Common Stock (Note 4(a)) 4,818,181 4,818,181
---------------- ---------------
Total Liabilities 7,912,623 7,611,174
---------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK, $0.001 par value; 250,000,000 shares
authorized, 62,773,051 issued and outstanding 62,773 62,773
Additional paid-in capital 18,736,200 18,736,200
Accumulated other comprehensive income (loss) 143,690 149,900
Deficit (23,522,315) (23,229,804)
---------------- ---------------
Total Stockholders' Equity (Deficit) (4,579,652) (4,280,931)
---------------- ---------------
Total Liabilities and Stockholders' Equity (Deficit) $ 3,332,971 $ 3,330,243
================ ===============
Contingencies (Notes 1 and 23)
Subsequent Events (Note 24)
Approved on behalf of the Board of Directors:
- -----------------------------------
- -----------------------------------
(The accompanying notes are an integral part of these consolidated financial
statements)
F-2
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AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS, DEFICIT AND COMPREHENSIVE LOSS
(in U.S. dollars)
- ------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Revenue $ 1,308,512 $ 1,966,175
Cost of goods sold (590,071) (1,001,509)
---------------- ---------------
718,441 964,666
---------------- ---------------
Selling, general and administrative expense 788,605 2,423,923
Depreciation and amortization expense 82,925 737,832
Research and development - 415,265
---------------- ---------------
871,530 3,577,020
---------------- ---------------
Loss from operations before the under-noted 153,089 2,612,354
Share of income (loss) of equity investment (Note 7) (1,740) 178,031
Loss on sales and write down of assets (114,886) -
---------------- ---------------
Loss before income taxes and non-controlling interest (269,715) (2,434,323)
Income tax expense (22,796) (1,847)
---------------- ---------------
Loss for the period (292,511) (2,436,170)
Accretion of mandatory redeemable common stock
to redemption value (Note 4(a)) - (61,553)
Deficit beginning of period (23,229,804) (8,258,366)
---------------- ---------------
Deficit end of period $ (23,522,315) $ (10,694,536)
================= ===============
Basic loss per share (0.005) (0.04)
================= ================
Loss for the period $ (292,511) $ (2,436,170)
Foreign currency translation adjustments and
other comprehensive income (loss) (6,210) 64,586
---------------- ---------------
Comprehensive loss $ (298,721) $ (2,371,584)
================= ===============
Shares used in computing basic earnings per share 62,738,926 62,714,551
================ ===============
(Diluted loss per share has not been presented as the result is anti-dilutive)
(The accompanying notes are an integral part of these consolidated financial
statements)
F-3
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AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in U.S. dollars)
- -------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 2002 2001
- -------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the year $ (292,511) $ (2,436,170)
Adjustments to reconcile net loss to cash
Depreciation and amortization 82,925 737,832
Foreign exchange (8,385) 60,210
Stock options issued to non-employees - 311,531
Share of loss of equity investment 1,740 (178,031)
Provision for impairment 82,003 -
Gain on sale of assets 32,883 -
Net change in non-cash working capital items (Note 19) 99,369 (124,705)
---------------- ---------------
CASH USED IN OPERATING ACTIVITIES (1,976) (1,629,333)
---------------- ---------------
FINANCING ACTIVITIES
Bank indebtedness - (16,524)
Related party repayments (343) (100,837)
Long-term debt (repayment) 16,748 49,570
---------------- ---------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 16,405 (67,791)
---------------- ---------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (net of disposal proceeds) (1,440) (441,214)
---------------- ---------------
CASH USED IN INVESTING ACTIVITIES (1,440) (441,214)
---------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
DURING THE PERIOD 12,989 (2,138,338)
EFFECT OF FOREIGN EXCHANGE ON CASH 6,285 (27,644)
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 310,050 6,205,169
---------------- ---------------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 329,324 $ 4,039,187
================ ===============
Supplemental cash flow information:
Interest paid $ 8,952 $ -
Taxes paid $ 22,796 $ -
F-4
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AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS AND CONTINUANCE OF BUSINESS
Aucxis Corp. (the "Company") changed its name from e-Auction Global Trading
Inc. in June 2001.
The Company is currently developing e-business services for the perishable
commodity marketplace 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. To date the Company has not earned
significant revenue from its Internet-based auction systems and the success
of these systems will depend upon market acceptance of a commercially
viable prototype and obtaining adequate resources to complete and implement
these systems. The Company is not yet able to determine whether these
efforts will be successful.
In September 2001, the Company decided to discontinue its financial support
for its subsidiaries in The Netherlands, including V-Wholesale N.V.,
Kwatrobox B.V., Palm Verlingsystemen B.V., Scoop Software B.V.,
Automatiseringsbureau Palm N.V., and Nieaf Systems B.V. (together
"Kwatrobox") as the businesses operated by these companies no longer form
part of the company's refocused business strategy. As a result, Kwatrobox
and its operating subsidiaries, Automatiseringsbureau Palm N.V. and Nieaf
Systems B.V., filed for bankruptcy and under the bankruptcy laws of the
Netherlands, a trustee took control of Kwatrobox and its subsidiaries in
October 2001.
The Company has a serious working capital deficiency as at March 31, 2002
and has suffered recurring operating losses and has an accumulated deficit
as at March 31, 2002. These factors raise substantial doubt about the
ability of the Company to continue as a going concern.
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.
Management is considering various revenue and cost management alternatives
and is examining a variety of options to raise additional financing,
including the possibility of merging the Company's operations with another
company. It is not possible at this time to predict with any assurance the
success of these initiatives.
2. BASIS OF PRESENTATION
These financial statements consolidate the accounts of the Company, Aucxis
Corp. (Nevada) and its wholly-owned subsidiaries as follows:
Aucxis Corp. N.V. (Belgium)
Aucxis Trading Solutions N.V. (formerly Schelfhout Computer Systemen
N.V. (Belgium)
I-Three Inc.
e-Auction Global Trading Inc. (Barbados)
Aucxis Corp. (Canada)
The March 31, 2001 comparative figures also include the Netherlands
subsidiaries described in Note 1 as these entities were controlled by the
Company at that time.
These financial statements also include the accounts of Scoop Software B.V.
(Netherlands) which is 80% owned.
The financial statements also include the Company's share of the net assets
and earnings or loss of the Company's 48.2% investment in Aucxis Limited
(Australia) and 40% (2001 - 100%) investment in SDL Invest N.V. (Belgium)
which are accounted for by the equity method.
F-5
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AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Foreign exchange translation
The Company's functional currency is U.S. dollars, except that its main
operating subsidiaries function in Netherland guilders and euros.
Foreign denominated non-monetary assets, liabilities and other items
are measured in U.S. dollars using the exchange rate prevailing at the
respective transaction dates. Monetary assets and liabilities
denominated in foreign currencies are measured at exchange rates
prevailing at the balance sheet date. Resulting remeasurement
adjustments are included in income. The Company applies the current
exchange rate to translate the operating subsidiaries' assets and
liabilities and average exchange rate for the year to translate
revenues, expenses and gains and losses, into U.S. dollars. The
resulting translation adjustments are included as a separate component
of comprehensive loss within shareholders' equity.
(b) Financial instruments
The Company's financial instruments consist of cash and cash
equivalents and bank indebtedness, accounts receivable, accounts
payable and accrued liabilities amounts, due to related parties,
deferred revenue, long-term debt and contingencies. The fair values of
these financial instruments approximate their carrying values due to
their short-term nature and normal trade terms.
(c) Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated
depreciation. Property, plant and equipment are depreciated from the
date of acquisition using the following rates and methods:
Building 40 years straight-line
Furniture and fixtures 10 years straight-line
Leaseholds 4 years straight-line
Tools and equipment 5 years straight-line
Vehicles 5 years straight-line
Software 5 years straight-line
(d) Acquired workforce
Acquired workforce is recorded at cost and amortized on a straight-line
basis over its expected life of approximately five years. Acquired
workforce related to I-Three Inc. was written off in the third quarter
of 2001.
(e) Acquired core technology
Acquired core technology is recorded at cost and amortized on a
straight-line basis over its expected life of approximately five years.
Acquired core technology related to I-Three Inc. was written off in the
third quarter of 2001.
F-6
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AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(f) Goodwill
Goodwill represents the costs of acquired businesses in excess of the
fair values of the net identifiable assets acquired and is amortized on
a straight-line basis over its expected life of five years.
Late in 2001, the Company wrote off the remaining goodwill related to
its acquisition of Kwatrobox as the Company discontinued its financial
support for the business operated by Kwatrobox as described in Notes 1,
4(b) and 11.
Late in 2001, the Company also wrote off the remaining goodwill related
to its acquisition of ATS (formerly Schelfhout Computer Systemen N.V.)
as the Company no longer considered the carrying amount of this portion
of the goodwill to represent the amount by which the fair value of ATS
exceeded the fair value of its net identifiable assets as described in
Notes 4(a) and 11.
(g) Impairment of long-lived assets
The Company evaluates potential impairment of its long-lived assets
whenever events or changes in circumstances indicate doubts about the
recoverability of such assets. Recoverability of assets held and used
is measured by comparing the carrying amount of the asset to estimated
future net undiscounted cash flows expected to be generated by the
asset. If an asset is considered to be impaired, the impairment is
recognized based on the amount by which the carrying amount of the
asset exceeds its estimated fair value. Assets to be disposed of are
reported at the lower of the carrying amount or fair value. Fair value
is based on the amount of consideration which would be paid by an arms
length party under no compulsion to transact.
(h) Internal use software
The company has acquired and is developing software for internal use in
its e-business services. As the company is still in the preliminary
stages of developing its e-business services all related costs have
been expensed in the year.
(i) Income taxes
The company provides for income taxes under the asset and liability
method in accordance with Statement of Financial Accounting Standard
No. 109, Accounting for Income Taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between the
financial reporting and income tax bases of assets and liabilities and
are measured using enacted tax rates and laws. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the
amounts which are more likely than not to be realized. To date, the
company's deferred tax assets, relating primarily to losses carried
forward, have not been considered more likely than not to be realized
and, accordingly, a valuation allowance equal to the deferred tax
assets has been recorded.
(j) Revenue recognition
The Company derives revenue from the development and installation of
clock systems, cooling installations and maintenance services related
to these systems. Clock and cooling installations take three to four
months to complete and are accounted for using the percentage of
completion method in accordance with Statement of Position 81.-1.
Revenue from contracts with customers that include customer acceptance
provisions that are not confirmed until delivery and installation of
the systems is recognized when the installation is complete and
customer acceptance has occurred under the completed contract method of
accounting.
F-7
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AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(j) Revenue recognition (continued)
Revenue from the sale of customized hardware and software applications
is recognized when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed and collectibility is
reasonably assured.
Maintenance contracts to service installed clock and cooling systems
are sold separately from these systems. Revenue from maintenance
contracts is recognized rateably over the contract period during which
services are performed, as vendor specific objective evidence of fair
value for maintenance service is obtained.
(k) Inventory
Inventory is stated at the lower of cost or net realizable value with
cost being determined using the weighted average cost method. Obsolete
or defective inventories are reduced to net realizable value.
The work-in-progress inventory represents direct costs, including raw
materials, labour and an allocation of overhead.
(l) Stock options
SFAS No. 123, "Accounting for Stock-Based Compensation," requires that
stock awards granted be recognized as compensation expense based on
their fair values at the date of grant. Alternatively, a company may
account for granted stock awards under Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees," and
disclose pro forma income amounts which would have resulted from
recognizing such awards at their fair value. The Company has elected to
account for stock-based compensation for employees under APB No. 25 and
make the required pro forma disclosures for compensation expense. Stock
based compensation for non-employees are accounted for using SFAS No.
123.
The Company has modified the terms of its option plan for certain
employees and, in accordance with Financial Accounting Standards Board
Interpretation No. 44 (FIN 44), Accounting for Certain Transactions
Involving Stock Compensation, the Company has adopted variable plan
accounting for these options. Under variable plan accounting,
compensation expense is calculated and recorded each period from the
date of modification to the date of measurement.
(m) Cash and cash equivalents
Cash and cash equivalents consist of cash on deposit and highly liquid
short-term, interest bearing securities, having original terms to
maturity of three months or less.
(n) Warranty provision
One of the Company's subsidiaries provides a warranty for some of the
products sold. A provision for estimated warranty costs is charged to
operations on the basis of management's estimate of costs to be
incurred servicing warranty claims.
(o) Use of estimates
The preparation of financial statements in conformity with United
States generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Financial results as
determined by actual events could differ from those estimates.
F-8
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AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(p) Comparative figures
Certain amounts in the financial statements have been reclassified to
be consistent and comparable from year-to-year.
4. ACQUISITIONS AND IMPAIRMENT OF ACQUIRED ASSETS
(a) ATS (formerly Schelfhout Computer Systemen N.V.)
On January 10, 2000, the Company completed and closed the purchase of
100% of the issued and outstanding shares of ATS (formerly Schelfhout
Computer Systemen N.V.), a Belgian company that supplies clocks and
cooling systems to auction houses. The Company acquired the shares of
ATS in exchange for 3,636,364 shares of common stock and cash of
$4,000,000. The shares of common stock were valued at $3,636,364, based
on their estimated fair value at January 10, 2000. Fair value was
determined based on the cash price paid for stock in a contemporaneous
private placement, the put feature related to the shares issued to
acquire ATS and the market price of the Company's stock around the
acquisition date.
Under the terms of the purchase agreement, the vendors agreed not to
sell or transfer any of their shares except on the basis of a time
release formula which presumes that the shares will be freely tradable
at the time of release for sale or transfer.
The terms of the purchase agreement also provide the vendors with a put
feature which allows the vendors to sell the shares back to the Company
at $1.65 per share at the time of release if they are not freely
tradable.
Under the time release formula, 454,545 shares are to be released on
each of the 6, 12, 18 and 24 month anniversary dates of the closing and
606,061 shares are to be released on each of the 36, 48 and 60 month
anniversary dates of the closing.
Since the 3,636,364 shares issued to the vendors are subject to the put
feature described above, which is beyond the Company's direct control,
they have been classified as mandatory redeemable shares of common
stock. During 2001, the Company accreted $243,817 to the mandatory
redeemable shares of common stock all of which was recognized in the
last quarter of 2001.
The first 454,545 shares were not free trading on July 10, 2000, the
six-month anniversary date of the acquisition and during 2001 the
vendors sought to exercise their right to retract 909,090 shares,
representing the first two tranchees under the time release agreement,
on the basis that they were not free trading on their respective
release dates (see also Note 24(b)).
In December 2001, the Company wrote off the net carrying value of
goodwill of $3,924,267 related to the ATS acquisition as the Company no
longer considered the carrying amount of this goodwill to represent the
amount by which the fair value of ATS exceeded the fair value of its
net identifiable assets (see Note 11).
F-9
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AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
4. ACQUISITIONS AND IMPAIRMENT OF ACQUIRED ASSETS (continued)
(b) Purchase of Kwatrobox B.V.
Effective November 1, 2000, the Company acquired 100% of the issued and
outstanding shares of Kwatrobox B.V. ("Kwatrobox"), a provider of
electronic auction infrastructure and enterprise resource planning
software, for cash of $1,573,250 and 1,250,000 shares of the Company
plus performance related contingent consideration of up to 200,000
shares of common stock of the Company. Total consideration, excluding
the contingently issueable shares was $2,883,250.
750,000 of the shares issued upon closing on November 1, 2000, were
held in escrow subject to a time release arrangement; 150,000 of which
remain to be released on June 5, 2002.
The performance shares were contingent upon Kwatrobox and its
subsidiaries earning combined pre-tax income of between $1.0 million
and $1.4 million for the period commencing on June 5, 2000 and ending
July 4, 2003. No additional consideration is required where pre-tax
earnings are less than $1 million for this period. The performance
shares were not included in the purchase consideration at the time of
purchase. Any additional consideration arising after the purchase was
to be based on the fair value of the shares to be issued at that time
and was to be recorded as an increase in goodwill.
In September 2001, the Company decided to discontinue its financial
support for Kwatrobox B.V. and its Netherlands subsidiaries as
described in Note 1. As a result, the Company wrote off a net asset
deficiency of $445,989 and goodwill of $3,386,785 related to Kwatrobox
and its subsidiaries.
Although Kwatrobox and its primary operating subsidiaries have filed
for bankruptcy and a trustee has been appointed pursuant to the
Netherlands bankruptcy laws, the Company's management believes that the
Company is not exposed to further claims by creditors of Kwatrobox and
its subsidiaries and no amounts have been accrued in these financial
statements for such claims.
(c) Purchase of I-Three Inc.
On November 27, 2000, the Company acquired 100% of the issued and
outstanding shares of I-Three Inc. in exchange for 455,000 shares of
the Company. I-Three Inc. specialized in real-time,
business-to-business infrastructure technology. The total consideration
paid was $218,400.
In June 2001, the Company determined that the acquired workforce and
acquired core technology obtained through the acquisition of I-Three
Inc. would be terminated and abandoned respectively. As a result, the
Company wrote off acquired workforce of $144,461 and goodwill of
$563,211 related to I-Three Inc.
On August 29, 2001, the Company made an agreement with BoomBoat Inc.
("BoomBoat") whereby the Company paid BoomBoat to take over I-Three
Inc.'s operations and employees paying BoomBoat a one-time fee of
$181,943. In exchange, BoomBoat agreed to pay the Company, a royalty of
1% of revenues received from August 30, 2001 up to and including August
29, 2006. I-Three Inc. retained the rights to its technology and
intellectual property.
F-10
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AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
4. ACQUISITIONS AND IMPAIRMENT OF ACQUIRED ASSETS (continued)
(d) Impairment of goodwill, acquired workforce and acquired core technology
The impairment provision for the year ended December 31, 2001 for
goodwill, acquired workforce and acquired core technology is comprised
as follows:
Goodwill for ATS $ 3,924,267
Goodwill for Kwatrobox 3,386,785
Acquired workforce for I-Three Inc. 144,461
Acquired core technology for I-Three Inc. 563,211
Less gain on disposal of other identifiable assets
and liabilities for Kwatrobox (445,989)
--------------
$ 7,572,735
5. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following amounts:
March 31, December 31,
2002 2001
---- ----
Accounts receivable $ 1,354,001 $ 1,243,188
Allowance for doubtful accounts - (12,840)
--------------- ---------------
$ 1,354,001 $ 1,230,348
=============== ===============
6. INVENTORY
Inventory consists of the following:
March 31, December 31,
2002 2001
---- ----
Raw materials $ 230,555 $ 235,990
Work-in-progress 117,453 45,418
Finished goods 129,633 122,902
--------------- ---------------
$ 477,641 $ 404,310
=============== ===============
7. INVESTMENT
During 2001, the Company recognized an impairment in the carrying amount of
its equity investment in Aucxis Limited (Australia) in the amount of
$484,448 because management believed that the Company will not be able to
recover its investment in Aucxis Limited (Australia).
This impairment is included in share of loss of equity investment for the
year ended December 31, 2001. The remaining investments balance consists of
the Company's interest in SDL Invest N.V. (Belgium).
F-11
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AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
8. PROPERTY, PLANT AND EQUIPMENT
March 31, December 31,
2002 2001
Accumulated Net Carrying Net Carrying
Cost Depreciation Value Value
Furniture and fixtures $ 96,103 $ 11,930 $ 84,173 $124,919
Leaseholds - - - 27,619
Software 274,746 124,935 149,811 157,582
Tools and equipment 57,832 28,951 28,881 122,761
Vehicles 511,642 228,016 283,626 273,973
----------------- ----------------- -------------- ---------------
$940,323 $393,832 $546,491 $706,854
================= ================= ============== ===============
9. ACQUIRED WORKFORCE
March 31, December 31,
2002 2001
---- ----
Cost $ - $ 166,898
Accumulated amortization - (22,437)
Written off I-Three Inc. (Note 4(c)) - (144,461)
---------------- ---------------
$ - $ -
================ ===============
10. ACQUIRED CORE TECHNOLOGY
March 31, December 31,
2002 2001
---- ----
Cost $ 748,969 $ 1,394,310
Accumulated amortization (337,036) (381,718)
Written off I-Three Inc. (Note 4(c)) - (563,211)
---------------- ---------------
$ 411,933 $ 449,381
================ ===============
11. GOODWILL
March 31, December 31,
2002 2001
---- ----
Cost $ - $ 10,677,812
Accumulated amortization - (3,366,760)
Written off ATS (Note 4(a)) - (3,924,267)
Written off Kwatrobox (Note 4(b)) - (3,386,785)
---------------- ----------------
$ - $ -
================ ===============
F-12
- --------------------------------------------------------------------------------
AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
12. BANK INDEBTEDNESS
The Company's subsidiary, ATS, has available a bank credit facility of
approximately $220,000 (247,000 EUR) which can be used for operating
purposes. This credit facility bears interest at the bank's base rate plus
1.25% and is secured by a pledge of approximately $90,000 over certain
assets of ATS.
The Company has executed a postponement agreement in favour of the bank.
Under the agreement the Company may not cause the ATS subsidiary to pay
dividends to the Company or otherwise make payments to other companies in
the group without the consent of the bank.
13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
March 31, December 31,
2002 2001
---- ----
Trade payables $ 1,010,146 $ 853,412
Accrued liabilities 119,290 263,000
Payroll 572,472 346,420
---------------- ---------------
$ 1,701,908 $ 1,462,832
================ ===============
14. DUE TO RELATED PARTIES
March 31, December 31,
2002 2001
---- ----
Due to former Kwatrobox shareholders 351,992 352,335
Less: Current portion (351,992) (352,335)
---------------- ---------------
$ - $ -
================ ===============
The amount due to former Kwatrobox shareholders relates to the acquisition
of Kwatrobox from these former shareholders and the balance is non-interest
bearing.
Included in the accounts payable is $58,965 (2001 - $59,000) due to a firm
in which a director is a partner.
Included in accounts payable is $20,697 (2001 - $33,494) due to a company
controlled by directors of a subsidiary.
F-13
- --------------------------------------------------------------------------------
AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
15. RELATED PARTY TRANSACTIONS
The Company incurred the following amounts to related parties during the
period and year ended March 31, 2002 and December 31, 2001 respectively.
March 31, December 31,
2002 2001
---- ----
Management fees to companies controlled by former directors $ - $ 242,975
Professional fees paid to a firm in which a director is a partner - 59,000
Administration fees to a company with common directors 20,697 38,391
Consulting fees to a company controlled by a director - 61,150
Consulting fees paid to a company controlled by the directors
of a subsidiary - 148,690
Rent paid to SDL Invest N.V. (Belgium) - 87,140
16. LONG-TERM DEBT
March 31, December 31,
2002 2001
---- ----
Vehicle loans $ 271,446 $ 254,698
Less: Current portion 75,692 89,055
-------------- ---------------
Long-term debt $ 195,754 $ 165,643
============== ===============
The vehicle loans have interest rates ranging from 3.67% to 8.82%, and
maturity dates ranging from June 2002 through May 2006, and are secured by
the related vehicles.
The debt repayments over the next five years are as follows:
2002 $ 75,692
2003 92,102
2004 59,454
2005 35,159
2006 9,039
----------------
$ 271,446
================
The weighted average interest rate on borrowings is approximately 6.5%.
17. INCOME TAXES
The Company has adopted the provisions of Financial Accounting Standards
Board Statement No. 109 (SFAS 109), Accounting for Income Taxes.
Pursuant to SFAS 109, the Company is required to compute tax asset benefits
for net operating losses carried forward. The potential tax benefit of net
operating losses has not been recognized in the financial statements
because the Company cannot be assured that it is more likely than not that
it will utilize the net operating losses carried forward in future years.
F-14
- --------------------------------------------------------------------------------
AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
17. INCOME TAXES (continued)
The Company has U.S. and European tax losses of approximately $18,000,000
to offset future years taxable income. These losses expire between fiscal
2014 and fiscal 2016.
The components of the net deferred tax asset, the statutory tax rate, the
effective tax rate and the elected amount of the valuation allowance are
outlined below:
Period ended Year ended
March 31, December 31,
2002 2001
---- ----
Net combined U.S. and European operating losses $ 18,300,000 $ 18,000,000
Statutory combined U.S. and European tax rate 35% 35%
Effective tax rate - -
Deferred tax asset 6,405,000 6,300,000
Valuation allowance (6,405,000) (6,300,000)
---------------- ---------------
Net deferred tax asset $ - $ -
================ ===============
18. COMMON STOCK
Par Additional
Number Value Paid In Total
of Shares ($.001) Capital Value
--------- ------- ------- -----
Balance, December 31, 2000 62,714,551 62,715 18,735,673 18,798,388
Issued on exercise of options 58,500 58 527 585
-------------- ---------- ------------- --------------
Balance on December 31, 2001 and
March 31, 2002 62,773,051 $ 62,773 $ 18,736,200 $ 18,798,973
============== ========== ============= ==============
Options for Weighted
shares of average
common exercise price
stock per share
----- ---------
Balance December 31, 2000 8,213,000 0.34
------------- --------------
Exercised (58,500) .01
Cancelled (5,100,000) .35
------------- --------------
Balance December 31, 2001 and March 31, 2002 3,054,500 .34
============= ==============
The following table summarizes information about the Company's share
options outstanding as at December 31, 2001 and March 31, 2002.
Weighted average
Remaining
Exercise price Number outstanding contractual life Number exercisable
- -------------- ------------------ -------------------- --------------------
$0.01 96,500 2.0 96,500
$0.35 2,958,000 9.0 2,958,000
F-15
- --------------------------------------------------------------------------------
AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
18. COMMON STOCK
The following reflects pro-forma net income and loss per share as if the
Company had elected to adopt the fair value approach of Statement of
Financial Accounting Standard (SFAS) 123:
March 31,
2002
Loss
As reported $ 292,511
Pro-forma 380,000
Basic and diluted loss per share
As reported .005
Pro forma .006
The estimated fair value of each option granted was calculated using the
Black-Scholes option-pricing model.
19. CHANGE IN NON-CASH WORKING CAPITAL
March 31, December 31,
2002 2001
---- ----
Accounts receivable $ (123,653) $ 370,523
Inventory (73,331) 204,227
Prepaid expenses 11,309 8,291
Accounts payable and accrued liabilities 239,076 (849,475)
Deferred items 45,968 (600,746)
------------- ------------
$ 99,369 $ (867,180)
============= ============
20. SEGMENTED INFORMATION
The Company operates in one operating segment, this being the installation
of auction clocks and cooling systems.
GEOGRAPHIC INFORMATION
March 31, March 31,
2002 2001
---- ----
Revenue
Canada $ - $ 76,571
Belgium 1,308,512 882,119
Netherlands - 1,007,485
------------- -------------
$ 1,308,512 $ 1,966,175
============= =============
March 31, December 31,
2002 2001
---- ----
Identifiable long lived assets
Canada $ 190,653 $ 278,892
Belgium 767,771 877,343
Netherlands - -
------------- -------------
$ 958,424 $ 1,156,235
============= =============
F-16
- --------------------------------------------------------------------------------
AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
21. LOSS PER COMMON SHARE
The weighted average number of shares of common stock used for calculating
the basic loss per share is 62,738,926 (2001 - 62,714,551). Fully diluted
loss per share is the same as the basic loss per share for the periods
ended March 31, 2002 and 2001. 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 3,054,500 outstanding stock options are not included in the computation
of earnings per share as they are anti-dilutive for the periods presented.
22. COMMITMENTS
The Company has future minimum lease payments under operating leases
relating to premises at March 31, 2002 as follows:
2002 $ 66,750
2003 89,000
2004 89,000
2005 89,000
2006 89,000
----------------
$ 422,750
In addition, the Company has an outstanding commitment to sell its
remaining 40% investment in SDL Invest N.V. to a director of ATS under the
terms of an option held by the ATS director.
23. CONTINGENCIES
(a) Claims totalling approximately $800,000 have been made against ATS,
the Company's main Belgian subsidiary, by a competitor, Agro Marches
Internationalaux S.A. No amounts have been recorded in these financial
statements to provide for any possible settlement of these claims as
management is unable to determine whether they have merit.
(b) Certain customers of a subsidiary have filed claims totalling $70,000
against the subsidiary company. At present, there is insufficient
information available to ascertain the likelihood of these claims
being successful. Accordingly, no recognition of this contingent loss
has been made.
(c) A former employee of I-Three Inc. has received a judgement from a
Texas court against the Company for approximately $25,000. No
provision has been made in these financial statements for this
judgement as management believes this court has no jurisdiction over
the matter.
(d) The former owners of the Company's subsidiary, ATS (formerly
Schelfhout Computer Systemen N.V.), sought to enforce the mandatory
redemption feature related to the first two tranchees of shares
totalling 909,090 be released under the terms of the purchase
agreement described in Note 4(a) on the basis that these shares were
not free trading at the time of release as contemplated in the
agreement. The former owners of the Company's subsidiary, who are also
directors of the subsidiary, brought an action against the Company to
enforce a pledge on the shares of ATS, which was provided to secure
the obligations of the Company under the agreement. This action was
heard by a Belgian court which granted a remedy to the former owners
of the subsidiary which allowed them to re-acquire a 7 1/2% interest
in the subsidiary from the Company in exchange for the transfer for
cancellation of the first tranche of 454,545 shares of the Company in
full satisfaction of the Company's obligations in relation to such
shares under the agreement. No further action has been taken with
respect to the second tranche of 454,545 shares released on January
10, 2001.
F-17
- --------------------------------------------------------------------------------
AUCXIS CORP.
(formerly e-Auction Global Trading Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(in U.S. dollars)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 2002 AND YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------
24. SUBSEQUENT EVENTS
(a) Subsequent to December 31, 2001, the Company announced that it had
entered into negotiations with a competitor, Agra Marches
Internationalaux S.A. to explore a possible merger of the two
companies and enter into an non-binding Letter of Intent with Agra
Marches Internationalaux S.A. in this regard.
There is no certainty that any progress made to date with respect to
such merger will ultimately lead to a merger of the two companies as
details have not been finalized.
(b) On April 16, 2002, Mr. Schelfhout and Mrs. De Laet filed a request for
arbitration against Aucxis Corp. N.V. and the Company.
The plaintiffs allege that the Company and Aucxis Corp. N.V.
deliberately committed a number misrepresentations both prior to and
subsequent to the closing the ATS share purchase agreement. They have
alleged damages of up to USD 1,190,309 for which they seek to be
compensated by Aucxis Corp. N.V. and the Company.
These proceedings are presently in their initial stages and are not
expected to be resolved for at least one year.
On March 29, 2002 Mr. Schelfhout and Mrs. De Laet brought an ex parte
application before the President of the Commercial Court of
Dendermonde (Belgium), which granted them authorization to apply a
restraint order to a portion of the ATS shares held by Aucxis Corp.
N.V.
The restraint order was effectively applied on that same date with a
view to securing damages that may be due in respect of the arbitration
proceedings.
On April 29, 2002 Aucxis Corp. N.V. appealed the authorization and
restraint order before the Court and a decision is expected by July
2002.
The Company also brought an action against Mr. Schelfhout and Mrs. De
Laet relating to irregularities in discharging their obligations as
directors of ATS.
On April 30, 2002, Mr. Schelfhout resigned as the managing director of
ATS and ceased to perform the duties required of him under his
management contract.
All of these proceedings are currently in their initial stages and
decisions are not expected before the end of the year. Management
believes that the claims brought against the Company are without merit
and does not expect that any impact resulting from them will have a
material effect on the Company.
25. NEW ACCOUNTING STANDARDS
The Company will be required to adopt SFAS 133, Accounting for Derivative
Instruments and Hedging Activities for the 2002 fiscal year. At present,
the company does not use derivative financial instruments and does not
enter into hedging transactions. Therefore, the impact of adopting SFAS 133
on financial reporting will not be material.
The Company will also be required to adopt SFAS 142 Goodwill and Other
Intangible Assets for its 2002 fiscal year. Based on the Company's existing
intangible assets and its current accounting policy for such items, the
impact of adopting SFAS 142 is not expected to result in a significant
impact on the Company.
F-18
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
Cautionary Statement for purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995: When used herein, the words "may",
"will", "expect", "anticipate", "continue", "estimate", "project", "intend",
"plan" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
regarding events, conditions and financial trends that may affect the Company's
future plans of operations, business strategy, operating results and financial
position. 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. These
factors include, among others, the Company's ability to implement successfully
its business plan and integrate any proposed and future acquisition and business
arrangements, potential fluctuations in its financial results; procuring
additional funding; any uncertainties relating to business and economic
conditions in markets in which the Company operates; any uncertainties relating
to customer plans and commitments; the timely development and market acceptance
of the Company's technologies; possible product defects and product liability,
dependence on intellectual property rights, the competitive environment in which
the Company operates and other risks detailed from time to time in the Company's
public filings. 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 and 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.(Schelfhout)), a Belgium company. ATS has a 40% ownership interest
in SDL Invest N.V. and a 33.3% interest in ATS Holland B.V. Aucxis also has a
48.2% investment in Aucxis Limited. (Australia) (formerly Hunter Capital
Limited), that was written off in the prior year. Previously, Aucxis Limited was
accounted for by the equity method.
2
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"). Leading up to September 2001, management at ABS was unable to
generate positive cash flow and continued to seek financial support from Aucxis
Corp. Previous management had funded this subsidiary in an effort to support
management efforts in excess of USD$2,000,000. After reviewing the subsidiaries,
the new board of directors determined that ABS management had not shown an
ability to generate profit and that it would not be in the interest of Aucxis
Corp's shareholders to continue funding 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 Kwatrobox and its aforementioned bankrupt subsidiaries
in October 2001. Due to the loss of control Aucxis Corp. has written off the
assets and liabilities in its consolidated financial statements for the year
ended December 31, 2001.
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 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.
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. The development of e-business services for perishable commodity
marketplaces has been temporarily suspended pending further review of the
business opportunities in this area. Aucxis continues to maintain a "staging
environment" for testing and further research and development.
Highlights of the Quarter
Revenue for the three months ended March 31, 2002 was $1,308,512 as compared to
$1,966,17 in the same period in 2001. Gross margin improved by 5% to 55% for the
three months ended March 31, 2002 as compared to 50% in the same period last
year.
Both the decrease in the revenue and the improvement in gross profit were a
direct result of managements' decision to discontinue its financial support for
the loss making Palm Automatisering (Aucxis Business Solutions "ABS") and Nieaf
companies. ABS had continued to consume shareholder funds within a business that
no longer forms part of Aucxis' refocused business strategy. Aucxis was unable
to extract Nieaf from the Kwatrobox failure in spite of the fact that it did fit
with the overall strategy. The assets of Nieaf were purchased from the receiver
in partnership with the two largest flower auctions in the Netherlands. This is
now operating as ATS Holland B.V.
Revenue for the quarter ended March 31, 2002 was driven entirely by continued
growth in the installation of auction clock systems through ATS. ATS continues
to derive
3
its revenues from the development and installation of clock systems, cooling
installations and associated maintenance contracts for auction halls.
Selling, general and administrative expense for the three months ended March 31,
2002 was $788,605 as compared to $2,423,923 for the corresponding three-month
period in 2001. This decrease of almost 70% is directly attributed to the
Company's cost management initiatives including the elimination of the expenses
of Palm and Nieaf from the consolidated financial statements due to their
bankruptcy last year. As I-Three is essentially inactive, virtually no expenses
were incurred in this subsidiary. There has been no change in the number of
employees as at March 31, 2002 in Belgium. The remaining two full-time employees
in Toronto completed their notice periods in the quarter leaving the head office
staff to consist of two contract executives and one contract advisor to the
Company. As part of the Company's cost management initiatives all accounting and
administration functions are provided on an "as needed" basis by a company
controlled by the CFO, thus eliminating the need for permanent staff.
Depreciation and amortization expense for the three months ended March 31, 2002
was down almost 90% from the same three-month period last year. This decrease is
the result of write-offs in the prior year of goodwill, acquired workforce and
acquired core technology. All goodwill, acquired workforce and acquired core
technology was written off for I-three. Goodwill related to the Kwatrobox
acquisition was written off as a result of 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. In addition,
the net carrying value of goodwill related to the acquisition of ATS was written
down as the Company no longer considered the carrying amount of this goodwill to
represent the amount by which the fair value of ATS exceeds the fair value of
the its net identifiable assets. During this quarter the only remaining items
subject to depreciation were the ATS acquired core technology and the capital
assets of the Company.
Research and development costs were $0 for the three months ended March 31, 2002
as compared to $415,265 for the three months ended March 31, 2001, as a result
in part to the temporary suspension of development of the Collateral Management
Utility and elimination of the operations of Kwatrobox and some of its
subsidiaries due to their bankruptcy last year.
The loss for the three months ended March 31, 2002 was $292,511 as compared to
$2,436,170 for the three months ended March 31, 2001. This significant
improvement is attributed to the Company's ongoing cost management initiatives.
Management is continuing its revenue enhancing 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 ATS, a wholly
owned subsidiary, is justified by the continuing capture of new business and the
further consolidation of ATS' leadership as the premier supplier of electronic
trading systems to perishable agriculture and fish trading world-wide. During
the three months ended March 31, 2002 ATS has been successful in securing
significant trading system and maintenance contracts.
Liquidity and Capital Resources
As at March 31, 2002, the Company had a cash balance of $329,324 for a net
increase of $19,000 from the cash balance on December 31, 2001. This increase is
mainly due to additional borrowing offset by the purchase of additional
equipment (approximately $1,400) and $2,000 utilized in operations.
4
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 that include, amongst others, increased
growth within ATS and the success of future external financing initiatives.
Management is examining a variety of options to raise additional financing,
including but not limited to, consideration of merging operations with another
company. In June of 2002, the Company was successful in raising $375,000 in the
form of a convertible loan for working capital to be utilized at the head office
level and at the level of its Belgian subsidiaries Aucxis NV and ATS, if need
be. Aucxis is continuing its revenue enhancement and cost management
initiatives, including working with creditors regarding outstanding payables and
decreasing operating costs. It is not possible at this time to predict with any
assurance the success of any other initiatives; however, management is working
diligently towards the goal of self-sustainability.
5
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Mr. Schelfhout and Mrs. De Laet, the former owners of the Company's subsidiary,
ATS (formerly Schelfhout Computer Systemen N.V.), sought to enforce the
mandatory redemption feature related to the first share payment totalling
454,545 of the Company's shares, which had been released under the terms of the
purchase agreement between the Company and ATX described in Note 4(a) to the
Notes to Financial Statements, on the basis that these shares were not free
trading at the time of release as contemplated in the purchase agreement. The
former owners of ATS, at the time both directors of the Company's subsidiary,
brought an action against the Company to enforce a pledge on the shares of ATS,
which was provided to secure the obligations of the Company under the purchase
agreement. This action was heard by a Belgian court which granted a remedy to
the former owners of the subsidiary which allowed them to re-acquire a 7 1/2%
interest in the subsidiary from the Company in exchange for the transfer for
cancellation of the first payment of 454,545 shares of the Company in full
satisfaction of the Company's obligations in relation to such shares under the
agreement. No further action has been taken with respect to the second payment
of 454,545 shares released on January 10, 2001.
On March 29, 2002 Mr. Schelfhout and Mrs. De Laet brought an ex parte
application before Court of Dendermonde (Belgium), which granted them
authorization to apply a restraint order to a portion of the ATS shares held by
Aucxis NV (Belgium). The restraint order was effectively applied on that same
date with a view to securing the alleged damages that may be due in respect of
the arbitration proceedings. On April 29, 2002 Aucxis NV (Belgium) appealed the
said authorization and restraint order, which it also believes to be without
merit, before the Court of Dendermonde (Belgium), in which proceedings a
decision is expected by the end of September 2002.
On April 16, 2002, Mr. Schelfhout and Mrs. De Laet filed a request for
arbitration against Aucxis NV (Belgium) and the Company. The plaintiffs allege
that the Company and Aucxis NV (Belgium) deliberately committed a number of
misrepresentations both prior to and subsequent to the closing of the ATS share
purchase agreement. They have alleged damages of up to USD 1,190,309 for which
they seek to be compensated by Aucxis NV (Belgium) and the Company. These
proceedings are presently in their initial stages and are not expected to be
resolved before the end of the fiscal year. Management believes that the claim
brought against Aucxis NV (Belgium) and itself is without merit and intends to
vigorously defend both itself and Aucxis NV (Belgium).
On March 26, 2002, Mr. Schelfhout resigned as the managing director of ATS, as a
consequence of which ATS brought a civil law action before the Commercial Court
of Dendermonde (Belgium) on May 17, 2002, aiming at establishing that such
resignation has caused the management contract under which Mr Schelfhout
performed his management duties to be terminated, entitling ATS to cease all
payments of management fees and to demand damages.
On May 14, 2002 Aucxis NV (Belgium) brought an action against Mr. Schelfhout and
Mrs. De Laet before the Court of Dendermonde (Belgium) relating to certain
irregularities in the deletion of a non-compete clause from ATS' articles of
association.
The two latter proceedings are both currently in their initial stages and
decisions are not expected before the end of the fiscal year.
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In June 2002, the Company received notice that Parody Group Ltd. and Seabreeze
Services Ltd. (the "plaintiffs") commenced an action in the Supreme Court of
British Columbia naming Aucxis Corp., and five other defendants, including
Aucxis Corp. (Canada) the Company's non-operating subsidiary, relating to a loan
by the plaintiffs in the amount of $700,000. The plaintiffs are claiming that
the loan was not properly repaid to them. Management believes that the claim
brought against the Company and its Ontario subsidiary is without merit and
intends to vigorously defend both itself and Aucxis Corp (Canada).
Management does not expect that any impact resulting from the above mentioned
proceedings will have a material effect on the Company.
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
At an extraordinary general meeting of the shareholders of ATS held on March 27,
2002, the Board of Directors of ATS was restructured, appointing as directors
Mr. Lewis Reinders, a director of Aucxis Corp., and Mr. Neil Murphy, Chief
Operating Officer of Aucxis Corp. Mrs. Hilde De Laet was removed as a director
of ATS. On March 26, 2002, Mr. Schelfhout tendered his resignation as Managing
Director of ATS to the Board of ATS. The new Board of Directors of ATS held its
first board meeting on April 30, 2002, at which time the board accepted Mr.
Schelfhout's resignation. ATS held an extraordinary general meeting of
shareholders on June 14, 2002 at which time Mr. Schelfhout was removed as a
director of ATS and two new directors were appointed, Mr Geert Vonck and Mr.
Nicholas Saphir. Mr. Murphy will act as Chairman of the Board and Interim
Day-to-Day Manager of ATS supported by Mr. Geert Vonck, who is the current
Assistant Managing Director of ATS and Mr. Patrick Catthoor, Manager, Technical
Department.
In June 2002, the Company obtained $375,000 in new funding by the completion of
a convertible loan transaction with three lenders. The convertible loan
essentially provides a bridge facility for working capital purposes, both at the
head office level and at the level of the Belgian subsidiaries Aucxis NV and
ATS. The convertible loan bears interest at a rate of 12.5% per annum. Both
principal and interest are due to be repaid in a lump sum on December 31, 2002.
The principal and interest outstanding are convertible into common shares of the
Company at a conversion rate of $0.01 per share at the option of the lenders
anytime prior to repayment. The Company may repay the convertible loan at
anytime without penalty subject to the right of the lenders to convert the loan
into common shares prior to repayment. Initially all of the loan proceeds were
placed in escrow with an escrow agent, subject to being drawn down by the
Company when funds are required. Funds not drawn down are subject to interest
payment but are not entitled to be converted into shares. As security for the
repayment of the convertible loan, Aucxis NV (Belgium) has pledged its interest
in the shares of ATS to the three lenders on a without prejudice basis regarding
the rights which Mr Schelfhout and Mrs De Laet could derive from the pledge
granted to them on execution of the ATS purchase agreement and from the
restraint orders applied by them to the ATS shares held by Aucxis NV (Belgium)
on July 17, 2001 and March 29, 2002. Aucxis is pursuing additional funding and
until such funding is received, there is no certainty that the Company will be
able to fulfill its obligation under the convertible loan.
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Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits.
Exhibit # Exhibit name
10.1 Form of Convertible Bridge Loan Agreement dated April 16,
2002 among Aucxis Corp., as borrower, and ABN AMRO
Capital (Belgium) NV, Bodin Saphir Pension Scheme, Magnum
Technology Ltd., J.J. Mennillo, as lenders, and Aucxis
NV, as Pledgor.
10.2 Form of Pledge Agreement dated April 2, 2002 among Aucxis
NV, as Pledgor, and ABN AMRO Capital (Belgium) NV, Bodin
Saphir Pension Scheme, Magnum Technology Ltd., J.J.
Mennillo, as pledgees.
10.3 Form of Escrow Agreement dated April 2, 2002 among Aucxis
Corp., ABN AMRO Capital (Belgium) NV, Bodin Saphir
Pension Scheme, Magnum Technology Ltd., J.J. Mennillo and
Blake, Cassels & Graydon LLP, as escrow agent.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended March 31, 2002.
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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: June 28, 2002 Aucxis Corp.
(Registrant)
By: /s/ Dennis E. Petke
-------------------
Dennis E. Petke,
Chief Financial Officer
(duly authorized officer)
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