AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 28, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
E-AUCTION GLOBAL TRADING INC.
(Exact name of registrant as specified in its charter)
Nevada 7389 (Services- Business Services) n/a
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
181 BAY STREET
BCE PLACE, SUITE 3730
TORONTO, ONTARIO
CANADA M5J 2T3
(613) 214-1587
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
DAVID HACKETT
181 BAY STREET
BCE PLACE, SUITE 3730
TORONTO, ONTARIO
CANADA M5J 2T3
(613) 214-1587
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
- ------------------------------------ --------------- -------------------------- ------------------------ -------------------------
Title of Each Class of Securities Amount to be Aggregate Offering Amount of Registration
to be registered Registered Offering Price Per Unit Price Fee
- ------------------------------------ --------------- -------------------------- ------------------------ -------------------------
Common Stock, par value $0.001 per 55,719,030
share shares $3.625 (1) $201,981,483.70 $53,323.11
- ------------------------------------ --------------- -------------------------- ------------------------ -------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the high and low sales price of the
Common shares on February 18, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS (SUBJECT TO COMPLETION)
DATED FEBRUARY 28, 2000
e-AUCTION GLOBAL TRADING INC.
55,719,030 COMMON SHARES
This prospectus relates to the sale of up to 55,719,030 shares (the
"Shares') of common stock, $0.01 par value per share (the "Common Shares") of
e-Auction Global Trading Inc. (the "Company" or "e-Auction"). The Shares may
be offered by certain stockholders of the Company (the "Selling
Stockholders") or by their pledgees, donees, distributees or other
successors-in-interest, from time to time in transactions (which may include
block transactions) on the quotation system operated by the National
Quotation Bureau, LLC, known as the Pink Sheets, or on one or more other
securities markets and exchanges, in privately negotiated transactions, or
otherwise, at fixed prices that may be changed, at market prices prevailing
at the time of sale, at prices relating to such prevailing market prices or
at negotiated prices. The Selling Stockholders may effect such transactions
by selling the Shares directly to or through broker-dealers, and such
broker-dealers may receive compensation in the form of discounts, concessions
or commissions from the Selling Stockholders and/or the purchasers of the
Shares for whom such broker-dealers may act as agents or to whom they may
sell as principals, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). See "Selling
Stockholders" and "Plan of Distribution."
The Company issued the Shares to the Selling Shareholders as a
result of certain private placements as follows: (i) on February 26, 1999 in
connection with the acquisition by the Company of e-Auction Global Trading
Inc. (Barbados) (the "RTO Transaction"); (ii) on August 13, 1999 as
consideration for the payment of a fee and interest to Millenium Advisors
Inc. ("Loan Transaction") in connection with a $1 million loan to the
Company; (iii) on January 10, 2000 in connection with the acquisition by the
Company, through a wholly-owned subsidiary, of all of the shares of
Schelfhout Computer Systemen N.V. ("Schelfhout") (the "SCS Transaction"); and
(iv) on January 7, 2000 in connection with the issuance of common shares of
the Company on the exercise of 16,885,447 special warrants previously issued
by the Company (the "Special Warrant Transaction"). (Collectively, the RTO
Transaction, The Loan Transaction, the SCS Transaction and the Special
Warrant Transaction shall be referred to as the "Transactions".) The Shares
issued in connection with the Transactions constitute the Shares being
registered hereunder. In connection with any sales, the Selling Shareholders
and any brokers participating in such sales may be deemed to be
"underwriters" within the meaning of the SECURITIES ACT OF 1933, as amended
(the "1933 Act"). See "Selling Shareholders").
None of the proceeds from the sale of the Shares by the Selling
Stockholders will be received by the Company. The Company has agreed to bear
all expenses (other than broker's commissions and similar charges) in
connection with the registration and sale of the Shares being offered by the
Selling Stockholders that initially were issued as a result of the
Transactions. The Company has agreed to indemnify the Selling Stockholders
and any broker-dealers who act in connection with the sale of the Shares
hereunder that initially were issued as a result of the Transactions against
certain liabilities, including liabilities under the 1933 Act.
The Company's outstanding Common Shares are quoted on the quotation
system operated by the National Quotation Bureau, LLC, known as the Pink
Sheets under the symbol "EAUC". Prior to January 19, 2000, the Company's
outstanding Common Shares were quoted on the OTCBB under the symbol "EAUC".
On February 25, 2000, the closing price for the Common Shares as reported on
the Pink Sheets was $3.94 per share.
FOR INFORMATION CONCERNING CERTAIN RISK FACTORS WHICH SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE ___.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is February 28, 2000.
All other trademarks or service marks appearing in this Prospectus are
trademarks or service marks of the respective companies that utilize them.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THE COMMON SHARES
OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
THE COMPANY
e-Auction was originally organized by the filing of articles of
incorporation (the "Articles of Incorporation") with the Secretary of State of
the State of Nevada on January 8, 1998 under the name "Kazari International,
Inc." ("Kazari"). The Articles of Incorporation of Kazari authorized the
issuance of forty million (40,000,000) shares of common stock at a par value of
$0.001 per share.
On February 26, 1999, Kazari, e-Auction Global Trading Inc. (Barbados)
("e-Auction (Barbados)") and QFG Holdings Limited ("QFG") entered into a share
exchange agreement (the "Share Exchange Agreement"). At the time of the Share
Exchange Agreement, QFG was the owner of thirty four million five hundred
thousand (34,500,000) common shares in the capital of e-Auction (Barbados) (the
"e-Auction (Barbados) Shares"), which e-Auction (Barbados) Shares represented
all of the issued and outstanding common shares in the capital of e-Auction
(Barbados). Pursuant to the terms of the Share Exchange Agreement, Kazari
purchased the e-Auction (Barbados) Shares in exchange for thirty four million
five hundred thousand (34,500,000) common shares in the capital of Kazari being
issued from treasury to the shareholders of e-Auction (Barbados) 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 articles of incorporation by
filing a Certificate of Amendment of Articles of Incorporation (the
"Certificate") with the Secretary of the State of Nevada, which Certificate
amended Kazari's name to "e-Auction Global Trading Inc." and increased the
number of authorized shares of common stock from forty million (40,000,000)
shares of common stock, par value $0.001 to two hundred and fifty million
(250,000,000) shares of common stock, par value $0.001.
e-Auction currently has a wholly owned subsidiary, e-Auction
(Barbados), which in turn has one wholly owned subsidiary, e-Auction Global
Trading Inc. (Canada). The Company has a 50.01% ownership interest in
e-Auction Austrailasia Pay Limited, an Austrailian Company. The Company also
owns e-Auction Belgium N.V., directly, which in has one wholly owned
subsidiary, Schelfhout Computer Systemen N.V. ("Schelfhout"), a Belgium
company. See "Business - Acquisition of Schelfhout".
SUMMARY CONSOLIDATED FINANCIAL DATA
PERIOD FROM
JANUARY 8, 1998 TO YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1999
-----------------------------------------
Audited Unaudited
Consolidated Statement of Operations Data:
Total Revenues $0 $685
Income - (Loss) from Operations $(291,569) $(1,537,432)
Income - (Loss) $(291,569) $(1,537,432)
Pro forma basic and diluted net income per share $(0.068) $(0.045)
Shares used in computing pro forma basic and
diluted net income per share 4,266,704 34,432,329
DECEMBER 31, 1999
ACTUAL
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents $100,181
Long-term debt, less current portion $0
Total shareholders' equity $(50,319)
- ----------------------
(1) Based on the number of shares outstanding as of December 31, 1999.
Excludes 4,300,000 shares issuable upon exercise of outstanding stock
options as of December 31, 1999 granted under the Company's Stock Option
Plan. See "Management -- Stock Option Plan."
RISK FACTORS
IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN EVALUATING
INVESTMENT IN THE COMPANY AND BEFORE PURCHASING ANY COMMON SHARES OFFERED
HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS "WILL", "ANTICIPATE",
"BELIEVE", " ESTIMATE", "EXPECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS,
PERFORMANCE OR ACHIEVEMENT MAY DIFFER MATERIALLY FROM THE RESULTS, PERFORMANCE
OR ACHIEVEMENT DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY
CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW
IN "RISK FACTORS", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND "BUSINESS" AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, A REFERENCE TO e-AUCTION OR THE
COMPANY INCLUDES e-AUCTION AND ALL OF ITS SUBSIDIARIES INCLUDING SCHELFHOUT.
e-AUCTION SHOULD BE CONSIDERED SPECULATIVE DUE TO THE NATURE OF THE BUSINESS IN
WHICH e-AUCTION WILL BE ENGAGED, ITS EARLY STATE OF DEVELOPMENT AND THE DEGREE
OF RELIANCE e-AUCTION PLACES ON THE EXPERTISE OF MANAGEMENT. SPECIFICALLY, WITH
THE COMPLETION OF THE SCHELFHOUT ACQUISITION, e-AUCTION'S BUSINESS IS SUBJECT TO
NUMEROUS RISK FACTORS, INCLUDING BUT NOT LIMITED TO THE FOLLOWING:
e-AUCTION'S LIMITED OPERATING HISTORY AND EVOLVING BUSINESS MODEL
Although the completion of the acquisition of Schelfhout provides the
Company with more extensive operating knowledge, e-Auction has a limited
operating history under its current business model upon which it can be
evaluated. There can be no assurance that the Company will be successful in
addressing the risks inherent in its business model and the failure to do so
could have a material adverse effect on the Company's business, operating
results and financial condition.
DEPENDENCE ON EMERGING MARKET FOR APPLICATIONS
e-Auction's software products are based on programming languages, which
to date have been used primarily for specialized applications on the desktop.
The future success of e-Auction will depend, in large part, on the acceptance of
Internet based applications for wide spread commercial use in server based
environments.
DEPENDENCE ON MARKET ACCEPTANCE OF e-AUCTION PACKAGED APPLICATIONS
The vast majority of e-Auction's revenues will be derived from the
implementation of packaged applications around the perishable commodity auction
process. e-Auction's success will depend on the acceptance of financial services
and settlement services application software and services by the market, as well
as e-Auction's ability to enhance its products and services to meet the evolving
needs of customers on a timely basis. There can be no assurance of the market's
acceptance of e-Auction's solutions or e-Auction's ability to meet customers'
needs.
INTENSE COMPETITION
The e-commerce business to business market is highly competitive, is
rapidly changing, and is significantly affected by new product introductions and
geographical regional market growth. Barriers to entry into this market are
relatively low and e-Auction expects that competition will intensify in the
future. Specific factors upon which e-Auction competes include, but are not
limited to, functionality of its applications and services, technological
sophistication, ease of use, timing for implementation, quality of support and
services, price and breadth of experience. e-Auction believes that it will
compete favorably on all of these competitive factors. However, there remains
significant risk that competitive forces may effect e-Auction's ability to
compete and generate revenue. Some of the potential competitors to e-Auction in
the fish commodity space are: Fishmonger, Gofish, French Fish, Nieaff-Smidt and
OES. In the flower commodities space: WCOL, American Clock, Nieaff-Smidt and
OES. In the fruits and vegetables commodities space: WCOL, Nieaff-Smidt and OES.
RISKS ASSOCIATED WITH PAST AND FUTURE ACQUISITIONS
e-Auction intends to engage in selective acquisitions of perishable
commodity businesses in the future, which may include software vendors, auction
houses and information technology service companies. There are no assurances
that e-Auction will be able to identify suitable acquisition candidates
available for sale at reasonable prices, complete any acquisitions or
successfully integrate any acquired business, including Schelfhout when
completed, into e-Auction's operations.
RISKS ASSOCIATED WITH ADDITIONAL FINANCING
e-Auction intends to raise additional financing, which financing is
critical in furthering its business plan. There are no assurances that e-Auction
will be successful in capitalizing the company and therefore the business plan
may not be able to be executed as stated herein.
THE PROPOSED OPERATIONS OF e-AUCTION ARE SPECULATIVE
The success of e-Auction's proposed plan of operation depends to a
great extent on the operations, financial condition and management of Schelfhout
and other target companies. While business combinations with entities having
established operation histories are preferred, there are no assurances that
e-Auction will be successful in locating candidates meeting such criteria. In
the event that e-Auction completes business combinations, the success of the
e-Auction's operations will depend on the management of the target companies and
numerous other factors.
BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
A substantial portion of the net proceeds to be received by the Company
in connection with the offering is allocated to working capital and general
corporate purposes. Accordingly, management will have broad discretion with
respect to the expenditure of such proceeds. Purchasers of Common Shares offered
hereby will be entrusting their funds to the Company's management, upon whose
judgment they must depend, with limited information concerning the specific
working capital requirements and general corporate purposes to which the funds
will ultimately be applied. See "Use of Proceeds."
UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company's success depends, in part, upon the protection of its
proprietary rights in its products, technology and trade secrets. The Company
relies on a combination of patent, copyright, and trademark laws,
confidentiality procedures and licensing arrangements to protect its proprietary
rights. There can be no assurance, however, that the confidentiality and license
agreements on which the Company relies to protect its trade secrets and
proprietary technology will be adequate. Further, the laws of certain countries
in which the Company does business, do not protect the Company's proprietary
rights to the same extent as the laws of the United States. Legal protections of
the Company's proprietary rights may be ineffective in such countries. Policing
unauthorized use of the Company's products is difficult, and litigation to
defend and enforce the Company's intellectual property rights could result in
substantial costs and diversion of resources. Despite the Company's efforts to
safeguard and maintain its proprietary rights both in the United States and
abroad, there can be no assurance that the Company will be successful in doing
so, or that the steps taken by the Company in this regard will be adequate to
deter misappropriation or independent third party development of the Company's
technology or to prevent an unauthorized third party from copying or otherwise
obtaining and using the Company's products or technology. Any failure in the
protection of the Company's proprietary rights could have a material adverse
effect on the Company's business, financial condition and results of operations.
As the number of industry-specific packaged application and service
vendors in the industry increases and the functionality of these products
further overlaps, software development and services companies like the Company
may increasingly become subject to claims of infringement or misappropriation of
the intellectual property rights of others. There can be no assurance that third
parties will not assert infringement or misappropriation claims against the
Company in the future with respect to current or future products. Any claims or
litigation, with or without merit,
could be time-consuming, result in costly litigation, diversion of management's
attention and cause product shipment delays or require the Company to enter into
royalty or licensing arrangements. Such royalty or licensing arrangements, if
required, may not be available on terms acceptable to the Company, if at all,
which could have a material adverse effect on the Company's business, financial
condition and results of operations. Adverse determinations in such claims or
litigation could also have a material adverse effect on the Company's business,
financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE; RISKS OF DEVELOPMENT; DEPENDENCE ON NEW PRODUCTS AND
SERVICES
The Company currently has a substantial number of products and services
under development. There can be no assurance that the Company will not
experience difficulties that delay or prevent the successful development of
these new services. In most cases, substantial expenses will be incurred prior
to any payment by customers.
Rapid technological change, dynamic demands and frequent introductions
of new products and product enhancements characterize the market for the
Company's services. Customer requirements for services can change rapidly as a
result of innovations and changes within the computer hardware and software
industries and the customers' vertical markets, the introductions of new
products and technologies and the emergence, evolution or widespread adoption of
industry standards. The actual or anticipated introduction of new services can
render existing services obsolete or unmarketable or result in delays in the
purchase of such services.
The Company's future success will depend in large part on its ability
to improve its current services and to develop and market new services that
address these changing markets and market requirements on a timely basis. There
can be no assurance that the Company will be successful in developing and
marketing any new services, that the Company will not experience difficulties
that delay or prevent the successful development, introduction or marketing of
such services or that any new services will adequately address market
requirements and achieve market acceptance. If the Company is unable, for
technological or other reasons, to develop new services in a timely manner in
response to, among other things, changing market conditions or customer
requirements, the Company's business, operation results and financial condition
will be materially adversely affected. Although the Company has no current plans
to the contrary, there can be no assurance that the Company's future services
will be similar to, or bear any resemblance to, its current services.
USE OF PROCEEDS
The Company is not receiving any of the proceeds from the sale of the
Shares being registered hereunder.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its
capital stock. The Company currently intends to retain any future earnings of
its business, and therefore does not anticipate paying any cash dividends in the
foreseeable future.
CAPITALIZATION
The following table sets forth as of December 31, 1999 (i) the actual
capitalization of the Company; (ii) the capitalization of the Company giving pro
forma effect to the issuance of Common Shares on the acquisition of Schelfhout;
and (iii) the pro forma capitalization of the Company as adjusted to reflect the
issue of 16,885,447 common shares of the Company on the exercise of Special
Warrants issued in the Special Warrant Transaction
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1999 1999
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ACTUAL(i) WITH SCHELFHOUT (ii) WITH WARRANTS (iii)
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Stockholders' equity:
Common Shares, no par value, 250,000,000 authorized:
39,820,000 issued and outstanding, actual..... $39,820 $43,456 $60,394
Contributed Surplus.................................... $235,930 $6,232,292 $14,511,260
Retained earnings (Deficit)............................ $(1,829,001) $(1,829,001) $(1,829,001)
------------ ------------ ------------
Total shareholders' equity......................... $(1,553,251) $4,446,749 $12,742,653
------------ ------------ ------------
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(1) See Notes to Consolidated Financial Statements.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Prospectus. The
consolidated statement of operations data for the period from January 8, 1998 to
December 31, 1998 and the 12 month period ended December 31, 1999, and the
consolidated balance sheet data at December 31, 1998 and 1999 are derived from
the audited consolidated financial statements included elsewhere in this
Prospectus. Historical results are not necessarily indicative of results to be
expected in the future.
---------------------------------------------
PERIOD FROM
INCORPORATION ON YEAR ENDED
JANUARY 8, 1998 TO DECEMBER 31, 1999
DECEMBER 31, 1998
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue: $0 $685
Expense:
Salaries and Benefits $- $646,370
Legal $23,005 $87,345
Sales, General and Administration $218,564 $804,402
---------------------------------------------
Net Income (Loss) $(291,569) $(1,537,432)
---------------------------------------------
CONSOLIDATED BALANCE SHEET DATA: 1998 1999
Cash $100,181 $301,164
Deposit in Schelfhout $- $1,000,000
Total Assets $102,181 $1,371,911
Payables and Accruals $152,500 $1,725,162
Loan Payable $- $1,000,000
Shareholders' Equity $(50,319) $(1,553,251)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF e-AUCTION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," AND ELSEWHERE IN THIS PROSPECTUS.
SELECTED FINANCIAL INFORMATION
The Company's consolidated financial statements are prepared in
accordance with Canadian generally accepted accounting principles. The following
table sets forth selected financial information of the Company extracted from
the Company's unaudited and audited consolidated financial statements.
STATEMENT OF OPERATIONS DATA:
- --------------------------------------------------------------------------------------------------
1999 (1) 1998 (2)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Salaries and Benefits $646,370 $-
- --------------------------------------------------------------------------------------------------
Legal $87,345 $23,005
- --------------------------------------------------------------------------------------------------
Sales, General and Administration $804,402 $218,564
- --------------------------------------------------------------------------------------------------
Loss $(1,537,432) $(291,569)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Loss per Common Share $(0.045) $(0.068)
- --------------------------------------------------------------------------------------------------
Weighted Average Common Shares Outstanding 34,432,329 4,266,704
- --------------------------------------------------------------------------------------------------
Accumulated deficit $(1,829,001) $(50,319)
- --------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
- --------------------------------------------------------------------------------------------------
As at December 31
- --------------------------------------------------------------------------------------------------
1999 (1) 1998 (2)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Cash $301,164 $100,181
- --------------------------------------------------------------------------------------------------
Deposit in Schelfhout $1,000,000 $-
- --------------------------------------------------------------------------------------------------
Total Assets $1,371,911 $102,181
- --------------------------------------------------------------------------------------------------
Payables and Accruals $1,725,162 $152,500
- --------------------------------------------------------------------------------------------------
Loan Payable $1,000,000 $-
- --------------------------------------------------------------------------------------------------
Shareholders' Equity $(1,553,251) $(50,319)
- --------------------------------------------------------------------------------------------------
(1) This information was extracted from the Company's unaudited financial
statements contained in this prospectus.
(2) This information was extracted from the Company's audited financial
statements contained in this prospectus.
LIQUIDITY AND CAPITAL RESOURCES
Changes in non-cash operating accounts at December 31, 1999 was $1,061,869
compared to $2,500 for the previous period from January 8, 1998 to December 31,
1998. The increase in non-cash operating accounts was due to an increase in
payables of $861,869. The company also increased its amount due to Ventures
North Investment Partners by $860,793. Prior to the completion of the January
fund raising, Ventures North Investment Partners has been funding the day to day
operations of the Company. The amounts are payable on demand and bear interest
at 0% per annum. At year end the Company held cash of $301,164. Subsequent to
year end the Company raised an additional $2.5 million, net of expenses, through
a special warrant financing and $2.2 million convertible debenture financing,
the proceeds of which are being used to complete the Schelfhout acquisition and
to fund ongoing operations. See "Business - Completion of Debenture Offering".
RESULTS OF OPERATIONS
Nineteen ninety nine was a year of business development for e-Auction. The
company spent considerable time and effort in defining its market space and in
acquiring Schelfhout Computer Systemen N.V. (which closed on January 7, 2000).
During the year the company spent $1,537,432 in operating expenses (compared to
$241,569 for the period of January 8, 1998 (date of incorporation) to December
31, 1999). The majority of these costs were in relation to business development
efforts.
On February 26, 1999 Kazari International, Inc. was involved in a Share
Exchange Agreement with e-Auction Global Trading Inc. (Barbados) and Kazari
International, Inc. subsequently changed its name to e-Auction Global Trading
Inc. The financial effect of the purchase of e-Auction Global Trading Inc. is
accounted for as a reverse takeover, as the shareholders of e-Auction Global
Trading Inc. (Barbados) now control e-Auction Global Trading Inc.
- - RESEARCH AND DEVELOPMENT
On February 1, 1999, e-Auction (Barbados) acquired the internet auctioning
software, technology and other intellectual property assets of Generated
Solutions Ltd. ("GSL"). GSL had been providing its propriety internet auctioning
technology to a number of auction houses conducting electronic auctions. On
February 1, 1999, e-Auction (Barbados) acquired the intellectual property assets
of National Electronic Marketing Inc. ("NEMI"). NEMI assets included the
exclusive rights to market GSL's internet auctioning software outside of North
America and non-exclusive North American rights. Upon the completion of the
Share Exchange Agreement, e-Auction acquired the rights to market and exploit
the GSL and NEMI technologies.
- - SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative increased from $218,564 in 1998 to
$804,402 in 1999. The 1999 SG&A is consistent with the Company's business
development growth. In June, with the continued growth the Company hired David
Hackett as the Chief Financial Officer. Mr. Hackett is responsible for the
Finance and Administration department as well as the day to day operations of
the Company. In January 2000, with the completion of the Schelfhout acquisition,
the Company hired Daniel McKenzie as the Chief Executive Officer and the
Chairman of the Board.
- - RISKS AND UNCERTAINTIES
e-Auction's business plan is largely dependent upon the perishable
commodity auction marketplace and the business to business electronic commerce
marketplace. This marketplace has been experiencing a dramatic increase in size
over the past few years. The Company believes in the strengths of its
capabilities, and in its ability to adapt to changes in this marketplace
environment. However there is no assurance that the perishable commodity auction
marketplace and the business to business electronic commerce marketplace will
continue to exist or that the skills of the Company will not become obsolete, or
be circumvented. Due to the significant and rapid technological changes in the
perishable commodity auction marketplace and the business to business electronic
commerce there can be no assurance that the introduction of new products or the
development of technologies by other entities will not render the Companies
products and services obsolete or unmarketable.
- - OUTLOOK
e-Auction will continue to focus on delivering to the perishable commodity
auction marketplace and the business to business electronic commerce
marketplace.
Management is committed to grow by providing products and services that
meet the needs of its customer base.
BUSINESS
e-Auction is a development stage company with the principal objective
to be a provider of real time, electronic auction and related financial services
to auctioneers selling commodities. e-Auction's market strategy is
to become a world leader in the electronic perishable commodity auctions in
the short term, and expand its world leadership into the electronic commodity
auctions in the longer term.
According to Forrester Research Inc.1 ("Forrester"), the on-line
auction market is divided into the following four categories; (i) commodity
auctions; (ii) business consignment auctions; (iii) consumer auctions; and (iv)
private auctions. e-Auction will specialize in commodity auctions, which
Forrester estimates to account more than 50% of the total value of business
auction transactions.
[GRAPHIC]
THE EMERGING ELECTRONIC AUCTION MARKET
The on-line auction model has emerged as a significant channel and
electronic commerce methodology in the business to consumer market ("B2C"), also
referred to as "Independent Auctions", with such companies as eBay, Onsale, uBid
and Bid.com currently providing such services.
However, according to Forrester, the real potential for electronic
auctions lies in the business to business market ("B2B") also referred to as
"Commodity Auctions". Forrester predicts the trade in Commodity Auctions will
reach US$32.2 billion by the year 2002 versus only US$5.5 billion dollars for
Independent) Auctions.
e-Auction was founded to capitalize on the market opportunity to
provide B2B electronic auction services. On February 1, 1999, e-Auction
(Barbados) acquired the internet auctioning software, technology and other
intellectual property assets of Generated Solutions Ltd. ("GSL"). GSL had been
providing its propriety internet auctioning technology to a number of auction
houses conducting electronic auctions. On February 1, 1999, e-Auction (Barbados)
acquired the intellectual property assets of National Electronic Marketing Inc.
("NEMI"). NEMI assets included the exclusive rights to market GSL's internet
auctioning software outside of North America and non-exclusive North American
rights. Upon the completion of the Share Exchange Agreement, e-Auction acquired
the rights to market and exploit the GSL and NEMI technologies.
There are a number of components to the e-Auction/GSL trading platform,
as discussed below:
DYNAMIC TRADE SERVER(S)
These server applications are written in Java (and/or C++). They are
the multi-threaded engines that manage all dynamic trading (auctioning). They
support English and Dutch style auctioning as well as bid/offer and bid/ask
trading. They also support reverse or procurement auctions.
The servers communicate to the client through sockets, RMI (Remote
Method Invocation) and/or HTML pages (Java Server Pages). The C++ implementation
of the trade server must be hosted on a Windows NT platform. The Java
implementations of the trade servers are platform independent and may be hosted
on any computer platform that provides a Java Virtual Machine version 1.1.7 or
above.
DYNAMIC TRADE CLIENT(S)
There are different trade clients depending on the style of dynamic
trade server used. For Dutch, English and Procurement auctions, the client is
either a Java applet or application. For bid/offer auctions, the client is
provided as HTML pages hosted on a web site. The bid/ask trading server will
support both a Java client and HTML page interface.
TRADE INFO CATALOGUE
The trade info catalogue is the repository that contains all lot
listings for the sales that are scheduled on the platform. This data is managed
by a SQL database and can be accessed through the trade info manager. The
information is also accessed by the trade servers when the auctions are running.
TRADE INFO MANAGER
The trade info manager is available as a Java application or as a set
of HTML pages (JSP/Servlet based). It is used to maintain the information
contained in the trade info catalogue. The info manager provides a generic
interface through which an auction house may enter the lot information for their
sales and configure their sale parameters.
TRADE ACCOUNTING SERVER
As auction sales are completed, the data from those sales is summarized
and copied to the trade accounting server. This repository and interface is used
to provide billing information for customer settlement with e-Auction. This is
not the settlement of the auction sale itself, but rather the transactional fees
due to e-Auction for the use of the platform.
TRADE HISTORY SERVER
As auction sales are completed, the data from those sales is moved to
the trade history server. This repository and interface is used to provide
historical analysis of the auction results. It provides a JSP/Servlet interface
to produce historical reports.
TRADE SETTLEMENT SYSTEM
The trade settlement system for any particular dynamic trader (auction
house) typically includes invoice printing for buyers, cheque printing for
sellers, collection or deduction of commissions, insurance fees, taxes, etc. It
may also include lot delivery scheduling and lot grading or inspection
processes. There is no generic system for trade settlement, but rather there is
a framework that is tailored to each dynamic trader (auction house). The system
can be web-based (HTML, Java Applet) or client-based (Java or other
application).
FINANCIAL SERVICES INTERFACE
Integration to e-Auction's financial services back-end will be offered
through an integration interface. This interface will allow a dynamic trader to
host the financial services on a web-site or access them through e-Auction's web
site(s).
e-Auction believes that an good opportunity awaits the Company which
can successfully integrate and efficiently deliver the various components and
services of a dynamic global trading solution. e-Auction intends to deliver such
a global trading system in the form of an entirely new distribution channel
which will:
(i) improve economic efficiency in the management of sales and
distribution;
(ii) improve information flow and product availability to potential
purchasers; and
(iii) lower the cost of sales by exploiting internet technologies and sharing
a technology platform.
e-Auction has the potential to be successful and profitable because it
is targeting low risk established high volume B2B auction and commodity exchange
markets. e-Auction's high value and high margin transactional revenue model will
help ensure sustainable growth for the long term.
REVENUE FROM FINANCIAL SERVICE
e-Auction's intention is not to disintermediate the auction house, but
rather make the process more transparent to those involved in the auction
process. Currently, there are multiple steps in the auction process (from the
actual auction to providing foreign exchange services, settlement services, the
insurance of goods in transit and the delivery of the goods). Therefore,
individual buyers and sellers have to arrange the ancillary services around the
auction themselves. e-Auction proposes to provide a cradle to grave solution for
the buyers and sellers. Initially, e-Auction will focus on the financial
services component which includes foreign exchange services and settlement
services.
With the acquisition of Schelfhout, the Schelfhout computer system will
continue to provide software solutions to an existing customer base with
international trade. The "new" Schelfhout system will allow individual buyers to
conduct their auction purchases on the Internet in their own domestic currency.
e-Auction will generate revenue from both the foreign exchange and the
settlement services.
SCHELFHOUT COMPUTER SYSTEMEN N.V.
Schelfhout was acquired by the Company on January 10, 2000. See
"Business - Acquisition of Schelfhout".
When Schelfhout was established in 1983, it focused on two market
sectors: (i) the computerization of auctions; and (ii) automation for the
preservation of perishable products. As an ancillary to the auction system, a
modular graphic display panel was developed by Schelfhout in 1992 and added to
the product range.
As one of the world's leading solutions provider for perishable
commodity (fish, flower, fruits and vegetables) auction houses, Schelfhout has
developed over 150 electronic trading systems for numerous selling organizations
all over the world. Schelfhout delivers the tools to bring together supply and
demand under optimum conditions and thus create a better market situation.
Because of its experience in the marketing of perishable goods and the
development of customized hardware and software solutions in this niche market,
Schelfhout takes pride in its unsurpassed knowledge of the sector of which it
has now become Europe's leading manufacturer.
Schelfhout has developed a range of controllers with microprocessors,
customized for the following market segments :
* ULO (ultra low oxygen) preservation of hard fruit,
* Short-term preservation of soft fruit, exotic fruit,
vegetables, plants and flowers, and
* General temperature control for preservation of deep-
frozen and cooled products.
Schelfhout's controllers are also used to control condensers, gas
analysis, energy management, etc.
Schelfhout has developed a graphic modular display panel on which text,
logos and drawings can be displayed. This innovative concept offers numerous
advantages over standard systems:
* unlimited dimensions,
* storage capacity of more than 100 graphic images, and
* various special effects are included as standard:
scrolling, blinking and animation via fast
displays of successive images
[GRAPHIC]
EURONET PORTALS
As the acquisition of Schelfhout has been completed, e-Auction and
Schelfhout are to jointly launch EuroNet Trading Portals which can be described
as pan-European networks targeted to link Schelfhout's existing standalone
European systems, which currently trade approximately US$7 billion dollars in
perishable commodities per year.
The networks will be launched into the following three vertical markets:
- - 38 Fish Auctions Approximately US $2.0 billion in trade
volume annually
- - 29 Fruits and Vegetables Auctions Approximately US $2.4 billion in trade
volume annually
- - 11 Flower Auctions Approximately US $2.4 billion in trade
volume annually
The EuroNet Trading Portals will link existing Schelfhout clients using
the Internet, extranet and X.25 networks, as well as clients interested in
migrating to Internet Protocol ("IP") based networks.
The EuroNet Trading Portals for fish, fruit, vegetables and flower will
consist of the development of European auction networks which will offer
financial settlement services and foreign exchange services as their main
services. The Internet will enable individual buyers to participate in the
auction process remotely.
The current European landscape of auctions is highly fragmented. This
fragmentation has not allowed for economies of scale to occur as each auction
house has been saddled with expenses. These expenses will be reduced
significantly with the implementation of e-Auction's business proposition.
e-Auction will link existing stand-alone auction houses in each perishable
commodity vertical, which in turn will benefit from the centralization of
ancillary services around the auction process, such as foreign exchange services
and financial settlement services. Stand-alone auction houses currently do
credit checks and receive letters of credit for each buyer. The buyers, in turn,
must repeat the process with each auction house they deal with. e-Auction will
eliminate these redundancies by implementing a centralized financial settlement
solution which will benefit all the parties involved.
[GRAPHIC]
The solution will make it possible for a remote buyers to participate
in auctions using their own currency while the auction houses and producers will
also be paid in their own local currencies. Hence, a foreign currency service is
an integral part of the bundled financial services offered by e-Auction.
The whole financial settlement for both buyer and seller (auction house
and producer) should be as understandable and as customer-friendly as possible.
All of these services will be offered on the basis of a transaction fee. The
advantage with this cost structure is that auctions will not need to make
substantial investments in Information Technology ("IT") and infrastructure. The
use of these services is therefore a variable cost.
When a network has been established with the Schelfhout customers, it
is the objective of e-Auction to extend that network to include the remaining
European auctions which are not currently Schelfhout's clients, as well as
adding additional international demand.
BENEFITS OF EURONET TRADING PORTALS
[GRAPHIC]
Benefits to Auction Houses on Network
* Increased numbers of buyers and sellers;
* Focuses on core competency rather than issues such as credit checks and
limits;
* Offers value added service;
* Offers competitive advantage over other European auction houses; and,
* Serves as a deterrent for non-payment, since only buyers with credit approval
may participate in the auctions.
Benefits to Buyers on Network
* Need only one letter of credit or a single escrow account;
* Can purchase from all the auction houses on the network;
* Receive better quality product; and,
* Better selection available.
Benefits to Seller on Network
* Better prices through transparency;
* Increased number of purchasers; and
* Guaranteed payment.
INTELLECTUAL PROPERTY
The Company relies primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary technology. For example, the Company
licenses its software pursuant to signed license agreements, which impose
certain restrictions on the licensee's ability to utilize the software.
Additionally, the Company seeks to avoid disclosure of its trade secrets,
including requiring those persons with access to the Company's proprietary
information to execute confidentiality agreements and restricting access to the
Company's source code. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company currently has no
patents or patent applications pending.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products,
obtain or use information that the Company regards as proprietary or use or make
copies of the Company's products in violation of license agreements. Policing
unauthorized use of the Company's products is difficult. In addition, the laws
of many jurisdictions do not protect the Company's proprietary rights to as
great an extent as do the laws of the United States. There can be no assurance
that the Company's means of protecting its proprietary rights will be adequate
or that the Company's competitors will not independently develop similar
technology.
To date, the Company has not been notified that its products infringe
the proprietary rights of any third parties, but there can be no assurance that
third parties will not claim that the Company's current or future products
infringe such rights. The Company expects that developers of object-oriented
technology will be increasingly subject to infringement claims as to the number
of products, competitors and patents in the Company's industry segment grows.
Any such claim, whether meritorious or not, could be time-consuming, result in
costly litigation, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements might
not be available on terms acceptable to the Company or at all, which could have
a material adverse effect upon the Company's business, operating results and
financial condition.
COMPETITION
The electronic auction market is highly competitive, is changing rapidly, and is
significantly affected by new product and service introductions. Companies are
increasing the demand for industry-specific solutions to meet their needs in
providing products and services to customers and trading partners. Barriers to
entry into this market are relatively low, and the Company expects that
competition will intensify in the future. The market environment in which the
Company operates is extremely dynamic and is characterized by constantly
evolving standards and new market entrants.
The Company's primary competition currently comes from traditional auction
suppliers of hardware and software services such as OES and Palm-Nieaf. OES is
North Americas Largest traditional auction builder specialising on flowers and
tobacco. Palm-Nieaf is Europe oldest auction builder. The company once dominated
the space, now it has 30 installations left predominantly in flowers and fish.
The Company's secondary competition comes from new internet companies such as
World Commerce On-line (WCOL), Decofrut, Farms.com, Pan European Fish Auction
(PEFA), Vertical Net, Moai, OpenSite Technologies, FairMarket-SM-, Inc, Ariba
and Trade'ex, Gofish, Fishmonger, FreeMarkets and many other. A brief
description is included below:
WCOL delivers Internet-based, global e-commerce solutions to large international
organisations and worldwide vertical industries. Decofrut: provides the
verification of the quality of fruits shipped into the world's largest port,
Rotterdam, and Philadelphia. Farms.com will shortly be offering a Bid-Ask
marketplace. Commodity traders will be able to participate in Real Time Bid-Ask
trading with bids exchanged instantaneously. Pan European Fish Auction (PEFA):
operates a network of electronic Fish Auctions spread over Europe. These
auctions are linked together and accessible to the buyers via the internet, thus
creating a virtual marketplace on a " business-to-business" level. VerticalNet,
Inc. is a creator and operator of vertical trade communities. VerticalNet
leverages the interactive features and global reach of the Internet to create
multi-national, targeted business-to-business communities. Moai provides
commerce solutions for the Internet. Moai provides companies with the technology
and services for customized online auctions and trading exchanges. OpenSite
Technologies: provides online auction solutions. Since 1996, OpenSite has
offered online auction software with quick implementation and ease of
management.
FairMarket-SM-, Inc. is a provider of networked, online dynamic pricing
solutions that are designed to allow customers to expand their distribution
channels and create new online revenue opportunities. Their primary service
offering is an outsourced, private-label auction solution that is used by
some of merchants and portals on the Web. Ariba and Trade'ex: the evolution
of the Internet economy and the creation of new Digital Marketplaces will
streamline the commerce process and totally transform the way businesses
exchange goods, services, and information. Sorcity is an Internet hosted,
business-to-business reverse-auction service for buyers and sellers of both
direct and indirect items. Respond.co is a online shopping service, a way of
matching buyers and sellers of a wide range of products and services. Gofish:
creates a single resource for everyone connected with the seafood industry.
Where buyers and sellers can do business faster and easier than ever
before--with features like real-time pricing and up-to-date credit reporting.
FishMonger is based adjacent to the bustling seafood industry of Seattle, the
Puget Sound, and the North Pacific. It has been developed by combining the
talent from the seafood industry with exceptional expertise from the world of
e-commerce. FreeMarkets creates business-to-business online auctions for buyers
of industrial parts, raw materials, commodities and services. Since 1995, it has
created auctions for goods and services in more than 50 product categories,
including injection molded plastic parts, commercial machinings, metal
fabrications, chemicals, printed circuit boards, corrugated packaging and coal.
Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources than
the Company, greater name recognition, more strategic relationships and a larger
installed base of customers. In addition, certain competitors have
well-established relationships with current or potential customers of the
Company. As a result, the Company's competitors may be able to devote greater
resources to the development, promotion and sale of their services, may have
more direct access to corporate decision-makers based on previous relationships
and may be able to respond more quickly to new or emerging technologies and
changes in customer requirements. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressure will not have a material adverse effect on its
business, operating results and financial condition.
EMPLOYEES
The Company considers its labour relations to be good and, none of its
employees is covered by a collective bargaining agreement. As of February 1,
2000 e-Auction has thirty five full time employees and five part time employees
and independent contractors. e-Auction is currently dependent upon Daniel
McKenzie, President, C.E.O. and Chairman of e-Auction, Luc Schelfhout, President
of Schelfhout Computer System N.V. and David Hackett, the Chief Financial
Officer of e-Auction and Shane Maine for its success. Mr. Maine has agreed to
allocate a portion of his time to the activities of e-Auction without cash
compensation but has agreed to accept stock options granted as discussed below.
None of the Company's employees is represented by a labor union, and the Company
considers its employee relations to be good. Competition for qualified personnel
in the Company's industry is intense, particularly among software development
and other technical staff. The Company believes that its future success will
depend in part on its continued ability to attract, hire and retain qualified
personnel.
FACILITIES
e-Auction currently has no properties and has not entered into any
agreements to acquire any properties. e-Auction has offices located at 181 Bay
Street, Suite 3730, BCE Place, Toronto, Ontario, Canada, M5J 2T3 and at Bormte
204/A, Stekene, Belgium 9190. The offices at 181 Bay Street are leased by
Venture North Investment Partners Inc. ("Ventures North") from which e-Auction
sublets office space. e-Auction has not entered into a lease agreement and pays
all rental charges on a month to month basis. As part of the Schelfhout
acquisition, the land and building were removed from the company prior to the
acquisition. As part of the acquisition, Schelfhout shall be entitled to remain
on the premises where Schelfhout currently operates and carries on business for
a period of twelve (12) months from January 7, 2000 on a rent free basis and
that following such twelve (12) month period, Schelfhout shall lease the
building at a rate of 2,400 BEF per square metre for office space, 1,800 BEF per
square metre for the work room and 1,200 per square metre for the warehouse, for
a term of 10 years, which terms of the lease can be considered as normal at
January 7, 2000.
LEGAL PROCEEDINGS
Except as described below, e-Auction is not presently a party to any
litigation, nor to the knowledge of the board of directors is there any
litigation threatened against e-Auction.
(i) An action (the "Action") was commenced by Icon Capital
Corporation (the "Plaintiff") in the United States District
Court - Central District of California on November 17, 1999
against John Andrews, e-Auction Global Trading Inc. (a Nevada
Corporation), e-Auction Global Trading Inc. (a Barbados
Corporation), e-Medsoft.com, e-Net Global Financial Services,
Inc., Kazari International, Inc., Shane Maine, Shaun Maine,
John McLennan, QFG Holdings Limited, Ventures North
International Inc, Jeff Wheeler, 582976 BC Ltd.
and Sanga International, Inc. ("Sanga") as a nominal
defendant.
The Action is a shareholder derivative action brought on
behalf of the nominal defendant Sanga. The Plaintiff, on
behalf of Sanga, alleges that the defendants damaged Sanga by:
(i) engaging in conversion; (ii) engaging in fraud; (iii)
interfering with Sanga's prospective business advantage; (iv)
breach of contract; (v) violating California usury laws; and
(vi) breach of fiduciary duty. As such, the Plaintiff claims
that the defendants' actions have not only damaged Sanga, but
also the Plaintiff and the remaining shareholders of Sanga
totaling as much as $100 million dollars.
The Plaintiff also seeks a preliminary and permanent
injunction restraining and enjoining all defendants from: (i)
using the proprietary internet auction software of Sanga; (ii)
using the proprietary financial services technology of Sanga;
(iii) representing that the defendants own or have the right
to utilize the internet auction software, the financial
services technology or other assets from Sanga; (iv)
continuing to conceal any true and material facts regarding
e-Auction; (v) transferring Sanga's financial services
technology; (vi) transferring any assets of Sanga; and (vii)
enforcing any loans.
The Action was stayed on November 29, 1999 as a result of
Sanga filing for protection pursuant to Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court -
Central District of California.
(ii) A second action (the "ICON Action") was commenced by Icon
Capital Corporation (the "Plaintiff") in the United States
District Court - Central District of California on February 7,
2000 against John Andrews, e-Auction Global Trading Inc. (a
Nevada Corporation), e-Auction Global Trading Inc. (a Barbados
Corporation), e-Medsoft.com, e-Net Global Financial Services,
Inc., Kazari International, Inc., Shane Maine, Shaun Maine,
John McLennan, QFG Holdings Limited, Ventures North
International Inc, Jeff Wheeler, 582976 BC Ltd. and DOES 1-50.
The Plaintiff, a shareholder of Sanga International Inc.,
alleges that the defendants breached their fidiciary duties to
the Plaintiff. As such, the Plaintiff claims that the
defendants' actions have damaged the Plaintiff totaling
several millions of dollars.
ACQUISITION OF SCHELFHOUT COMPUTER SYSTEMEN N.V.
By a share purchase agreement dated as of January 10, 2000 between the
Company, Luc Schelfhout, Hilde De Laet ("SCS Agreement"), the Company, through
its subsidiary, e-Auction Belgium N.V., acquired all of the shares of
Schelfhout, a Belgium company, from Luc Schelfhout and Hilde De Laet. The
purchase price for the shares of Schelfhout was $10 million, paid by the Company
by $4 million cash and by the issuance to 3,636,364 common shares to Luc
Schelfhout and Hilde De Laet. The Company in the SCS Agreement agreed to not
sell or otherwise transfer the shares of Schelfhout during the 12 month period
ending on January 10, 2001. As security for the covenant not to sell the shares
and for other matters, the Company has pledged the shares of Schelfhout in
favour of Luc Schelfhout and Hilde De Laet.
MANAGEMENT
The following table sets forth the names, positions and ages of the
executive officers and directors of e-Auction as at February 1, 2000. Directors
are elected at e-Auction's annual meeting of shareholders and serve for one year
or until their successors are elected. Officers are elected by the board of
directors and their terms of office are, except to the extent governed by
employment contracts, at the discretion of the board of directors.
- ----------------------- ------------------ -----------------------------------
NAME Age Title
- ----------------------- ------------------ -----------------------------------
Daniel McKenzie 45 President, C.E.O. and Chairman
- ----------------------- ------------------ -----------------------------------
Luc Schelfhout 38 President, Schelfhout Computer
System N.V.
- ----------------------- ------------------ -----------------------------------
David Hackett 34 Chief Financial Officer
- ----------------------- ------------------ -----------------------------------
Philip Lapp 71 Director
- ----------------------- ------------------ -----------------------------------
Phillip MacDonnell 58 Director
- ----------------------- ------------------ -----------------------------------
Eric White 46 Director
- ----------------------- ------------------ -----------------------------------
BIOGRAPHIES
Dan A. McKenzie, President, C.E.O. and Chairman.
Mr. McKenzie brings a strong and diversified background in corporate management
and technology development. Mr. McKenzie has 19 years of high tech management
experience, with 15 as an owner/manager. He is the principal founder of two
successful businesses, McKenzie Brown Canada and EveryWare Development Inc. His
experience in mapping out strategic directions, operational skills, and
turnaround techniques have, in each case, maximized shareholder returns.
McKenzie Brown, a national computer peripheral distribution company, was founded
in 1983 and reached sales in excessive of $30 million per year. Mr. McKenzie was
the initial investor and founding partner of EveryWare Development Inc. in 1990
and built the business through sales and software development with a record of
profit for 5 consecutive years as President and CEO. EveryWare is a market
leader in providing innovative cross-platform development tools for creating
dynamic Web-based applications. Dan took the company public in 1995 as CEO and
Chairman of the Board. Dan led the company through numerous financings and
acquisitions, including InContext Systems Inc. (TSE:INI) and in November 1998
EveryWare was purchased by Pervasive Software Inc. Mr. McKenzie's experience in
growing and merging early stage technology companies enables him to identify the
needs of the marketplace to bring new products and services quickly and
profitably to market. Mr. McKenzie's entrepreneurial spirit developed after
working his way up through management at Corvus Computer Corporation and Maclean
Hunter Limited. Mr. McKenzie was National Sales Manager for Corvus, responsible
for developing revenues and reseller relationships across Canada, and at Maclean
Hunter he served in their Business Press Division.
Luc Schelfhout, President, Schelfhout Computer Systemen N.V.
Mr. Schelfhout created the company in 1983 which has grown under his
management into the market leader in the development and implementation of
electronic trading systems. Prior to starting Schelfhout, Mr. Schelfhout worked
for Stafa Control Systems, a company specialising in control and measurement
systems. Mr. Schelfhout also has a degree in Electronics (A1-B1) and is a
licensed pilot. Through Mr. Schelfhout's leadership, Schelfhout has lead in the
development of more than 100 electronic trading systems world-wide. In addition,
numerous feasibility studies have been prepared the highlights are as follows:
- - Apeda, New Delhi, India: establishment of 4 flower markets in Pune,
Bombay, Bangalore & Madras.
- - European Commission: Information and trading network for the marketing
of fresh fish in Europe (INFOMAR).
- - Irish Fish Producers' Organisation Dublin, Ireland : fish auction
network.
- - Meat & Livestock Commission, Milton Keynes : Improvement of IT in UK
cattle markets.
- - F.A.O. of the UNITED NATIONS : establishment of fish markets in
Morocco.
David Hackett, Chief Financial Officer
David Hackett attained his Chartered Accountant designation in 1989
while at Ernst & Young. Mr. Hackett also holds a Master of Business
Administration from the University of Western in Ontario, Canada. In 1992, Mr.
Hackett co-founded 323-2323- The Infotainment Line, a movie, restaurant, kids
and special events information telephone service. From 1994 to 1996, Mr. Hackett
was a consultant for the television production industry with Alliance Atlantis
Communications Inc. (formerly "Atlantis Communications Inc.") and CanWest Global
Communications Corp. In 1996, Mr. Hackett joined EveryWare Development Inc.
("EveryWare"), a provider of middleware database conductivity tools. As Chief
Financial Officer of EveryWare, Mr. Hackett was responsible for the finance and
administration department as well as the day to day operations of EveryWare and
its subsidiaries. While at EveryWare, Mr. Hackett completed numerous financings,
acquisitions and divestitures including the sale of EveryWare to Pervasive
Software Inc. in November 1998. Mr. Hackett is not a director of any other
reporting company.
Philip A. Lapp, Director
Dr. Lapp has been Senior Vice President and Director of SPAR Aerospace
Limited, responsible for all engineering and technical programs. While there,
Mr. Lapp established and developed entry into the medical and technological
markets. Dr.Lapp served as both Director of Technical Operations and Chief
Engineer at de Havilland Aircraft of Canada. At the Massachusetts Institute of
Technology Dr. Lapp was a research Associate and Instuctor in Aeronautical
Engineering. Dr. Lapp has received a Centennial Medal 1967, Honorary Member,
Engineering Institute of Canada 1973, Fellow of Ryerson Polytechnical Institute
1987, Gold Medal from the Association of Professional Engineers of Ontario
in1992, Officer of the Order of Canada in 1995. Dr. Lapp still holds many
present Directorships including CDM Information Inc., InfoWest Services Inc.,
Kenneth Molson Foundation (Chairman), EMR Microwave Technology Corporation, PCI
Enterprises Inc. Mind The Store Inc. (Chairman), VisuaLabs Inc., and Honorary
Governor, York University. Dr. Lapp also holds professional affiliations with;
Canadian Council of Professional Engineers, (President 1987-1988), Fellow of the
Royal Society of Canada, Fellow of the Canadian Academy of Engineering,
(President 1988), Member of the Association of Professional Engineers of Ontario
(President 1982-1983), Senior Member of the Institute of Electrical and
Electronics Engineers, Fellow of Canadian Aeronautics and Space Institute
(President 1967-1968), Member of Canadian Remote Sensing Society and Senior
Member of American Aeronautics and Astronautics.
Phil MacDonnell, Director
Mr. MacDonnell is presently Vice President and a Director of Hawk
Capital Corporation and Hawk Partners Ltd., which provides financial services to
Canadian companies, he has held these positions since 1998 and 1997
respectively. Mr. MacDonnell is also currently President and Director of P.G.
MacDonnell Services Ltd., a Director of Constitution Insurance Company since
1987, Director of Syntex Systems Ltd. (a publicly traded company on the ASE,
since 1997), Director of World Wide Warranty (CDNX) and a Director of Palco
Communications, apriate Alabama company since 1999. Mr. MacDonnell obtained an
Honors Business Administration Degree at the University of Western Ontario in
1960, later in 1964 he obtained a Chartered Accountants Degree from the
Institute of Chartered Accountants. Mr. MacDonnell became a founding partner in
Loewen Ondaattje McCutheon & Co. Ltd. (an international institutional stock
Brokerage Company and publicly traded on the TSE). From 1989-1991 Mr. MacDonnell
was the President of Family Trust Corporation before it was sold to Manulife
Insurance. Mr. MacDonnell has sat on the Board of the Vancouver Stock Exchange
and was a Director of Grand Field Pacific Ltd., (a publicly traded hotel company
on the TSE 1996-1998) and EveryWare Development Inc., (a publicly traded
software company on the ASE 1997-1998)
Eric White, Director
Mr. White is currently a Partner with The Chancellor Partners, a
executive recruiting firm, and has held that position since 1993. From 1989-1993
Mr. White was a Partner with Chowne Beaston White & Hoogstra. In 1986-1989 Mr.
White was a Partner with Corporate Recruiters Ltd. Mr. White served as Director,
Personnel for Expo 86 with the Expo 86 Corporation from 1983-1986. Mr. White was
a management consultant with Touche Ross & Partners from 1981-1983. In 1980-1981
Mr. White was a self-employed search consultant. Mr. White was also the
Principal for Real Estate Development and Retail Building Supplies for two
locations with the Scotia Development Corporation from 1975-1980. Mr. White
graduated from the St. Thomas University in New Brunswick with a B.A. (Honors).
The experience that Mr. White brings is in, assisting management in solving
organizational challenges, managing organizational change, merging/rationalizing
staffing & designing/implementation of strategic plans. His experience also
includes large national consulting firms and local consulting firms.
DIRECTOR COMPENSATION
The Company has not yet instituted any standard arrangement for the
compensation of its directors. On August 29, 1999 Michael Gilley, a former
Director, received stock options to purchase up to 250,000 shares of common
stock in e-Auction. The options vest over 3 years and are exercisable at $5.00
per common share. Under an agreement dated March 1, 1999 with Millennium
Advisors Inc., of which Mr. Gilley is President, e-Auction agreed to pay to
Millennium Advisors a management fee of $20,000 per month for advice and
services with respect to mergers and acquisitions, corporate structuring,
corporate administration, and financing. As of the date of filing this
Registration Statement, the total amount of management fees due payable to
Millennium Advisors Inc. as fees has accrued to approximately $200,000 and as of
the date of this Registration Statement has not been yet paid.
On December 1, 1999, Mr. McKenzie, Mr. Hackett and Mr. Maine, a former
director and acting Chief Executive Officer, each received stock options to
purchase up to 1,000,000 shares of common stock in e-Auction. The options vest
over 3 years and are exercisable at $0.85 per common share.
STOCK OPTION PLAN
e-Auction established a stock option plan on March 1, 1999 (the "Stock
Option Plan") to provide incentives to attract, retain and motivate eligible
persons whose presence and potential contributions are important to the success
of e-Auction. The purpose of the Stock Option Plan is to further the interest of
e-Auction and its stockholders by providing incentives in the form of stock or
stock options to key employees and directors who contribute materially to the
success of e-Auction. The grant of options will recognize and reward outstanding
individual performances and contributions and will give such persons a
proprietary interest in e-Auction, thus enhancing their personal interest in
e-Auction's continued success and progress. This program will also assist
e-Auction in attracting and retaining key employees and directors. To date
4,600,000 options have been granted with exercise prices ranging from $0.01 to
$5.00 per common share. Options to purchase 3,250,000 common shares of e-Auction
have been issued to the officers and directors as a group.
Date Number Price
- ---- ------ -----
March 1, 1999 1,000,000 $0.01
August 29, 1999 250,000 $5.00
December 1, 1999 3,050,000 $0.85
January 20, 2000 300,000 $2.00
----------------
Total 4,600,000
----------------
EXECUTIVE COMPENSATION
The following table sets forth certain information for the years ended
December 31, 1999 and 1998 regarding the compensation of the Company's Chief
Executive Officer and each of the other most highly compensated executive
officers whose compensation on an annualized basis (salary and bonus) for
services rendered in all capacities to the Company during the year ended
December 31, 1999 or 1998 exceeded $100,000 (collectively, the "Named Executive
Officers").
- -------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------------------------
Long-term compensation
- -------------------------------------------------------------------------------------------------------------------------
Annual compensation Awards Payouts
- -------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
Restricted Securities
Other annual stock underlying LTIP All other
Name and Salary Bonus compensation awards options/ SARs payouts compensation
Principal Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
Fred Tham, 1999 - - - - - - -
CEO & President(1) 1998 $39,500
- ------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
Shane Maine, CEO 1999 - - - - 1,000,000 - -
& President (2) 1998
- ------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
David Hackett, 1999 C$58,333 1,000,000
Chief Financial 1998
Officer
- ------------------- ------- ------------ --------- --------------- ------------ -------------- ---------- ---------------
(1) Mr. Tam resigned as CEO and President on February 26, 1999.
(2) Mr. Maine resigned as acting CEO and director of the Company on January
17, 2000 and was replaced as CEO by Dan McKenzie on January 17, 2000.
Shane Maine, a former director and acting CEO of e-Auction, does not
receive any compensation, other than options as indicated below, for his
services rendered to e-Auction, has not received such compensation in the past,
and is not accruing any compensation pursuant to any agreement with e-Auction.
However, Mr. Maine anticipates receiving benefits as a beneficial shareholder of
e-Auction. Should e-Auction become profitable and produce commensurate cash
flows from operations and/or through the sale of strategic investments, there
may be some level of compensation paid to Mr. Maine in the future. However, such
compensation will be subject to approval by e-Auction's board of directors.
Dan McKenzie, e-Auction's President, Chief Executive Officer, and
Chairman has an employment contract with the Company whereby he receives a base
salary of Cdn$150,000 per annum. If the Company terminates Mr. McKenzie without
just cause before December 31, 2000 Mr. McKenzie will receive a total amount
equal to the 6 months compensation; without just cause after December 31, 2000
Mr. McKenzie will receive a total amount equal to the 12 months compensation.
Mr. McKenzie was granted 1,000,000 options in e-Auction. The options vest over 3
years and are exercisable at $0.85 per common share. Furthermore, during the
month of April 2000, the Board will review Mr. McKenzie's option amount with the
ability to grant an additional 500,000 options which will be vesting based on
specific performance goals of e-Auction. Option pricing will be determined based
on the share price at the time of grant in April 2000. Should there be a change
in control of the Company, all of Mr. McKenzie's unvested options will vest.
David Hackett, e-Auction's Chief Financial Officer, has an employment
contract with the Company whereby he receives a base salary of Cdn$100,000 per
annum and is entitled to bonuses of up to Cdn$100,000 per annum. If the Company
terminates Mr. Hackett without just cause Mr. Hackett will receive a total
amount equal to the greater of (i) 12 months compensation; and (ii) $150,000.00
plus bonuses. Mr. Hackett was granted 1,000,000 options in e-Auction. The
options vest over 3 years and are exercisable at $0.85 per common share. Should
there be a change in control of the Company, all of Mr.
Hackett's unvested options will vest.
No retirement, pension, annuity benefits have been adopted by e-Auction
for the benefit of its employees.
INCENTIVE STOCK OPTIONS GRANTED TO NAMED EXECUTIVE OFFICERS DURING THE FINANCIAL
YEAR ENDED DECEMBER 31, 1999
The following table sets forth the particulars of individual grants of options
to purchase Common Shares made to each of the Named Executive Officers who were
granted options during the financial year ended December 31, 1999:
- ----------------------------------------------------------------------------------------------------------------------------
MARKET VALUE OF
% OF TOTAL SECURITIES
OPTIONS GRANTED UNDERLYING
SECURITIES UNDER TO EMPLOYEES IN OPTIONS ON THE
NAME OPTION GRANTED FISCAL YEAR EXERCISE PRICE DATE OF THE GRANT EXPIRATION DATE
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------------
Dan McKenzie 1,000,000 23% $0.85 $0.84375 November 30, 2009
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------------
David Hackett 1,000,000 23% $0.85 $0.84375 November 30, 2009
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------------
Shane Maine 1,000,000 23% $0.85 $0.84375 November 30, 2009
- --------------------- ------------------ ------------------- ------------------ ------------------- ------------------------
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Articles of Incorporation of e-Auction contain the following
provisions which limit the liability of directors:
Article V
The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permissible under the General Corporation Law
of the State of Nevada, as the same may be amended and supplemented.
Article VI
The corporation shall, to the fullest extent permitted by the General
Corporation Law of the State of Nevada, as the same may be amended and
supplemented (the "Law") indemnify and any all persons whom it shall have power
to indemnify under the Law from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by the Law. The
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators.
Section 9 of e-Auction's By-laws, which reads as follows, provides for
the indemnification of agents of and the purchase of liability insurance:
For purposes of this Section 9, "agent" means any person who is or was
a director, officer, employee or other agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation of the Corporation or of another enterprise at the request of such
predecessor corporation; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" included without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under this Section 9.
The Corporation shall have the power to indemnify any person who was or
is a party or is threatened to be made a party to any proceeding) other than an
action by or in the right of the Corporation to procure a judgement in its
favor) by reason of the fact that such person is or was an agent of the
Corporation, against expenses, judgements, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceedings to the
fullest extent permitted under the General Corporation Law of the State of
Nevada, as amended from time to time.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 10, 2000, e-Auction, though its subsidiary e-Auction Belgium
N.V., purchased all of the shares of Schelfhout in exchange for consideration of
US$10 million, of which 1,818,182 common shares of e-Auction was issued to Luc
Schelfhout, a current officer of the Company, and 1,818,182 common shares of
e-Auction were issued to Mr. Schelfhout's spouse, Hilde de Laet.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Shares as of February 1, 2000, by (i) each
person who is known by the Company to own beneficially more than five percent of
the Company's Common Shares, (ii) each of the Named Executive Officers, and
(iii) each of the Company's directors.
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES(1) PERCENTAGE OF CLASS
- ------------------------------------------------------------------------ ------------------ ----------------------
J. Andrews in Trust for the Shareholders of Sanga International Inc.
C/O Blake, Cassels & Graydon
45 O'Connor Street, Ottawa, Ontario K1P 1A4 16,500,000 27.2%
- ------------------------------------------------------------------------ ------------------ ----------------------
QFG Holding Limited
P.O. Box 659, Roadtown, Tortola, BVI 8,474,193 14.0%
- ------------------------------------------------------------------------ ------------------ ----------------------
Luc Schelfhout(2)
Bornte 204/A, Stekene, Belgium 9190 3,636,364 6.0%
- ------------------------------------------------------------------------ ------------------ ----------------------
Daniel McKenzie (3)
RR5, Georgetown, Ontario L5G 4S8 161,987 0.27%
- ------------------------------------------------------------------------ ------------------ ----------------------
David Hackett(4)
20 Astley Avenue, Toronto, Ontario M4W 3B4 236,987 0.39%
- ------------------------------------------------------------------------ ------------------ ----------------------
1. The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rule,
beneficial ownership includes any share as to which the individual or
entity has voting power or investment power. Unless otherwise indicated,
each person or entity has sole voting and investment power with respect to
shares shown as beneficially owned. A person is deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days, whether pursuant to the exercise of options, conversion of
securities or otherwise.
2. Includes 1,818,182 common shares held by Mr. Schelfhout's spouse, Hilde de
Laet.
3. Includes 161,987 common shares held by a holding company.
4. Includes 236,987 common shares held by a holding company for Mr. Hackett's
wife and children.
SELLING STOCKHOLDERS
The following table provides certain information regarding the Selling
Stockholders and the number of Shares being offered by them as of February 28,
2000.
Shares Beneficially Owned Prior To Offering
- -------------------------------------------------------------------------------------------------------------------
Percentage of
Common Shares That May
Stock Be Sold (1)
Name Amount Outstanding
- -------------------------------------------------------------------------------------------------------------------
J. Andrews itf Shareholders of Sanga International 16,500,000 27.23% 16,500,000
Inc.
Q.F.G. Holdings Limited 8,474,193 14.0% 9,076,693
Flynn, Von Shubert & Associates Attorneys 2,250,000 3.71% 2,250,000
Escrow Account
v-Wholesaler.com Inc. 2,000,000 3.30% 2,000,000
Ventures North Investment Partners Inc. 2,000,000 3.30% 2,000,000
e-Ventures Investments Inc. 2,000,000 3.30% 2,000,000
Online Global Commodities Exchange Limited 2,000,000 3.30% 2,000,000
Institute of Global Trading Communities Limited 2,000,000 3.30% 2,000,000
Luc Schelfhout 1,818,182 3.00% 1,818,182
Hilde de Laet 1,818,182 3.00% 1,818,182
Zorba Holdings Limited 1,500,000 2.48% 1,500,000
Platinium Capital Management Inc. 1,500,000 2.48% 1,500,000
e-Auction Global Trading Inc. (BVI) 1,500,000 2.48% 1,500,000
BFM Enterprises 1,500,000 2.48% 1,500,000
Platinium Capital Management Inc. Trust for John 1,000,000 1.65% 1,000,000
Andrews
Troy Lalonde 901,530 1.49% 901,530
Hartford Group Holdings Limited 830,000 1.37% 830,000
Web CCB (BVI) 750,000 1.24% 750,000
Assayriska Investments Inc. 642,500 1.06% 642,500
Tradwinds Investments Ltd. 550,000 0.91% 550,000
T.F Fred Tham 500,000 0.83% 500,000
Hartford Holdings Limited 500,000 0.83% 500,000
SABE Holdings Inc. 376,304 0.62% 376,304
John & Victoria O'Toole 239,727 0.40% 239,727
Brian Antonen 205,480 0.34% 205,480
Parkplace Finance Limited as trustee for the 205,479 0.34% 205,479
Parkplace Trust
Nesbit Burns in Trust For Trophy Foods Inc. 205,479 0.34% 205,479
HSBC Securities (Canada) Inc. 205,479 0.34% 205,479
Hani Rasid 200,000 0.33% 200,000
Edith M. Michel 200,000 0.33% 200,000
Millenium Advisors Inc. 197,219 0.33% 197,219
Ron Engineering & Consruction (Eastern) Ltd. 150,000 0.25% 150,000
Shenkman Corporation. In Trust 100,000 0.17% 100,000
Sabe Holdings, Inc. 100,000 0.17% 100,000
Elias Haloute 100,000 0.17% 100,000
Albert Haloute 100,000 0.17% 100,000
Stephen Greenberg 50,000 0.08% 50,000
John Naime 50,000 0.08% 50,000
John O'Toole & Victoria O'Toole 43,602 0.07% 43,602
Soloway Holdings Limited 40,000 0.07% 40,000
S&O Building Partnership 40,000 0.07% 40,000
Richard J. Valentine & Penny E. Valentine 40,000 0.07% 40,000
JTWROS ###-##-####
Frederick H. Stierheim TTEE FBO Frederick H. 33,000 0.05% 33,000
Stierheim Revocable Living Trust
Murray Hill Investments Limited 20,000 0.03% 20,000
Ana Teresa Segarra 20,000 0.03% 20,000
Efthymios Kyriakopoulos 19,000 0.03% 19,000
FR Holdings, Ltd. 12,000 0.02% 12,000
Scott Family Investments 11,335 0.02% 11,335
Trendafile Rose Ahmet 10,989 0.02% 10,989
Michael Williamson 10,967 0.02% 10,967
Jeff Figliuzzi 10,902 0.02% 10,902
Bruno Figliuzzi 10,902 0.02% 10,902
Richard G. Harrington,Jr. 10,000 0.02% 10,000
Peter F. Anderson 10,000 0.02% 10,000
LJ, Inc. Of Central Florida 10,000 0.02% 10,000
Dennis A. Lavia 10,000 0.02% 10,000
John F. Doen 8,333 0.01% 8,333
Linda Morrison 8,000 0.01% 8,000
Sterling A. Farmer 7,000 0.01% 7,000
Mark Alex Marchque 6,667 0.01% 6,667
Julie Duffy 6,500 0.01% 6,500
Bill Duffy 6,500 0.01% 6,500
Frank Marceau 6,181 0.01% 6,181
Everen Securities C/F William Racine IRA 6,000 0.01% 6,000
Rollover Account #838-5798
Scott C. Basnan 5,000 0.01% 5,000
Robert Dorsey 5,000 0.01% 5,000
Patrick McNerney 5,000 0.01% 5,000
Lee Jensen 5,000 0.01% 5,000
Hugh Dorsey IRA 5,000 0.01% 5,000
Donald Dandelski 5,000 0.01% 5,000
Brian Griffin 5,000 0.01% 5,000
Douglas Andrews 4,000 0.01% 4,000
Bob Peterson 4,000 0.01% 4,000
Andre Bourgon 4,000 0.01% 4,000
Mark Morrison 3,400 0.01% 3,400
Gary Windt 3,400 0.01% 3,400
Geoff Mather 3,333 0.01% 3,333
David Griffin 3,333 0.01% 3,333
Ken Mulvaney & Brian Mulvaney JTWROS 3,000 0.00% 3,000
Mike Marshall 2,000 0.00% 2,000
Michelle Saber & Jeff Knight JTWROS 2,000 0.00% 2,000
Anton Hammerschmidt 2,000 0.00% 2,000
Jandy Kerby-Miller 1,666 0.00% 1,666
Gretchen Bastian 1,666 0.00% 1,666
Robert Davies 1,600 0.00% 1,600
Bruce Andree 1,400 0.00% 1,400
Tim Over 1,000 0.00% 1,000
Sheila Davies 1,000 0.00% 1,000
Kasie Worrel 1,000 0.00% 1,000
John Morrison 1,000 0.00% 1,000
David Williamson 1,000 0.00% 1,000
Victor Chapman 400 0.00% 400
Cindy Phoel 200 0.00% 200
---------- ----------
Total 55,719,030 92.0% 55,719,030
---------- ---- ----------
---------- ---- ----------
(1) Assumes the sale of all of the Shares offered by each of the Selling
Shareholders.
The Selling Stockholders have represented to the Company that they
acquired the Shares for their own account for investment only and not with a
view toward the public sale or distribution thereof, except pursuant to sales
registered under the 1933 Act or exemptions therefrom. In recognition of the
fact that the Selling Stockholders, even though acquiring the Shares for
investment, may wish to be legally permitted to sell their Shares when they deem
appropriate, the Company agreed with the Selling Stockholders to file with the
Commission under the 1933 Act a Registration Statement with respect to the
resale of the Shares from time to time and agreed to prepare and file such
amendments and supplements to the Registration Statement as may be necessary to
keep the Registration Statement effective during the periods while the
registration statement is effective. See "Plan of Distribution."
PLAN OF DISTRIBUTION
All the Shares offered hereby may be sold from time to time by the Selling
Stockholders, or by their pledgees, donees, distributees, transferees or other
successors-in-interest. The sale of the Shares by the Selling Stockholders may
be effected from time to time in one or more types of transactions (which may
include block transactions) on the quotation system operated by the National
Quotation Bureau, LLC, known as the Pink Sheets, or on one or more other
securities markets and exchanges, in privately negotiated transactions, through
put or call options transactions relating to the Shares, through short sales of
Shares, or through a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
relating to such prevailing market prices or at negotiated prices. The Selling
Stockholders may effect the above-mentioned transactions by selling the Shares
directly to purchasers, acting as principals for their own accounts, or by or
through broker-dealers acting as agents for the Selling Stockholders, or to
broker-dealers who may purchase Shares as principals and thereafter sell such
Securities from time to time in transactions on any exchange or market on which
such securities are listed or quoted, as applicable, in negotiated transactions,
through a combination of such methods of sale, or otherwise. Such broker-dealers
may receive compensation in the form of discounts, concessions or commissions
from the Selling Stockholders and/or the purchasers of the Shares for whom such
broker-dealers may act as agents or to whom they may sell as principals, or both
(which compensation as to a particular broker- dealer may be in excess of
customary commissions). None of the proceeds from the sale of the Shares by the
Selling Stockholders will be received by the Company. In addition, any of the
Shares that qualify for sale pursuant to Rule 144 promulgated under the 1933 Act
may be sold in transactions complying with such Rule, rather than pursuant to
this Prospectus.
In connection with distributions of the Shares or otherwise, the
Selling Stockholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the Shares in the course of hedging the positions they assume with Selling
Stockholders. The Selling Stockholders may also sell shares short and redeliver
the Shares to close out such short positions. The Selling Stockholders may also
enter into option or other transactions with broker-dealers which require the
delivery to the broker-dealer of the Shares, which the broker-dealer may resell
or otherwise transfer pursuant to this Prospectus. The Selling Stockholder may
also loan or pledge the Shares to a broker-dealer and the broker-dealer may sell
the Shares so loaned or upon a default the broker-dealer may effect sales of the
pledged Shares pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers who act in connection
with the sale of the Shares hereunder may be deemed to be "underwriters" within
the meaning of Section 2(11) of the 1933 Act, and any commissions received by
them and profit on any resale of the Shares as principal may be deemed to be
underwriting discounts and commissions under the 1933 Act. The Company has
agreed to bear all reasonable expenses (other than broker's commissions and
similar charges) in connection with the registration and sale of the Shares
being offered by the Selling Stockholders that initially were issued as a result
of the Transactions. The Company has agreed to indemnify the Selling
Stockholders and any agent, dealer or broker-dealer who acts in connection with
the sale of the Shares hereunder that initially were issued as a result of the
Transactions against certain liabilities, including liabilities under the 1933
Act.
If one or more Selling Stockholders shall propose to sell Shares
pursuant to this Prospectus, such Selling Stockholders shall deliver to the
Company at least three full trading days prior to such proposed sale a written
notice notifying the Company of their intent to sell (including the proposed
manner and timing of all sales), and the provision of such notice to the Company
shall conclusively be deemed to establish and confirm an agreement by such
Selling Stockholders to sell such Shares, in whole, in part or not at all,
within a period ending on the tenth trading day following the first such sale
and to comply with the other contractual registration provisions. To the extent
the Company has not exercised its rights to suspend (as described below), the
Company shall provide written notice to each of the other Selling Stockholders
regarding the availability of such ten trading day period.
The Company has the right to suspend use of this Prospectus for certain
periods of time (which may or may not last for a period of weeks) under certain
circumstances. The Company has agreed to use reasonable efforts to ensure that
the Selling Stockholders shall have an aggregate of at least ten trading days
(prorated for partial fiscal quarters) under this Prospectus during each fiscal
quarter during the effective period hereof.
Upon the Company being notified by a Selling Stockholder that any
material arrangement has been entered into with a broker-dealer for the sale of
Shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
Prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such Selling Stockholder and of
the participating broker-dealer(s), (ii) the number of Shares involved, (iii)
the price at which such Shares were sold, (iv) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
forth or incorporated by reference in this Prospectus, and (vi) other facts
material to the transaction. In addition, upon the Company being notified by a
Selling Stockholder that a donee or pledgee intends to sell more than 500
Shares, a supplement to this Prospectus will be filed. In addition, to the
extent required, the number of the Shares to be sold, purchase prices, public
offering prices, the names of any agents, dealers or underwriters, and any
applicable commissions or discounts with respect to a particular offer will be
set forth by the Company in a supplement to this Prospectus or, if appropriate,
a post-effective amendment to the Registration Statement.
Offers or sales of the Shares have not been registered or qualified
under the laws of any country other than the United States. To comply with
certain states' securities laws, if applicable, the Shares will be offered or
sold in such jurisdictions only through registered or licensed brokers or
dealers.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Shares may be limited in its ability to
engage in market activities with respect to such Shares. In addition and without
limiting the foregoing, each Selling Stockholder will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, which
provisions may limit the timing of purchases and sales of any of the Shares by
the Selling Stockholders. The foregoing may affect the marketability of the
Shares.
There can be no assurance that the Selling Stockholders will sell any
or all of the Shares offered by them hereunder.
DESCRIPTION OF CAPITAL STOCK
e-Auction is authorized to issue two hundred and fifty million
(250,000,000) shares of common stock, of which 60,591,530 common shares are
currently issued and outstanding. The holders of common stock are entitled
to one vote per share on each matter submitted to a vote of shareholders,
including the election of directors. No stockholder is entitled to cumulative
votes, preemptive, subscription or conversion rights. The election of directors
and other general stockholder action requires the affirmative vote of a majority
of shares represented at a duly held meeting at which a quorum is represented,
except that pursuant to the by-laws, a written consent to corporate action by a
majority of stockholders entitled to vote on a matter is permitted. The
outstanding shares of common stock are validly issued, fully paid and
non-assessable.
The holders of common stock are entitled to receive dividends when and
if declared by the board of directors. In the event of liquidation, dissolution
or winding up of the affairs of e-Auction, the holders of common stock are
entitled to share ratably in all assets remaining for distribution to them
subject to the rights of holders of senior securities, if any.
There are no provisions in the charter or by-laws of e-Auction that
would delay, defer or prevent a change in control.
At the present time, no preferred stock is authorized in the Articles
of Incorporation, and there are no warrants outstanding. e-Auction approved the
issuance of up to 6,000,000 options to acquire common stock in the company on
March 1, 1999 pursuant to the Company's Stock Option Plan. At the time of filing
the Registration Statement, there were 4,300,000 options outstanding.
TRANSFER AGENT AND REGISTRAR
Interwest Transfer Co., Inc., located at 100-1981 East Murray Holiday Road, Salt
Lake City, Utah, 84117 was appointed transfer agent, registrar and dividend
disbursing agent for all of the shares of common stock of e-Auction on April 15,
1999 and continues to act in those capacities as of the date of filing this
Registration Statement.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 60,539,030 outstanding shares of common stock of e-Auction,
4,800,000 are free trading shares as of the date of filing this Registration
Statement and 55,719,030 shares of common stock are restricted securities as
that term is defined in Rule 144 promulgated under the Securities Exchange Act
of 1934 ("Restricted Securities").
Rule 144 governs resale of Restricted Securities for the account of any
person, other than the issuer, and restricted and unrestricted securities for
the account of an "affiliate" of the issuer. Restricted securities generally
include any securities acquired directly or indirectly from an issuer or its
affiliates, which were not issued or sold in connection with a public offering
registered under the Securities Exchange Act of 1934. An affiliate of the issuer
is any person who directly or in directly controls, is controlled by, or is
under common control with the issuer. Affiliates of e-Auction may include its
directors, executive officers and persons directly or indirectly owning 10% or
more of the outstanding common stock. Under Rule 144, unregistered resale of
restricted common stock cannot be made until it has been held for a minimum of
one year from the later of its acquisition from e-Auction or an affiliate of
e-Auction. Thereafter, shares of common stock may be resold without registration
subject to Rule 144's volume limitation aggregation, broker transaction, notice
filing requirements, and requirements concerning publicly available information
about e-Auction ("Applicable Requirements"). Resale by e-Auction's affiliates of
restricted and unrestricted common stock is subject to the Applicable
Requirements. The volume limitations provide that a person, or persons who must
aggregate their sale cannot, within any three-month period, sell more than the
greater of (i) one percent of the then outstanding shares, or (ii) the average
weekly reported trading volume during the four calendar weeks preceding each
such sale. A person who is not deemed an "affiliate" of e-Auction and who has
beneficially owned shares for at least two years would be entitled to sell such
shares under Rule 144 without regard to the Applicable Requirements.
At the time of filing this Registration Statement, the Restricted
Securities have not been held for more than two years. However, if this
Registration Statement becomes effective, approximately 55,779,030 of the
Restricted Securities will be eligible to be sold without limitation. No
prediction can be made as to the effect, if any, that sales
of shares of common stock or the availability of such shares for sale will have
on the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of common stock may be sold in the public market would
likely have a material adverse effect on prevailing market prices for the common
stock and could impair e-Auction's ability to raise capital through the sale of
its equity securities.
Any employee of the Company who has been granted options to purchase
Shares or who has purchased Shares pursuant to a written compensatory plan or
written contract prior to the date of this offering pursuant to Rule 701 will be
entitled to rely on the resale provisions of Rule 701, which permits such
persons who are not "affiliates" of the Company to sell such Shares without
compliance with the public information, holding-period, volume limitation or
notice provisions of Rule 144 and permits such persons who are "affiliates" to
sell such Shares without compliance with the Rule 144 holding period
restrictions, in each case commencing 90 days after the date of this Prospectus.
Shortly after this Registration Statement becomes effective, the
Company intends to file a registration statement on Form S-8 under the
Securities Act to register Shares reserved for issuance under the stock option,
the Purchase Plan and the Savings Plan including, in some cases, Shares for
which an exemption under Rule 144 or Rule 701 would also be available, thus
permitting the resale of Shares issued under those Plans by non-affiliates in
the public market without restriction under the Securities Act. Such
registration statement will become effective immediately upon filing. As of
February 25, 2000, stock options to purchase 4,300,000 Shares were outstanding.
EXPERTS
The consolidated financial statements and related schedules for each of the
period between June 2, 1998 and December 31, 1998, and the 12 month period ended
December 31, 1999, appearing in this Prospectus and Registration Statement have
been audited by Dale Matheson Carr-Hilton, Chartered Accountants, independent
auditors, as set forth in their respective reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firms as experts in accounting and auditing.
The consolidated financial statements and related schedules for the period
between January 8, 1998 and June 1, 1998, appearing in this Prospectus and
Registration Statement has been audited by David A. Cox, a Chartered Accountant,
independent auditor, as set forth in his report thereon appearing elsewhere
herein, and is included in reliance upon such report given upon the authority of
such individual as expert in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement, of
which this Prospectus constitutes a part, under the Securities Act with respect
to the shares of Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits thereto for further information with
respect to the Company and the Common Stock offered hereby. Statements contained
herein concerning the provisions of any documents are not necessarily complete,
and in each instance reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such statement is qualified in its
entirety by such reference. The Registration Statement, including exhibits filed
therewith, may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such materials may be obtained from the Public Reference Section of
the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission.
e-AUCTION GLOBAL TRADING INC.
INDEX TO FINANCIAL STATEMENTS
PAGE
Report of Dale Matheson Carr-Hilton, Chartered Accountants, Independent Auditors..................... 35
Consolidated Balance Sheets as of December 31, 1998.................................................. 36
Consolidated Statements of Operations for the period from June 2, 1998 to December 31, 1998.......... 37
Consolidated Statements of Cash Flows for the period from June 2, 1998 to December 31, 1998.......... 38
Notes to Consolidated Financial Statements for the period from June 2, 1998 to December 31, 1998..... 39
Report of David A. Cox, Chartered Accountant, Independent Auditors................................... 46
Consolidated Balance Sheet as of June 1, 1998........................................................ 47
Statement of Income and Deficit for the period from January 8, 1998 to June 1, 1998.................. 48
Statement of Changes in Cash for the period from January 8, 1998 to June 1, 1998..................... 49
Notes to Interim Financial Statements for the period from January 8, 1998 to June 1, 1998............ 50
Interim Financial Statements (unaudited) for the three month period ended March 31, 1999............. 52
Interim Financial Statements (unaudited) for the six month period ended June 30, 1999................ 57
Interim Financial Statements (unaudited) for the nine month period ended September 30, 1999.......... 62
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN U.S. FUNDS)
AUDITORS' REPORT
TO THE SHAREHOLDERS
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
We have audited the balance sheet of e-AUCTION GLOBAL TRADING INC. (formerly
Kazari International, Inc.) as at December 31, 1998 and the statements of
operations and deficit and cash flows for the period June 2, 1998 to December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 1998 and the
results of its operations and cash flows for the period from June 2, 1998 to
December 31, 1998 in accordance with Canadian generally accepted accounting
principles.
The financial statements as at June 1, 1998 and for the period then ended were
audited by another auditor who expressed an opinion without reservation on these
financial statements.
/s/ Alvin F. Dale, Ltd.
Dale Matheson Carr-Hilton
VANCOUVER, B.C.
DECEMBER 17, 1999 CHARTERED ACCOUNTANTS
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
BALANCE SHEET - DECEMBER 31, 1998
(IN U.S. FUNDS)
- -----------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 1,
1998 1998
$ $
- -----------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash 100,181 211,222
INCORPORATION COSTS 2,000 2,000
- -----------------------------------------------------------------------------------------------------
102,181 213,222
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable 2,500 10,700
Due to related parties (NOTE 4) 150,000 20,275
------- --------
152,500 30,975
------- --------
SHAREHOLDERS' EQUITY
SHARE CAPITAL (NOTE 5) 5,320 5,320
CONTRIBUTED SURPLUS (NOTE 5) 235,930 235,930
------- -------
241,250 241,250
DEFICIT (291,569) (59,003)
------- -------
(50,319) 182,247
- -----------------------------------------------------------------------------------------------------
102,181 213,222
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
CONTINGENCY (NOTE 9)
APPROVED BY THE DIRECTORS
DIRECTOR
- ----------------------------------------
DIRECTOR
- ----------------------------------------
SEE ACCOMPANYING NOTES
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
STATEMENT OF OPERATIONS AND DEFICIT
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 1,
1998 1998
$ $
- ------------------------------------------------------------------------------------------------------------
EXPENSES
Accounting, audit and bookkeeping 2,841 3,200
Bank charges 602 118
Consulting fees 110,000 687
Entertainment 1,608 1,378
Legal 19,505 3,500
Office and printing 3,969 3,105
Management fees 39,500 37,500
Telephone 1,537 2,489
Travel and lodging 3,004 7,026
--------- --------
182,566 59,003
--------- --------
LOSS BEFORE OTHER ITEM 182,566 59,003
OTHER ITEM
Allowance for loan receivable (NOTE 3) 50,000
--------- --------
NET LOSS FOR THE PERIOD 232,566 59,003
DEFICIT, beginning of period 59,003 -
- ------------------------------------------------------------------------------------------------------------
DEFICIT, end of period 291,569 59,003
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
- ------------------------------------------------------------------------------------------------------------
DECEMBER 31, JUNE 1,
1998 1998
$ $
- ------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss (232,566) (59,003)
Add items not affecting cash
Allowance for loan receivable 50,000 -
Net changes in non-cash operating accounts
Accounts payable (8,200) 10,700
--------- -------
(190,766) (48,303)
--------- -------
FINANCING ACTIVITIES
Due to related parties 129,725 20,275
Issuance of share capital - 251,250
Share issue costs - (10,000)
--------- -------
129,725 261,525
--------- -------
INVESTING ACTIVITIES
Incorporation costs - (2,000)
Loan receivable (50,000) -
--------- -------
(50,000) (2,000)
--------- -------
INCREASE (DECREASE) IN CASH (111,041) 211,222
CASH, beginning of period 211,222 -
- ------------------------------------------------------------------------------------------------------------
CASH, end of period 100,181 211,222
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
- -------------------------------------------------------------------------------
1. INCORPORATION AND NATURE OF BUSINESS
- -------------------------------------------------------------------------------
The Company was incorporated on January 8, 1998 in Nevada, U.S.A. On
March 23, 1999 the directors acting in lieu of a special meeting approved
the name change to e-AUCTION Global Trading Inc.
The Company was organized with the intent to be a holding company which
will acquire and/or form joint ventures with corporate entities
conducting various types of businesses throughout the world. (NOTE 8)
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
a) Foreign currency translation
The Company follows the "temporal" method of accounting for
foreign currency translations. Balance sheet items are translated
into Canadian dollars at exchange rates prevailing at the balance
sheet date for monetary items and at exchange rates in effect at
the transaction date for non-monetary items. Income statement
items are translated at average rates prevailing during the year.
Unrealized gains and losses are deferred and amortized over their
expected life. Realized gains and losses are charged to
operations.
b) Loss per common share
Loss per common share on a fully diluted basis is not presented as
it would be anti-dilutive.
c) Measurement uncertainty
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant areas requiring the use of management
estimates relate to the determination of impairment of assets and
useful lives for depreciation and amortization. Financial results
as determined by actual events could differ from those estimates.
d) Financial instruments
The Company's financial instruments consist of cash, loan
receivable and accounts payable, the fair market value of which
approximates their carrying value.
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES - CONT'D
- -------------------------------------------------------------------------------
e) Related party transactions
Related party transactions are recorded at their exchange amounts
which approximate fair market value.
f) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced
before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor
errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
- -------------------------------------------------------------------------------
3. LOAN RECEIVABLE
- -------------------------------------------------------------------------------
DECEMBER 31, JUNE 1,
1998 1998
$ $
------------ ------------
Due from Intrepidus, Inc. 50,000 -
Less: allowance (50,000) -
--------- --------
- -
--------- --------
--------- --------
During the period the Company signed a letter of intent to merge with
Intrepidus, Inc. ("Intrepidus"). As part of the deal the Company
entered into a Bridge Loan Agreement whereby $150,000 was to be made
available to Intrepidus. The balance of the funds were advanced
subsequent to year end. (SEE NOTE 8)
Subsequent to period end the Company's management decided not to
proceed with the merger. The advance then became a receivable with a
due date of June 22, 2000. The loan bears interest at 10% per annum.
The loan has been provided for in full.
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
- -------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
- -------------------------------------------------------------------------------
DECEMBER 31, JUNE 1,
1998 1998
$ $
-------------- --------------
Management fees paid to directors and a company controlled
by a director 39,500 37,500
Reimbursement to the directors for expenses incurred on
behalf of the Company 13,393 13,998
Consulting fees paid to shareholders of the Company 110,000 -
The amounts due to related parties are non-interest bearing, unsecured,
and have no specific terms of repayment (SEE NOTE 8)
- -------------------------------------------------------------------------------
5. SHARE CAPITAL AND CONTRIBUTED SURPLUS
- -------------------------------------------------------------------------------
a) Authorized - 40,000,000 common shares with a par value of $0.001
DECEMBER 31, JUNE 1,
NUMBER OF 1998 CONTRIBUTED NUMBER OF 1998 CONTRIBUTED
SHARES $ SURPLUS SHARES $ SURPLUS
-------------- --------------- ------------- ------------ ------------ ------------
b) Issued -
Balance,
beginning
of period 5,320,000 5,320 235,930 - - -
Private
placement - - - 1,250,000 1,250 -
Private
placement - - - 4,000,000 4,000 36,000
Private
placement - - - 70,000 70 209,930
---------------- --------- ------------- ----------- -------- -------
5,320,000 5,320 235,930 5,320,000 5,320 245,930
Share issue
Costs - - - - - (10,000)
---------------- ---------- ------------ ---------------- ---------- -------
Balance, end
of period 5,320,000 5,320 235,930 5,320,000 5,320 235,930
---------------- ---------- ------------ ---------------- ---------- -------
---------------- ---------- ------------ ---------------- ---------- -------
(SEE NOTE 8)
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
- -------------------------------------------------------------------------------
6. LOSS PER SHARE
- -------------------------------------------------------------------------------
Loss per share for the period from January 8, 1998 (date of
incorporation) to December 31, 1998 is $0.06.
- -------------------------------------------------------------------------------
7. COMPARATIVE FIGURES
- -------------------------------------------------------------------------------
Comparative figures are for the period from January 8, 1998 (date of
incorporation) to June 1, 1998. Certain of the comparative figures have
been reclassified to conform to the current presentation.
- -------------------------------------------------------------------------------
8. SUBSEQUENT EVENTS
- -------------------------------------------------------------------------------
Subsequent to year end:
a) The Company entered into an agreement to acquire 100% of the issued
and outstanding shares of e-Auction Global Trading Inc., a Barbados
company (the legal subsidiary). The purchase price was 34,500,000
common shares of the Company. The acquisition will be accounted for
as a reverse takeover where the financial statements will be issued
under the name of the legal parent but will be a continuation of the
financial statements of the legal subsidiary. As preparation for the
acquisition the Company increased its authorized capital stock to
250,000,000 shares of common stock.
In connection with the acquisition of the Barbados subsidiary the
company granted 1,000,000 stock options with an exercise price of
$0.01 per share to the former employees, officers and directors of
this company.
b) The Company entered into an agreement to acquire 100% of the issued
and outstanding shares of Schelfhout Computer Systemen
N.V.("Schelfhout"), a Belgian company. The purchase price is to be
$10,000,000 and is to be paid as follows:
Deposit $1,000,000 (paid)
At closing $3,000,000 cash
At closing $6,000,000 in common shares of the Company
The $6,000,000 in shares are not free trading and are subject to a
timed release formula. If the Company's shares are not freely
trading on any given release date the equivalent cash is to be paid
by the Company and the shares are to be returned to the Treasury.
The agreement is still subject to final approval by all parties.
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
- -------------------------------------------------------------------------------
8. SUBSEQUENT EVENTS - CONT'D
- -------------------------------------------------------------------------------
c) In connection with the Schelfhout acquisition the Company received a
loan of $1,000,000 from Millennium Advisors Inc., ("Millennium") a
company related through a common director, acting as agent for
undisclosed lenders. In addition Millennium received 197,219 common
shares of the Company worth $1,000,000 as a financing fee.
The Company also entered into a contract for services whereby
Millenium would be paid 25% of any funds raised by the sale of
equity or issuance of debt by the Company in excess of the amount
reasonably required by the Company to complete the Schelfhout
acquisition.
d) The Company, through its Canadian subsidiary, made two purchases of
intellectual property. The first purchase was for $300 Cdn. paid in
the form of 30,000 options for common shares with an exercise price
of $0.01 Cdn. per share. In connection with this acquisition the
Company entered into a consulting agreement where a company
associated with the vendor would be paid $5,000 Cdn. per month and
would also receive 65,000 options for common shares with an exercise
price of $0.01 Cdn. per share.
The second purchase was for $50,000 Cdn. in cash. In connection with
this acquisition the Company entered into a management services
agreement where $1,000 Cdn. per month would be paid to the vendor
who also received 80,000 options for common shares with an exercise
price of $0.01 Cdn. per share.
e) Approved a stock option plan where 6,000,000 common shares are
reserved for issuance on the exercise of options. Options are
exercisable for a period of 10 years from the date of the grant.
f) Granted a director of the Company 250,000 stock options with an
exercise price of $5 per share. Granted employees 3,050,000 stock
options with an exercise price of $0.85 per share.
g) The Company advanced a further $100,000 to Intrepidus, Inc. in
connection with the Bridge loan agreement.
h) The Company received an additional $2,200,000 in the form of a
convertible debenture, the terms of which still have to be
finalized.
- -------------------------------------------------------------------------------
9. CONTINGENCY
- -------------------------------------------------------------------------------
A shareholder derivative action was brought against the Company on
November 17, 1999 in the United States District Court against the
Company, its subsidiaries, two of its directors and several other
companies and individuals.
The action alleges Sanga International, Inc.'s ("Sanga") reputation was
damaged by the Defendants (i) engaging in conversion (ii) engaging in
fraud (iii) interfering with Sanga's prospective business advantage (iv)
breach of contract (v) violating California usury laws and (vi) breach of
fiduciary duty.
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JUNE 2, 1998 TO DECEMBER 31, 1998
(IN U.S. FUNDS)
- -------------------------------------------------------------------------------
9. CONTINGENCY- CONT'D
- -------------------------------------------------------------------------------
The plaintiff claims the defendants'actions have not only damaged Sanga
but also the plaintiff and the remaining shareholders of Sanga by as much
as $100 million dollars.
The Action was stayed on November 29, 1999 as a result of Sanga filing
for Chapter 11 bankruptcy protection in the United States Bankruptcy
Court.
Exposure to the Company is not determinable at this time.
- -------------------------------------------------------------------------------
10. RECONCILIATION OF UNITED STATES TO CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
- -------------------------------------------------------------------------------
a) Basic and diluted loss per share under U.S. GAAP are equal to the
loss per share under Canadian GAAP. The weighted average number of
shares for calculating loss per share is 4,266,704.
b) Under U.S. GAAP, the Company would record a deferred tax asset
subject to an evaluation allowance where that asset is impaired or
not expected to be realized. The Company has deferred tax assets
of approximately $78,800. The Company's valuation allowance would
be equal to the amount of the deferred tax assets. Therefore,
there have been no amounts booked in the accounts of the Company.
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
REPORT AND INTERIM FINANCIAL STATEMENTS
JUNE 1, 1998
(in U.S. funds)
CONTENTS: PAGE
Auditor's Report 1
Interim Balance Sheet 2
Interim Statement of Income and Deficit 3
Interim Statement of Changes in Cash 4
Notes to Interim Financial Statements 5,6
AUDITOR'S REPORT
TO THE SHAREHOLDERS,
KAZARI INTERNATIONAL, INC.
I have audited the interim balance sheet of KAZARI INTERNATIONAL, INC. as at
JUNE 1, 1998 and the interim statements of income and deficit and changes in
cash for the period from the date of incorporation on January 8, 1998 to June 1,
1998. These interim financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these interim
financial statements based on my audit.
I conducted my audit in accordance with Canadian generally accepted auditing
standards. Those standards require that I plan to perform an audit to obtain
reasonable assurance whether the interim financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the interim financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall interim
financial statement presentation.
In my opinion, these interim financial statements present fairly, in all
material respects, the financial position of the company as at June 1, 1998 and
the results of its operations and the changes in its financial position from the
period from the date of incorporation on January 8, 1998 to June 1, 1998 in
accordance with Canadian generally accepted accounting principles.
/s/ David A. Cox
Vancouver, British Columbia
June 8, 1998
Chartered Accountant
Suite 1500-701 West Georgia Street
Vancouver, B.C. V7Y 1C6
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
INTERIM BALANCE SHEET
AS AT JUNE 1, 1998
(in U.S. funds)
1998
ASSETS
CURRENT
Cash $211,222
INCORPORATION COSTS 2,000
------------
$ 213,222
------------
LIABILITIES
CURRENT
Accounts payable, audit and bookkeeping $ 10,700
Due to a director (note 2) 20,275
------------
30,975
------------
EQUITY
CAPITAL STOCK (NOTE 3)
Authorized: 40,000,000 common shares, with a par value of $.001
Issued and outstanding: 5,320,000 common shares, with a par value of $.001 5,320
CONTRIBUTE SURPLUS (NOTE 3) 235,930
DEFICIT (59,003)
------------
182,247
------------
------------
$ 213,222
------------
APPROVED BY THE DIRECTORS:
/s/ Fred Tham Chief Executive Officer
/s/ Shelley James Chief Financial Officer
See accompanying notes to financial statements
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
INTERIM STATEMENT OF INCOME AND DEFICIT
FOR THE PERIOD FROM THE DATE OF INCORPORATION ON JANUARY 8,1998 TO JUNE 1, 1998
(in U.S. funds)
1998
EXPENSES
Accounting, audit and bookkeeping $ 3,200
Bank charges 118
Consulting fees 687
Entertainment 1,378
Legal 3,500
Office and printing 3,105
Management fees 37,500
Telephone 2,489
Travel and lodging 7,026
------------
59,003
------------
NET LOSS FOR THE PERIOD 59,003
DEFICIT AT THE BEGINNING OF PERIOD -
------------
DEFICIT AT END OF PERIOD $ 59,003
------------
See accompanying notes to financial statements
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
INTERIM STATEMENT OF CHANGES IN CASH
FOR THE PERIOD FROM THE DATE OF INCORPORATION ON
JANUARY 8, 1998 TO JUNE 1, 1998
(in U.S. funds)
1998
OPERATING ACTIVITIES
Net loss for the period (59,003)
Net decrease in non-cash working capital balances 30,975
------------
(28,028)
------------
FINANCING ACTIVITIES
Issuance of capital stock 251,250
Share issue costs (10,000)
------------
241,250
------------
INVESTING ACTIVITIES
Incorporation costs (2,000)
------------
CHANGE IN CASH DURING THE PERIOD 211,222
CASH AT BEGINNING OF PERIOD -
------------
CASH AT END OF PERIOD $ 211,222
------------
See accompanying notes to financial statements
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE1, 1998
(in U.S. funds)
1. INCORPORATION AND NATURE OF BUSINESS
The company was incorporated on January 8, 1998 in Nevada, U.S.A.
The company was organized with the intent to be a holding company, which will
acquire and/or form joint ventures with corporate entities conducting various
types of business throughout the world.
2.RELATED PARTY TRANSACTIONS
During the period, the Company incurred $7,500 in management fees to a director.
Also during the period, the Company reimbursed $13,998 to the directors for
expenses incurred on behalf of Kazari International, Inc.
The amount due to a director is non-interest bearing, unsecured, and has no
specific terms of repayment.
3. CAPITAL STOCK AND CONTRIBUTED SURPLUS
During the period the company issued the following common shares:
Capital stock at
#Shares Total proceeds Par Value Contributed Surplus
-------
1,250,000 at 0.001each $ 1,250 $ 1,250 $ -
4,000,000 at 0.010each 40,000 4,000 36,000
70,000 at 3.000each 210,000 70 209,930
- --------------- -------------------- --------------------- --------------------
5,320,000 $ 251,250 $ 5,320 $ 245,930
- ---------------
Less share issue costs: 10,000 10,000
-------------------- --------------------- --------------------
-------------------- --------------------- --------------------
$ 241,250 $ 5,320 $ 235,930
-------------------- --------------------- --------------------
KAZARI INTERNATIONAL, INC.
(a Nevada Corporation)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 1, 1998
(in U.S funds)
4. INCOME TAXES
The Company has an interim net loss and other expenditures which may give rise
to future tax benefits. The potential benefit from these losses has not been
reflected in the financial statements.
5. LOSS PER SHARE
Loss per share information is not disclosed as it is not considered meaningful
at this stage of the Company's development.
6. CONTINUING OPERATIONS
These financial statements have been based upon accounting principles which
presume the realization of assets and the settlement of liabilities as they
become due in the course of continuing operations. The Company's ability to
maintain operations is contingent upon successful completion of additional
financing arrangements.
e-AUCTION GLOBAL TRADING INC.
INCOME STATEMENT 1999 1998
- ----------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDING MARCH 31 January 1 to January 8 to
UNAUDITED - PREPARED BY MANAGEMENT (IN US DOLLARS) March 31 March 31
REVENUE - -
EXPENSES
Salaries and benefits 64,909 -
Legal 5,716 -
Sales, general and administrative 61,852 7,571
--------------------------------------
TOTAL EXPENSES 132,477 7,571
--------------------------------------
--------------------------------------
Net Loss (132,477) (7,571)
--------------------------------------
Opening retained earnings (deficit) (291,569) -
Closing retained earnings (deficit) (424,046) (7,571)
e-AUCTION GLOBAL TRADING INC.
BALANCE SHEET AS AT MARCH 31 1999 1998
- ----------------------------------------------------------------------------------------------------------
UNAUDITED - PREPARED BY MANAGEMENT (IN US DOLLARS)
ASSETS
CURRENT ASSETS
Cash - 249
Accounts Receivable - -
--------------------------------------
- 249
Deposit in Schelfhout - -
Software Assets 68,747 -
Incorporation Costs 2,000 422
--------------------------------------
70,747 422
--------------------------------------
70,747 671
--------------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable & Accruals 136,566 2,992
Due to Related Parties - 4,000
Due to Ventures North Investment Partners 82,477 -
Loan Payable - -
--------------------------------------
219,043 6,992
EQUITY
Share Capital 39,820 1,250
Contributed Surplus 235,930 -
Retained Earnings (Deficit) (424,046) (7,571)
--------------------------------------
(148,296) (6,321)
--------------------------------------
70,747 671
--------------------------------------
e-AUCTION GLOBAL TRADING INC.
STATEMENT OF CASH FLOWS 1999 1998
- ----------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDING MARCH 31 January 1 to January 8 to
UNAUDITED - PREPARED BY MANAGEMENT (IN US DOLLARS) March 31 March 31
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss (132,477) (7,571)
Add items not affecting cash
Allowance for loan receivable - -
Net changes in non-cash operating accounts
Accounts payable 134,066 2,992
--------------------------------------
1,588 (4,579)
--------------------------------------
FINANCING ACTIVITIES
Due to related parties (67,523) 4,000
Issuance of share capital 34,500 1,250
Share issue costs - -
--------------------------------------
(33,023) 5,250
--------------------------------------
INVESTING ACTIVITIES
Incorporation costs - (422)
Software assets (68,747) -
Deposit in Schelfhout - -
--------------------------------------
(68,747) (422)
--------------------------------------
INCREASE (DECREASE) IN CASH (100,181) 249
CASH, beginning of period 100,181 -
--------------------------------------
CASH, end of period - 249
--------------------------------------
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN U.S. FUNDS)
- --------------------------------------------------------------------------------
1. INCORPORATION AND NATURE OF BUSINESS
- --------------------------------------------------------------------------------
The Company was incorporated on January 8, 1998 in Nevada, U.S.A. On
March 23, 1999 the directors acting in lieu of a special meeting approved
the name change to e-Auction Global Trading Inc.
The Company was organized with the intent to be a holding company which
will acquire and/or form joint ventures with corporate entities
conducting various types of businesses throughout the world. (NOTE 5)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
a) Foreign currency translation
The Company follows the "temporal" method of accounting for
foreign currency translations. Balance sheet items are translated
into Canadian dollars at exchange rates prevailing at the balance
sheet date for monetary items and at exchange rates in effect at
the transaction date for non-monetary items. Income statement
items are translated at average rates prevailing during the year.
Unrealized gains and losses are deferred and amortized over their
expected life. Realized gains and losses are charged to
operations.
b) Loss per common share
Loss per common share on a fully diluted basis is not presented as
it would be anti-dilutive.
c) Measurement uncertainty
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant areas requiring the use of management
estimates relate to the determination of impairment of assets and
useful lives for depreciation and amortization. Financial results
as determined by actual events could differ from those estimates.
d) Financial instruments
The Company's financial instruments consist of cash, loan
receivable and accounts payable, the fair market value of which
approximates their carrying value.
e) Related party transactions
Related party transactions are recorded at their exchange amounts
which approximate fair market value.
f) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced
before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor
errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
- --------------------------------------------------------------------------------
3. SHARE CAPITAL AND CONTRIBUTED SURPLUS
- --------------------------------------------------------------------------------
a) Authorized - 250,000,000 common shares with a par value of $0.001
MARCH 31,
NUMBER OF 1999 CONTRIBUTED
SHARES $ SURPLUS
b) Issued -
Balance,
January 1,
1999 5,320,000 5,320 235,930
Share Exchange
Agreement 34,500,000 34,500 -
---------- -------- -------
Balance, end
of period 39,820,000 39,820 235,930
========== ======== =======
The Company entered into an agreement to acquire 100% of the issued and
outstanding shares of e-Auction Global Trading Inc., a Barbados company (the
legal subsidiary). The purchase price was 34,500,000 common shares of the
Company. The acquisition will be accounted for as a reverse takeover where the
financial statements will be issued under the name of the legal parent but
will be a continuation of the financial statements of the legal subsidiary. As
preparation for the acquisition the Company increased its authorized capital
stock to 250,000,000 shares of common stock.
In connection with the acquisition of the Barbados subsidiary the company
granted 1,000,000 stock options with an exercise price of $0.01 per share to the
former employees, officers and directors of this company.
(SEE NOTE 5)
- --------------------------------------------------------------------------------
4. LOSS PER SHARE
- --------------------------------------------------------------------------------
Loss per share for the period from January 1, 1999 to March 31, 1999 is
$0.01.
- --------------------------------------------------------------------------------
5. SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
Subsequent to quarter end:
a) The Company entered into an agreement to acquire 100% of the issued
and outstanding shares of Schelfhout Computer Systemen
N.V.("Schelfhout"), a Belgian company. The purchase price is to be
$10,000,000 and is to be paid as follows:
Deposit $1,000,000 (paid in August 1999)
At closing $3,000,000 cash
At closing $6,000,000 in common shares of the Company
The $6,000,000 in shares are not free trading and are subject to a
timed release formula. If the Company's shares are not freely
trading on any given release date the equivalent cash is to be paid
by the Company and the shares are to be returned to the Treasury.
The agreement is still subject to final approval by all parties.
b) In connection with the Schelfhout acquisition the Company received a
loan of $1,000,000 from Millennium Advisors Inc., ("Millennium") a
company related through a common director, acting as agent for
undisclosed lenders. In addition Millennium received 197,219 common
shares of the Company worth $1,000,000 as a financing fee.
The Company also entered into a contract for services whereby
Millenium would be paid 25% of any funds raised by the sale of
equity or issuance of debt by the Company in excess of the amount
reasonably required by the Company to complete the Schelfhout
acquisition.
c) The Company, through its Canadian subsidiary, made two purchases of
intellectual property. The first purchase was for $300 Cdn. paid in
the form of 30,000 options for common shares with an exercise price
of $0.01 Cdn. per share. In connection with this acquisition the
Company entered into a consulting agreement where a company
associated with the vendor would be paid $5,000 Cdn. per month and
would also receive 65,000 options for common shares with an exercise
price of $0.01 Cdn. per share.
The second purchase was for $50,000 Cdn. in cash. In connection with
this acquisition the Company entered into a management services
agreement where $1,000 Cdn. per month would be paid to the vendor
who also received 80,000 options for common shares with an exercise
price of $0.01 Cdn. per share.
d) Approved a stock option plan where 6,000,000 common shares are
reserved for issuance on the exercise of options. Options are
exercisable for a period of 10 years from the date of the grant.
f) Granted a director of the Company 250,000 stock options with an
exercise price of $5 per share. Granted employees 3,050,000 stock
options with an exercise price of $0.85 per share.
g) The Company advanced a further $100,000 to Intrepidus, Inc. in
connection with the Bridge loan agreement.
h) The Company received an additional $2,200,000 in the form of a
convertible debenture, the terms of which still have to be
finalized.
- --------------------------------------------------------------------------------
6. CONTINGENCY
- --------------------------------------------------------------------------------
A shareholder derivative action was brought against the Company on
November 17, 1999 in the United States District Court against the
Company, its subsidiaries, two of its directors and several other
companies and individuals.
The action alleges Sanga International, Inc.'s ("Sanga") reputation was
damaged by the Defendants (i) engaging in conversion (ii) engaging in
fraud (iii) interfering with Sanga's prospective business advantage (iv)
breach of contract (v) violating California usury laws and (vi) breach of
fiduciary duty.
The plaintiff claims the defendants' actions have not only damaged Sanga
but also the plaintiff and the remaining shareholders of Sanga by as much
as $100 million dollars.
The Action was stayed on November 29, 1999 as a result of Sanga filing
for Chapter 11 bankruptcy protection in the United States Bankruptcy
Court.
Exposure to the Company is not determinable at this time.
- --------------------------------------------------------------------------------
7. RECONCILIATION OF UNITED STATES TO CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
- --------------------------------------------------------------------------------
a) Basic and diluted loss per share under U.S. GAAP are equal to the
loss per share under Canadian GAAP. The weighted average number of
shares for calculating loss per share is 17,970,000.
b) Under U.S. GAAP, the Company would record a deferred tax asset
subject to an evaluation allowance where that asset is impaired or
not expected to be realized. The Company has deferred tax assets
of approximately $78,800. The Company's valuation allowance would
be equal to the amount of the deferred tax assets. Therefore,
there have been no amounts booked in the accounts of the Company.
e-AUCTION GLOBAL TRADING INC.
INCOME STATEMENT 1999 1999 1998 1998
- --------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDING JUNE 30 January 1 to April 1 to January 8 to April 1 to
UNAUDITED - PREPARED BY MANAGEMENT (IN US DOLLARS) June 30 June 30 June 30 June 30
REVENUE - - - -
EXPENSES
Salaries and benefits 315,351 250,442 - -
Legal 33,254 27,538 3,500 3,500
Sales, general and administrative 289,646 227,794 73,232 65,661
---------------------------------------------------------------
TOTAL EXPENSES 638,251 505,774 76,732 69,161
---------------------------------------------------------------
---------------------------------------------------------------
Net Loss (638,251) (505,774) (76,732) (69,161)
---------------------------------------------------------------
Opening retained earnings (deficit) (291,569) (424,046) - (7,571)
Closing retained earnings (deficit) (929,820) (929,820) (76,732) (76,732)
e-AUCTION GLOBAL TRADING INC.
BALANCE SHEET AS AT JUNE 30 1999 1998
- ----------------------------------------------------------------------------------------------------
UNAUDITED - PREPARED BY MANAGEMENT (IN US DOLLARS)
ASSETS
CURRENT ASSETS
Cash 1,023 173,293
Accounts Receivable - -
----------------------------------
1,023 173,293
Deposit in Schelfhout - -
Software Assets 68,747 -
Incorporation Costs 2,000 2,000
----------------------------------
70,747 2,000
----------------------------------
71,770 175,293
----------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable & Accruals 335,912 -
Due to Related Parties - 10,775
Due to Ventures North Investment Partners 389,928 -
Loan Payable - -
----------------------------------
725,840 10,775
EQUITY
Share Capital 39,820 5,320
Contributed Surplus 235,930 235,930
Retained Earnings (Deficit) (929,820) (76,732)
----------------------------------
(654,070) 164,518
----------------------------------
71,770 175,293
----------------------------------
e-AUCTION GLOBAL TRADING INC.
STATEMENT OF CASH FLOWS 1999 1999 1998 1998
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDING JUNE 30 January 1 to April 1 to January 8 to April 1 to
UNAUDITED - PREPARED BY MANAGEMENT (IN US DOLLARS) June 30 June 30 June 30 June 30
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss (638,251) (505,774) (76,732) (69,161)
Add items not affecting cash
Allowance for loan receivable - - - -
Net changes in non-cash operating accounts
Accounts payable 333,412 199,346 - (2,992)
----------------------------------------------------------------
(304,839) (306,427) (76,732) (72,153)
----------------------------------------------------------------
FINANCING ACTIVITIES
Due to related parties 239,928 307,451 10,775 6,775
Issuance of share capital 34,500 - 251,250 250,000
Share issue costs - - (10,000) (10,000)
----------------------------------------------------------------
274,428 307,451 252,025 246,775
----------------------------------------------------------------
INVESTING ACTIVITIES
Incorporation costs - - (2,000) (1,578)
Software assets (68,747) - - -
Deposit in Schelfhout - - - -
----------------------------------------------------------------
(68,747) - (2,000) (1,578)
----------------------------------------------------------------
INCREASE (DECREASE) IN CASH (99,158) 1,023 173,293 173,044
CASH, beginning of period 100,181 - - 249
----------------------------------------------------------------
CASH, end of period 1,023 1,023 173,293 173,293
----------------------------------------------------------------
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN U.S. FUNDS)
- -------------------------------------------------------------------------------
1. INCORPORATION AND NATURE OF BUSINESS
- -------------------------------------------------------------------------------
The Company was incorporated on January 8, 1998 in Nevada, U.S.A. On
March 23, 1999 the directors acting in lieu of a special meeting approved
the name change to e-Auction Global Trading Inc.
The Company was organized with the intent to be a holding company which
will acquire and/or form joint ventures with corporate entities
conducting various types of businesses throughout the world. (NOTE 5)
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
a) Foreign currency translation
The Company follows the "temporal" method of accounting for
foreign currency translations. Balance sheet items are translated
into Canadian dollars at exchange rates prevailing at the balance
sheet date for monetary items and at exchange rates in effect at
the transaction date for non-monetary items. Income statement
items are translated at average rates prevailing during the year.
Unrealized gains and losses are deferred and amortized over their
expected life. Realized gains and losses are charged to
operations.
b) Loss per common share
Loss per common share on a fully diluted basis is not presented as
it would be anti-dilutive.
c) Measurement uncertainty
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant areas requiring the use of management
estimates relate to the determination of impairment of assets and
useful lives for depreciation and amortization. Financial results
as determined by actual events could differ from those estimates.
d) Financial instruments
The Company's financial instruments consist of cash, loan
receivable and accounts payable, the fair market value of which
approximates their carrying value.
e) Related party transactions
Related party transactions are recorded at their exchange amounts
which approximate fair market value.
f) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced
before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor
errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
- -------------------------------------------------------------------------------
3. SHARE CAPITAL AND CONTRIBUTED SURPLUS
- -------------------------------------------------------------------------------
a) Authorized - 250,000,000 common shares with a par value of $0.001
JUNE 30,
NUMBER OF 1999 CONTRIBUTED
SHARES $ SURPLUS
--------- ----------- ---------
b) Issued -
Balance,
January 1,
1999 5,320,000 5,320 235,930
Share Exchange
Agreement 34,500,000 34,500 -
---------- ------ -------
Balance, end
of period 39,820,000 39,820 235,930
========== ====== =======
The Company entered into an agreement to acquire 100% of the issued and
outstanding shares of e-Auction Global Trading Inc., a Barbados company (the
legal subsidiary). The purchase price was 34,500,000 common shares of the
Company. The acquisition will be accounted for as a reverse takeover where the
financial statements will be issued under the name of the legal parent but
will be a continuation of the financial statements of the legal subsidiary. As
preparation for the acquisition the Company increased its authorized capital
stock to 250,000,000 shares of common stock.
In connection with the acquisition of the Barbados subsidiary the company
granted 1,000,000 stock options with an exercise price of $0.01 per share to the
former employees, officers and directors of this company.
(SEE NOTE 5)
- -------------------------------------------------------------------------------
4. LOSS PER SHARE
- -------------------------------------------------------------------------------
Loss per share for the period from January 1, 1999 to June 30, 1999 is
$0.02.
- -------------------------------------------------------------------------------
5. SUBSEQUENT EVENTS
- -------------------------------------------------------------------------------
Subsequent to quarter end:
a) The Company entered into an agreement to acquire 100% of the issued
and outstanding shares of Schelfhout Computer Systemen
N.V.("Schelfhout"), a Belgian company. The purchase price is to be
$10,000,000 and is to be paid as follows:
Deposit $1,000,000 (paid in August 1999)
At closing $3,000,000 cash
At closing $6,000,000 in common shares of the Company
The $6,000,000 in shares are not free trading and are subject to a
timed release formula. If the Company's shares are not freely
trading on any given release date the equivalent cash is to be paid
by the Company and the shares are to be returned to the Treasury.
The agreement is still subject to final approval by all parties.
b) In connection with the Schelfhout acquisition the Company received a
loan of $1,000,000 from Millennium Advisors Inc., ("Millennium") a
company related through a common director, acting as agent for
undisclosed lenders. In addition Millennium received 197,219 common
shares of the Company worth $1,000,000 as a financing fee.
The Company also entered into a contract for services whereby
Millenium would be paid 25% of any funds raised by the sale of
equity or issuance of debt by the Company in excess of the amount
reasonably required by the Company to complete the Schelfhout
acquisition.
c) The Company, through its Canadian subsidiary, made two purchases of
intellectual property. The first purchase was for $300 Cdn. paid in
the form of 30,000 options for common shares with an exercise price
of $0.01 Cdn. per share. In connection with this acquisition the
Company entered into a consulting agreement where a company
associated with the vendor would be paid $5,000 Cdn. per month and
would also receive 65,000 options for common shares with an exercise
price of $0.01 Cdn. per share.
The second purchase was for $50,000 Cdn. in cash. In connection with
this acquisition the Company entered into a management services
agreement where $1,000 Cdn. per month would be paid to the vendor
who also received 80,000 options for common shares with an exercise
price of $0.01 Cdn. per share.
d) Approved a stock option plan where 6,000,000 common shares are
reserved for issuance on the exercise of options. Options are
exercisable for a period of 10 years from the date of the grant.
f) Granted a director of the Company 250,000 stock options with an
exercise price of $5 per share. Granted employees 3,050,000 stock
options with an exercise price of $0.85 per share.
g) The Company advanced a further $100,000 to Intrepidus, Inc. in
connection with the Bridge loan agreement.
h) The Company received an additional $2,200,000 in the form of a
convertible debenture, the terms of which still have to be
finalized.
- -------------------------------------------------------------------------------
6. CONTINGENCY
- -------------------------------------------------------------------------------
A shareholder derivative action was brought against the Company on
November 17, 1999 in the United States District Court against the
Company, its subsidiaries, two of its directors and several other
companies and individuals.
The action alleges Sanga International, Inc.'s ("Sanga") reputation was
damaged by the Defendants (i) engaging in conversion (ii) engaging in
fraud (iii) interfering with Sanga's prospective business advantage (iv)
breach of contract (v) violating California usury laws and (vi) breach of
fiduciary duty.
The plaintiff claims the defendants' actions have not only damaged Sanga
but also the plaintiff and the remaining shareholders of Sanga by as much
as $100 million dollars.
The Action was stayed on November 29, 1999 as a result of Sanga filing
for Chapter 11 bankruptcy protection in the United States Bankruptcy
Court.
Exposure to the Company is not determinable at this time.
- -------------------------------------------------------------------------------
7. RECONCILIATION OF UNITED STATES TO CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
- -------------------------------------------------------------------------------
a) Basic and diluted loss per share under U.S. GAAP are equal to the
loss per share under Canadian GAAP. The weighted average number of
shares for calculating loss per share is 28,955,359.
b) Under U.S. GAAP, the Company would record a deferred tax asset
subject to an evaluation allowance where that asset is impaired or
not expected to be realized. The Company has deferred tax assets
of approximately $78,800. The Company's valuation allowance would
be equal to the amount of the deferred tax assets. Therefore,
there have been no amounts booked in the accounts of the Company.
e-AUCTION GLOBAL TRADING INC.
INCOME STATEMENT 1999 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDING SEPTEMBER 30 January 1 to July 1 to January 8 to July 1 to
UNAUDITED - PREPARED BY MANAGEMENT (IN US DOLLARS) September 30 September 30 September 30 September 30
REVENUE - - - -
EXPENSES
Salaries and benefits 559,931 244,580 - -
Legal 86,697 53,443 21,500 18,000
Sales, general and administrative 549,958 260,312 196,955 123,724
------------------------------------------------------------------
TOTAL EXPENSES 1,196,586 558,335 218,455 141,724
------------------------------------------------------------------
------------------------------------------------------------------
Net Loss (1,196,586) (558,335) (218,455) (141,724)
------------------------------------------------------------------
Opening retained earnings (deficit) (291,569) (929,820) - (76,732)
Closing retained earnings (deficit) (1,488,155) (1,488,155) (218,455) (218,455)
e-AUCTION GLOBAL TRADING INC.
BALANCE SHEET AS AT SEPTEMBER 30 1999 1998
- ------------------------------------------------------------
UNAUDITED - PREPARED BY MANAGEMENT (IN US DOLLARS)
ASSETS
CURRENT ASSETS
Cash 1,015 31,570
Accounts Receivable - -
----------------------------------
1,015 31,570
Deposit in Schelfhout 1,000,000 -
Software Assets 68,747 -
Incorporation Costs 2,000 2,000
----------------------------------
1,070,747 2,000
----------------------------------
1,071,762 33,570
----------------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable & Accruals 514,864 -
Due to Related Parties - 10,775
Due to Ventures North Investment Partners 769,303 -
Loan Payable 1,000,000 -
----------------------------------
2,284,167 10,775
EQUITY
Share Capital 39,820 5,320
Contributed Surplus 235,930 235,930
Retained Earnings (Deficit) (1,488,155) (218,455)
----------------------------------
(1,212,405) 22,795
----------------------------------
1,071,762 33,570
----------------------------------
e-AUCTION GLOBAL TRADING INC.
STATEMENT OF CASH FLOWS 1999 1999 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDING SEPTEMBER 30 January 1 to July 1 to January 8 to July 1 to
UNAUDITED - PREPARED BY MANAGEMENT (IN US DOLLARS) September 30 September 30 September 30 September 30
CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES
Net loss (1,196,586) (558,335) (218,455) (141,724)
Add items not affecting cash
Allowance for loan receivable - - - -
Net changes in non-cash operating accounts
Accounts payable 512,364 178,952 - -
------------------------------------------------------------------
(684,223) (379,384) (218,455) (141,724)
------------------------------------------------------------------
FINANCING ACTIVITIES
Due to related parties 619,303 379,376 10,775 -
Loan payable 1,000,000 1,000,000 - -
Issuance of share capital 34,500 - 251,250 -
Share issue costs - - (10,000) -
------------------------------------------------------------------
1,653,803 1,379,376 252,025 -
------------------------------------------------------------------
INVESTING ACTIVITIES
Incorporation costs - - (2,000) -
Software assets (68,747) - - -
Deposit in Schelfhout (1,000,000) (1,000,000) - -
------------------------------------------------------------------
(1,068,747) (1,000,000) (2,000) -
------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (99,166) (8) 31,570 (141,724)
CASH, beginning of period 100,181 1,023 - 173,293
------------------------------------------------------------------
CASH, end of period 1,015 1,015 31,570 31,570
------------------------------------------------------------------
e-AUCTION GLOBAL TRADING INC.
(FORMERLY KAZARI INTERNATIONAL, INC.)
(A NEVADA CORPORATION)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN U.S. FUNDS)
- -------------------------------------------------------------------------------
1. INCORPORATION AND NATURE OF BUSINESS
- -------------------------------------------------------------------------------
The Company was incorporated on January 8, 1998 in Nevada, U.S.A. On
March 23, 1999 the directors acting in lieu of a special meeting approved
the name change to e-Auction Global Trading Inc.
The Company was organized with the intent to be a holding company which
will acquire and/or form joint ventures with corporate entities
conducting various types of businesses throughout the world. (NOTE 5)
- -------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
a) Foreign currency translation
The Company follows the "temporal" method of accounting for
foreign currency translations. Balance sheet items are translated
into Canadian dollars at exchange rates prevailing at the balance
sheet date for monetary items and at exchange rates in effect at
the transaction date for non-monetary items. Income statement
items are translated at average rates prevailing during the year.
Unrealized gains and losses are deferred and amortized over their
expected life. Realized gains and losses are charged to
operations.
b) Loss per common share
Loss per common share on a fully diluted basis is not presented as
it would be anti-dilutive.
c) Measurement uncertainty
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Significant areas requiring the use of management
estimates relate to the determination of impairment of assets and
useful lives for depreciation and amortization. Financial results
as determined by actual events could differ from those estimates.
d) Financial instruments
The Company's financial instruments consist of cash, loan
receivable and accounts payable, the fair market value of which
approximates their carrying value.
e) Related party transactions
Related party transactions are recorded at their exchange amounts
which approximate fair market value.
f) Uncertainty due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use
two digits rather than four to identify a year. Date-sensitive
systems may recognize the year 2000 as 1900 or some other date,
resulting in errors when information using year 2000 dates is
processed. In addition, similar problems may arise in some systems
which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced
before, on, or after January 1, 2000, and, if not addressed, the
impact on operations and financial reporting may range from minor
errors to significant systems failure which could affect an
entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of
customers, suppliers, or other third parties, will be fully
resolved.
- -------------------------------------------------------------------------------
3. SHARE CAPITAL AND CONTRIBUTED SURPLUS
- -------------------------------------------------------------------------------
a) Authorized - 250,000,000 common shares with a par value of $0.001
SEPTEMBER 30,
NUMBER OF 1999 CONTRIBUTED
SHARES $ SURPLUS
--------- ------------- ---------
b) Issued -
Balance,
January 1,
1999 5,320,000 5,320 235,930
Share Exchange
Agreement 34,500,000 34,500 -
---------- ------ -------
Balance, end
of period 39,820,000 39,820 235,930
========== ====== =======
The Company entered into an agreement to acquire 100% of the issued and
outstanding shares of e-Auction Global Trading Inc., a Barbados company (the
legal subsidiary). The purchase price was 34,500,000 common shares of the
Company. The acquisition will be accounted for as a reverse takeover where the
financial statements will be issued under the name of the legal parent but
will be a continuation of the financial statements of the legal subsidiary. As
preparation for the acquisition the Company increased its authorized capital
stock to 250,000,000 shares of common stock.
In connection with the acquisition of the Barbados subsidiary the company
granted 1,000,000 stock options with an exercise price of $0.01 per share to the
former employees, officers and directors of this company.
(SEE NOTE 5)
- -------------------------------------------------------------------------------
4. LOSS PER SHARE
- -------------------------------------------------------------------------------
Loss per share for the period from January 1, 1999 to September 30,
1999 is $0.04.
- -------------------------------------------------------------------------------
5. SUBSEQUENT EVENTS
- -------------------------------------------------------------------------------
Subsequent to quarter end:
a) The Company entered into an agreement to acquire 100% of the issued
and outstanding shares of Schelfhout Computer Systemen
N.V.("Schelfhout"), a Belgian company. The purchase price is to be
$10,000,000 and is to be paid as follows:
Deposit $1,000,000 (paid in August 1999)
At closing $3,000,000 cash
At closing $6,000,000 in common shares of the Company
The $6,000,000 in shares are not free trading and are subject to a
timed release formula. If the Company's shares are not freely
trading on any given release date the equivalent cash is to be paid
by the Company and the shares are to be returned to the Treasury.
The agreement is still subject to final approval by all parties.
b) In connection with the Schelfhout acquisition the Company received a
loan of $1,000,000 from Millennium Advisors Inc., ("Millennium") a
company related through a common director, acting as agent for
undisclosed lenders. In addition Millennium received 197,219 common
shares of the Company worth $1,000,000 as a financing fee.
The Company also entered into a contract for services whereby
Millenium would be paid 25% of any funds raised by the sale of
equity or issuance of debt by the Company in excess of the amount
reasonably required by the Company to complete the Schelfhout
acquisition.
c) The Company, through its Canadian subsidiary, made two purchases of
intellectual property. The first purchase was for $300 Cdn. paid in
the form of 30,000 options for common shares with an exercise price
of $0.01 Cdn. per share. In connection with this acquisition the
Company entered into a consulting agreement where a company
associated with the vendor would be paid $5,000 Cdn. per month and
would also receive 65,000 options for common shares with an exercise
price of $0.01 Cdn. per share.
The second purchase was for $50,000 Cdn. in cash. In connection with
this acquisition the Company entered into a management services
agreement where $1,000 Cdn. per month would be paid to the vendor
who also received 80,000 options for common shares with an exercise
price of $0.01 Cdn. per share.
d) Approved a stock option plan where 6,000,000 common shares are
reserved for issuance on the exercise of options. Options are
exercisable for a period of 10 years from the date of the grant.
f) Granted a director of the Company 250,000 stock options with an
exercise price of $5 per share. Granted employees 3,050,000 stock
options with an exercise price of $0.85 per share.
g) The Company advanced a further $100,000 to Intrepidus, Inc. in
connection with the Bridge loan agreement.
h) The Company received an additional $2,200,000 in the form of a
convertible debenture, the terms of which still have to be
finalized.
- -------------------------------------------------------------------------------
6. CONTINGENCY
- -------------------------------------------------------------------------------
A shareholder derivative action was brought against the Company on
November 17, 1999 in the United States District Court against the
Company, its subsidiaries, two of its directors and several other
companies and individuals.
The action alleges Sanga International, Inc.'s ("Sanga") reputation was
damaged by the Defendants (i) engaging in conversion (ii) engaging in
fraud (iii) interfering with Sanga's prospective business advantage (iv)
breach of contract (v) violating California usury laws and (vi) breach of
fiduciary duty.
The plaintiff claims the defendants' actions have not only damaged Sanga
but also the plaintiff and the remaining shareholders of Sanga by as much
as $100 million dollars.
The Action was stayed on November 29, 1999 as a result of Sanga filing
for Chapter 11 bankruptcy protection in the United States Bankruptcy
Court.
Exposure to the Company is not determinable at this time.
- -------------------------------------------------------------------------------
7. RECONCILIATION OF UNITED STATES TO CANADIAN GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
- -------------------------------------------------------------------------------
a) Basic and diluted loss per share under U.S. GAAP are equal to the
loss per share under Canadian GAAP. The weighted average number of
shares for calculating loss per share is 32,616,703.
b) Under U.S. GAAP, the Company would record a deferred tax asset
subject to an evaluation allowance where that asset is impaired or
not expected to be realized. The Company has deferred tax assets
of approximately $78,800. The Company's valuation allowance would
be equal to the amount of the deferred tax assets. Therefore,
there have been no amounts booked in the accounts of the Company.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE COMMON SHARES OFFERED HEREBY,
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SECURITIES OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
Page
----
Prospectus Summary............................... 5
Risk Factors..................................... 6
Use of Proceeds.................................. 8
Dividend Policy.................................. 8
Capitalization................................... 8
Selected Consolidated Financial Data............. 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations................................... 10
Business......................................... 11
Management....................................... 21
Certain Relationships and Related Transactions... 26
Principal Stockholders........................... 26
Selling Stockholders............................. 27
Plan of Distribution............................. 29
Description of Capital Stock..................... 30
Transfer Agent................................... 31
Shares Eligible for Future Sale.................. 31
Experts.......................................... 32
Additional Information........................... 32
Index to Financial Statements.................... 33
Until ____________ (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Shares, whether or not participating in
this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a
Prospectus when acting as Underwriters and with respect to their unsold
allotments or subscriptions.
55,771,530 SHARES
e-AUCTION GLOBAL
TRADING INC.
PROSPECTUS
FEBRUARY 28, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, payable by the
Registrant in connection with the sale of Common Shares being registered. All
amounts are estimates except the SEC registration fee.
SEC registration fee................................................................... $53,323
Printing and engraving costs........................................................... 10,000
Legal fees and expenses................................................................ 15,000
Accounting fees and expenses........................................................... 5,000
Blue Sky fees and expenses............................................................. 1,000
Miscellaneous expenses................................................................. 10,000
-------
Total............................................................................ $94,323
=======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of e-Auction contain the following provisions
which limit the liability of directors:
Article V
The personal liability of the directors of the corporation is hereby eliminated
to the fullest extent permissible under the General Corporation Law of the State
of Nevada, as the same may be amended and supplemented.
Article VI
The corporation shall, to the fullest extent permitted by the General
Corporation Law of the State of Nevada, as the same may be amended and
supplemented (the "Law") indemnify and any all persons whom it shall have power
to indemnify under the Law from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by the Law. The
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators.
Section 9 of e-Auction's By-laws, which reads as follows, provides for the
indemnification of agents of and the purchase of liability insurance:
For purposes of this Section 9, "agent" means any person who is or was a
director, officer, employee or other agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation of the Corporation or of another enterprise at the request of such
predecessor corporation; "proceeding" means any threatened, pending or completed
action or proceeding, whether civil, criminal, administrative or investigative;
and "expenses" included without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under this Section 9.
II-2
The Corporation shall have the power to indemnify any person who was or is a
party or is threatened to be made a party to any proceeding) other than an
action by or in the right of the Corporation to procure a judgement in its
favor) by reason of the fact that such person is or was an agent of the
Corporation, against expenses, judgements, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceedings to the
fullest extent permitted under the General Corporation Law of the State of
Nevada, as amended from time to time.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the date of its incorporation, the following transactions were effected by
e-Auction in reliance upon exemptions from registration under the Securities Act
of 1933, as amended, (the "1933 Act") as provided in Section 4(6) thereof.
Each certificate issued for unregistered securities contained a legend stating
that the securities have not been registered under the Act and setting forth the
restrictions on the transferability and the sale of the securities.
On January 8, 1998, e-Auction issued 1,250,000 Common Shares equally to Fred
Tham, Kam Chun Hui, Noni Wee, Kar Chun Chow and AiNgoh Chiam for an aggregate
purchase price of $1,250.00 pursuant to Section 4(6) of Regulation D of the 1933
Act. E-Auction believes that the investors had knowledge and experience in
financial and business matters which allowed them to evaluate the merits and
risks of the receipt of these securities and that they were knowledgeable about
e-Auction's operations and financial condition.
On January 30, 1998, e-Auction issued 4,000,000 shares of common stock at a
purchase price of one cent ($0.01) per share for an aggregate purchase price of
$40,000.00 through an offering circular under Rule 504 of Regulation D
promulgated under the 1933 Act. e-Auction believes that the investors had
knowledge and experience in financial and business matters which allowed them to
evaluate the merits and risks of the receipt of these securities and that they
were knowledgeable about e-Auction's operations and financial condition.
On April 26, 1998, e-Auction issued 70,000 shares of common stock at a purchase
price of three dollars ($3.00) per share for an aggregate purchase price of
$210,000.00 pursuant to an offering under Rule 504 of Regulation D promulgated
under the 1933 Act. e-Auction believes that the investors had knowledge and
experience in financial and business matters which allowed them to evaluate the
merits and risks of the receipt of these securities and that they were
knowledgeable about e-Auction's operations and financial condition.
On February 26, 1999, e-Auction entered into a Stock Exchange Agreement with the
stockholders of e-Auction (Barbados). e-Auction issued a total of 34,500,000
shares of common stock of e-Auction pursuant to Regulation S to the e-Auction
(Barbados) stockholders in exchange for all of the outstanding shares of
e-Auction (Barbados). e-Auction believes that the stockholders of e-Auction
(Barbados) had knowledge and experience in financial and business matters which
allowed them to evaluate the merits and risks of the receipt of these securities
and that they were knowledgeable about e-Auction's operations and financial
condition.
On August 13, 2000, e-Auction issued 197,217 common shares to Millenium
Advisors Inc. as their fee and interest on a $1 million loan made to the
Company. The issuance was made in reliance on Regulations Promulgated under
the 1933 Act. e-Auction believes that Millenium Advisors Inc. had knowledge
and experience in financial and business matters which allowed them to
evaluate the merits and risks of the receipt of these securities and that
they were knowledgeable about e-Auction's operating and financial condition.
On January 7, 2000, the Company issued 16,885,447 Common Shares to various
non-United States purchasers pursuant to Regulation S promulgated under the
1933 Act upon the exercise of special warrants previously issued by the
Company . e-Auction believes that the purchasers of the special warrants had
knowledge and experience in financial and business matters which allowed them
to evaluate the merits and risks of the receipt of these securities and that
they were knowledgeable about e-Auction's operations and financial condition.
On January 10, 2000, the Company issued 3,636,364 shares to the former
shareholders of Schelfhout pursuant to Regulation S promulgated under the
1933 Act as partial consideration for the purchase by the Belgium subsidiary
of the Company of all of the shares of Schelfhout. e-Auction believes that
the stockholders of Schelfhout had knowledge and experience in financial and
business matters which allowed them to evaluate the merits and risks of the
receipt of these securities and that they were knowledgeable about
e-Auction's operations and financial condition.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
II-3
(a) Exhibits
Number Description
3.1 Articles of the Company
3.2 By-laws of the Company
10.1 Share Exchange Agreement dated as of February 26,
1999 between Kazar International Inc. (now e-Auction
Global Trading Inc.) and QFG Holdings Inc.
10.2 Share Purchase Agreement dated Jnuary 10, 2000
between e-Auction Global Trading In., e-Auction
Belgium N.V., Luc Schelfhout, and Hilde Dee Laet
10.3 Pledge Agreement dated January 10, 2000 between
e-Auction Belgium N.V., Luc Schelfhout, and Hilde De
Laet
15.1 Letter re: unaudited financial statements
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule
(b) Financial Statement Schedules
All schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements of the registrant or
related notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Canada on the 28th day of
February, 2000.
e-AUCTION GLOBAL TRADING INC.
By: /s/ Dan McKenzie
--------------------------------
Dan McKenzie, President & Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dan McKenzie and David Hackett and
each of them, his attorneys-in-fact, each with the power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering
covered by this Registration Statement that is to be effective upon filing
pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto in all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act
and thing requisite and necessary to be done in and about the premises, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that such attorneys-in-fact and agents or any of
them, or his or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
II-5
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on February 28, 2000:
SIGNATURE TITLE
--------- -----
/s/ Dan McKenzie Chief Executive Officer, President & Director
----------------------------
Dan McKenzie
/s/ David Hackett Chief Financial Officer
----------------------------
David Hackett
/s/ Philip Lapp Director
----------------------------
Philip Lapp
/s/ Phil MacDonnell Director
----------------------------
Phil MacDonnell
/s/ Eric White Director
----------------------------
Eric White
II-6
CONSENT OF DALE MATHESON CARR-HILTON,
CHARTERED ACCOUNTANTS, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"
and to the use of our reports dated Febt, 1999, in the Registration Statement
(Form S-1) and related Prospectus of e-Auction Global Trading Inc., for the
registration of its common shares to filed on February 28, 2000 or thereabout.
/s/ Alvin F. Dale, Ltd.
Dale Matheson Carr-Hilton
February 28, 2000
CONSENT OF DAVID A. COX,
CHARTERED ACCOUNTANT, INDEPENDENT AUDITOR
I consent to the reference to myself under the caption "Experts" and
to the use of my report dated June 8, 1998, in the Registration Statement
(Form S-1) and related Prospectus of e-Auction Global Trading Inc., for the
registration of its common shares to filed on February 28, 2000 or thereabout.
/s/ David A. Cox
February 28, 2000