FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-48278
PROSPECTUS
ABLEAUCTIONS.COM, INC.
[COMPANY LOGO]
5,515,154 SHARES OF COMMON STOCK
This prospectus relates to the proposed resale from time to time of up to
5,515,154 shares of common stock, $0.001 par value per share by the selling
securityholders. We will not receive any of the proceeds from the sale of these
securities.
The selling securityholders listed on page 46 are offering:
- 3,968,126 shares of common stock; and
- 1,547,028 shares of common stock issuable upon exercise of the
warrants.
Our common stock currently is quoted on the American Stock Exchange ("AMEX")
under the symbol "AAC," and is listed on the Third Market Segment of the
Zetradax of the Frankfurt Stock Exchange. On October 13, 2000, the last reported
sale price of our common stock on the AMEX was $3.625 per share.
The selling securityholders may sell all or any portion of their shares of
common stock in one or more transactions on the AMEX or in private, negotiated
transactions. Brokers or dealers engaged by the selling shareholders may arrange
for other brokers or dealers to participate. These brokers or dealers may
receive commissions or discounts from the selling shareholders in amounts to be
negotiated. These brokers, dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the Securities
Act of 1933, as amended, in connection with sales. The selling securityholders
will pay all selling expenses, including any brokerage commissions.
We will bear all costs and expenses of the registration of the selling
securityholders' shares under the Securities Act and certain state securities
laws, other than fees of counsel for the selling securityholders and any
discounts or commissions payable with respect to sales of the shares.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES
OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is October 13, 2000.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Except for statements of historical fact, certain information contained in this
registration statement constitutes "forward-looking statements," such as
statements containing the words "believes," "anticipates," "intends," "expects"
and similar words, as well as all projections of our future results. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results or achievements to be materially
different from any future results or achievements expressed or implied by such
forward-looking statements. These factors include, but are not limited to, the
following: risks involved in implementing a new business strategy; our ability
to obtain financing on acceptable terms; competition in the auction industry;
market acceptance of live auction broadcasts on the Internet; our ability to
manage growth and integrate the operations of acquired auction houses; risks of
technological change; our dependence on key personnel; our dependence on
marketing relationships with auction houses and third party suppliers; our
ability to protect our intellectual property rights; government regulation of
Internet commerce and the auction industry; economic factors affecting the sales
of auction merchandise; dependence on continued growth in use of the Internet;
risk of technological change; capacity and systems disruptions; uncertainty
regarding infringing intellectual property rights of others; and the other risks
and uncertainties described under "Risk Factors" in this registration statement.
Certain of the forward looking statements contained in this registration
statement are identified with cross-references to this section and/or to
specific risks identified under "Risk Factors".
We have included projections and estimates in this registration statement, which
are based primarily on management's assessment of our results of operations,
discussions and negotiations with third parties, management's experience, and a
review of information filed by our competitors with the SEC. Investors are
cautioned against attributing undue certainty to management's projections.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 covering the
shares being sold in this offering. We have not included in this prospectus some
information contained in the registration statement, and you should refer to the
registration statement, including exhibits and schedules filed with the
registration statement, for further information. You may review without charge a
copy of the registration statement at the public reference section of the SEC in
Room 1024, Judiciary Plaza, 450 5th Street, N.W., Washington, D.C., 20549; and
at the SEC's Regional Offices located at 7 World Trade Center, Suite 1300, New
York, New York, 10048, and 1400 Citicorp Center, 500 West Madison Street,
Chicago, Illinois, 60661. You may also obtain copies of such materials at
prescribed rates from the public reference section of the SEC in Room 1024,
Judiciary Plaza, 450 5th Street, N.W., Washington, D.C., 20549. In addition, the
SEC maintains a web site on the Internet at www.sec.gov, which contains reports,
proxy and information statements, and other information regarding registrants
that file electronically with the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms and their copy charges.
We furnish our stockholders with annual reports containing financial statements
audited by our independent auditors. We also file annual, quarterly and current
reports, proxy statements and other information with the SEC. You can also
request copies of these documents, for a copying fee, by writing the SEC.
You may request free copies of any filing by writing or telephoning us at our
principal offices, which are located at the following address:
Ableauctions.com, Inc.
7303 East Earll Drive
Scottsdale, Arizona 85251
(602) 224-3731
Attn: Ron Miller
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING NOTES THERETO, APPEARING
ELESWHERE IN THIS PROSPECTUS. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. ABLEAUCTIONS.COM'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATD IN THESE
FORWRAD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE TERMS "ABLEAUCTIONS.COM", "WE", "US", AND "OUR" AS USED
IN THIS PROSPECTUS INCLUDE ABLEAUCTIONS.COM, INC. AND ITS SUBSIDIARIES.
ABLEAUCTIONS.COM, INC.
We are an early-stage company engaged in the business of auctioning a broad
range of merchandise and equipment through our "brick-and-mortar" auction houses
and on our web site at www.ableauctions.com. We operate our business through our
wholly-owned subsidiaries: Able Auctions (1991) Ltd., Johnston's Surplus Office
Systems Ltd., Jarvis Industries Ltd., and Warex Supply Ltd. in Canada and
Ableauctions.com (Washington), Inc., Ehli's Commercial/Industrial Auctions, Inc.
and Surplus Office Systems, LLC in the United States.
We acquired Able Auctions (1991) Ltd., in August 1999, and its auction business
located in British Columbia. Since our acquisition of Able Auctions (Ltd.), we
developed the technologies to broadcast live auctions on the Internet and have
acquired auction and liquidation businesses in the states of California, Arizona
and Washington, and in British Columbia, Canada. As of October 13, 2000, we
operate auction houses in San Meteo, California; Scottsdale, Arizona; Tacoma and
Seattle, Washington; and Burnaby, Surrey and Vancouver, British Columbia. We
broadcast our first auction over the internet in December 1999, and currently
broadcast approximately 20 percent of our auctions over the Internet.
We purchase the inventory and/or assets of distressed companies, bankruptcies,
and liquidations and auction this merchandise on a non-reserved basis. We also
auction consigned merchandise. Many of our customers are both consignors/sellers
and buyers of merchandise.
Our auctions are open to the public. Our typical auction draws approximately 500
bidders in person and offers on average approximately 1,200 items or lots of
merchandise and equipment for auction. Bidders are generally businesses and
commercial purchasers. In auctions that we broadcast on our web site, our online
customers are able to bid on and buy merchandise at our live auctions through
the Internet.
In addition to our auction business, our web site features a Retail Store where
visitors can purchase merchandise at discounted prices and bid on items in our
Silent Auction, which is similar to other Internet auction sites.
Our growth strategy is to expand our auction business by acquiring existing
brick-and-mortar auction companies and liquidators. Since our acquisition of
Able Auctions (1991), we have completed the following acquisitions:
o Ross Auctioneers, a small regional auction company in British
Columbia, Canada;
o Falcon Trading, a small regional auction company located in Redmond,
Washington;
o Mesler's Auction House, located in Scottsdale, Arizona;
o Ehli's Auctions, an auction house located in Tacoma, Washington;
o Auctions West in British Columbia;
o Johnston's Surplus Office Systems, a manufacturer, re-manufacturer and
retail seller of office furniture located in British Columbia,
Washington and California;
o Warex Supply, a seller of used and refurbished warehouse racking and
shelving located in British Columbia; and
o Jarvis Industries, a small regional auction company located in British
Columbia.
1
We began our operations when we acquired Able Auctions (1991) Ltd. on August 24,
1999. During the fiscal year ended December 31, 1999, our gross revenues were
$898,450. During the six-month period ended June 30, 2000, our gross revenues
were $4,450,405. As of October 13, 2000, we had 98 employees, including 65
auctioneers and auction personnel, 12 personnel that provide software and
technology development services, 5 management personnel and 16 administrative
personnel.
CORPORATE INFORMATION
We incorporated in Florida in September 1996. Before our acquisition of Able
Auctions (1991) in August 1999, we were a shell company with no material
revenues, expenses, assets, or liabilities. Able Auctions (1991) has operated
auctions in the Lower Mainland of British Columbia, Canada since 1991. Our
headquarters are located at 7303 East Earll Drive, Scottsdale, Arizona 85251,
and our telephone number is (602) 224-3731. Our web site address is
www.ableauctions.com. The information on our web site is not a part of this
prospectus.
Ableauctions.com and Ableauctions are trademarks of Ableauctions.com, Inc. This
prospectus contains trademarks and trade names of other companies.
THE OFFERING
Through this prospectus, the selling securityholders may offer to the public and
may sell all or any portion of their shares of common stock currently owned or
acquirable upon the exercise of warrants.
SHARES OFFERED BY THE SELLING 5,515,154 shares of common stock, $0.001
SECURITYHOLDERS par value per share
OFFERING PRICE Determined at the time of sale by the
selling securityholders
COMMON STOCK OUTSTANDING AS OF 20,976,661 shares
OCTOBER 13, 2000
COMMON STOCK OUTSTANDING ASSUMING 22,523,689 shares
EXERCISE OF WARRANTS BY SELLING
SECURITYHOLDER
USE OF PROCEEDS We will not receive any of the proceeds
of the shares offered by the selling
securityholders.
Any proceeds we receive from the sale of
our common stock pursuant to the
exercise of the warrants by the selling
securityholders will be used primarily
for general corporate purposes. See
"Use of Proceeds."
DIVIDEND POLICY We currently intend to retain any future
earnings to fund the development and
growth of our business. Therefore, we
do not currently anticipate paying cash
dividends. See "Dividend Policy."
American Stock Exchange Symbol AAC
2
SUMMARY CONSOLIDATED FINANCIAL DATA
The following data presents certain financial information for Ableauctions.com
for the periods indicated. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and related notes included elsewhere in
this prospectus.
Six Months Six Months Year Ended Year ended
Ended Ended December December
June 30, 2000 June 30, 1999 31, 1999 31, 1998
(unaudited)
-----------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Sales of Goods............................................ 3,904,153 - 829,755 -
Commissions............................................... 546,252 - 68,695 -
Total costs and expenses.................................. 7,186,337 145,349 2,256,246 944
Net (loss)................................................ (2,728,184) (145,349) (1,339,492) (944)
Net (loss) per share...................................... (0.14) (0.01) (0.10) -
Weighted average number of common shares outstanding...... 19,906,349 10,607,735 13,228,082 6,250,000
As of As of As of As of
June 30, 2000 June 30, 1999 December 31, December
1999 31, 1998
(unaudited)
-----------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $3,885,762 $ Nil $ - $ Nil
Working capital (deficiency).............................. 5,479,746 (1,293) 489,207 (944)
Total assets.............................................. 13,601,153 Nil 2,761,799 Nil
Total liabilities......................................... 1,484,037 1,293 338,622 944
Shareholders' equity...................................... 12,117,116 (1,293) 2,423,177 (944)
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider the
risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. Any of these risk factors
could materially and adversely affect our business, financial condition or
operating results. In that case, the trading price of our common stock could
decline, and you could lose all or part of your investment.
Risks Related to Our Business
We have a limited operating history and a history of losses
Before our acquisition of Able Auctions (1991) Ltd., we had no material business
or results of operation. We incurred a net loss of $1,339,492 during 1999, and
$2,728,184 during the six-month period ended June 30, 2000. We anticipate that
we will continue to incur losses at least through fiscal 2000. We do not believe
that we will generate sufficient revenues to support our planned activities in
fiscal 2000 because of our projected development and marketing costs and costs
related to our expansion strategy. See "Plan of Operation" and "Summary of
Operating Budget." In the foreseeable future, we believe that these expenses
will increase our net losses, and we cannot assure you that we will ever be
profitable.
As of December 31, 1999, we had current assets of $827,829 and current
liabilities of $338,622. At June 30, 2000, we had current assets of $5,921,510,
and current liabilities of $444,764. Our working capital position at December
31, 1999 was $489,207 and $5,479,746 at June 30, 2000. We anticipate raising
additional capital through sales of our equity and/or debt; however, we cannot
assure you that we will be able to obtain adequate financing to support our
planned activities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
Because we have recently begun operations, it is difficult to evaluate our
business and our prospects. Our revenue and income potential is unproven and our
business model is still emerging. We cannot assure you that we will
3
attract consignors or bidders to use our web site or generate significant
revenues in the future. We cannot guarantee that we will ever establish a
sizeable market share or achieve commercial success.
Our ability to complete the planned acquisitions in the fourth quarter 2000 and
to meet our business projections through December 31, 2000 may depend on our
ability to raise additional capital in the amount of $8 million or more during
2000.
We anticipate that we may need to seek additional capital in the amount of $8
million or more in the fourth quarter of 2000 to fully fund our two proposed
acquisitions planned in the first half of 2001 and to meet our operating and
capital budget requirements through December 31, 2000. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." We
cannot assure you that any additional financing would be available on terms
acceptable to us, or at all. See "Note Regarding Forward Looking Statements."
Furthermore, any issuance of additional securities may result in dilution to the
then existing shareholders. If adequate funds are not available, we will lack
sufficient capital to complete our planned acquisitions in the first half of
2001, which will have a material adverse effect on our ability to meet our
business projections. If we do not complete any additional acquisitions, we
believe we will have sufficient working capital to fund our operations through
December 2001.
Our growth strategy success depends on our ability to acquire additional auction
and liquidation businesses and to integrate these acquisitions into our
business.
Our business strategy is to grow through acquisitions or strategic affiliations
with auction companies in a number of North American markets. We have acquired
eight auction and liquidation businesses during the last 12 months ended July
31, 2000, and we have plans to acquire three additional auction and liquidation
businesses during the first half of 2001, pending finalization of definitive
agreements and additional financing. We have not publicly disclosed the names of
these potential acquisitions. We cannot assure you that we will obtain adequate
financing to complete these acquisitions or that such acquisition will be
completed in a timely manner, if at all.
Although we believe that we have an adequate infrastructure to implement our
growth strategy, there can be no assurance that our current management,
personnel, and corporate infrastructure will be adequate to manage future
growth, if any. The success of our business strategy depends on making further
acquisitions of or entering into strategic affiliations with auction companies.
We also cannot guarantee that we will be able to integrate new acquisitions or
affiliations successfully into our company without substantial costs, delays, or
other operational or financial problems. Further, acquisitions and expansion
into new markets involve a number of special risks, including possible adverse
effects on our operating results, diversion of management's attention, failure
to retain key acquired personnel, risks associated with unanticipated events or
liabilities, and amortization of acquired intangible assets. Some or all of
these risks could have a material adverse effect on our business, financial
condition and results of operations. In addition, competition in the acquisition
market is intense, and prices paid for auction houses have increased in recent
years.
If we are required to write down goodwill associated with our acquisitions due
to a decline in the value of acquired businesses, such write-down could have a
material adverse effect on our operating results. We may finance future
acquisitions and expansions by incurring additional bank indebtedness, using
cash from operations, issuing common stock or other securities, or any
combination of these. If our common stock does not maintain a sufficient market
value, or potential acquisition candidates are otherwise unwilling to accept our
common stock or other securities as part of the consideration for the sale of
their businesses, we may be required to use more of our cash resources or incur
substantial debt in order to finance future acquisitions. If we do not have
sufficient cash resources, our ability to make acquisitions could be limited
unless we are able to obtain additional capital through debt or equity
financings. There can be no assurance that we will be able to obtain the
financing we will need in the future on terms we consider acceptable, if at all.
We have experienced rapid growth, which has placed a strain on our resources,
and any failure to manage our growth effectively could cause our business to
suffer.
We do not have a proven record in managing our growth and may not be successful
in doing so. We have grown from 12 employees on August 24, 1999 to 98 employees
on October 13, 2000. We have recently acquired additional auction businesses,
hired key management personnel and added personnel in connection with these
acquisitions. We plan to continue expanding through acquisitions and to continue
to develop our Internet e-commerce (the online
4
purchase of goods and services by consumers and businesses) site. Past growth in
these areas has placed, and any future growth will continue to place, a
significant strain on our management systems and resources.
If we are unable to achieve a significant number of visitors and successfully
facilitate transactions, we may be unable to generate sufficient revenues to
earn a profit
The success of our Ableauctions.com web site may depend on achieving significant
market acceptance of our web site by consumers. We currently offer only a
limited selection of merchandise for sale in our silent auctions. We anticipate
that we will have very limited market acceptance until we begin offering more
items of merchandise for sale and our brand name is established. Our business
concept of offering an Internet solution for broadcasting live auctions is still
being tested and we cannot assure you that our Internet strategy to broadcast
live auctions will be successful, or that it will increase revenues of our live
auctions.
Our competitors and potential competitors may offer more cost-effective
merchandising solutions than us, which could damage our business and our ability
to successfully commercialize our web site. Our failure to attract visitors,
successfully complete transactions, and develop an adequate auction house base
will seriously harm our business and our ability to earn a profit.
We have capacity constraints and system development risks that could damage our
customer relations or inhibit our possible growth, and we may need to expand our
management systems and controls quickly
Our success and our ability to provide high quality customer service largely
depends on the efficient and uninterrupted operation of our computer and
communications systems and the computers and communication systems of third
party vendors in order to accommodate any significant numbers or increases in
the numbers of consumers and businesses using our services. Our success also
depends on our and our vendors' abilities to rapidly expand
transaction-processing systems and network infrastructure without any systems
interruptions in order to accommodate any significant increases in use of our
service.
We intend to rely on Compaq to provide us with DISA technology; Allaire
Corporation to assist us with our software application development, server
maintenance and software upgrades; Cybercash to provide third party credit card
processing services; and any other third parties we may hire in the future to
assist us in expanding our technological capacity, our transaction-processing
systems, and network infrastructure as we grow. We cannot assure you that the
vendors we have selected and will select in the future will be capable of
accommodating any significant number or increases in the number of consumer and
auction houses using our services. Such failures will have a material adverse
affect on our business and results of operations. We may experience periodic
systems interruptions and down time caused by traffic to our web site and
technical difficulties, which may cause customer dissatisfaction and may
adversely affect our results of operations. Limitations of our and our vendors'
technology infrastructure may prevent us from maximizing our business
opportunities.
Changing technology may render our equipment, software, and programming obsolete
or irrelevant
The market for Internet-based products and services is characterized by rapid
technological developments, frequent new product introductions, and evolving
industry standards. The emerging character of these products and services and
their rapid evolution will require that we continually improve the performance,
features, and reliability of our Internet-based products and services,
particularly in response to competitive offerings. We cannot guarantee that we
will be successful in responding quickly, cost effectively, and sufficiently to
these developments. In addition, the widespread adoption of new Internet
technologies or standards could require substantial expenditures by us to modify
or adapt our Internet sites and services and could fundamentally affect the
character, viability, and frequency of Internet-based advertising, either of
which could have a material adverse effect on our business, financial condition,
and operating results. In addition, new Internet-based products, services, or
enhancements offered by us may contain design flaws or other defects that could
require costly modifications or result in a loss of consumer confidence, either
of which could have a material adverse effect on our business, financial
condition, and operating results.
5
We depend on third parties for uninterrupted Internet access and may be harmed
by the loss of any such service
We rely on Telus Advanced Communications, an Internet service provider located
in British Columbia, for uninterrupted Internet access. We have not entered into
a definitive agreement for these services. Our business is dependent on
uninterrupted Internet access and the loss of these services may have a material
adverse effect on our business, financial condition, and operating results. We
cannot assure you that we would be able to obtain these services from other
third parties.
If we cannot protect our Internet domain name, our ability to conduct our
operations may be impeded
We anticipate that the Internet domain name "ableauctions.com" will be an
extremely important part of our business and the business of our subsidiaries.
Governmental agencies and their designees generally regulate the acquisition and
maintenance of domain names. The regulation of domain names in the United States
and in foreign countries may be subject to change in the near future. Governing
bodies may establish additional top-level domains, appoint additional domain
name registrars, or modify the requirements for holding domain names. As a
result, we may be unable to acquire or maintain relevant domain names in all
countries in which we conduct business. Furthermore, the relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is unclear. Therefore, we may be unable to prevent third
parties from acquiring domain names that are similar to, infringe on, or
otherwise decrease the value of our trademarks and other proprietary rights.
Third parties have acquired domain names that include "auctions" or other
variations both in the United States and elsewhere.
Seasonality and potential fluctuations in results of operating may cause cash
shortfalls materially affecting our results of operations
Because of our limited operating history and the emerging nature of the markets
in which we compete, it is difficult for us to forecast our revenues or earnings
accurately. In addition, we have no backlog and a significant portion of our net
revenues for a particular quarter are derived from auctions that are listed and
completed during that quarter. Our current and future expense levels are based
largely on our investment plans and estimates of future revenues and are, to a
large extent, fixed.
We may be unable to adjust spending in time to compensate for any unexpected
revenue shortfall. Accordingly, any significant shortfall in revenues relative
to our planned expenditures would have an immediate adverse effect on our
business, results of operations and financial condition. Further, as a strategic
response to changes in the competitive environment, we may from time to time
make certain pricing, service or marketing decisions that could have a material
adverse effect on our business, results of operations, and financial condition.
Based on management's experience in the auction industry, our discussions with
other companies, and public disclosures by our competitors, we believe that our
results of operations will be somewhat seasonal in nature, with fewer auctions
listed around the Thanksgiving and Christmas holidays in the fourth quarter than
at other times of the year.
Our limited operating history, however, makes it difficult to fully assess the
impact of these seasonal factors or whether or not our business is susceptible
to cyclical fluctuations in the U.S. and Canadian economies. There can be no
assurance that seasonal or cyclical variations in our operations will not become
more pronounced over time or that they will not materially adversely affect
results of operations in the future. Moreover, consumer "fads" and other changes
in consumer trends may cause significant fluctuations in our operating results
from one quarter to the next.
Due to the foregoing factors, our quarterly revenues and operating results are
difficult to forecast. We believe that period-to-period comparisons of our
operating results may not be meaningful and should not be relied on as an
indication of future performance. In addition, it is likely that in one or more
future quarters our operating results will fall below the expectations of
securities analysts and investors. In that event, the trading price of our
common stock would almost certainly be materially adversely affected.
Our success depends on the services of our key officers and our ability to
attract and maintain qualified, experienced personnel
Our future success will depend on Abdul Ladha, our President and Chief Executive
Officer, Ron Miller, our Chief Financial Officer and Vice-President, Jeremy
Dodd, the Vice-President of Operations of Able Auctions (1991) and our Secretary
and Treasurer, and Randy Ehli, the Vice-President, Northwest Auctions of Ehli's
6
Commercial/Industrial Auctions, Inc. Abdul Ladha is also President of Dexton
Technologies Corporation, and we anticipate that he will spend 75% of his
business time managing our company. We also rely heavily on Mr. Dodd to manage
our auction operations and we intend to hire additional personnel or consultants
to assist us in developing and implementing our technology and business plan.
Mr. Miller will dedicate his time to our business on a full time basis, and we
intend to rely on him to assist us in developing our financial and business
strategies. We will rely on Mr. Ehli to assist us in managing and expanding our
Northwest auction operations. We also rely on consultants and advisors who are
not employees.
The loss of key personnel could have an adverse effect on our operations. We do
not maintain insurance to cover losses that may result from the death of any of
our key personnel. Competition for qualified employees is intense. Our inability
to attract, retain, and motivate additional, highly skilled personnel required
for expansion of operations and development of technologies could adversely
affect our business, financial condition, and results of operations. Our
financial situation may adversely affect our ability to retain existing
personnel and attract new personnel. We cannot assure you that we will be able
to retain our existing personnel or attract additional, qualified persons when
required and on acceptable terms.
Risks Related to Our Industry
The e-commerce industry is highly competitive, and we cannot assure you that we
will be able to compete effectively
The market for broadcasting auctions over the Internet is new, rapidly evolving,
and intensely competitive. The market for live video-fed auctions is even newer,
and we expect competition to intensify further in the future. Our direct
competitors will include Livebid.com, which is owned by Amazon.com, and other
web sites that broadcast live auctions. We will also compete with various online
auction services, including eBay; UBID.com; Onsale Exchange, a division of
Onsale, Inc.; Auction Universe, a Times-Mirror company; Excite, Inc.; and a
number of other small services, including those that serve specialty markets. We
will also compete with business-to-consumer online auction services such as
Onsale, First Auction, Zauction, and Surplus Auction.
We face potential competition from a number of large online communities and
services that have expertise in developing online commerce and in facilitating
online person-to-person interaction. Some of these potential competitors,
including Amazon.com, America Online, Inc., Microsoft Corporation, and Yahoo!
Inc., currently offer a variety of business-to-consumer trading and classified
advertisement services and may introduce live auctions to their large user
populations. We believe that the principal competitive factors in the online
auctions market are volume and selection of goods, population of buyers,
customer service, reliability of delivery and payment by users, brand
recognition, web site convenience and accessibility, price, quality of search
tools, and system reliability. Many of our current and potential competitors
have longer operating histories, larger customer bases, greater brand
recognition, and significantly greater financial, marketing, technical, and
other resources than us.
Certain of our competitors with other revenue sources may be able to devote
greater resources to marketing and promotional campaigns, adopt more aggressive
pricing policies, and devote substantially more resources to web site and
systems development than us or may try to attract traffic by offering services
for free. We cannot assure you that we will be able to compete successfully
against current and future competitors. Further, as a strategic response to
changes in the competitive environment, we may, from time to time, make certain
pricing, service, or marketing decisions that could have a material adverse
effect on our business, results of operations, and financial condition.
Due to the emerging nature of Internet commerce, we are unable to forecast our
expenses and revenues accurately, and if our expenses exceed our revenues, we
may never become profitable
Due to the emerging nature of Internet-based advertising, services, and
electronic commerce, we are unable to forecast our expenses and revenues
accurately. We believe that because the Internet has been available to the
general public for a relatively brief time, the successful operation of any form
of Internet-based business will be uncertain. Our current and future estimated
expense levels are based largely on our estimates of future revenues and may
increase considerably. Few, if any, of our operating expenses can be quickly or
easily reduced, such as the laying off of personnel or reducing our commitment
to our consultants and service providers, without causing a material adverse
effect to our business, financial condition, and operating results. In addition,
we may be unable to adjust spending in time to compensate for any unexpected
expenditures, and a shortfall in actual revenues as
7
compared to estimated revenues would have an immediate material adverse effect
on our business, financial condition, and operating results.
Our business may be subject to government regulation and legal uncertainties
that may increase the costs of operating our web site or limit our ability to
generate revenues
We are subject to the same federal, state, and local laws as other companies
conducting business on the Internet. Today there are relatively few laws
specifically directed towards online services. However, due to the increasing
popularity and use of the Internet and online services, it is possible that laws
and regulations will be adopted regarding the Internet or online services. These
laws and regulations could cover issues such as online contracts, user privacy,
freedom of expression, pricing, fraud, content and quality of products and
services, taxation, advertising, intellectual property rights, and information
security. Applicability to the Internet of existing laws governing issues such
as property ownership, copyrights and other intellectual property issues,
taxation, libel, obscenity, and personal privacy is uncertain. In addition,
numerous states have regulations regarding the manner in which auctions may be
conducted and the liability of auctioneers in conducting such auctions.
Due to the global nature of the Internet, it is possible that the governments of
other states and foreign countries might attempt to regulate our transmissions
or prosecute us for violations of their laws. We might unintentionally violate
such laws. Such laws may be modified, or new laws may be enacted, in the future.
Any such development could damage our business.
Our business may be subject to sales and other taxes, which may cause
administrative difficulties and increase our cost of operations
We will collect applicable sales and other similar taxes on goods sold on our
web site. One or more states may seek to impose additional sales tax collection
obligations on companies such as ours that engage in or facilitate online
commerce. Several proposals have been made at the state and local level that
would impose additional taxes on the sale of goods and services through the
Internet. These proposals, if adopted, could substantially impair the growth of
electronic commerce and could diminish our opportunity to derive financial
benefit from our activities. The U.S. federal government recently enacted
legislation prohibiting states or other local authorities from imposing new
taxes on Internet commerce for a period of three years ending October 21, 2001.
This tax moratorium will last only for a limited period and does not prohibit
states or the Internal Revenue Service from collecting taxes on our income, if
any, or from collecting taxes that are due under existing tax rules. A
successful assertion by one or more states or any foreign country that we should
collect sales or other taxes on the exchange of merchandise on our system could
harm our business and adversely affect our results of operations.
Risks Related to this Offering
We may be required to sell additional common stock or parties may exercise
options and warrants that would cause dilution of your shares and may negatively
affect the market price of our common stock
The market price of the common stock could decline as a result of sales of a
large number of shares of our common stock in the market following this
offering, or the perception that such sales could occur. Following this
offering, we will have a large number of shares of common stock outstanding and
available for resale, beginning at various points in time in the future. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. The shares of our
common stock currently outstanding will become eligible for sale without
registration pursuant to Rule 144 under the Securities Act, subject to certain
conditions.
As of October 13, 2000, we had outstanding warrants to purchase:
o 547,028 shares of our common stock at the price of $4.00 per share
until August 24, 2001;
o 1,000,000 shares of our common stock at the price of $5.00 per share
until February 25, 2001 and thereafter at the price of $6.00 per share
until February 25, 2002;
o 150,000 shares of our common stock at the price of $8.00 per share
until March 20, 2001; and
8
o 1,210,240 shares of our common stock at the price of $5.00 per share
until April 28, 2001 and thereafter at the price of $6.00 per share
until April 28, 2002.
We have registered up to an additional 3,000,000 shares of common stock reserved
for issuance upon exercise of options under our incentive stock option plan. We
have granted options as follows:
o On October 14, 1999, we granted options to acquire up to 812,500
shares of our common stock at the price of $3.20 per share to
directors, officers, employees, and consultants, of which 762,500
options were granted under the plan and of which 788,000 remain
outstanding.
o On January 18, 2000, we granted options to acquire up to 102,500
shares of our common stock at the price of $5.00 per share to officers
and employees, all of which options were granted under the plan and of
which 22,500 remain outstanding.
o On February 29, 2000, we granted options to one officer to acquire
75,000 shares of our common stock at the price of $6.756 per share,
and 30,000 shares of our common stock at the price of $8.00 per share,
all of which options were granted under the plan and remain
outstanding.
o On May 15, 2000, we granted options to one officer to acquire 50,000
shares of our common stock at the price of $7.15 per share, all of
which options were granted under the plan and remain outstanding.
o On May 16, 2000, we granted options to two officers and five employees
of our subsidiary to acquire 115,000 shares of our common stock at the
price of $6.525 per share, all of which options were granted under the
plan and of which 100,000 remain outstanding.
o On July 26, 2000, we granted options to one officer and one employee
to acquire 112,000 shares of our common stock at the price of $8.66
per share, which options were granted under the plan and remain
outstanding.
o On July 31, 2000, we granted an option to one officer to acquire
120,000 shares of our common stock at the price of $7.00 per share,
which option was granted under the plan and remains outstanding.
o On August 1, 2000, we granted options to two employees of our
subsidiary to acquire 75,000 shares of our common stock at the price
of $7.00 per share, which options were granted under the plan and
remain outstanding.
Upon exercise of stock options, the shares will be eligible for sale in the
public market from time to time.
Holders of warrants and options are likely to exercise them even though we might
be able to obtain additional capital on terms more favorable than those provided
by the warrants and options. Further, while our warrants and options are
outstanding, our ability to obtain additional financing on favorable terms may
be adversely affected.
Existing shareholders will be able to exercise control of our common stock and
may make decisions that are not in the best interests of all shareholders
Insider control of a large amount of our common stock could have an adverse
effect on the market price of our common stock. As of October 13, 2000, our
executive officers and directors (and their affiliates) as a group beneficially
own or control 6,987,615 shares on a fully diluted basis or approximately 32.26%
of our common stock. See "Principal and Selling Stockholders." Of that amount,
Abdul Ladha, our Chief Executive Officer and Chairman of the Board, beneficially
owns 6,093,750 shares, or 28.80% of our Common Stock, through the Ladha (1999)
Family Trust, of which Mr. Ladha is a beneficiary. Although they are under no
obligation to do so, if our executive officers and directors (and their
affiliates) were to vote together, they would have the ability to control the
election of our Board of Directors and the outcome of corporate actions
requiring shareholder approval, including mergers and other changes of corporate
control, going private transactions, and other extraordinary transactions. This
concentration of ownership may have the effect of delaying or preventing a
change of control of Ableauctions.com, even if this change of control would
benefit shareholders.
9
Our stock price may experience extreme price and volume fluctuations, and
investors in our stock may not be able to resell their shares at favorable
prices
Due to fluctuations in the market price of our common stock, you may be unable
to resell your shares at favorable prices. The market price of our common stock
has fluctuated in the past and is likely to continue to be highly volatile. In
addition, the stock market in general and the market prices of shares of
e-commerce companies in particular have been extremely volatile and have
experienced fluctuations that have often been unrelated or disproportionate to
the operating performances of such companies. The market price of our common
stock could continue to be highly volatile in response to many factors, some of
which are largely beyond our control. These factors include:
o quarterly variations in our results of operations;
o adverse business developments;
o changes in financial estimates by securities analysts;
o investor perception of us and online direct marketing services in
general; and
o announcements by our competitors of new products and services.
CAPITALIZATION
The following table sets forth Ableauctions.com's total capitalization as of
June 30, 2000. This table should be read in conjunction with our historical
consolidated financial statements and the related notes included elsewhere in
this prospectus.
June 30, 2000
-------------
Long-term obligations, less current portion ........................................ $1,042,273
Stockholder's equity:...............................................................
Common stock, par value $0.001 per share; 62,500,000 shares authorized; 20,874
20,874,579 issued(1) (actual) ......................................................
Additional paid-in capital.......................................................... 16,185,277
Cumulative foreign exchange adjustment.............................................. (14,165)
Accumulated deficit................................................................. (4,074,870)
Total stockholders' equity.......................................................... 12,117,116
Total capitalization................................................................ $13,159,389
- --------------
(1) Excludes 1,105,000 shares of common stock issuable upon the exercise of
options then outstanding with a weighted average exercise price of $4.17
per share, and 2,907,269 shares of common stock issuable upon exercise of
warrants then outstanding with a weighted average exercise price of $5.23
per share. See "Executive Compensation - Stock Option Plan" and notes 8 and
13 to Ableauctions.com's financial statements included elsewhere in this
prospectus.
PRICE RANGE OF COMMON STOCK
Our common stock commenced trading on the American Stock Exchange on June 29,
2000 under the symbol "AAC." Prior to June 29, 2000, our common stock was quoted
on the NASD Over-the-Counter Bulletin Board from July 21, 1999, to June 28,
2000, under the symbol "ABLC." The following table shows the high and low
closing sale prices for our common stock as reported on the AMEX and the NASD
OTCBB for the periods indicated.
10
AMERICAN STOCK EXCHANGE
- --------------------------------------------------------------------------
Period High ($) Low ($)
- --------------------------------------------------------------------------
June 29, 2000 thru September 30, 2000 9.50 3.625
NASD OTCBB
- --------------------------------------------------------------------------
Period High ($) Low ($)
- --------------------------------------------------------------------------
Year Ended December 31, 2000
First Quarter 9.875 4.4688
Second Quarter (through June 28, 2000) 7.875 5.50
Year Ending December 31, 1999
Third Quarter (from July 21, 1999) 4.00 1.00
Fourth Quarter 5.00 1.5625
On October 13, 2000, the last reported sale price of our common stock on the
AMEX was $3.625 per share. As of October 13, 2000, there were approximately 47
holders of record of our common stock and 20,976,661 shares of our common stock
outstanding. There is currently only a very limited trading market for our
common stock. We cannot assure you that a substantial trading market will
develop (or be sustained, if developed) for our shares or that you will be able
to resell your shares or otherwise liquidate your investment without
considerable delay, if at all.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock and do not
anticipate doing so in the foreseeable future. We currently intend to retain our
future earnings for use in operations and expansion of our business.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data presented below for the years ended December 31,
1999 and 1998 are derived from Ableauctions.com's consolidated financial
statements included elsewhere in this prospectus that have been audited by
Davidson & Company, independent auditors. The selected financial data presented
below for the six month periods ended June 30, 2000 and 1999 are derived from
Ableauctions.com's consolidated financial statements that have been reviewed by
Davidson & Company, independent auditors. You should read the data in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
thereto included elsewhere in this prospectus.
Six Months Six Months Year Ended Year Ended
Ended Ended December December
June 30, June 30, 31, 1999 31, 1998
2000 1999
(unaudited)
---------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue..................................................... $4,450,405 $ Nil $ 898,450 $ Nil
Total costs and expenses.................................... 7,186,337 145,349 2,256,246 944
Net (loss).................................................. (2,728,184) (145,349) (1,339,492) (944)
Net (loss) per share........................................ (0.14) (0.01) (0.10) -
Weighted average number of common shares outstanding........ 19,096,349 10,607,735 13,228,082 6,250,000
11
As of As of As of As of
June 30, June 30, December 31, December
2000 1999 1999 31, 1998
(unaudited)
-----------------------------------------------------------
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $3,885,762 $ Nil $ -- $ Nil
Working capital (deficiency).............................. 5,479,746 (1,293) 489,207 (944)
Total assets.............................................. 13,601,153 Nil 2,761,799 Nil
Total liabilities......................................... 1,484,037 1,293 338,622 944
Shareholders' equity...................................... 12,117,116 (1,293) 2,423,177 (944)
CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
reflected in our consolidated statement of operations expressed as a percentage
of revenue.
Six Months Six Months Year Ended Year Ended
Ended Ended December December
June 30, June 30, 31, 1999 31, 1998
2000 1999
(unaudited)
----------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Auction service fees...................................... 12.3% Nil 7.6% Nil
Auction product sales..................................... 87.7% Nil 92.4% Nil
Direct costs................................................ 78.4% Nil 64.8% Nil
Gross profit................................................ 21.6% Nil 35.2% Nil
Operating expenses:
Research and development.................................. 9.9% Nil 58.6% Nil
Sales and marketing....................................... 16.2% Nil 57.8% Nil
General and administrative................................ 50.9% Nil 46.74% Nil
Amortization of intangible assets......................... 0.8% Nil 1.33% Nil
Operating income (loss)..................................... (61.5%) Nil (151.1%) Nil
Other income................................................ 0.2% Nil 2.01% Nil
Income (loss) before provision for income taxes............. (61.3%) Nil (149.08%) Nil
Provision for income taxes.................................. Nil% Nil Nil% Nil
Net income (loss) for the year.............................. (61.3%) Nil (149.08%) Nil
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the
financial statements and notes thereto appearing elsewhere in this prospectus.
The information contained in this Management's Discussion and Analysis contains
"forward looking statements." Actual results may materially differ from those
projected in the forward looking statements as a result of certain risks and
uncertainties set out in this prospectus. See "Note Regarding Forward Looking
Statements."
12
Although management believes that the assumptions made and expectations
reflected in the forward looking statements are reasonable, there is no
assurance that the underlying assumptions will, in fact, prove to be correct or
that actual future results will not be different from the expectations expressed
in this prospectus.
Our actual results could differ materially from the results projected in the
forward-looking statements as a result of our ability to:
o achieve the objectives of our business strategy;
o accelerate or defer operating expenses;
o achieve revenue from our operations; and
o hire new personnel,
and other factors set forth under "Risk Factors" in this prospectus.
Our financial statements have been prepared in accordance with United States
generally accepted accounting principles.
Overview
We were incorporated in the State of Florida on September 30, 1996 under the
name "J.B. Financial Services, Inc." We changed our name to "Ableauctions.com,
Inc." on July 15, 1999.
On August 24, 1999, we acquired all of the issued and outstanding shares of Able
Auctions (1991) Ltd. pursuant to a share purchase agreement with Dexton
Technologies Corporation, the sole shareholder of Able Auctions (1991) at that
time. See "Acquisitions - Our Acquisition of Able Auctions (1991)."
On our acquisition of Able Auctions (1991), we acquired all of the assets and
the auction business of Able Auctions (1991). We also undertook the process of
designing, building and testing an Internet based e-commerce web site to
broadcast auctions over the Internet. We launched our web site for public
viewing in December 1999, and conducted our first live broadcast of an auction
on our web site in January 2000.
We are an early stage company and our principal activities have been the
acquisition of:
o the shares of Able Auctions (1991) Ltd.;
o the business assets and employees of Ross Auctioneers & Appraisers
Ltd., of Surrey, British Columbia, Canada;
o the business assets and employees of Falcon Trading, Inc., of Redmond,
Washington;
o the business assets of Mesler's Auction House LLC, of Scottsdale,
Arizona, including our head office and flagship auction facility;
o the assets of Auctions West Sales Corporation, of Vancouver, British
Columbia;
o the shares of Ehli's Commercial/Industrial Auctions, Inc., of Tacoma,
Washington; and
o the shares of Johnston's Surplus Office Systems Ltd., of Vancouver,
British Columbia.
Before these acquisitions, we were a shell company with no material revenues,
expenses, assets or liabilities.
Our Results of Operations
The following discussion of our results of operations should be read in
conjunction with our audited financial statements and the related notes included
in this prospectus. Able Auctions (1991) Ltd.'s results of operations prior to
our acquisition of Able Auctions (1991) on August 24, 1999 are not included in
our consolidated financial statements.
Six Month Period Ended June 30, 2000, Compared to the Fiscal Year Ended June 30,
1999
Revenues. During the six month period ended June 30, 2000, we had revenues of
$4,450,405, including $3,904,153 from the sale of goods and $546,252 from
commissions generated from the sale of consigned merchandise. We
13
anticipate that revenues will increase during the third quarter of 2000, as a
result of realizing a full quarter of revenues from the operations of Ehli's
Commercial/Industrial Auctions, Inc. and Auctions West, and of our recent
acquisition of Johnston's Surplus Office Systems Ltd., which occurred in July
2000.
Sales of goods consisted of 87.7% of our revenues. We anticipate that revenues
from the sales of goods will increase as a percentage of revenues, as we plan to
conduct a greater number of auctions using inventory we purchase in buy-out
situations, which generally result in higher gross profit margins.
Operating Expenses. Our operating expenses continue to reflect start up costs
associated with our business, our acquisition, growth strategy and the start up
and maintenance costs relating to our Web business. Operating expenses were
$3,698,419 for the six month period ended June 30, 2000.
Personnel and consulting expenses related to salaries and benefits ($860,743),
consulting fees ($338,764), management fees ($20,264) and stock based
compensation ($17,033) accounted for $1,236,804 or 33.44% of our operating
expenses for the six month period ended June 30, 2000. We anticipate that such
personnel and consulting expenses will increase as (i) we hire additional
personnel for the auction houses we have or plan to acquire, (ii) we expand our
operations and (iii) we increase the frequency and number of auctions that we
conduct. As we have only recently completed the acquisitions of Ehli's
Commercial/Industrial Auctions, Inc., Auctions West and Johnston's Surplus
Office Systems Ltd., we anticipate that personnel and consulting expenses as a
percentage of operating expenses may increase until we are able to determine the
efficient level of staffing for these auction houses.
During for the six month period ended June 30, 2000, advertising and promotion
expenses of $344,652 consisted of 9.32% of our operating expenses. We anticipate
promotion expenses will increase during the third and fourth quarters of 2000 as
we increase promotional and marketing efforts to promote our auction houses and
the number of auctions will increase.
General overhead expenses related to rent and utilities ($415,062), telephone
($105,502), travel ($276,563), repairs and maintenance ($64,571), automotive
($23,362), insurance ($33,051) and office expenses ($174,411) totalled
$1,092,522 or 29.54% of our total operating expenses during the six month period
ended June 30, 2000. We anticipate that overhead as a percentage of operating
expenses and total revenue will decrease in future periods beginning in 2001 as
we achieve certain economies from our operations. The overall level of general
overhead expenses in dollars is expected to increase as we expand our
operations.
Professional fees of $224,044 during the six month period ended June 30, 2000,
consisted of legal and accounting expenses related to completing our Securities
Exchange Act of 1934 reports, professional fees associated with the preparation
of our listing application for the American Stock Exchange and professional fees
associated with our acquisitions and financings. Professional fees are expected
to remain steady in the third quarter ending September 30, 2000.
Depreciation and amortization expense was $271,338 for the six month period
ended June 30, 2000.
Gross Profit. Cost of goods sold were $3,487,918 for the six month period ended
June 30, 2000. Gross profits were $962,487 or 21.63%. We believe that gross
profits will increase in the third quarter ending September 30, 2000, as we
anticipate that our revenues will increase and we intend to conduct auctions of
inventory buy outs, which typically result in higher gross profit margins.
Net Loss. We had a net loss of $2,728,184 or $0.14 per share for the six month
period ended June 30, 2000. The net loss is attributable to costs associated
with our growth, start-up costs and the costs of developing our business and
technologies.
We anticipate net operating losses to increase for the foreseeable future as a
result of our planned efforts to expand and diversify our auction business in
addition to anticipated development costs related to our web site. We also
expect costs related to consulting and management fees, salaries, rent,
marketing and promotion, and general overhead to increase during 2000.
In addition, we anticipate that our general and administrative expenses may also
significantly increase as a result of the growth in our research, development,
testing and business development programs. The actual levels of research and
development, administrative and general corporate expenditures are dependent on
the cash resources available to us.
14
Year Ended December 31, 1999, Compared to the Year Ended December 31, 1998
We acquired our wholly-owned Canadian subsidiary, Able Auctions (1991), on
August 24, 1999. During the year ended December 31, 1999, we had revenues of
$898,450 attributable to the business operations of Able Auctions (1991) during
the period from August 24, 1999 to December 31, 1999. Our operating expenses
during 1999 were $1,673,900, including accounting and legal fees of $76,057
incurred primarily in connection with our filing of a registration statement on
Form 10-SB and the acquisition of Able Auctions (1991); advertising and
promotion expenses of $119,004 for promoting our auction business and web site;
depreciation and amortization expenses of $195,288; investor relations and
corporate development expenses of $400,731 related to our financing efforts; and
salaries and management fees of $549,048. Our net losses for the period were
$1,339,492 or $0.10 per share. During the year ended December 31, 1998, we were
a shell company with no revenues from operations, $944 in expenses, and a net
operating loss of $944.
We anticipate net operating losses to increase for the foreseeable future as a
result of our planned efforts to expand and diversify our auction business and
anticipated development costs related to our web site. We anticipate costs
related to consulting and management fees, salaries, rent, marketing and
promotion, and general overhead to increase during 2000.
In addition, we anticipate that our general and administrative expenses will
also significantly increase as a result of the growth in our research,
development, testing and business development programs. The actual levels of
research and development, administrative and general corporate expenditures are
dependent on the cash resources available to us.
Liquidity and Capital Resources
Our working capital position at June 30, 2000 was $5,479,746. We had cash and
cash equivalents of $3,885,762; accounts receivables of $533,690; inventory of
$1,271,198; and prepaid expenses of $230,860 at June 30, 2000. We anticipate
that trade accounts receivables and inventory may increase during the third and
fourth quarters of 2000 as we increase the number and frequency of our auctions
and as we expand our business operations. Cash flow for operating activities
required $3,492,268 during the six month period ended June 30, 2000. We
anticipate that we will continue to use cash for operating activities of
approximately $600,000 per month through the remainder of 2000. This amount may
increase if we complete additional acquisitions during the third and fourth
quarters of 2000, and may continue to increase until we are able to generate
positive cash flow from our business.
Cash flow for investing activities required $2,713,194, relating primarily to
the cash component of our acquisition of Mesler's in Arizona that included an
acquisition of a large building. Cash flow for investing is expected to increase
in the last half of 2000 and the first half of 2001 as a result of our planned
acquisitions of addition auction and liquidation businesses.
Net cash flow from financing activities were $10,126,530 from a private
placement of 2,210,240 units at $5 per unit, after deducting finance fees.
Our total operating and capital budget for the second half of the year ending
December 31, 2000 is approximately $12 million, to be used primarily for working
capital and for expenses related to the acquisition of new auction facilities,
expansion of our inventories, continually developing and upgrading our
technologies, launching a marketing campaign in the United States and Canada,
and purchasing additional servers and operating systems. Currently revenues from
operations are not sufficient to meet our cash requirements. We anticipate we
will use cash of $4 million during the six month period ending December 31,
2000. We anticipate we will generate sufficient revenues from our operations to
meet our working capital requirements by the end of 2001.
Our acquisition strategy is to acquire additional auction and liquidation
operations during the first half of 2001, subject to our ability to raise
additional financing of approximately $8 million. We have no commitments from
investors to provide this financing and we cannot assure that such financing
will be available on acceptable terms, if at all.
Outlook
We have entered a period of rapid expansion and growth. In their independent
auditor's report dated March 24, 2000, Davidson & Company, expressed doubt about
our ability to continue as a going concern due to our lack of working capital
for our planned business activities. In February 2000, we successfully raised $5
million and a
15
further $6 million in April 2000 for net proceeds of $10.1 million. We have
planned three additional acquisitions of auction and liquidation businesses,
which we anticipate will close during the first half of 2001, subject to our
ability to raise an additional $8 million and to complete definitive agreements
on acceptable terms. If we are unable to complete the required financing, we may
abandon our plans to complete the acquisitions and concentrate our resources on
our existing operations. We anticipate that our working capital is sufficient to
fund our capital requirements through December 31, 2001.
We intend to meet our cash requirements through revenues generated from our
operations and private or public placements of our equity or debt. We are
currently seeking such financing by presenting our business plan to merchant and
investment banks, fund managers and investment advisors. We cannot assure you
that we will successfully raise any additional financing on acceptable terms, if
at all, and our failure to meet our cash requirements will force us to abandon
some of our plans of operation, sell some of our assets or certain business
operations or liquidate our business, all of which will have a material adverse
effect on our business and results of operations.
We cannot assure you that our actual expenditures for this period will not
exceed our estimated operating and capital budget. Actual expenditures will
depend on a number of factors, some of which are beyond our control, including,
among other things, timing of our web site launch, the revenues from our auction
operations, the success of our geographical expansion, the availability of
financing on acceptable terms, reliability of the assumptions of management in
estimating cost and timing, costs related to the development of our web site and
technologies, economic conditions and competitive factors in the auction
industry. See "Plan of Operation" and "Summary of Operating and Capital Budget."
Recent Financing
Our business activities and operations have been funded to date through issuance
of shares of our common stock in the following transactions:
Summary of Transactions
- ----------------------------------------------------------------------------------------------------------------
Number of Total Price Of
Shares Shares ($)
-----------------------------------
Balance as of August 26, 1998 6,250,000 5,000
Issued for consulting and professional services 9,062,500 145,000
Issued in consideration for the shares of Able Auctions (1991) Ltd.
Ltd. 1,843,444 73,738
Issued for cash at $3.20 per share(1) 1,094,057 3,500,980
Issued as consideration for the assets of Ross Auctioneers &
Appraisers Ltd. 60,000 168,000
Issued for cash at $5.00 per share(2) 1,000,000 5,000,000
Issued as consideration for the assets of Falcon Trading, Inc. 53,405 360,804
Issued as partial consideration for the assets of Mesler's Auction
House of Scottsdale, LLC(3) 30,625 245,000
Issued as partial consideration for certain assets of C&C Capital
Investment, Inc. 155,486 1,243,889
Issued as consideration for intellectual property rights from Simon
Fraser University 4,822 34,477
Issued for cash at $5.00 per share(4) 1,210,240 6,051,200
Issued as consideration for the assets of Auctions West Sales
Corporation 10,000 70,000
Issued for cash at $5.00 per share(5) 60,000 300,000
Issued as partial consideration for the shares of Ehli's
Commercial/Industrial Auctions, Inc. 50,000 350,000
Issued for cash at $3.20 per share(5) 17,000 54,400
16
Summary of Transactions
- ----------------------------------------------------------------------------------------------------------------
Number of Total Price Of
Shares Shares ($)
-----------------------------------
Issues as partial consideration for shares of Johnston's Surplus 68,182 513,410
Office Systems Ltd.
Issued as partial consideration for the shares of Warex Supply Ltd. 6,900 55,200
==================================
TOTAL 20,976,661(6) 18,171,098
==================================
- ----------------------
(1) We issued units consisting of one common share and one-half of a common
share purchase warrant. Each full warrant is exercisable to acquire an
additional common share at $3.20 until August 24, 2000 and at $4.00 until
August 24, 2001.
(2) We issued units consisting of one common share and one common share
purchase warrant. Each warrant is exercisable to acquire an additional
common share at $5.00 until February 25, 2001 and at $6.00 until February
25, 2002.
(3) We also issued a common share purchase warrant entitling Mesler's to
purchase 150,000 common shares at $8.00 per share until March 20, 2001.
(4) We issued units consisting of one common share and one common share
purchase warrant. Each warrant is exercisable to acquire an additional
common share at $5.00 until April 28, 2001 and at $6.00 until April 28,
2002.
(5) Common shares issued on the exercise of outstanding stock options.
(6) As at October 13, 2000.
Year 2000 Compliance
As of June 30, 2000, we had not incurred any material cost directly associated
with our year 2000 compliance efforts, except for compensation expense
associated with our salaried employees who have devoted some of their time to
our year 2000 assessment and remediation efforts. We do not expect the total
cost of year 2000 issues to be material to our business, financial condition and
operating results.
As of June 30, 2000, we had not encountered any material year 2000 problems with
the hardware and software systems used in our operations. In addition, none of
our critical venders have reported any material year 2000 problems nor have we
experienced any decline in service levels from such venders.
We expect to continue to monitor internal and external issues related to year
2000. While no material problems have been discovered, we cannot assure you that
material problems will not materialize in the future.
Recent Accounting Pronouncements
In December 1999, the SEC released Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. Subsequently, the SEC released SAB 101A, which delayed the
implementation date of SAB 101 for registrants with fiscal years that begin
between December 16, 1999 and March 15, 2000 to the second quarter of their
fiscal year. We elected to implement SAB No. 101 in the second quarter of 2000.
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" was issued. We are required
to adopt this statement in fiscal 2001. Because we do not currently use any
derivative instruments, we do not anticipate that the adoption of the new
statement will have a significant effect on our business or operating results.
In December 1998, the American Institute of Certified Public Accountants issued
SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect
to Certain Transactions." SOP 98-9 amends SOP 97-2 and SOP
17
98-4 extending the deferral of the application of certain provisions of SOP 97-2
as amended by SOP 98-4 through fiscal years beginning on or before March 15,
1999. All other provisions of SOP 98-9 are effective for transactions entered
into in fiscal years beginning after March 15, 1999. We have adopted SOP 98-9
and it did not have a material effect on our operating results or financial
position.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial results are quantified in U.S. dollars and a majority of our
obligations and expenditures with respect to our operations are incurred in U.S.
dollars. A majority of our revenues are derived from the business operations of
our wholly-owned subsidiary, Able Auctions (1991) Ltd., whose primary business
operations are conducted in British Columbia, Canada and in Canadian dollars.
Although we do not believe we currently have any materially significant market
risks relating to our operations resulting from foreign exchange rates, if we
enter into financing or other business arrangements denominated in currency
other than the U.S. dollar or the Canadian dollar, variations in the exchange
rate may give rise to foreign exchange gains or losses that may be significant.
We currently have no material long-term debt obligations. We do not use
financial instruments for trading purposes and we are not a party to any
leverage derivatives. In the event we experience substantial growth in the
future, our business and results of operations may be materially effected by
changes in interest rates and certain other credit risk associated with its
operations.
BUSINESS
Overview
We are a Florida corporation engaged in the business of auctioning a broad range
of merchandise and equipment through our "brick-and-mortar" auction houses, over
the Internet and by broadcasting some of our live auctions on our web site at
www.ableauctions.com.
We operate our business through our wholly-owned subsidiaries, Able Auctions
(1991) Ltd., Johnston's Surplus Office Systems Ltd., Jarvis Industries Ltd., and
Warex Supply Ltd. in Canada and Ableauctions.com (Washington), Inc., Ehli's
Commercial/Industrial Auctions, Inc., and Surplus Office Systems, L.L.C. in the
United States. We acquired Able Auctions (1991) on August 24, 1999, Ehli's
Auctions on May 16, 2000, Surplus Office Systems on July 26, 2000, and Jarvis
Industries Ltd. and Warex Supply Ltd. on July 31, 2000. We incorporated
Ableauctions.com (Washington) on February 29, 2000. We are an early stage
company with a limited operating history. Before our acquisition of Able
Auctions (1991), we were a shell company with no material revenues, expenses,
assets, or liabilities. Able Auctions (1991) has operated auctions in the Lower
Mainland of British Columbia, Canada since 1991.
We auction merchandise and equipment from a variety of industries including:
antique, automotive, bakery, broadcasting, chemical, construction, dairy,
electronics, energy, food processing, foundry, furniture, high-technology,
machine tool, metal fabrication, office, paper, pharmaceutical, plastic,
printing, restaurant, textile, and others. Our auctions are open to the public.
Our typical auction draws approximately 500 bidders in person and offers on
average approximately 1,200 items or lots of merchandise and equipment for
auction. Bidders are generally businesses and commercial purchasers. In auctions
that we broadcast, our physical "brick-and-mortar" auction audiences are
integrated with our Web-based online auction audiences, and our online customers
are able to bid on and buy merchandise at our live auctions. We generally earn
gross profit margins ranging from 20% to 55% on the sale of goods at our
physical auctions. We cannot assure you that we will attain any particular level
of gross profit margins or that we will achieve profitability.
During our fiscal year ended December 31, 1999, we had revenues of $898,450 and
a consolidated operating loss of $1,339,492. During the six-month period ended
June 30, 2000, we had revenues of $4,450,405 and a consolidated operating loss
of $2,728,184. These losses resulted from our efforts to develop technologies
and to implement our plan to broadcast live auctions over the Internet and
increased operating and administrative expenses associated with the expansion of
our business. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
We broadcast our first live auction on our web site in January, 2000. We
currently broadcast approximately 20% of our auctions over the Internet. We are
in the process of refining the technologies related to broadcasting live
18
auctions on our web site. Visitors to our web site can also purchase items from
our Retail Store at fixed prices and bid on items in our Silent Auction, like
similar internet based auctions.
We believe that we can increase the gross revenues and profitability of our
existing auction operations by expanding the scope of our auction audience
through the capabilities of the Internet. Our strategy is to expand our auction
business by acquiring other existing brick-and-mortar auction companies. In
October 1999, we hired all of the employees and acquired the assets of Ross
Auctioneers, a small regional auction company located in Surrey, British
Columbia, Canada. In February 2000, we acquired the assets of Falcon Trading,
another small regional auction company located in Redmond, Washington, and hired
Harlan Moore, the founder and sole principal of Falcon Trading. In March 2000,
we acquired the assets of Mesler's Auction House, an auction house located in
Scottsdale, Arizona. We also acquired related real estate and a 50,000 square
foot building from an affiliate of Mesler's. In May 2000, we acquired the assets
of Auctions West Sales Corporation, a liquidator of the assets of bankrupt
persons or businesses located in Vancouver, British Columbia, Canada. Also in
May 2000, we acquired all of the issued shares of Ehli's Commercial/Industrial
Auctions, Inc., an auction house located in Tacoma, Washington. In July 2000, we
acquired Johnston's Surplus Office Supplies Ltd., located in Vancouver, British
Columbia. See "Acquisitions."
We have signed letters of intent to acquire two additional auction and
liquidation operations for approximately $4,500,000. These prospective
acquisitions are located in the states of Iowa and Washington, and are subject
to our completion of due diligence, execution of a definitive agreement and our
obtaining approximately $8 million in additional financing. We anticipate we
will complete these acquisitions in the first half of 2001, subject to obtaining
financing on acceptable terms. We have not publicly announced the names of these
potential acquisition candidates.
We currently have limited revenues from our operations. We do not believe our
past results of operations will be representative of our future operations for
the following reasons:
o We have entered into letters of intent to acquire three additional
auction and liquidation companies, subject to due diligence and our
obtaining additional financing;
o We may increase our operating expenses to broaden our geographic
market by acquiring additional auction houses, which will require us
to finance these acquisitions through the issuance of debt, equity, or
a combination of both;
o We have begun to implement an Internet strategy, which will require us
to dedicate a significant amount of our resources to developing the
technologies and systems to expand our web site capabilities;
o We intend to incur significant marketing costs to market our auction
houses and our web site;
o We anticipate that our management and administrative costs will
increase as we integrate our brick-and-mortar operations with our web
site and our operations with the auction houses that we acquire;
o We anticipate that we will incur increased inventory costs as we
expand our auction business; and
o We may incur unforeseen costs related to implementing a new business
strategy that differs significantly from our operations in the past.
See "Our Business Strategy." To the extent such increases in expenses are not
followed by increased revenues, which are sufficient to cover such costs, our
business and results of operations will be adversely affected. We believe that
period-to-period comparisons of our financial condition are not necessarily
meaningful, and you should not rely on them as an indication of future
performance.
We anticipate that we will incur substantial losses for the foreseeable future
because of increased costs related to implementing our business strategy. We
estimate that we will require additional financing of at least $8 million to
complete our plan acquisitions in the first half of 2001, and to fully implement
our business plan and to effectively market our web site and business in the
United States and Canada. See "Note Regarding Forward Looking Statements." Our
financial statements were prepared assuming that we will continue as a going
concern. In their independent auditor's report dated March 23, 2000, Davidson &
Company expressed doubt about our ability to continue as a going concern due to
our lack of working capital for our planned business activities. On April 28,
2000, we completed a private placement of 1,210,240 units at a price of $5.00
per unit for gross proceeds of
19
$6,051,200. Each unit consisted of one share of common stock and one
non-transferable share purchase warrant. Each warrant entitles the holder to
purchase one additional share at the price of $5.00 until April 28, 2001 and at
the price of $6.00 until April 28, 2002. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." If we are unable to
raise additional financing, we anticipate we will not complete any acquisitions
in the first half of 2001 and that our current working capital will be
sufficient to fund our operations through December 31, 2001. After that time, we
may need additional financing to continue as a going concern.
Our ability to complete our planned acquisitions and to fully implement our
business strategy will depend on our ability to raise future financing. Factors
that will affect our ability to raise financing may include, among other things:
o the revenues and profits generated from our operations;
o our ability to identify and acquire additional auction houses or to
enter into arrangements with brick-and-mortar auction houses to
broadcast auctions on our web site on acceptable terms;
o the market acceptance of our Ableauctions.com web site by buyers of
auction merchandise;
o traffic on our web site and purchases made through our web site;
o our ability to obtain merchandise and consignments of merchandise for
our auctions; and
o the success of our silent auctions, charity auctions, and specialty
web site stores.
We are currently seeking financing by presenting our business plan to merchant
and investment banks, fund managers, and investment advisors. We cannot assure
you that we will successfully complete any additional private placements or that
we will obtain additional financing to implement our business plans on
acceptable terms, if at all. Our inability to raise financing will have a
material adverse affect on our business and results of operations.
Industry Background
The Commercial Auction Industry
According to the National Auctioneers Association (NAA) and MasestroSoft, the
commercial auction market in the United States is estimated to be a $267.5
billion business. The NAA estimates that more than 600,000 commercial auctions
and more than 350,000 charity auctions are performed annually by more than
12,000 licensed auctioneers.
Based on our discussions with operators of auction houses and our experience in
the industry, we believe that most brick-and-mortar based auctions are regional,
owner operated businesses. Each auction house must make significant investments
in real estate, personnel, inventory, and marketing for each location. Most
traditional auction houses obtain their inventory locally and must contend with
the logistical problems of matching supplies of available merchandise to
unpredictable demand.
The Internet Auction Industry
The Internet has become an increasingly significant global interactive medium
for communications, information, and commerce. Use of the Internet has grown
over the past 3 years. According to Deloitte Consulting, approximately 50% of
U.S. households own a personal computer and there were 414,000 active commercial
web sites at the beginning of 1998, more than double that of a year earlier.
Deloitte Consulting estimates that there will be 1.6 million web sites by 2002.
According to ActiveMedia, Internet e-commerce revenues were approximately $2.7
billion in 1996, and are expected to reach $1.3 trillion in 2003. ActiveMedia
expects Internet e-commerce growth rates in 1999 to be 150%, and 138% in 2000.
Online auctions are one of the fastest growing areas of electronic commerce.
According to a January 1999 survey by Jupiter Communications, the number of
people in the United States participating in online auctions will grow from 1.2
million in 1998 to 6.5 million in 2002. Jupiter Communications estimates that
auction buyers are anticipated to represent 11% of the total online shopping
population in 2002. Forrester Research estimated that the total value of online
auctions would grow from $1.4 billion in 1998 to $19 billion in 2003.
20
Person-to-person auctions, like those of eBay.com, uBid.com, and Amazon.com,
currently dominate the market; however, according to Jupiter Communications,
business-to-consumer sales will comprise some 66% of total Internet auction
sales, or approximately $13 billion, by 2003.
There are five models of online auctions:
o Event-based live auctions: Bidders participate in live auctions
transmitted over the Internet in real-time. Users register to qualify
as bidders to participate before the time of the auction and bid for
merchandise auctioned at physical auctions. Online bidders typically
bid against bidders present at the physical auctions.
o Business-to-consumer: Businesses or consumers bid on products that are
listed on an auction's web site within a set time limit. The auctioned
merchandise is sold to the highest bidder.
o Consumer-to-consumer auctions: Sellers post merchandise on the web
site in one of several categories. Hundreds of thousands of items, at
all price ranges, are listed and bidders haggle directly with sellers
to purchase the merchandise.
o Specialty auctions: Sellers offer specific types of merchandise for
auction on specialty online auctions that serve eclectic collectors or
consumers interested in a special product niche.
o Business-to-business: Businesses offer merchandise for auction to
other business, including items for liquidation, salvaged merchandise,
excess inventory, distressed inventory, and other items offered in
large lots of several hundred items.
Our Business Strategy
Our business strategy is to expand the geographic scope of our business through
the following growth and expansion strategies:
o Increasing the geographic reach and auction revenues of our existing
auction business by broadcasting our auctions live on our web site;
o Expanding our auction business and operations by acquiring existing
brick-and-mortar auction houses in strategic geographic locations
throughout North America;
o Building an Internet e-commerce site for live auctions by broadcasting
our auctions live and entering into strategic relationships with other
brick-and-mortar auction houses to broadcast their auctions live on
our web site on a transaction fee basis; and
o Generating revenues from silent auctions, charity auctions, and
specialty e-commerce stores on our web site.
We have recently acquired six additional auction houses in British Columbia,
Washington, and Arizona. See "Acquisitions." We have plans to acquire two
additional auction companies during the fourth quarter 2000. We have also
identified prospective targets in Seattle, Toronto, and the United Kingdom and
are in the process of researching possible targets in the San Francisco Bay
Area.
We have established the following general criteria for our acquisition
candidates:
o Licensed owner-operated business
o Minimum $2 million in sales
o Profitable
o 5 year operating history
o 2 or more auctions per month
We plan to link all of our physical auction sites through our Ableauctions.com
web site. We anticipate that each venue will broadcast its auctions live on our
web site, and as the volume of auctions increases, we expect to
21
broadcast live auction on our Ableauctions.com web site daily. We believe each
of our auction houses will benefit from our marketing programs and our internet
strategy.
We cannot assure you that we will acquire any additional auction companies or
that we will have sufficient financing to acquire and operate the auction houses
we acquire, if any. We also cannot assure you that our marketing programs or
Internet broadcasts of our live auctions will result in increased auction
revenues.
Competition
We intend to compete in distinct markets:
o the industrial auction market;
o auto actions;
o antique auctions; and
o the online auction market.
We conduct our auctions on an unreserved basis with no minimum prices, resulting
in each and every item being sold to the highest bidder on the day of the
auction. Our policy is to prohibit consignees from bidding on the items they
consign to us for auction. We attempt to differentiate our auction services from
our competitors through our "no minimum price policy" and by selling merchandise
without interference or competition from consignees.
We believe that our "no minimum price" policy coupled with broadcasting our
auctions live on the Internet through our web site will result in a greater
volume of consigned equipment and higher gross auction sales. Our business
strategy is intended to allow us to become a leading real-time Internet
auctioneer and to take advantage of efficiencies such as a consolidated
marketing strategy, uniform auction services, and increased customer
satisfaction.
We believe that the growth of the Internet has facilitated the development of
solutions to some of the traditional problems we face in operating our auction
business, including reaching potential buyers of merchandise and equipment in
other geographic locations, increasing the size of bidding audiences for our
auctions, reaching more potential consignees of merchandise, and automating our
auction preview process. Our goal is to expand our operations by linking
regional auction houses together through our web site. We believe this will
allow us to generate a greater volume of traffic and interest to our web site
and sales through our auctions.
Industrial/Commercial Auction Market
The used equipment market and the industrial equipment auction market are highly
fragmented. We compete for potential purchasers of industrial equipment with
other auction companies and with indirect competitors, such as equipment
manufacturers, distributors, new or used equipment dealers, and equipment rental
companies.
There are major competitors in the industrial/commercial auction market,
including Michael Fox International, an international auctioneer of industrial
equipment and real estate; Ritchie Bros. Auctioneers, an international
auctioneer of industrial equipment; Maynard's Auctioneers, an auctioneer and
liquidator of household items, antiques, and commercial goods; and several other
independent auctioneers.
We believe that the principal competitive factors in the auction market are:
o reputation;
o customer service;
o the ability to provide the customer with a variety of merchandise at
an exceptional value, commission pricing, and structure; and
o the ability to attract the bidders necessary to generate the best
possible prices.
We intend to compete with a number of companies with substantially greater
financial, technical, and human resources than us. Our competitors include large
and small auction companies, dealers, and retailers, including discount retail
stores, liquidation centers, and other retailers of new and previously owned
merchandise.
22
Online Internet Auctions
We believe that the market leader in broadcasting live auctions over the
Internet is Livebid.com. Livebid.com is a Seattle-based company that pioneered
live, event-based auctions on the Internet. Amazon.com acquired Livebid.com in
May 1999. Livebid.com also broadcasts sound live over the Internet when
conducting its auctions.
Livebid.com uses real-time software technology that allows auction houses to
broadcast their auctions live over the Internet and online bidders to bid on
merchandise and participate in the live auctions. LiveBid.com enables bidders to
review auction catalogues and place proxy bids before an event. Based on
information posted on its web site, LiveBid.com earns revenues by charging
transaction fees based on auction revenues.
In addition, Brilliant Digital Equipment, Inc. broadcasts live auctions over the
Internet at www.theauctionchannel.com, and provides broadcast services to major
auction houses like Christine's South Kensington, Phillips, Bonhams, Allsop &
Co., Brooks, and Antiquorum. We do not believe that Brilliant Digital is
currently broadcasting auctions from U.S. locations.
Additionally, several auctioneers have launched web sites that allow buyers to
search for and bid on merchandise contained within the seller's inventory. In
general, buyers search for and acquire merchandise by visiting the web site and
dealing directly with the auction. Based on our review of our competitors' web
sites, we believe that the inventory of most independent auctions is limited in
size and selection.
The Internet auction industry is new, rapidly evolving, and intensely
competitive, and we expect competition to intensify in the future. A variety of
auction web sites are presently available on the Internet that are dedicated to
facilitating person-to-person and business-to-person transactions on a bid-based
format. These auction services allow sellers to post merchandise on their web
sites and buyers to locate items and submit bids online. These services
generally organize merchandise by categories and provide descriptions, pictures,
or video clips of merchandise offered for sale.
Our silent auction will compete directly with online auction services such as
Onsale, First Auction, Surplus Auction, uBid, eBay, Yahoo!, Onsale, Excite,
Inc., Auction Universe, and a number of other auction based services. We
potentially face competition from a number of large online communities and
services that have expertise in developing online commerce and in facilitating
online business-to-person interaction, including AOL, Lycos, Inc., and Microsoft
Corporation.
We believe that the following features may allow us to differentiate our web
site from the web sites of our competitors:
o Live Broadcast. We broadcast live auctions from physical auction sites
over the Internet in real time, which allow visitors to our web site
to compete against bidders attending the live auction.
o Quality Sound and Video. We are developing technology that will
provide quality video and sound to visitors and that will allow
bidders to respond immediately to the auctioneer's calls.
o Commercial Goods. We intend to broadcast some live auctions that
feature merchandise and equipment targeted at business or commercial
buyers.
o Consumer Goods. We also intend to broadcast live auctions targeted at
consumers featuring merchandise such as antiques, collectibles,
furniture, household items, and other consumer goods.
o Retail Store. We will offer a retail store on our web site that will
feature a variety of merchandise that visitors can purchase at set
prices that we anticipate will be below retail prices.
o Silent and Charity Auction. We anticipate that our web site will
feature a silent auction and a charity auction that lists items for
auction that will be sold to the highest bidder.
See "Description of Ableauctions.com Web Offerings." In addition to the features
of our web site, we believe that our physical-based auction houses will allow us
to promote our auctions over the Internet to potential bidders and consignees
and will save potential bidders time and effort by allowing them to preview
merchandise in advance of an auction using video and sound clips posted on our
web site. We cannot assure you that we will successfully differentiate our web
site from the web sites of our competitors or that our web site will attract
visitors or bidders.
23
Our Auctions Operations
We conduct physical auctions from our auction houses located in British
Columbia, and the states of Washington, California, and Arizona. The costs
involved in conducting a typical auction include, among other things, the cost
of catalogues, insurance, transportation, auction advertising, auction site
rental fees, security, temporary personnel and expenses of certain additional
auction-related accounting and shipping functions. In general, we charge
purchasers a buyer's premium on auction purchases equal to 10% to 15% of the
hammer price of the property and sellers a commission ranging from 5% to 25% of
the hammer price.
Generally, we conduct approximately two auctions at each of our locations per
month. We auction up to approximately 1,200 items or lots at each auction. We
receive revenues from auction fees charged to consignees who consign merchandise
to be sold and from buyer's premiums charged to purchasers of the merchandise.
We also receive revenues from auctioning merchandise that we purchase and sell
at our auctions. See "Sales of Our Inventory." In auctions of consigned goods,
we received gross revenues from commissions and fees of approximately $80,000
from a typical auction during 1999 and $100,000 during the six month period
ended June 30, 2000. The costs associated with conducting each auction averages
approximately $45,000, including approximately $15,000 for expenses related to
catalogue printing, insurance, transportation, advertising, auction site and
storage rental, security, temporary personnel, shipping, and other expenses
associated with conducting the auction.
Like most auctioneers, we do not provide any guarantee or warranty with respect
to the property offered for sale at auction except as noted in our terms and
conditions of sale for particular auctions. We generally auction each lot as
described in our auction catalogue or on an "as is" basis.
After an auction, purchasers generally make their own arrangements to take
possession of the auctioned property. We can also make available shipping
services to forward the property to the buyer by mail freight forwarder, truck
transport, or other delivery services for a cost. As agent of the consignor, we
normally collect payment from the buyer for property purchased and remit to the
consignor, on the settlement date, the consignor's portion of the buyer's
payment, less consignor cash advances, if any, and commissions payable to us. We
sometimes release property sold at auction to qualified buyers (primarily
dealers) on credit before we receive payment. These qualified buyers generally
have an account or line of credit (within established credit limits) with us and
agree to make payment within 30 days. We extend credit only to buyers who have
done business with us in the past and have an established credit standing with
us.
Under the standard terms and conditions of our auction sales, we are not
obligated to pay the consignor of the property if the purchase price for the
property has not been paid by the buyer. In these instances, we will hold
auctioned property until we receive payment from the buyer. If the buyer
defaults on payment, we may cancel the sale and return the property to the
owner, re-offer the property at another auction, or contact other bidders to
negotiate a private sale.
Sales of Our Inventory
We sometimes offer potential consignors the option to sell their property to us
for an amount determined by our expert appraisers. In an outright purchase, we
establish a price that we are willing to pay for the property and, if the price
is acceptable to the seller or if a price can be negotiated between us and the
seller, we typically pay the purchase price in full and take possession of the
property immediately. We will generally sell this property at auction with other
property or, if the purchase is large, at an auction of the purchased property.
In auctions where we own the auction merchandise, we receive all of the proceeds
from the sale of the merchandise and related commissions and fees. Our gross
profit from sales of our own merchandise is approximately 35%. During 1999 we
had revenues of $829,755 from the sale of our merchandise and $3,904,153 in the
six month period ending June 30, 2000.
Unlike sales of consigned property at auction, when selling our own inventory we
earn a profit or incur a loss on the sale of inventory to the extent the
purchase price exceeds or is less than the purchase price we paid for the
inventory. Generally, we provide for the sale of portions of our inventory at
public auctions. Occasionally, we may sell inventory to a customer directly
without placing the inventory for sale at auction. Our goal is to sell all our
inventory as quickly and as efficiently as possible in order to achieve a high
level of inventory turnover and maintain maximum liquidity.
24
We also generate revenues by purchasing merchandise from a variety of sources
and re-selling it at our auctions. We purchase merchandise below normal
wholesale prices as a result of liquidation, generally from bankruptcy or
overproduction by manufacturers. In some cases, we purchase used equipment, such
as office equipment from bankrupt companies, closing businesses, or merging
companies. We normally average over 50% gross margin on sales, before fixed
expenses, on the sale of liquidated merchandise.
Consignor Advances
Frequently, an owner consigning property to us will request a cash advance when
the property is delivered to us and before its ultimate sale at auction or
otherwise. The cash advance is in the form of a self-liquidating secured loan,
using the consigned property as collateral. We are a secured party with respect
to the collateral, hold a security interest in the collateral, and maintain
possession of the collateral until it is sold.
The amount of cash that we advance generally does not exceed 50% of our
estimated value of the property when sold at auction.
Ableauctions.com - Web Solution
Our web site is designed to integrate the traditional physical brick-and-mortar
auction with electronic commerce by offering bidders with Internet access the
ability to bid at our larger auctions. We believe our system will increase the
size of our auction audiences, lower our overall transaction costs, and increase
interest in our brick-and-mortar auction houses and events. Our Ableauctions.com
web site is designed to make the online purchase of auction merchandise more
convenient for consumers.
We are designing our web site to target both business and retail customers. Our
goal is to offer visitors to our web site an extensive range of products and
merchandise.
We intend to increase income from our operations in existing markets by holding
larger and more frequently scheduled auctions. Our goal is to attract a larger
number of consignors and bidders to our auctions. We also intend to enhance our
corporate identity and establish a long-term presence in each geographic market
we enter by establishing offices and physical facilities for our auctions.
We anticipate that our web site will be attractive to business purchasers
looking for difficult-to-find equipment, fixtures, office equipment, furniture
and similar merchandise. We believe that offering previews of our merchandise
over the Internet will save our visitors time and increase the number of serious
bidders participating in our auctions. In addition, our web site is anticipated
to be attractive to consumers searching for merchandise such as jewelry,
consumer electronics, tools, collectibles, cameras, and musical instruments. We
do not intend to offer or auction firearms, adult materials, or other
potentially illegal merchandise on our web site.
We launched our web site for public viewing in September 1999 and have refined
our technology to broadcast live auctions over the Internet. We broadcasted our
first live auction in January 2000. We currently broadcast 20% of our live
auctions on the Internet. Our goal is to broadcast 80% of our auctions on the
Internet by the fourth quarter of 2001. Visitors to our web site are able to bid
on merchandise offered in our Silent Auctions and Charity Auctions and purchase
merchandise from our Retail Store.
Description of Ableauctions.com Web Offerings
Live Auctions
Our live auction feature is designed to allow us to broadcast our auctions live
by video over the Internet. Viewers will be able to conveniently preview items
in advance from their home or office and bid on merchandise live as the auction
is being conducted. We are in the process of developing technology that is
designed to allow visitors to view a video clip (a 360(degree) view) of each
item of merchandise and study items up to 8 hours before the start of an
auction. Currently, we post auction previews that allow visitors to view
pictures of certain merchandise prior to auctions. The users will also have the
option to submit a bid on an item before it goes to auction.
Our live auctions typically draw an average of 500 people in person. With the
Internet broadcast of the auctions, the number of people attending our auctions
in person may only increase marginally, but we expect a number of virtual users
to participate in the bidding through the Internet.
25
During the live auctions, virtual viewers are able to see the auction in
progress and follow the lots of merchandise as they are being sold. A picture of
each item of merchandise is posted and the current bid is posted, allowing
Internet users to bid on merchandise while the auction is in progress. Bidders
are able to bid simultaneously with those attending in person and update bids at
their convenience. We post bids received from the Internet on large screen
monitors. Unlike eBay, Bid.com, or other web sites, we offer every item on an
unreserved basis, meaning there is no minimum bid for the merchandise we
auction. Every item we auction is physically present at the time of the auction
and sold to the highest bidder.
Our Ableauctions.com site allows visitors to register, bid, preview merchandise,
place bids on merchandise, and purchase and pay for merchandise in a secure
environment. Our web site software is expected to feature tools that calculate
taxes, exchanges rates for various currencies, and shipping costs. We intend to
post merchandise packaging and shipping information on our web site to
facilitate delivery of merchandise to purchasers.
The Silent Auction
Our silent auction will allow us to conduct auctions similar to eBay, Amazon,
and Bid.com. We intend to continuously run an auction that lists thousands of
featured items for sale, each with a digital picture. In the future, we intend
to display some products with a video clip (a 360(Degree) view of the item)
illustrating the product.
We intend to offer certain items from our inventory and inventory from
bankruptcies, mergers, acquisitions, insolvencies, and expired leases on our
silent auction.
Unlike our competitors, our current strategy is to offer only merchandise that
we own or that is consigned to us for sale on our silent auction. This will
affect the number of items available for sale on our website and we may not have
a sufficient inventory to attract visitors to our web site. In the future, we
may accept consignments to increase our silent auction offerings, but currently
have no plans to do so.
The Retail Store
Our web site is expected to feature a retail store offering a broad range of
products. We intend to offer the merchandise of diamond distributors, jewelers,
computer and electronics wholesalers, and antique dealers in catalogue format at
a set price with no bidding. In some instances, with antiques and specialized
items, the user may be allowed to make an offer on the merchandise. We have
established alliances with numerous distributors who have agreed to sell
merchandise on our web site. We anticipate our web site will feature the
following retail stores:
o Computers and Electronics
o Jewelry
o Specialty Items
o Lingerie
o Antiques
o Time Shares
Charity Auctions
Our charity auctions will allow registered non-profit organizations to raise
funds and awareness of their charities through auctions hosted on our web site.
We intend to charge commissions ranging from 10% for hosting an auction, to 25%
for fully-organized fundraisers. Charity auctions may offer merchandise such as
automobiles, vacation packages, and event passes to the highest bidder.
Our Operating Strategy
We believe that we can develop key operating strengths that will allow us to
compete and achieve profitable growth. Our strategy is to offer the following:
26
Reputation for Conducting Fair Auctions
We believe our regional physical brick-and-mortar auctions have allowed us to
develop a reputation for being committed to fair dealing. We also believe our
unreserved auction process and "no minimum bid" policy have been key
contributors to our growth and success. We require each consignor to agree not
to bid on its own consigned items, which deters the practice of artificially
inflating the price of auctioned merchandise. Based on our experience, we
believe our policy results in a larger number of bidders at our auctions and
fair pricing of our auctioned merchandise.
Our goal is to build a reputation as a reputable auctioneer on the Internet.
High Quality Services for Consignors and Bidders
Our auctions are designed to be conducted on a standardized basis, which
generally includes inspection services, appraisals, marketing, and auctioning.
We offer comprehensive services for consignors of merchandise, which typically
begins with an equipment appraisal that gives the prospective consignor an
estimate of the value of the appraised equipment. Our appraisals are based on
our experience selling similar merchandise and we typically tailor a proposal
for each consignor, which may include an alternative commission structure based
on a guaranteed minimum level of gross sale proceeds or an outright purchase of
the merchandise. Our willingness to take consignment of a customer's full
inventory (and all ancillary assets, including inventories, parts, tools,
attachments, and construction materials), rather than only the most desirable
items, is another service we offer to the consignor. We also offer repair and
refurbishment services to consignors and provide advice on how to present the
equipment to maximize the consignor's proceeds.
Our personnel perform title searches on certain merchandise and equipment
consigned for auction, and in some cases we warrant to each buyer free and clear
title to merchandise purchased at our auctions. We make merchandise being
offered at the auction available for inspection by prospective buyers before the
auction and generally allow bidders to preview merchandise on the day before the
auction. We also offer access to third-party financing and trucking and freight
forwarding at the auction venue.
Geographic Scope
We desire to market each auction to potential bidders and consignors on a larger
geographical scope through the Internet. We believe that access to a larger
audience of potential bidders will allow consignors to receive the highest
possible price for their merchandise. We believe buyers will save time by
attending auctions online and will have the ability to locate and bid on
difficult-to-find merchandise.
Databases and Software
We currently maintain computerized tracking systems that are used to catalogue
and describe all of the property delivered or consigned to us for auction.
Property is generally stored in our warehouse or at the auction venue until it
is sold or put on public exhibition for inspection, generally 7 to 21 days
before auction.
Tracking our consigned property allows us to promptly and efficiently produce
catalogues and marketing materials for auctions. Catalogues are an important
marketing tool that allow us to solicit the business of both potential
consignors and bidders. In the future, we intend to develop an online catalogue
of merchandise available at all our auctions. We believe that the
computerization of our auction operations will enable us to compete with other
auction houses by placing all of our upcoming auction information in the homes
and offices of potential consignors and bidders through the Internet.
We intend to build a database containing information on our registered bidders
and their buying habits, which is expected to enhance our ability to target
market our auctions. We intend to track information such as auction attendance,
trade association membership, buying habits, sales tax, and account information.
Sales and Marketing Strategy
Our marketing strategy is designed to introduce and strengthen the
Ableauctions.com brand name.
27
We intend to market our web site and auction houses to increase customer traffic
to our web site, build customer loyalty, maximize repeat purchases, and develop
additional revenue opportunities. We intend to promote each of our Live
Auctions, Silent Auctions, Charity Auctions, and the Retail Store to a customer
base of potential bidders and consignors.
We intend to use electronic advertising, including banner advertising,
electronic mail, and facsimile transmission of advertisements to promote our
auctions. We will also use traditional print media, including classified
advertisements in major newspapers and the Yellow Pages. We believe that our
advertising will increase awareness of the Ableauctions.com brand. We may also
develop strategic alliances with other Internet companies who may provide links
to our web site, auctions, and other merchandise offerings.
We generally promote individual auctions using direct mail brochures, newspaper
advertisements, trade magazine advertisements, and other publications. We also
use personal sales in our marketing auction services to potential consignors in
the business community.
Our marketing efforts will be directed to specific regional areas where we
conduct auctions. We also intend to implement an after-sale marketing program,
which may include customer follow-up to reinforce purchase decisions and to
promote our web site. Our databases will be designed to track information
regarding potential bidders, consignors, industry information, and equipment
valuations, which may enhance our ability to effectively market our auction
services and which may be used for marketing certain types of auctions to
bidders in the future.
Business/Strategic Affiliates
We have entered into strategic relationships with the following companies:
o Compaq Computer Corporation installed a custom designed Distributed
Internet Server Array (DISA) on December 14, 1999 for approximately
$28,000. In addition, Compaq, through an arrangement with Dexton
Technologies Corporation (with which Ableauctions.com has common
directors and officers), provides us with centralized international
technical support from one regional site in North America. We
currently are in the process of negotiating the terms of a definitive
agreement related to additional technical support and maintenance
services.
o Under an arrangement with Dexton Technologies, Allaire Corporation
provided us with load-balanced server software for our web site
applications for the first phase of our web site launch for
approximately $25,500. Allaire discounted its products by
approximately 35% for that first phase. We are in the process of
discussing a formal arrangement with Allaire to provide ongoing
maintenance, support, and development services, and intend to enter
into a formal written agreement with Allaire in the fourth quarter of
2000.
o Pursuant to an Internet Business Services Agreement dated September
14, 1999 between Telus Advanced Communications and Dexton
Technologies, Telus provides us with fault tolerant high-speed access
to the Internet, which is designed to minimize the risk of downtime
for our web site. We paid a $3,500 set up fee and pay monthly fees of
approximately $4,500 per server for these services, which are the same
rates paid by other subscribers. We currently do not have a written
agreement with Telus. We anticipate that we may enter into an Internet
access agreement with Telus in the fourthsecond quarter of 2000,
although we have not begun negotiations with respect to such an
agreement.
o Cybercash, a leading provider of third-party credit card processing
services, has agreed to facilitate our credit card transactions. We
have no formal arrangement with Cybercash and receive no preferential
discounts for their services. We anticipate that we will approach
Cybercash to enter into a written agreement for their services in the
fourthsecond quarter of 2000.
o eBay, the world's largest person-to-person trading community, has
accepted our application to simultaneously list all of our Silent
Auction inventories on eBay's web site. eBay generally accepts all
requests for listing merchandise on its web site, and we receive no
advantage or preferential treatment in our listings. We pay eBay a 3%
fee for all transactions facilitated by eBay, which is subject to
change at eBay's sole discretion. Users logging on to
www.ableauctions.com and selecting "Silent Auction" will be linked to
a specific site on eBay's
28
servers. Users logging on to www.ebay.com will be able to preview and
bid on Ableauctions.com's entire inventory and our Charity Auctions.
We anticipate that we will enter into an arrangement with eBay to post
the schedule of our Live Auctions on their web site. We have no
written agreement with eBay for listing our products or linking to our
site, and we cannot assure you that we will enter into or maintain any
relationships with eBay.
We cannot assure you that we will be able to maintain our relationships with
Compaq, Allaire, Telus, Cybercash, or eBay. The arrangements made with Compaq,
Allaire and Telus were made through Dexton Technologies. Dexton Technologies is
an approved systems and service provider for Compaq and Allaire, and based on
Dexton Technologies' existing relationship with them, we believe that we may
have received our systems and services on terms that were more favorable than
those we could have negotiated independently. We cannot assure you that we will
be able to maintain these relationships or enter into any formal agreements with
Allaire, Telus, Cybercash, or eBay for future services or products on acceptable
terms, if at all. If we are unable to maintain these relationships, we will be
required to enter into relationships with other service providers and we may
experience delays in completing the development of our live auction broadcasting
services or disruptions of our web site services. Delays and/or disruptions may
have a material adverse affect on our business and results of operations.
We are also actively seeking listings with other Internet service providers,
including Yahoo! and Info Seek, to direct traffic to our web site. In the
future, we may enter into cooperative marketing arrangements designed to build
our Ableauctions.com brand name and to increase awareness of our web site.
Research and Development
We are in the process of developing technology to integrate our live auctions
with our web site. While our technology is primarily being developed internally,
we have outsourced development with the particular use of engineers and
developers including Compaq Computer Corporation, Allaire Corporation, and Telus
Advanced Communications. We intend to standardize our technology to industry
standards and to use off-the-shelf software, when available, to reduce our
development costs.
Our research and development program consists of developing technologies related
to our web site and the systems required to broadcast live auctions over the
Internet. We had spent $526,787 as of December 31, 1999 and $438,764 as of June
30, 2000, on expenses related to research and development, including consulting
fees, technical fees, development of our data base management technologies,
research and development of our graphic and video broadcasting technologies,
systems design and testing, and other technological aspects of our web site. We
anticipate that we will spend approximately $500,000 on research and development
efforts during the second half of 2000 and $750,000 during 2001.
Our systems are expected to provide our web site with high-volume capabilities
that will allow us to transmit and conduct live auctions and other transactions
over the Internet.
Our Ableauctions.com Technology
The following section outlines the technology components that are anticipated to
be used by us to deliver Web-based auctions:
DISA Technology
Our system will be based on distributed Internet server array or "DISA"
technology, a fault-tolerant architecture system custom designed by Compaq. DISA
uses industry-standard platforms and packaged application server software to
increase system flexibility. Compaq tests have shown that the DISA architecture
allows a web server, such as our ColdFusion application by Allaire Corporation,
to scale beyond the limitations of a single server. DISA enables a group of
servers to perform as a single, highly-scalable system, which can be networked
to share the load, compensate for server failures, and increase manageability of
a web site server system. DISA architecture also allows requests and processing
to be transferred from one machine to another in the event any one machine
becomes overloaded. If one of our data resource servers fail, we anticipate our
conventional fail-over clustering technology will allow us to minimize downtime.
29
Web Application Servers
We have installed Compaq 1850R servers to handle a large volume of transactions
on our web site and the transaction-intensive applications we intend to run. We
considered three critical factors in selecting our system: performance,
availability, and scalability.
Performance refers to the ability of an application to sustain a
business-defined performance metric, such as response time.
Availability refers to the amount of time that an application is available
to perform work, typically measured in percentage of uptime.
Scalability refers to the capacity of the application to perform increasing
amounts of work while maintaining acceptable performance levels.
The Compaq ProLiant 1850R servers we installed have the following features:
o A two-way symmetric multiprocessing (SMP) configuration of
400-megahertz (MHz) Intel Pentium II processors.
o 512-megabyte, 100 MHz SDRAM.
o Integrated dual Ultra Wide SCSI controller.
o Two PCI buses in master/slave configuration.
o Integrated remote console and other advanced manageability features.
o Designed for efficient racking, taking only 3 U of space on standard
racks. Our cluster with 72 nodes and 18 gigabytes (GB) of disk storage
was built with 22 42 U racks with plenty of room left for incremental
growth.
o Each node delivers excellent processor-memory bandwidth (450 megabytes
(MB) per second) on the STREAMS benchmark.
Web Application Server Software
We have selected the following server software:
Microsoft Windows NT Server, Microsoft SQL Server and Allaire ColdFusion
Enterprise Servers.
Our ColdFusion server application runs as a 32-bit multi-threaded system service
or daemon on Windows NT. This architecture enables ColdFusion to scale upward to
support heavy user loads. The multi-threaded architecture allows each user or
page request to execute as a separate thread on the system, with each thread
handled by the underlying operating system threading architecture. The
multi-thread server architecture lends itself to scaling the application server
across machines. Windows NT supports a technology called SMP that allows
applications to execute threads across multiple processors on a single machine,
which increases the efficiency and processing capabilities of the machine. As
the number of processing units on the machine increases, the simultaneous
processing power of the ColdFusion server increases.
Video Technology
We have developed specialized technology to enable us to transmit our auctions
live on our web sites. This technology incorporates a high-image quality,
no-download, and no-buffer streaming video server for low bandwidth Internet
transmission. The broadcast produces real-time, 144 x 176 pixel images at 7 to
15 frames per second over a 56 Kbps connection. More importantly, users do not
need to download any software to view the broadcast. The broadcast can be scaled
to a variety of sizes to best suit the intended audience. The technology and
systems required at each remote auction house include the following components:
o 2 Video Cameras
o 4 Digital Cameras
o Wireless 900 MHz transmitters
30
o ISDN or ADSL lines
o 1 Video Server, 6 notebook checkout stations, 3 notebook proxy bidding
stations
o Local network and server
The fixed cost to implement each web site is expected to cost $125,000 to
$150,000.
History of Our Corporation
We were incorporated in the State of Florida on September 30, 1996 as "J.B.
Financial Services, Inc." with an authorized share capital of 6,500 common
shares with a par value of $1.00 per share. We were inactive until August 1998.
On September 2, 1998, we amended our Articles of Incorporation to: (i) increase
our authorized capital to 50,000,000 shares of common stock with a par value of
$0.001 per share and (ii) effect a forward split of our issued and outstanding
stock on a 200-for-1 basis, increasing our total issued and outstanding share
capital from 5,000 to 1,000,000 common shares.
In March and April 1999, we issued 8,600,000 shares to a consulting company, and
an aggregate 850,000 shares to two other persons for services rendered.
Effective July 19, 1999, Douglas McLeod, a promoter and former director,
contributed back to Ableauctions.com 8,000,000 shares of common stock in
consideration of $100. The shares were returned to our treasury as part of an
agreement to restructure our share capital and to allow us to acquire Able
Auctions (1991) Ltd. As a result of the contribution, our total issued capital
was reduced by 8,000,000 shares. On July 19, 1999, we amended our Articles of
Incorporation to change our name to "Ableauctions.com, Inc."
On July 20, 1999, we distributed a dividend of four shares for every share held
by shareholders of record on July 20, 1999. After the dividend, we had
12,250,000 shares of common stock outstanding.
Our shares began trading on the OTC Bulletin Board under the symbol "ABLC" on
July 21, 1999.
On August 9, 1999, we: (i) amended our Articles of Incorporation to increase our
authorized share capital to 250,000,000 shares of common stock and (ii) effected
a 5-for-1 forward split of our common shares, increasing our total issued and
outstanding share capital from 12,250,000 to 61,250,000 common shares.
On August 24, 1999, we acquired all the issued and outstanding common shares of
Able Auctions (1991) Ltd., a British Columbia corporation engaged in the
business of auctioning used equipment, office furnishings and equipment, and
other merchandise, from Dexton Technologies Corporation, a British Columbia
corporation. As a result of our acquisition of Able Auctions (1991), we acquired
all of the assets and business operations of Able Auctions (1991), as a going
concern, in consideration of shares of our common stock and cash. See "Our
Acquisition of Able Auctions (1991)." On August 24, 1999, we also completed a
unit private placement to raise proceeds of $3,500,980. See "Recent Sales of
Unregistered Securities."
On September 2 1999, we: (i) amended our Articles of Incorporation to reduce our
authorized capital to 50,000,000 common shares and (ii) reverse split our issued
and outstanding common shares on a 1-for-4 basis, reducing our issued and
outstanding share capital to 18,250,001 shares.
Effective September 20, 1999, we hired all of the employees and acquired all of
the business assets of Ross Auctioneers & Appraisers Ltd., a British Columbia
based auction company, for 60,000 shares of our common stock with a fair market
value of approximately $175,000. See "Our Acquisition of Ross Auctioneers."
Effective February 29, 2000, we hired the founder, Harlan Moore, and acquired
all of the business assets of Falcon Trading, Inc., a Washington based auction
company, for 53,405 shares of our common stock with a fair market value of
approximately $360,804. See "Our Acquisition of Falcon Trading."
Effective March 20, 2000, we acquired the business assets of Mesler's Auction
House of Scottsdale, L.L.C., and real estate and a building from C&C Capital
Investment, Inc., an affiliate of Mesler's. Mesler's is an Arizona based company
that auctions antiques and other furniture and equipment. We paid $255,000 cash
and issued 30,625 shares of our common stock with a fair market value of
approximately $245,000 for the Mesler's assets; and $1,200,000 cash,
$1,056,110.53 by assumption of a wrap-around promissory note and a wrap-around
deed of trust
31
and assignment of rents, and issued 155,486 shares of our common stock with a
fair market value of approximately $1,245,000 for the property. See "Our
Acquisition of Mesler's Auction House."
Effective May 5, 2000, we hired the founder, Robert Kavanagh, and acquired all
of the business assets of Auctions West Sales Corporation, a British Columbia
based auction company, for 10,000 shares of our common stock with a fair market
value of approximately $70,000. See "Our Acquisition of Auctions West."
Effective May 16, 2000, we acquire all of the issued shares of Ehli's
Commercial/Industrial Auctions, Inc., a Tacoma, Washington based liquidator of
automobiles and industrial equipment, from Randy Ehli, the sole shareholder, for
$900,000 cash and 50,000 shares of our common stock with a fair market value of
approximately $350,000. See "Our Acquisition of Ehli's Auctions."
Our shares began trading on the AMEX under the symbol "AAC" on June 29, 2000.
We acquired Johnston's Surplus Office Supplies, Ltd. on July 26, 2000 for
$500,000 in cash and issued 68,182 shares of common stock with a fair market
value of approximately $513,410. See "Our Acquisition of Johnston's Surplus
Office Supplies." We acquired Jarvis Industries Ltd. for $286,263 (CDN$426,818)
on July 31, 2000. See "Our Acquisition of Jarvis Industries." We also acquired
Warex Supply Ltd. on July 31, 2000 for $145,672 (CDN$217,196.98) and 6,900
shares of common stock with a fair market value of approximately $55,200. See
"Our Acquistion of Warex Supply."
Our current corporate organization structure is as follows:
Ableauctions.com, Inc.
Organizational Chart
Ableauctions.com, Inc.
(a Florida corporation)
-----------------------
Able Auctions (1991) Ltd. Ableauctions.com Ehli's Commercial Johnston's Surplus Sammac Warex Supply Ltd.
(a British Columbia (Washington), Inc. Industrial Auctions, Office Systems Ltd. Financial Ltd. (a British Columbia
corporation) (a Washington Inc. (a Washington (a British Columbia (a British Columbia corporation
corporation corporation) corporation corporation
Ross Auctioneers Auctions West Mesler's Falcon Surplus Office Jarvis Industries, Inc.
(Operating (Operating Auction House Trading Systems (a British Colubia)
Division) Division (Operating (Operating Holdings, Inc. corporation)
Division) Division)
Surplus Office
Systems, L.L.C.
(a Washington limited
liability company)
We have not been subject to any bankruptcy, receivership or other similar
proceeding.
Acquisitions
Our Acquisition of Able Auctions (1991)
On August 24, 1999, we acquired all of the issued and outstanding shares of Able
Auctions (1991) Ltd. pursuant to a share purchase agreement dated July 9, 1999,
as amended, among us, Able Auctions (1991), and Dexton Technologies Corporation,
a British Columbia corporation and the sole shareholder of Able Auctions (1991).
Able Auctions (1991) and Dexton Technologies were dealing at arm's length to us.
Under the terms of the share purchase agreement:
(a) We completed a private placement of 1,094,057 units at the price of
$3.20 per unit for proceeds of $3,500,980. Each unit consisted of one
share of common stock and one-half of one non-transferable share
purchase warrant. Each whole share purchase warrant is exercisable to
acquire one additional share of our common stock at a price of $3.20
until August 24, 2000, and thereafter at a price of $4.00 until August
24, 2001. See "Recent Sales of Unregistered Securities."
32
(b) We issued 1,843,444 shares of our common stock and paid $1,027,333 to
Dexton for all of the issued and outstanding shares of common stock of
Able Auctions (1991) and to pay debt owed by Able Auctions (1991) to
Dexton, including $385,000 in liabilities owed by Able Auctions (1991)
for advances and accounts payable related to products and services
provided to Able Auctions, $56,000 in other expenses paid by Dexton on
behalf of Able Auctions (1991), including $5,600 in legal fees related
to trademark services, $3,500 paid to Allaire Corporation for web site
development, $1,400 for insurance expenses, $12,000 for web site
development work performed by Dexton and $32,200 for computer server
equipment.
(c) We appointed Abdul Ladha as our President and a director and Jeremy
Dodd, the Vice-President of Operations of Able Auctions (1991), as our
Secretary and Treasurer.
(d) We commenced the development and testing of technology, software, and
systems to launch our Ableauctions.com web site.
(e) We filed a Form 10-SB registration statement with the SEC to register
our common stock under the Securities and Exchange Act of 1934, as
amended. We became a reporting issuer effective January 12, 2000.
Our Acquisition of Ross Auctioneers
On October 18, 1999, Able Auctions (1991) hired all of the employees and
purchased the assets of Ross Auctioneers & Appraisers Ltd. as a going concern,
pursuant to an asset purchase agreement dated September 20, 1999 among Ross
Auctioneers, Able Auctions (1991), and us. The terms of the acquisition were
negotiated at arm's length. Ross Auctioneers was engaged in the business of the
auction of tools, vehicles, industrial equipment, government surplus equipment,
and police seized goods in the Lower Mainland of British Columbia. The purchase
price for the assets of Ross Auctioneers was $168,000 (Cdn$250,000) plus
applicable taxes, which was paid by the issuance of 60,000 shares of our common
stock at the deemed price of $2.80 (Cdn$4.16) per share. See "Recent Sales of
Unregistered Securities."
In addition, Able Auctions (1991), under a separate asset purchase agreement
dated as of September 20, 1999 with John Carrier dba LJM Computer Resources,
purchased the web site located at www.bcbids.com, including all associated
intellectual property rights and software technology, for the cash purchase
price of $26,500 (Cdn$38,000) plus applicable taxes. Able Auctions (1991) also
purchased the domain name "bcbids.com" from Ronald H. Smallwood for the purchase
price of $140 (Cdn$200) plus applicable taxes.
Our Acquisition of Falcon Trading
On February 29, 2000, Ableauctions.com (Washington) hired the founder, Harlan
Moore, and purchased the assets of Falcon Trading, Inc. as a going concern,
pursuant to an agreement and plan of reorganization dated February 1, 2000 among
Falcon Trading, Ableauctions.com (Washington), and us. Falcon Trading was a
computer and electronics liquidator operating in Redmond, Washington. The
purchase price for the assets of Falcon Trading was $360,805, which was paid by
the issuance of 53,405 shares of our common stock at the deemed price of $6.756
per share. See "Recent Sales of Unregistered Securities."
Our Acquisition of Mesler's Auction House
On March 20, 2000, Ableauctions.com (Washington) purchased the assets of
Mesler's Auction House of Scottsdale, L.L.C. as a going concern, pursuant to an
asset purchase agreement dated March 20, 2000 among Mesler's, Ableauctions.com
(Washington), and us. Mesler's was an auctioneer of antiques and other furniture
and equipment operating in Scottsdale, Arizona. The purchase price for the
Mesler's assets was $500,000, of which $255,000 was paid in cash and the balance
of $245,000 was paid by the issuance of 30,625 shares of our common stock at the
deemed price of $8.00 per share. We also issued a warrant to Mesler's to
purchase up to 150,000 shares of our common stock at a price of $8.00 per share
until March 20, 2001. See "Recent Sales of Unregistered Securities." We also
gave Mesler's piggy-back registration rights and Mesler's is one of the selling
shareholders who is offering to sell some or all of its 30,625 shares of our
common stock under this prospectus.
Also on March 20, 2000, Ableauctions.com (Washington) purchased from C&C Capital
Investment, Inc., an affiliate of Mesler's, a real estate property and a 50,000
square foot building, pursuant to a purchase and sale agreement
33
dated March 20, 2000 among C&C and Ableauctions.com (Washington). The purchase
price of $3,500,000 for the real estate and building was paid as to $1,200,000
cash, $1,056,110.53 by assumption of a wrap-around promissory note and a
wrap-around deed of trust and assignment of rents for the benefit of Lewis,
Hollander Scottsdale, a California limited partnership, and the balance of
approximately $1,245,000 by the issuance of 155,486 shares of our common stock
at the deemed price of $8.00 per share. See "Recent Sales of Unregistered
Securities."
Our Acquisition of Auctions West
On May 5, 2000, Able Auctions (1991) hired the founder, Robert Kavanagh, and
purchased the assets of Auctions West Sales Corporation as a going concern,
pursuant to an asset purchase agreement dated May 3, 2000 among Auctions West,
Able Auctions (1991), and us. Auctions West was a liquidator of the assets of
bankrupt persons or businesses operating in Vancouver, British Columbia. The
purchase price for the assets of Auctions West was Cdn$100,000, which was paid
by the issuance of 10,000 shares of our common stock at the deemed price of
$7.00 per share. See "Recent Sales of Unregistered Securities."
Our Acquisition of Ehli's Auctions
On May 16, 2000, we purchased all of the issued shares of Ehli's
Commercial/Industrial Auctions, Inc. from Randy Ehli, pursuant to a share
purchase agreement dated May 16, 2000 among Randy Ehli, Ehli's Auctions, and us.
Ehli's Auctions is a Tacoma, Washington based liquidator of automobiles and
industrial equipment. The purchase price for the shares of Ehli's Auctions was
$1,250,000, of which $900,000 was paid in cash and the balance of $350,000 by
the issuance of 50,000 shares of our common stock at the deemed price of $7.00
per share. See "Recent Sales of Unregistered Securities."
Our Acquisition of Johnston's Surplus Office Supplies
On July 26, 2000, we acquired all of the common stock of Johnston's Surplus
Office Systems Ltd., a company incorporated under the laws of British Columbia
("Johnston's"), from Brett Johnston and One Day Holdings Ltd., a company
incorporated under the laws of British Columbia (the "Vendors"). We agreed to
purchase Johnston's from the Vendors for the following consideration:
(f) $500,000 in cash; and
(g) the balance of $513,410 by issuing the Vendors 68,182 shares of our
common stock at a deemed price of $7.53 per share. See "Recent Sales
of Unregistered Securities."
In connection with our acquisition of Johnston's, we, through our subsidiaries
Surplus Office Systems, LLC., a Washington limited liability company, and Able
Auctions (1991), entered into a separate employment agreement dated July 26,
2000 with Brett Johnston, under which we agreed to employ Mr. Johnston to manage
the Registrant's San Francisco Bay Area operations for a term of three years.
Under the employment agreement, we agreed to pay Mr. Johnston a salary of
$125,000 per year and a bonus of 2% of the gross sales from our operations in
the San Francisco Bay Area (to the extent such sales exceed $6,250,000). We also
agreed to grant Mr. Johnston a stock option under our 1999 stock option plan
exercisable to acquire up to 100,000 shares of our common stock at $8.66 per
share, vesting over three years.
Our Acquisition of Jarvis Industries Ltd.
On July 31, 2000, we acquired all of the outstanding common shares of Sammac
Financial Ltd. ("Sammac") and its wholly-owned subsidiary Jarvis Industries Ltd.
("Jarvis") from the shareholders of Sammac for $286,263 (Cdn.$426,818) in cash.
In connection with our acquisition, we entered into the following three-year
employment agreements:
(a) with Murray Jarvis for annual salary of $100,603 (Cdn$150,000) per
year; a grant of 60,000 options vesting over 3 years; and a vehicle
allowance of $469 (Cdn$700) per month. We also agreed to pay Mr.
Jarvis a bonus of $16,767 (Cdn$25,000) if the combined companies Warex
Supply Ltd. ("Warex") and Jarvis produce net earnings of over $87,190
(Cdn$130,000).
34
(b) Michael Collins for annual salary of $57,008 (Cdn$85,000) per year; a
grant of 15,000 options vesting over 3 years; and a vehicle allowance
of $335 (Cdn$500) per month. We also agreed to pay Mr. Collins a
signing bonus of $6,706 (Cdn$10,000).
Our Acquisition of Warex Supply.
On July 31, 2000, we acquired all of the outstanding common shares of Warex
Supply Ltd. from Murray Jarvis and Michael Collins for the following
consideration:
(c) $145,672 (Cdn$217,196.98) in cash; and
(d) 6,900 shares of our common stock at a deemed price of $8.00 per share.
See "Recent Sales of Unregistered Securities."
Government Regulation
Our brick-and-mortar auction houses are generally subject to extensive
regulation, supervision, and licensing under various federal, state, and local
statutes, ordinances, and regulations. Such laws and regulations may require us
to obtain a license or registration, or post a surety or bond as a precondition
of doing business within the jurisdiction. In addition, applicable laws may
require us to transact business and sell merchandise in accordance with specific
guidelines, including the means by which we obtain our merchandise, advertise
our auctions, conduct our bidding procedures, close transactions, hold client
funds, and other restrictions that may vary from state to state. We cannot
guarantee that we will not be subject to actions arising out of violations by
our brick-and-mortar auction houses. Such actions may have a material adverse
affect on our business and results of operations.
There are currently few laws or regulations that directly apply to access to, or
commerce on, the Internet. It is possible that governing bodies may adopt a
number of laws and regulations governing issues such as user privacy on the
Internet and the pricing, characteristics, and quality of products and services
offered over the Internet. It is also possible that government authorities will
adopt sales or other taxes involving Internet business.
Intellectual Property
We have developed the majority of our software internally. We have taken
measures to protect its intellectual property, ranging from confidentiality and
non-disclosure agreements for contractors and employees to deploying a
trans-modular development schedule where individual modules of software
developed or coded by employees or contractors have no stand-alone benefits
whatsoever until they are integrated with at least three independent modules.
"Ableauctions" and "Ableauctions.com" are our trademarks, which we intend to
register under Canadian and U.S. trademark laws in the fourth quarter of 2000.
We have not submitted an application to register these trademarks. We have
registered the Internet domain name "ableauctions.com". We intend to use
copyright, trademark, service mark, and trade secret laws and contractual
restrictions to protect our proprietary rights in products and services. We
cannot assure you that the measures we take to protect intellectual property
will prevent misappropriation of our technology or deter independent third-party
development of similar technologies.
Employees
As at December 31, 1999, we had 27 employees and 7 consultants. As at October
13, 2000, we had a total of 98 employees, including 40 full time employees, 7
consultants and 51 part-time and temporary employees. In addition to management,
we employ auction staff, sales people, administrative staff, and development and
technical personnel. From time to time, we may employ independent consultants or
contractors to support our research and development, marketing, sales and
support, and administrative organizations. No collective bargaining units
represent our employees. We believe our relations with our employees are good.
We expect to hire additional senior management, customer service management,
database administrator, several software developers, customer service
representatives, technical support representatives and sales/marketing staff. In
total, we expect the size of our staff will grow to nearly 150 by the end of
fiscal 2000.
35
Facilities
Through our subsidiary, Ableauctions.com (Washington), we own a commercial
property located at 7303 East Earll Drive, Scottsdale, Arizona, which includes a
50,000 square foot building. This property houses our head offices and our
flagship auction facility. We acquired the property on March 20, 2000 pursuant
to a purchase and sale agreement between Ableauctions.com (Washington) and C&C
Capital Investment, Inc., in consideration of $1,200,000 in cash, $1,056,110.53
by the assumption of a wrap-around promissory note and a wrap-around deed of
trust and assignment of rents, and 1,243,889.47 by the issuance of 155,486
shares of our common stock at the deemed price of $8.00 per share, for a total
purchase price of $3,500,000.
We currently lease, through our subsidiary Able Auctions (1991), our principal
business office in British Columbia comprising 15,000 square feet at 1963
Lougheed Highway, Coquitlam, British Columbia, Canada, pursuant to a lease that
expires on December 1, 2001. The monthly payments under the lease are $5,600
(Cdn$8,000) plus goods and services tax. The lease may be terminated on one
month's notice.
We lease our corporate office space at 3112 Boundary Road, Burnaby, British
Columbia, Canada, from Derango Resources Inc., a private company wholly-owned by
our President, Abdul Ladha, and his wife, Hanifa Ladha. The term of the lease
commenced September 1, 1999 and continues until August 31, 2004. The annual
basic rent is approximately $20,000 (Cdn$27,991.12), payable in equal monthly
installments of approximately $1,667 (Cdn$2,332.60).
We have subleased approximately 22,000 square feet of warehouse and office space
at 8303 129th Street, Surrey, British Columbia, Canada, for the term commencing
January 1, 2000 to January 31, 2002 at the monthly rent of $7,350 (Cdn$10,500)
plus goods and services tax.
We have leased approximately 1,360 square feet of warehouse and office space at
15444 Bel-Red Road, Redmond, Washington, on a month-to-month basis for $1,200
per month. We are seeking a new leasehold premises in Redmond or Seattle,
Washington.
We have leased approximately 13,000 square feet of warehouse and office space at
800 East 3rd Avenue, San Mateo, California. There are two years remaining under
the lease and the monthly rent is $12,000.
We have leased approximately 35,000 square feet of warehouse, production and
office space at 1570 Rand Avenue, Vancouver, British Columbia. There are four
years remaining under the lease and the monthly rent is $6,975 (Cdn$10,400).
Neither we nor our subsidiaries presently own or lease any other property or
real estate.
Material Agreements Related to Our Business
In addition to the agreements described above and in "Business/Strategic
Affiliates", the following material agreements relate to our business:
Dexton Technologies Corporation - Management Agreement: Under a consulting
agreement dated August 24, 1999, Able Auctions (1991) engaged Dexton
Technologies to provide consulting services for one year in connection with
the development of Able Auctions' business and Internet strategy. In
consideration of Dexton's services, Able Auctions paid to Dexton a fee of
$240,000. Abdul Ladha, our director, President, and Chief Executive
Officer, N.H. (Nosh) Vellani, our Chief Financial Officer, and Barrett
Sleeman, our director, are also directors and/or officers of Dexton
Technologies Corporation. See "Related Party Transactions - Consulting
Agreement with Dexton Technologies Corporation."
European Investor Services Ltd. - European Media Relations Agreement: In
October 1999, we engaged European Investor Services Ltd. ("EIS") to provide
investor relations and financial media relations services (primarily in
Europe) for a six-month term in consideration of $5,000 per month plus
reimbursement of certain out-of-pocket expenses. We also agreed to pay EIS
the daily fee of $4,000 for each European presentation to qualified
investors conducted on our behalf. The initial term of the agreement with
EIS has been extended for a further six-month term from April 1, 2000 to
September 30, 2000.
Compass Investment Management Limited - Corporate Finance Advisory
Agreement: In March 2000, we engaged Compass Investment Management Limited
("Compass"), an associate company of EIS, as corporate finance adviser to
our Board of Directors in respect of arranging and coordinating proposed
36
financings and other finance and investor relations services. We agreed to
pay to Compass a commission of 7.5% on the first US$10 million raised by us
from investors introduced to us directly by Compass, and 4% thereafter. We
also agreed to pay to Compass/EIS a commission according to the above scale
in respect of any subsequent funding raised by us, during the two year
period following the date of termination of the agreement, from investors
introduced to us directly by Compass/EIS during the term of the agreement.
This fee does not apply where the introduction is to an investment bank or
broker with a view to completing a public offering of our securities.
KCSA Public Relations Worldwide - Public and Investor Relations Agreement:
In February 2000, we engaged KCSA Public Relations Worldwide of New York to
provide us with public and investor relations and corporate and marketing
communications services for an initial term of six months. We agreed to pay
to KCSA the monthly fee of $16,000, which provides us with 100 hours of
KCSA's professional services. Any additional time spent by KCSA on our
behalf will be billed at the hourly rate of $165. We also agreed to
reimburse KCSA for out-of-pocket expenses plus an agency charge of 20% for
certain expenses, with any individual expenditure over $500 requiring our
approval. KCSA has also agreed to use its best efforts to arrange
financings with institutional and/or individual investors. If KCSA is able
to arrange a financing, we have agreed to pay to KCSA a commission of 5% on
the first $1 million raised, 4% on the second $1 million raised, 3% on the
third $1 million raised, 2% on the fourth $1 million raised, and 1% on the
fifth $1 million raised and on any additional funds raised thereafter. The
financing arrangement may be terminated on 30 days notice, and the entire
agreement may be terminated on 60 days written notice.
LEGAL PROCEEDINGS
Four actions have been brought in Surrey, British Columbia Small Claims Court
against Able Auctions (1991) Ltd. by Sangat S. Rehal, Surinder K. Rehal, Paulie
Bhambra and Nikki Panasara, each in the amount of approximately $7,000
(Cdn$10,000) for alleged conversion of personal property by Able Auctions. These
actions have not yet been set for trial. We believe these claims are without
merit and we intend to vigorously defend against them.
Other than the above actions, to the best of our knowledge, there are no active
or pending legal proceedings or claims against us or any of our properties.
MANAGEMENT
The following table sets forth certain information, as of October 13, 2000
regarding the directors, executive officers, and key employees of
Ableauctions.com:
Name Age Position
- ----------------------------------------------------------------------------------------------------------------------
Abdul Ladha(1) 38 Director, President, & Chief Executive Officer
Ron Miller 39 Chief Financial Officer & Vice-President
Jeremy Dodd 32 Secretary-Treasurer, Chief Operating Officer of our operating
Subsidiary
Barrett Sleeman, P.Eng.(1) 59 Director
Dr. David Vogt(1) 43 Director
Charles Taylor 51 Director
Jerry Bleet 55 Vice-President, Merchandising & Logistics
Harlan Moore 26 Vice-President, Wholesale Operations of Subsidiary
Randy Ehli 44 Vice-President, Northwest Auctions of Subsidiary
Dan Bouchard 39 Vice-President, U.S. Operations
Robert Kavanagh 38 Vice-President, Insolvency Division of Subsidiary
- -------------------
(1) Member of the Audit Committee.
37
The principal occupation and employment during the past five years, and other
biographical information, for each of our directors and executive officers is as
follows:
Abdul Ladha
Abdul Ladha has been President, Chief Executive Officer, and a director of
Ableauctions.com since August 24, 1999. In addition, Mr. Ladha is President of
all of our wholly-owned subsidiaries, except Johnston's Surplus Office Systems
Ltd. Mr. Ladha holds an honors degree in Electrical Engineering and Mathematics
from the University of British Columbia (UBC). In 1985, he founded Dexton
Enterprises Inc., a subsidiary of Dexton Technologies Corporation, a public
company whose shares trade on the Canadian Venture Exchange. Mr. Ladha has been
President, Chief Executive Officer, and a director of Dexton Technologies since
December 19, 1994. In 1997, Dexton Technologies acquired Able Auctions (1991)
Ltd., which Dexton sold to Ableauctions.com on August 24, 1999. Dexton
Technologies, through its subsidiaries, Dexton Enterprises and RapidFusion.com
Technologies Inc., is engaged in the business of marketing and selling personal
computer hardware and network systems to corporate and retail customers, as well
as the provision of computer training and after-sales upgrade and support
services; and providing Web-based business solutions to sales and service
organizations within a target market of small to mid-size retail and
business-to-business customers.
Ron Miller, C.A.
Mr. Miller is a Chartered Business Valuator and Chartered Accountant. He was the
supervisor of the Business Valuation Group at Coopers & Lybrand from 1988 to
1991, a partner at Shikaze Ralston Chartered Accountants from 1993 to 1998, a
partner at Miller Teasley, a business valuator and mergers & acquisitions
advisor, and most recently, the Chief Financial Officer and Vice-President of
the American operations of Compec Industries, a large multi-national public
plastics company.
Jeremy Dodd
Jeremy Dodd was appointed our Secretary and Treasurer on September 15, 1999. He
began his career with Able Auctions Liquidators Limited in 1986. Five years
later, he bought Able Auctions Liquidators Limited and co-founded Able Auctions
(1991) Ltd., where he served as President from November 1993 to April 1998 and
Secretary and a director from July 1991 to April 1998. In March 1998, he sold
Able Auctions (1991) Ltd. to Dexton Technologies Corporation and has directed
Able Auctions (1991)'s operations and its transition to becoming an Internet
broadcaster of auctions. Mr. Dodd was appointed Vice-President of Operations of
Able Auctions (1991) Ltd. on August 24, 1999 and President of Johnston's Surplus
Office Systems Ltd. on July 26, 2000. Mr. Dodd is an auctioneer and bailiff by
trade and has conducted over 1,000 live auctions from Montreal to San Francisco.
Barrett E.G. Sleeman, P.Eng.
Barrett Sleeman, a director of Ableauctions.com since August 24, 1999, is a
professional engineer. He is a director and the President (since May 1988) of
Omicron Technologies Inc., whose focus is on the acquisition, research and
development, and marketing of leading edge technologies for the aerospace,
telecommunications, defense, and consumer electronics industries, as well as
Internet-based business concepts. Mr. Sleeman also serves as a director of the
following publicly traded companies: Dexton Technologies Corporation (since
April 1997); Industrial Mineral Park Mining Corporation, a graphite property
development company (since February 1999); and Java Group Inc., currently an oil
and gas company (since November 1997). Mr. Sleeman was also President (October
1996 to October 1997) and a director (August 1996 to October 1997) of White Hawk
Ventures Inc., and President (August 1995 to April 1997) and a director (March
1995 to January 1998) of Redex Gold Inc., both mining exploration companies.
Dr. David Vogt
Dr. David Vogt became a director of Ableauctions.com on April 17, 2000 and is a
scientist and knowledge engineer. An astronomer by training, he was Director of
Observatories at the University of British Columbia in Canada from 1980 to 1992
before becoming Director of Science at Science World, Western Canada's largest
public science center. With the development in 1993 of a "virtual science
center" to support educational outreach, Dr. Vogt shifted his focus to explore
the creation of knowledge using new media technologies. Dr. Vogt is a founding
executive of
38
Brainium.com, an innovative online educational publishing company. Brainium.com
pioneers new media learning products for the kindergarten to Grade 12 market.
Dr. Vogt combined undergraduate degrees in Physics and Astronomy (UBC 1977) and
English Literature (UBC 1978) into an interdisciplinary Ph.D. (SFU 1990) in
information science and archaeoastronomy. Dr. Vogt was also founding director of
the B.C. Shad Valley Program, Chairman of the CBC's Advisory Committee on
Science and Technology, and a founding member of the SchoolNet National Advisory
Board.
Charles Taylor
Charles Taylor was the Vice-President of the Equity Division of First Chicago
Investment of three years before becoming a Portfolio Manager for American
Capital Asset Management in 1987. He joined Amerindo Investment Advisors in 1996
and brings with him 29 years of investment and industry experience. He has a
Bachelor's degree in Electrical Engineering from Northwestern University and an
M.B.A. from the Kellogg School of Management.
Amerindo Investment Advisors, with over $7 billion under management, is a
leading investment manager specializing in stocks of technology and healthcare
companies.
Jerry Bleet
Jerry Bleet received a Bachelor of Commerce degree from the University of
Manitoba. For over 30 years, Mr. Bleet has been a retail executive with major
Canadian retailers and department stores. He has served as Vice-President,
Retail Stores of London Drugs from 1977 to 1996, and was a key member of the
executive management team that expanded the company from 10 stores in 1977 to 49
stores with over $900 million in annual revenues. Since leaving London Drugs in
1996, Mr. Bleet has been an independent consultant to retail organizations. He
was appointed a Vice-President of Ableauctions.com on September 15, 1999.
Harlan Moore
Harlan Moore graduated from the University of Washington in 1995 with a Bachelor
of Science degree in Zoology. Following graduation, Mr. Moore became Director of
Internet Sales at Prestige Ford in Bellevue, Washington, where he was
responsible for implementing an e-commerce web site for the dealership. In 1999,
Mr. Moore founded Falcon Trading, Inc., an auctioneer and liquidator of used and
surplus computer hardware. In February 2000, Mr. Moore sold the assets of Falcon
Trading to our subsidiary and was appointed Vice-President, Operations of
Washington State, of Ableauctions.com. Effective May 3, 2000, Mr. Moore ceased
to act as an officer of Ableauctions.com and was appointed Vice-President,
Wholesale Operations, of Ableauctions.com (Washington).
Randy Ehli
Randy Ehli is a third generation auctioneer with over 23 years of experience in
conducting auto auctions, personal property and major consignment auctions. He
graduated from the Reish World Wide College of Auctioneering in 1980, the
Auction Marketing Institute in 1993, and AMI's appraisal program in 1997. Mr.
Ehli was President of Ehli's Commercial/Industrial Auctions in Tacoma,
Washington until May 2000, when he sold all of the shares of Ehli's Auctions to
Ableauctions.com (Washington) and was appointed its Vice-President, Northwest
Auctions. Ehli's Auctions achieved annual sales of over $7 million in its last
fiscal year.
Mr. Ehli was formerly the president of the Washington Auctioneer's Association;
Sales and Marketing Executives of Tacoma; P.R.I.D.E., which runs one of the
largest charity auctions in Tacoma, Washington; Clear Lake Homeowners'
Association, which had 1500 members; and Tanglewilde Park Association. In
addition, Mr. Ehli developed one of the first auction software packages
(Auctionware) in 1982, and Ehli's Auctions was one of the first auction
companies to begin using the Internet to advertise auctions. Most recently, Mr.
Ehli oversaw the development of cyberauctions.com, his company's on-line auction
program.
Dan Bouchard
Since the early 1980s, Dan Bouchard co-founded or was employed by companies that
were predecessors of Able Auctions (1991) Ltd. In 1991, Mr. Bouchard co-founded
Able Auctions (1991) Ltd. with Jeremy Dodd, Ableauctions.com's Secretary. Mr.
Bouchard was President of Able Auctions (1991) from May 1991 to November 1993.
Since 1993, Mr. Bouchard has been President of Trident Management (1993) Ltd.,
which is a management
39
company specializing in shopping centre leases and which manages 14 Trident
Keymart locations in major shopping centers in western Canada. In 1996, Mr.
Bouchard founded Trident Vending Corp., which supplies Canada Post Corporation
with stamp vending machines, and Bouchard Management Inc., which is a management
company that provides retail and general business consulting services to various
companies such as Able Auctions (1991) and Canada Post Corporation.
Robert Kavanagh
In 1985, Robert Kavanagh graduated from Western College of Auctioneering in
Billings, Montana. After completion, which included training in the auction of
antiques, livestock, automobiles, and commercial and industrial equipment, Mr.
Kavanagh worked as an auctioneer and professional appraiser. His clients
included banks, law firms, accounting firms, bankruptcy trustees, and bailiffs.
In May 2000, Mr. Kavanagh sold all of the assets of Auctions West to Able
Auctions (1991) and was appointed its Vice-President, Insolvency Division.
In 1999, Mr. Kavanagh successfully completed the Canadian Personal Property
Appraisers course and now is an accredited member. Recently, he was elected
director of the Auctioneers Association of British Columbia.
Ableauctions.com currently has four directors: Abdul Ladha, Barrett Sleeman,
David Vogt and Charles Taylor. Each director is elected for a period of one year
at our annual meeting of shareholders and serves until the next annual meeting
or until his successor is duly elected and qualified. The executive officers
serve at the discretion of the Board of Directors. There are no family
relationships among any of the directors and executive officers of
Ableauctions.com.
In May 2000, the Board of Directors established an audit committee. The audit
committee's responsibilities include reviewing our internal accounting
procedures and consulting with and reviewing the services provided by our
independent accountants. The audit committee currently consists of Abdul Ladha,
Barrett E.G. Sleeman, P.Eng., and Dr. David Vogt.
EXECUTIVE COMPENSATION
The table below shows the compensation paid for the last three completed fiscal
years ended December 31, 1999, 1998 and 1997 and the compensation anticipated to
be paid for the year ending December 31, 2000, to Abdul Lahda,
Ableauctions.com's Chief Executive Officer, and the four most highly paid
executive officers serving at October 3, 2000 whose total annual compensation
exceeded or is expected to exceed $100,000. These officers are referred to as
the "Named Executive Officers."
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation
----------------------------------------- --------------------------------------------------
Awards Payouts
------------------------ -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ---------------------------------------------------------------------------------------------------------------------------
Name and Principal Year(1) Salary Bonus ($) Other Restricted Securities LTIP(2) All Other
Position (US$) Annual Stock Underlying Payouts Compensa-
Compen- Award(s) Options/ ($) tion($)
sation($) ($) SARs(#)
- ---------------------------------------------------------------------------------------------------------------------------
ABDUL LADHA(3) 1999 Nil Nil Nil Nil 500,000 Nil Nil
President and CEO 2000 Nil Nil Nil Nil Nil Nil Nil
DOUGLAS McLEOD(4) 1999 Nil Nil Nil Nil Nil Nil Nil
President
JAMES BAILEY(5) 1999 Nil Nil Nil Nil Nil Nil Nil
President 1998 Nil Nil Nil Nil Nil Nil Nil
1997 Nil Nil Nil Nil Nil Nil Nil
40
Summary Compensation Table
--------------------------
Annual Compensation Long Term Compensation
----------------------------------------- --------------------------------------------------
Awards Payouts
------------------------ -----------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- ---------------------------------------------------------------------------------------------------------------------------
Name and Principal Year(1) Salary Bonus ($) Other Restricted Securities LTIP(2) All Other
Position (US$) Annual Stock Underlying Payouts Compensa-tion
Compen- Award(s) Options/ ($) tion($)
sation($) ($) SARs(#)
- ---------------------------------------------------------------------------------------------------------------------------
RON MILLER(6) 2000 33,534 Unknown Nil Nil 120,000 Nil 12,575
Vice-President and
Chief Financial Officer
JEREMY DODD(7) 1999 55,000 66,666 Nil Nil 200,000 Nil Nil
Secretary-Treasurer 2000 100,603 Nil Nil Nil Nil Nil Nil
RANDY EHLI(8) 2000 65,000 Unknown Nil Nil 80,000 Nil Nil
V-P, Northwest Auctions,
of Subsidiary
BRETT JOHNSTON(9) 2000 53,000 Unknown Nil Nil 100,000 Nil Nil
Secretary of Subsidiary
- -------------------
(1) Year ended December 31 and compensation anticipated to be paid during the
year ending December 31, 2000.
(2) Long-term incentive plan. We have no LTIP.
(3) President and CEO from August 24, 1999 to present.
(4) President from June 22, 1999 to August 24, 1999.
(5) President from September 30, 1996 to June 22, 1999.
(6) Vice-President since June 1, 2000 and Chief Financial Officer since August
15, 2000.
(7) Secretary-Treasurer from August 24, 1999 to present.
(8) Vice-President, Northwest Auctions, of Ehli's Commercial/Industrial
Auctions, Inc. since May 16, 2000.
(9) Secretary of Surplus Office Systems Holdings, Inc. since July 26, 2000.
Employment Contracts
We have entered into the following employment agreements with Named Executive
Officers:
1. Under an agreement dated January 1, 2000, our subsidiary Able Auctions
(1991) employs Jeremy Dodd to act as Chief Operating Officer, to provide
management services, and to oversee worldwide operations for a term of ten
years. In consideration of Mr. Dodd's services, Able Auctions (1991) will
pay him an annual salary of $100,603 (Cdn$150,000). In addition,
Ableauctions.com will also grant to Mr. Dodd from time to time options to
purchase shares of our common stock.
2. Under an agreement dated May 16, 2000, our subsidiary Ehli's
Commercial/Industrial Auctions, Inc. (Ehli's Auctions) employs Randy Ehli
to provide management services to Ehli's Auctions in connection with the
auction business in Washington, Oregon, Idaho, Montana, and Wyoming, and to
hold the position of Vice-President, Northwest Auctions, of Ehli's
Auctions. The term of the employment agreement is three years. In
consideration of Mr. Ehli's services, Ehli's Auctions will pay him an
annual salary of $110,000 and will also reimburse Mr. Ehli for reasonable
out-of-pocket expenses. Ableauctions.com has also granted to Mr. Ehli
options to purchase a total of 80,000 shares of our common stock at the
price of $6.525 per share. Finally, Mr. Ehli is also able to receive cash
bonuses based on Ehli's Auctions achieving certain gross sales or other
performance targets.
3. Under an agreement dated July 26, 2000, our subsidiaries Surplus Office
Systems, LLC and Able Auctions 1991 employs Brett Johnston to provide
management services to Surplus Office Systems in connection with the
auction business in the San Francisco Bay Area. The term of the employment
agreement is three years. In consideration of Mr. Johnston's services, our
subsidiaries will pay him an annual salary of $125,000, an annual bonus
based on a percentage of gross sales, and will also reimburse Mr. Johnston
for reasonable out-of-pocket expenses. Ableauctions.com has also granted to
Mr. Johnston an option to purchase 100,000 shares of our common stock at
the price of $8.66 per share.
41
Option Grants
The following table sets forth information regarding stock option grants to our
Chief Executive Officer and four most highly compensated executive officers
during the year ended December 31, 1999. The potential realizable value is
calculated based on the assumption that the common stock appreciates at the
annual rate shown, compounded annually, from the date of grant until the expiry
of the term of the option. These numbers are calculated based on SEC
requirements and do not reflect our projection or estimate of future stock price
growth. Potential realizable values are computed by:
o multiplying the number of shares of common stock subject to a given
option by the exercise price;
o assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the
entire term of the option; and
o subtracting from that result the aggregate option exercise price.
Option Grants in Last Fiscal Year Ended December 31, 1999
---------------------------------------------------------
Individual Grants Potential Realized
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Term
- ----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Name Number of % of Total Exercise Expiration 5% ($) 10% ($)
Securities Options or Base Date
Underlying Granted to Price
Options Employees ($/Sh)(2))
Granted (#) in Fiscal
Year(1)
- ----------------------- ------------- ------------- ------------- -------------- ------------ ------------
Abdul Ladha 500,000 65.79% $3.20 Oct. 14/04 1,010,000 2,550,000
Jeremy Dodd 200,000(3) 26.32% $3.20 Oct. 14/04 404,000 1,020,000
- ---------------
(1) During 1999 options to purchase 762,500 shares were granted to employees.
(2) The exercise price per shares was equal to the fair market value of the
common stock on the date of grant as determined by the Board of Directors.
(3) Represents options vesting according to the following schedule:
(i) 33.33% after October 14, 1999;
(ii) 66.67% after October 14, 2000; and
(iii) 100% after October 14, 2001.
After the fiscal year ended December 31, 1999, we granted stock options to the
following Named Executive Officers:
1. On May 16, 2000, we granted to Randy Ehli, Vice-President, Northwest
Auctions, of our subsidiary Ehli's Commercial/Industrial Auctions, Inc.,
options to purchase a total of 80,000 shares of our common stock at the
price of $6.525 per share, of which 40,000 shares will vest on Mr. Ehli
providing three full years of service and 40,000 will vest on our Northwest
auction business achieving certain gross sales targets.
2. On July 26, 2000, we granted to Brett Johnston, Secretary of our subsidiary
Surplus Office Systems Holdings, Inc., an option to purchase 100,000 shares
of our common stock at the price of $ per share, subject to vesting as to
one third of the shares on each anniversary of the date of grant of the
option.
3. On July 31, 2000, we granted to Ron Miller, our Vice-President and Chief
Financial Officer, an option to purchase 120,000 shares of our common stock
at the price of $7.00 per share. The option is vested as to 25% on each
anniversary of the date of grant of the option.
42
Option Exercises
During the 1999 fiscal year and during fiscal 2000 to October 13, 2000, none of
the Named Executive Officers exercised options to purchase shares of our common
stock.
Compensation of Directors
Directors do not currently receive cash compensation from Ableauctions.com for
their services as members of the Board of Directors, although they may be
reimbursed for certain expenses in connection with attendance at Board and audit
committee meetings. We do not provide additional compensation for committee
participation or special assignments of the Board of Directors. From time to
tome, certain of our directors have received grants of options to purchase
shares of our common stock pursuant to the 1999 Stock Option Plan as follows:
Name of Director Number of Options Granted Exercise Price ($/Sh) Expiration Date
- ----------------------------------------------------------------------------------------------------------
Abdul Ladha 500,000 $3.20 October 14, 2004
Barrett Sleeman 50,000(1) $3.20 October 14, 2004
- --------------
(1) The options granted to Barrett Sleeman were not granted pursuant to the
1999 Stock Option Plan. Mr. Sleeman exercised 10,000 of these options.
During 1999, the Board of Directors was responsible for establishing
compensation policy and administering the compensation programs of our executive
officers.
The amount of compensation paid by Ableauctions.com to each of its directors and
officers and the terms of those persons' employment is determined solely by the
Board of Directors, except as otherwise noted below. We believe that the
compensation paid to our directors and officers is fair to Ableauctions.com.
In the past, Abdul Ladha has negotiated all executive salaries on behalf of
Ableauctions.com. Our Board of Directors believes that the use of direct stock
awards is at times appropriate for employees, and in the future intends to use
direct stock awards to reward outstanding service or to attract and retain
individuals with exceptional talent and credentials. The use of stock options
and other awards is intended to strengthen the alignment of interests of
executive officers and other key employees with those of our stockholders.
Stock Option Plan
On October 14, 1999, our Board of Directors and a majority of our stockholders
approved the 1999 Stock Option Plan. The Plan provides for the grant of
incentive stock options and non-qualified options to purchase up to 3,000,000
shares of common stock to officers, directors, employees, and other qualified
persons selected by the Plan Administrator (which currently is the Board of
Directors). The Plan is intended to help attract and retain key employees and
any other persons that may be selected by the Plan Administrator and to give
them an equity incentive to achieve our objectives.
Incentive stock options may be granted to any individual who, at the time of
grant, is an employee of Ableauctions.com or any subsidiary. Non-qualified stock
options may be granted to employees and other persons selected by the Plan
Administrator. The Plan Administrator uses its discretion to fix the exercise
price for options, subject to certain minimum exercise prices in the case of
incentive stock options. Options will not be exercisable until they vest
according to a vesting schedule specified by the Plan Administrator at the time
of grant of the option.
Options are non-transferable except by will or the laws of descent and
distribution. With certain exceptions, vested but unexercised options terminate
on the earlier of:
(i) the expiry of the option term specified by the Plan Administrator at
the date of grant (generally 10 years; or, with respect to incentive
stock options granted to greater-than 10% shareholders, a maximum of
five years);
(ii) the date an optionee's employment or contractual relationship with
Ableauctions.com or any subsidiary is terminated for cause;
43
(iii)the expiry of three months from the date an optionee's employment or
contractual relationship with Ableauctions.com or any subsidiary is
terminated for any reason, other than cause, death or disability; or
(iv) the expiry of one year from the date of death of an optionee or
cessation of an optionee's employment or contractual relationship by
death or disability.
Unless accelerated in accordance with the Plan, unvested options terminate
immediately on termination of employment of the optionee by Ableauctions.com for
any reason whatsoever, including death or disability.
RELATED PARTY TRANSACTIONS
Consulting Agreement with Dexton Technologies Corporation
Under a consulting agreement dated August 24, 1999, Able Auctions (1991) engaged
Dexton Technologies Corporation to provide consulting and advisory services for
one year in connection with the development of Able Auctions' e-commerce auction
business. The services include marketing; negotiation of banner advertising, URL
link arrangements and other value-added relationships; and identifying potential
strategic partnerships and other arrangements. In consideration of Dexton's
services, Able Auctions paid to Dexton a fee of $240,000. Abdul Ladha, our
director, President, and Chief Executive Officer, Ron Miller, our Vice-President
and Chief Financial Officer, and Barrett Sleeman, our director, are also
directors and/or officers of Dexton Technologies Corporation.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information concerning the beneficial ownership
of our outstanding common stock as of October 13, 2000 and as adjusted to
reflect the sale of the shares of common stock by the selling shareholders for:
a) each person or group that we know owns beneficially 5% or more of our
common stock;
b) each of our directors;
c) each of our four most highly compensated executive officers;
d) each selling shareholder; and
e) all directors and executive officers as a group.
The term "beneficial ownership" includes shares over which the indicated
beneficial owner exercises voting and/or investment power. The rules also deem
common stock subject to options or warrants currently exercisable, or
exercisable within 60 days, to be outstanding for purposes of computing the
percentage ownership of the person holding the options or warrants, but they do
not deem such stock to be outstanding for purposes of computing the percentage
ownership of any other person. The applicable percentage of ownership for each
shareholder is based on 20,976,661 shares of common stock outstanding as of
October 13, 2000, together with applicable options and warrants for that
shareholder. Except as otherwise indicated, we believe the beneficial owners of
the common stock listed below, based on information furnished by them, have sole
voting and investment power over the number of shares listed opposite their
names.
- --------------------------------------------------------------------------------------------------------------------
Name and Relationship Shares Beneficially Owned Number of Shares Beneficially
Owned Prior to the Shares Being Owned After the
Offering Offered Offering
-------------------------- --------------------------
Number Percent Number Percent
- --------------------------------------------------------------------------------------------------------------------
Officers and Directors
- ----------------------
Abdul Ladha, Director and 6,593,750(2) 28.80% Nil 6,593,750(2) 30.70%
Executive Officer
Barrett Sleeman, Director 40,000(3) *%(1) Nil 40,000 *%(1)
Dr. David Vogt, Director Nil N/A Nil Nil N/A
44
- --------------------------------------------------------------------------------------------------------------------
Name and Relationship Shares Beneficially Owned Number of Shares Beneficially
Owned Prior to the Shares Being Owned After the
Offering Offered Offering
-------------------------- --------------------------
Number Percent Number Percent
- --------------------------------------------------------------------------------------------------------------------
Charles Taylor, Director 1,000 N/A Nil Nil N/A
Ron Miller, Executive Officer Nil N/A Nil Nil N/A
Jeremy Dodd, Executive Officer 133,400(4) *%(1) Nil 13,340 *%(1)
Randy Ehli, Executive Officer of 50,000 *%(1) Nil 50,000 *%(1)
Subsidiary
Brett Johnston, Executive Officer of 39,200 *%(1) Nil 39,200 *%
Subsidiary
All current directors and executive 6,987,615(5) 32.26% Nil 6,987,615 32.26%
officers as a group (12 persons)
5% Shareholders
- ---------------
Dexton Technologies Corporation 1,843,444 8.79% 1,843,444 Nil N/A
Jaragua Limited 1,600,000(6) 7.35% 1,600,000(6) Nil N/A
Silicon Capital Corp. 1,641,085(7) 7.62% 1,641,085(7) Nil N/A
- ----------------------
(1) Less than 1%
(2) Includes (a) 6,093,750 shares of common stock owned of record by The Ladha
(1999) Family Trust, of which Abdul Ladha is a beneficiary; and (b) options
exercisable to acquire 500,000 shares of common stock within 60 days of
October 13, 2000.
(3) Consists of options exercisable to acquire 40,000 shares of common stock
within 60 days of October 13, 2000.
(4) Consists of options exercisable to acquire 133,400 shares of common stock
within 60 days of October 13, 2000.
(5) Includes (a) 6,093,750 shares of common stock owned of record by The Ladha
(1999) Family Trust, of which Abdul Ladha is a beneficiary; (b) 50,000
shares of common stock owned of record by Randy Ehli directly; (c) 2,800
shares of common stock owned of record by Jerry Bleet directly; (d) 10,000
shares of common stock owned of record by Robert Kavanagh indirectly; (e)
50,000 shares of common stock owned of record by Randy Ehli directly; (f)
39,200 shares of common stock owned of record by Brett Johnston directly;
(g) 53,405 shares of common stock owned by Harland Moore directly and (h)
options exercisable to acquire an aggregate 683,400 shares of common stock
within 60 days of October 13, 2000.
(6) Includes (a) 800,000 shares of common stock owned of record directly; and
(b) warrant exercisable to acquire 800,000 shares of common stock within 60
days of October 13, 2000.
(7) Includes (a) 1,094,057 shares of common stock owned of record directly; and
(b) warrant exercisable to acquire 547,028 shares of common stock within 60
days of October 13, 2000.
45
PLAN OF DISTRIBUTION
We are registering the shares offered by the selling securityholders and no
underwriters are participating in this offering.
The following table sets forth the selling securityholders names and addresses
of each of the selling securityholders and the number of shares of common stock
that may be offered by each of them pursuant to this prospectus:
- --------------------------------------------------------------------------------
Name and Address of Selling Securityholder Number of Shares
- --------------------------------------------------------------------------------
Silicon Capital Corp.(1) 1,641,085(2)
Wayaca No. 31-C, P.O. Box 651
Oranjestad, Aruba
Jaragua Limited(3) 1,600,000(4)
P.O. Box N7755, Shirley House
50 Shirley Street
Hamilton, Bermuda HM 11
Triumph Management Limited(5) 400,000(6)
P.O. Box CB13004
Nassau, Bahamas
Mesler's Auction House of Scottsdale, LLC(7) 30,625
2425 E. Camelback Road
Suite 975
Phoenix, Arizona 85016-4215
Dexton Technologies Corporation(8) 1,843,444
3112 Boundary Road
Burnaby, British Columbia V5M 4A2
TOTAL 5,515,154
- --------------------------
(1) The control persons of Silicon Capital Corp. are Rene Hussy, President and
director, and Bruno Bolliger.
(2) Includes (a) 1,094,057 shares of common stock owned of record directly; and
(b) warrant exercisable to acquire 547,028 shares of common stock.
(3) The control persons of Jaragua Limited are: Barbara Baptista, sole
shareholder; Marco Montanari, director and President; Shakira Sands,
director and Secretary; and Wendy Johnson, director and Treasurer.
(4) Includes (a) 800,000 shares of common stock owned of record directly; and
(b) warrant exercisable to acquire 800,000 shares of common stock.
(5) Desmond Holdings Ltd. is the sole director and executive officer of Triumph
Management Ltd. Kenneth Taves is the sole director, officer beneficial
owner of Desmond Holdings Ltd. and the beneficial owner of Triumph
Management Ltd.
(6) Includes (a) 200,000 shares of common stock owned of record directly; and
(b) warrant exercisable to acquire 200,000 shares of common stock.
(7) F&F Capital Investment, Inc. and Stockbridge Realty Investor - Arizona,
Inc. are the sole members of Mesler's Auction House of Scottsdale, L.L.C.
(8) Dexton Technologies Corporation is a reporting company in British Columbia
and Alberta, Canada whose shares trade on the Canadian Venture Exchange and
which has common directors and officers with our company.
46
The selling securityholders are entitled to receive all of the proceeds from the
future sale of their shares of our common stock.
The selling securityholders, from time to time, depending on market conditions
and other factors, may offer and/or sell their shares of common stock on the
AMEX in the over-the-counter market, or otherwise, at prices and terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. The shares of common stock may be sold by one or more
methods including, without limitation, (i) block trades in which a broker or
dealer so engaged will attempt to sell the shares of common stock as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (ii) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this prospectus; (iii)
ordinary brokerage transactions and transactions in which the broker solicits
purchases; and (iv) face to face transactions between sellers and purchasers
without a broker or dealer. In effecting sales, brokers or dealers engaged by
the selling shareholders may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive commissions or discounts from
the selling shareholders in amounts to be negotiated. Such brokers, dealers and
any other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with such sales.
We will bear all costs and expenses of the registration of the shares of common
stock under the Securities Act and certain state securities laws, other than
fees of counsel for the selling securityholders and any discounts or commissions
payable with respect to sales of the shares of common stock.
These transactions may or may not involve brokers or dealers. The selling
securityholders have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of the shares, nor is there an underwriter or coordinating broker
acting in connection with the proposed sale of shares by the selling
securityholders.
The selling securityholders and any broker-dealers that act in connection with
the sale of securities might be deemed to be underwriters within the meaning of
Section 2(a)(11) of the Securities Act, and any commissions received by those
broker-dealers and any profit on the resale of the securities sold by them while
acting as principals might be deemed to be underwriting discounts or commissions
under the Securities Act.
Because the selling securityholders may be deemed to be underwriters within the
meaning of Section 2(a)(11) of the Securities Act, the selling securityholders
will be subject to the prospectus delivery requirements of the Securities Act.
We have informed the selling securityholders that the anti- manipulative
provisions of Regulation M promulgated under the Exchange Act may apply to their
sales in the market.
The selling securityholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of that Rule.
Sales of the shares of common stock by the selling shareholders may have an
adverse effect on the market price of our common stock. Moreover, the selling
shareholders are not restricted as to the number of shares of common stock that
may be sold at any one time, and it is possible that a significant number of
shares of common stock could be sold at the same time, which also may have an
adverse effect on the market price of our common stock.
DESCRIPTION OF SECURITIES
Ableauctions.com is authorized to issue up to 62,500,000 shares of common stock
at a par value of $0.001 per share. Each shareholder is entitled to one vote for
each share held on all matters to be voted upon by the shareholders. Our shares
of common stock have no preemptive, conversion, or redemption rights. If we are
liquidated, dissolved or wound up, the holders of common stock are entitled to
share in proportion to the percentage of their ownership all assets remaining
after payment of liabilities. All of our issued and outstanding shares of common
stock are fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
Our auditor is Davidson & Company, Chartered Accountants, of Vancouver, British
Columbia, Canada. The registrant and transfer agent for our shares of common
stock is Interwest Transfer Company, Inc., of Salt Lake City, Utah.
47
SHARES ELIGIBLE FOR FUTURE SALE
There are 20,976,661 shares of our common stock outstanding as of October 13,
2000, of which 5,545,750 are freely tradable, and of which 3,968,126 are
restricted securities that are offered by the selling shareholders pursuant to
this prospectus. We have also registered for reserve by the shelling
shareholders 1,547,028 shares acquirable upon exercise of warrants. Subject to
the registration statement being declared and remaining effective, all of the
shares offered hereby will be immediately tradable without restriction or
further registration under the Securities Act.
We cannot predict as to the effect, if any, that sales of shares of common stock
by the selling shareholders, or even the availability of such shares for sale,
will have on the market prices of our common stock from time to time. The
possibility that substantial amounts of common stock may be sold in the public
market may adversely affect prevailing market prices for our common stock and
could impair our ability to raise capital through the sale of our equity
securities.
Subject to the provisions of Rule 144, additional shares of our common stock
will be available for sale in the public market as follows:
- ------------------------------------------------------------------------------------------------------------
Date Approximate Shares
Eligible for Future Sale
- ------------------------------------------------------------------------------------------------------------
Currently 5,545,750 Freely tradeable shares issued more than
one year ago or issued under 1999 Stock
Option Plan
At effectiveness of this prospectus 5,515,154 Shares registered for resale in this
From time to time thereafter 11,462,785 Rule 144 limitations apply
In general, under Rule 144 as currently in effect, a person who has beneficially
owned shares of our common stock for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
o 1% of the number of shares of common stock then outstanding, which
equals approximately 209,766 shares as of October 13, 2000; or
o the average weekly trading volume of the common stock on AMEX during
the four calendar weeks preceding the filing of a notice on Form 144
with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who is not deemed to have been one of our affiliates
at any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, including the holding
period of any prior owner other than an affiliate, is entitled to sell such
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, "144(k) shares" may be sold immediately.
As of October 13, 2000, options to purchase 1,332,500 shares of common stock
were issued and outstanding under our 1999 Stock Option Plan, and options not
granted under the Plan to purchase an additional 40,000 shares of common stock
were also issued and outstanding. We have a filed a registration statement on
Form S-8 to register all of the shares of common stock reserved for issuance
under our 1999 Stock Option Plan (including shares subject to outstanding
options) and up to 50,000 shares reserved for issuance to Barrett Sleeman, one
of our directors, under a stock option granted outside our Plan. Accordingly,
shares registered under such registration statement are, subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates,
available for sale in the open market.
48
LEGAL MATTERS
Eric Littman of Eric P. Littman P.A., Miami, Florida, will pass on the legality
of the shares offered by this prospectus.
EXPERTS
The financial statements of Ableauctions.com for the period from September 30,
1996 (incorporation) through December 31, 1997 appearing in this prospectus were
audited by Barry L. Friedman, P.C., and the financial statements for the fiscal
years ended December 31, 1998 and 1999 were audited by Davidson & Company,
independent accountants, as set forth in their report thereon appearing
elsewhere in this prospectus, and are included herein in reliance upon the
authority of such firm as experts in accounting and auditing.
49
INDEX TO FINANCIAL STATEMENTS
AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR DECEMBER 31, 1999
Auditors' Report.............................................................F-1
Consolidated Balance Sheets..................................................F-2
Consolidated Statements of Operations........................................F-3
Consolidated Statements of Comprehensive Loss................................F-4
Consolidated Statements of Changes in Stockholder's Equity ..................F-5
Consolidated Statements of Cash Flows........................................F-6
Notes to the Consolidated Financial Statements...............................F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR JUNE 30, 2000
Unaudited Consolidated Balance Sheets.......................................F-18
Unaudited Consolidated Statements of Operations.............................F-19
Unaudited Consolidated Statements of Comprehensive Loss.....................F-20
Unaudited Consolidated Statements of Changes in Stockholder's Equity........F-21
Unaudited Consolidated Statements of Cash Flows.............................F-22
Notes to the Unaudited Consolidated Financial Statements....................F-23
50
A Partnership of
Incorporated Professionals
DAVIDSON & COMPANY=========Chartered Accountants================================
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
Ableauctions.com, Inc.
(formerly J.B. Financial Services, Inc.)
We have audited the accompanying consolidated balance sheets of
Ableauctions.com, Inc. (formerly J.B. Financial Services, Inc.) as at December
31, 1999 and 1998 and the related consolidated statements of operations,
comprehensive loss, changes in stockholders' equity and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
of the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ableauctions.com,
Inc. (formerly J.B. Financial Services, Inc.) as at December 31, 1999 and 1998
and the results of its operations, changes in stockholders' equity and its cash
flows for the years then ended in conformity with generally accepted accounting
principles of the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that Ableauctions.com, Inc. (formerly J.B. Financial Services, Inc.) will
continue as a going concern. As discussed in Note 2 to the financial statements,
unless the Company attains future profitable operations and/or obtains
additional financing, there is substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regards to these matters are
discussed in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Davidson & Company
Vancouver, Canada Chartered Accountants
March 24, 2000
A Member of Accounting Group International
==========================================
Suite 1270, Stock Exchange Tower, 609 Granville Street, P.O. Box 10372,
Pacific Centre, Vancouver, B.C., Canada V7Y 1G6
Telephone (604) 687-0947 Fax (604) 687-6172
F-1
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31
================================================================================
1999 1998
- ----------------------------------------------------------------------------------------------------------------
ASSETS
Current
Accounts receivable - trade $ 96,790 $ -
Accounts receivable - other 171,015 -
Inventory 486,572 -
Prepaid expenses 73,452 -
-------------- ------------
Total current assets 827,829 -
Trademark 12,151 -
Capital assets (Note 6) 1,170,859 -
Web site development costs (Note 7) 95,805 -
Goodwill (Note 8) 655,155 -
-------------- ------------
Total assets $ 2,761,799 $ -
===============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Bank indebtedness $ 60,916 $ -
Accounts payable and accrued liabilities 277,706 944
-------------- ------------
Total current liabilities 338,622 944
-------------- ------------
Stockholders' equity (Note 1)
Capital stock
Authorized
62,500,000 common shares with a par value of $0.001
Issued and outstanding
December 31, 1998 - 6,250,000 common shares
with a par value of $0.001
December 31, 1999 - 18,310,001 common shares
with a par value of $0.001 18,310 6,250
Additional paid-in capital 3,740,108 -
Deficit (1,346,686) (7,194)
Accumulated other comprehensive income 11,445 -
-------------- ------------
Total stockholders' equity 2,423,177 (944)
-------------- ------------
Total liabilities and stockholders' equity $ 2,761,799 $ -
===============================================================================================================
Subsequent events (Note 14)
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31
================================================================================
1999 1998
- -------------------------------------------------------------------------------------------------------------
REVENUE
Sales $ 829,755 $ -
Commissions 68,695 -
-------------- ------------
898,450 -
COST OF GOODS SOLD 582,346 -
-------------- ------------
GROSS PROFIT 316,104 -
-------------- ------------
OPERATING EXPENSES
Accounting and legal fees 76,057 -
Advertising and promotion 119,014 -
Amortization of goodwill 11,972 -
Automobile 46,196 -
Bad debt 36,011 -
Commission 39,625 -
Consulting fees 45,966 -
Depreciation and amortization 195,288 -
Investor relations and shareholder information 400,731 -
Management fees 238,278 -
Office and miscellaneous 61,179 944
Rent and utilities 73,695 -
Salaries and benefits 310,770 -
Telephone 19,118 -
-------------- ------------
1,673,900 944
-------------- ------------
Loss before other items (1,357,796) (944)
-------------- ------------
OTHER ITEMS
Interest income 22,871 -
Foreign exchange loss (4,567) -
-------------- ------------
18,304 -
-------------- ------------
Loss for the year $ (1,339,492) $ (944)
=============================================================================================================
Basic and diluted loss per share $ (0.10) $ 0.00
=============================================================================================================
Weighted average number of shares of common stock outstanding 13,228,082 6,250,000
=============================================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
YEAR ENDED DECEMBER 31
================================================================================
1999 1998
- -------------------------------------------------------------------------------------------------------------
Net loss $ (1,339,492) $ -
Other comprehensive income, net of tax:
Foreign currency translation adjustments 11,445 -
-------------- ------------
Consolidated comprehensive loss $ (1,328,047) $ -
=============================================================================================================
Basic and diluted comprehensive loss per share $ (0.10) $ 0.00
=============================================================================================================
Weighted average number of shares outstanding 13,228,082 6,250,000
============================================================================================== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
Accumulated
Common Stock Additional Other Total
---------------- --------------- Paid-in Comprehensive Stockholders'
Shares Amount Capital Income Deficit Equity
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31,
1997 6,250,000 $ 6,250 $ - $ - $ (6,250) $ -
Loss for the year - - - - (944) (944)
-------------- -------------- -------------- -------------- -------------- --------------
Balance, December 31,
1998 6,250,000 6,250 - - (7,194) (944)
Common stock issued
for cash 1,094,057 1,094 3,499,886 - - 3,500,980
Common stock issued
for acquisition of
Able Auctions
(1991) Ltd. 1,843,444 1,843 71,895 - - 73,738
Common stock issued
for services 53,750,000 53,750 (45,150) - - 8,600
Common stock issued
for services 5,312,500 5,313 (4,463) - - 850
Return of shares to
treasury for
cancellation (50,000,000) (50,000) 50,000 - - -
Common stock issued
for assets of Ross
Auctioneers 60,000 60 167,940 - - 168,000
Translation adjustment - - - 11,445 - 11,445
Loss for the year - - - - (1,339,492) (1,339,492)
-------------- -------------- -------------- -------------- -------------- --------------
Balance, December 31,
1999 18,310,001 $ 18,310 $ 3,740,108 $ 11,445 $ (1,346,686) $ 2,423,177
========================= ================ =============== ================ ================ =============== ================
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
================================================================================
1999 1998
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year $ (1,339,492) $ (944)
Items not affecting cash:
Amortization of goodwill 11,972 -
Bad debt 36,011
Consulting fees 9,450 -
Depreciation and amortization 195,288 -
Other (8,622) -
Changes in non-cash working capital items:
Increase in accounts receivable (271,378) -
Increase in inventory (239,597) -
Increase in prepaid expenses (37,338) -
Increase in accounts payable and accrued liabilities 166,610 944
Increase (decrease) in due to related parties (13,961) -
-------------- ------------
Net cash used in operating activities (1,491,057) -
-------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 3,500,980 -
Loan payable (852,971) -
-------------- ------------
Net cash provided by financing activities 2,648,009 -
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary, net of cash acquired (702,526) -
Capital assets (451,130) -
Trademark (5,704) -
Web site development costs (69,953) -
-------------- ------------
Net cash used in investing activities (1,229,313) -
-------------- ------------
Change in cash and cash equivalents for the year (72,361) -
Effect of exchange rates on cash 11,445 -
Cash and cash equivalents, beginning of year - -
-------------- ------------
Cash and cash equivalents, end of year $ (60,916) $ -
==========================================================================================================
As represented by:
Excess of cheques issued over deposits $ (117,818) $ -
Short-term deposit 56,902 -
-------------- ------------
$ (60,916) $ -
==========================================================================================================
Supplemental disclosures with respect to cash flows (Note 9)
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized on September 30, 1996, under the laws of the
State of Florida, as J.B. Financial Services, Inc.
On October 1, 1996, the Company issued 5,000 shares with a par value of $1
for services received in the amount of $5,000.
On September 2, 1998, the State of Florida approved the Company's restated
Articles of Incorporation, which increased its capitalization from 6,500
common shares to 50,000,000 common shares. The par value was changed from
$1 par to $0.001.
On September 2, 1998, the Company forward split its common stock 200:1,
thus increasing the number of outstanding common stock shares from 5,000
shares to 1,000,000 shares.
On March 26, 1999, the Company issued 53,750,000 shares at a deemed value
of $8,600 as payment of fees for services received.
On April 12, 1999, the Company issued 5,312,500 shares at a deemed value of
$850 as payment of fees for services received.
On July 19, 1999, an Article of Amendment was filed with the State of
Florida for the change of the Company's name from J.B. Financial Services,
Inc. to Ableauctions.com, Inc.
On July 19, 1999, the Company received from a shareholder 50,000,000 shares
which were previously issued for services rendered, and returned these
shares to treasury for cancellation.
On July 20, 1999, the Company authorized a 5:1 stock split, effected in the
form of a dividend, increasing the shares issued and outstanding from
2,450,000 to 12,250,000.
On July 21, 1999, the Company authorized a 5:1 forward share split
increasing the shares issued and outstanding from 12,250,000 to 61,250,000
and the authorized shares to 250,000,000.
On August 24, 1999, the Company issued 1,094,057 shares of common stock
under Rule 504 of Regulation D of the Securities Act of 1993 for total
proceeds of $3,500,980.
Effective September 5, 1999, the Company effected a 4:1 reverse stock
split. Following consolidation, the issued and outstanding common shares of
the Company was 18,250,000, with a par value of $0.001 and the authorized
share capital is 62,500,000 common shares with a par value of $0.001 per
share.
On October 18, 1999, the Company issued 60,000 shares of common stock at a
deemed value of $168,000 to purchase the assets of Ross Auctioneers &
Appraisers Ltd.
The Company is a high-tech business-to-business and consumer auctioneer
that conducts its auctions live and simultaneously broadcasts them over the
Internet. The Company liquidates a broad range of computers, electronics,
office equipment, furniture and industrial equipment that it acquires
through bankruptcies, insolvencies and defaults.
F-7
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
2. GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of liabilities in
the normal course of business. However, the company is in the process of
expansion and its operating expenses and start-up costs exceed its
revenues. Without realization of additional capital, it would be unlikely
for the Company to continue as a going concern. It is management's plan to
seek additional capital through equity financing.
========================================================================
1999 1998
-------------------------------------------------------- ---------------
Deficit $ (1,346,686) $ (7,194)
Working capital (deficiency) 489,207 (944)
========================================================================
3. SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
These consolidated financial statements include the accounts of
Ableauctions.com, Inc. (formerly J.B. Financial Services, Inc.) and its
wholly owned subsidiary, Able Auctions (1991) Ltd. from the date of its
acquisition on August 24, 1999. All significant inter-company balances and
transactions have been eliminated on consolidation.
Foreign currency translation
The Company accounts for foreign currency transactions and translation of
foreign currency financial statements under Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52").
Transaction amounts denominated in foreign currencies are translated at
exchange rates prevailing at transaction dates. Carrying values of monetary
assets and liabilities are adjusted at each balance sheet date to reflect
the exchange rate at that date. Non-monetary assets and liabilities are
translated at the exchange rate on the original transaction date. Gains and
losses from restatement of foreign currency monetary and non-monetary
assets and liabilities are included in income. Revenues and expenses are
translated at the rates of exchange prevailing on the dates such items are
recognized in earnings.
Financial statements of the Company's Canadian subsidiary, Able Auctions
(1991) Ltd. are translated into U.S. dollars using the exchange rate at the
balance sheet date for assets and liabilities. The functional currency of
Able Auctions (1991) Ltd. is the local currency, the Canadian dollar.
Translation adjustments, if necessary, are recorded as a separate component
of Stockholders' Equity.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the period. Actual results could differ from these estimates.
Cash and cash equivalents
The Company considers all investments with a maturity of three months or
less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost and net realizable value.
F-8
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Software development
The Company has adopted Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", as its accounting policy for internally developed computer
software costs. Under SOP 98-1, computer software costs incurred in the
preliminary development stage are expensed as incurred. Computer software
costs incurred during the application development stage are capitalized and
amortized over the software's estimated useful life.
Capital assets and depreciation
Capital assets are recorded at cost less accumulated depreciation. The cost
of capital assets is depreciated using the declining balance method at the
following rates:
Computer equipment 30%
Computer software 30%
Furniture and fixtures 20%
Equipment 30%
Trailers and trucks 20%
Vehicles 30%
Leasehold improvements are depreciated using the straight-line method over
a period of 10 years.
Revenue recognition
The Company generally earns revenues from its auction activities either
through consignment sales, or through sales of inventory purchased by the
Company. For consignment sales, the Company earns auction fees charged to
consignees, and buyer's premiums charged to purchasers, determined as a
percentage of the sale price. For inventory sales, the Company earns a
profit or incurs a loss on the sale, to the extent the purchase price
exceeds or is less than the purchase price paid for such inventory.
For each type of auction revenue, an invoice is rendered to the purchaser,
and revenue is recognized by the Company, at the date of the auction. The
auction purchase creates a legal obligation upon the purchaser to take
possession of, and pay for the merchandise. This obligation generally
provides the Company with reasonable assurance of collection of the sale
proceeds, from which the Company's earnings are derived, including the fees
from consignees and purchasers, as well as resale profits.
Trademarks
The cost of the trademark acquired is being amortized on a straight-line
basis over its life of fifteen years.
Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at dates of acquisition and is being
amortized on a straight-line basis over 20 years.
Advertising costs
The Company recognizes advertising expenses in accordance with Statement of
Position 98-7, "Reporting on Advertising Costs". As such, the Company
expenses the cost of communicating advertising in the period in which the
advertising space or airtime is used.
F-9
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Loss per share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). Under SFAS 128, basic and diluted earnings per share are to be
presented. Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding in the year. Diluted earnings per share takes into
consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares.
Income taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". A deferred tax
asset or liability is recorded for all temporary differences between
financial and tax reporting and net operating loss carryforwards. Deferred
tax expenses (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee is required to
pay for the stock.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes
accounting and reporting standards for derivative instruments and for
hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. In June 1999, the FASB issued SFAS 137
to defer the effective date of SFAS 133 to fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not anticipate that the
adoption of the statement will have a significant impact on its financial
statements.
Reporting on costs of start-up activities
In April 1998, the American Institute of Certified Public Accountant's
issued Statement of Position 98-5 "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5") which provides guidance on the financial reporting
of start-up costs and organization costs. It requires costs of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 is
effective for fiscal years beginning after December 15, 1998 with initial
adoption reported as the cumulative effect of a change in accounting
principle. The adoption of SOP-98-5 by the Company during the year had no
effect on its financial statements.
F-10
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
3. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Comprehensive income
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income". This statement
establishes rules for the reporting of comprehensive income and its
components.
4. CAPITAL STOCK
Stock split and dividend
a) On September 2, 1998, the Company implemented a 200:1 forward stock
split. On July 20, 1999, the Company effected a stock dividend of four
shares for every one share of record. On July 21, 1999, the Company
implemented a 5:1 forward stock split and on September 5, 1999, the
Company implemented a 4:1 reverse stock split. The consolidated
statements of changes in stockholders' equity have been restated to
give retroactive recognition of the stock splits and stock dividend
for all periods presented by reclassifying from common stock to
additional paid-in capital the par value of consolidated shares
arising from the splits and stock dividend. In addition, all
references to number of shares and per share amounts of common stock
have been restated to reflect the stock splits.
b) On March 26, 1999, the Company issued 53,750,000 shares at a deemed
value of $8,600 as payment of fees for services received.
c) On April 12, 1999, the Company issued 5,312,500 shares at a deemed
value of $850 as payment of fees for services received.
d) On July 19, 1999, the Company received from a shareholder 50,000,000
shares which were previously issued for services rendered, and
returned these shares to treasury for cancellation.
e) During the year, the Company completed a private placement whereby it
issued 1,094,057 post consolidation units at a price of $3.20 per unit
for total consideration in the amount of $3,500,980. Each unit
consists of one restricted common share and half of a share purchase
warrant. Each whole warrant will entitle the holder to purchase an
additional restricted common share at a price of $3.20 per share until
August 24, 2000 and at $4.00 per share until August 24, 2001.
f) On October 18, 1999, the Company issued 60,000 shares at a deemed
value of $168,000 for the purchase of assets of Ross Auctioneers &
Appraisers Ltd.
5. WARRANTS
As at December 31, 1999, he Company has 547,029 warrants outstanding. Each
warrant will entitle the holder to purchase a restricted common share at a
price of $3.20 per share until August 24, 2000 and at a price of $4.00 per
share until August 24, 2001.
F-11
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
6. CAPITAL ASSETS
====================================================================================================================
Net Book Value
Accumulated ----------------- ----------------
Cost Depreciation 1999 1998
--------------------------------------------------------------------------------------------------------------------
Computer equipment $ 994,538 $ 150,825 $ 843,713 $ -
Computer software 130,040 21,056 108,984 -
Furniture and fixtures 13,734 6,950 6,784 -
Leasehold improvements 15,004 750 14,254 -
Equipment 168,000 6,300 161,700 -
Trailers and trucks 4,751 1,520 3,231 -
Vehicles 41,142 8,949 32,193 -
--------------- --------------- --------------- --------------
$ 1,367,209 $ 196,350 $ 1,170,859 $ -
===================================================================================================================
7. WEB SITE DEVELOPMENT COSTS
Web site development costs of $95,805 (net of amortization costs of
$10,645) (December 31, 1998 - $Nil) is comprised of hardware and software
costs incurred by the Company in developing its web site. The Company's
amortization policy concerning these costs is to amortize the costs over a
period of five years commencing from the date of operations.
8. BUSINESS COMBINATION
During the year, the Company entered into an acquisition agreement whereby
the Company acquired all the outstanding shares of Able Auctions (1991)
Ltd. ("Able"). The Company issued 1,843,444 of its common shares at a
deemed value of $73,738 and paid $545,305 to acquire the shares of Able.
The Company also paid an additional $504,695 for shareholders' loans.
The total purchase price of $1,123,738 has been allocated as follows:
Cash $ 347,474
Accounts receivable 140,982
Inventory 215,194
Prepaid expenses 36,114
Capital assets 780,551
Goodwill 667,127
Accounts payable and accrued liabilities (136,863)
Loan payable (878,377)
Obligation under capital lease (48,464)
--------------
$ 1,123,738
Goodwill will be amortized on a straight-line basis over a 20 year period.
During the year, the Company amortized $11,972 of goodwill, leaving a
balance of $655,155 at December 31, 1999.
F-12
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
9. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
=========================================================================
1999 1998
-------------------------------------------------------------------------
Cash paid for income taxes $ - $ -
Cash paid for interest - -
=========================================================================
The following non-cash operating, investing and financing transactions
occurred during the year ended December 31, 1999:
a) The Company issued 9,062,500 common shares, at a deemed value of
$9,450, for consulting services received.
b) The Company issued 1,843,444 shares at a deemed value of $73,738, for
the purchase of Able Auctions (1991) Ltd.
c) The Company issued 60,000 shares of common stock at a deemed value of
$168,000 to purchase the assets of Ross Auctioneers & Appraisers Ltd.
There were no non-cash operating, investing and financing transactions
during the year ended December 31, 1998.
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
Total comprehensive loss for the year ended December 31, 1999, and the year
ended December 31, 1998 was $1,328,047 and $Nil, respectively. The only
item included in other comprehensive loss is foreign currency translation
adjustments in the amounts of $11,445 for the year ended December 31, 1999
and $Nil for the year ended December 31, 1998.
============================================================================ =================
Foreign Accumulated
Currency Other
Translation Comprehensive
Adjustment Income
- ---------------------------------------------------------------------------- -----------------
Beginning balance, December 31, 1998 $ - $ -
Current period change 11,445 11,445
---------------- ----------------
Ending balance, December 31, 1999 $ 11,445 $ 11,445
============================================================================ =================
11. INCOME TAXES
The Company's total deferred tax asset is as follows:
===========================================================================
1999 1998
---------------------------------------------------------------------------
Net operating loss carryforward $ 610,361 $ 2,445
Valuation allowance (610,361) (2,445)
------------- ------------
$ - $ -
===========================================================================
The Company has a net operating loss carryforward of approximately
$1,300,000 which expires in the year 2006. The Company provided a full
valuation allowance on the deferred tax asset because of the uncertainty
regarding realizability.
F-13
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
12. 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. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the entity, including those related to customers,
suppliers, or other third parties, have been fully resolved.
13. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, the following related party
transactions occurred:
a) The Company purchased computer equipment, software and web site
development costs in the amount of $469,940, from a company controlled
by a director of the Company.
b) The Company paid $238,278 in management fees to a company controlled
by a director of the Company.
c) The Company issued 5,312,500 common shares with a deemed value of $850
for consulting services to a company controlled by a former director
of the Company.
d) Included in accounts payable is an amount of $237,849, which is
payable to a company controlled by a director of the Company.
e) The Company issued 1,843,444 common shares, which is approximately 10%
of the total shares outstanding as at December 31, 1999, to a Company
controlled by a director of the Company for the acquisition of Able
Auctions (1991) Ltd.
There were no related party transactions for the year ended December 31,
1998.
14. SUBSEQUENT EVENTS
Subsequent to December 31, 1999, the Company completed the following
transactions:
a) The Company completed a private placement of 1,000,000 units at a
price of $5.00 per unit for total proceeds of $5,000,000. Each unit
consists of one share of common stock and one non-transferable share
purchase warrant. Each warrant entitles the holder to purchase one
additional share of common stock at a price of $5.00 until February
25, 2001 and at a price of $6.00 until February 25, 2002.
b) The Company, through its wholly owned subsidiary, acquired all of the
business assets of Falcon Trading, Inc. ("Falcon") for a purchase
price of $360,805, which was paid by issuing 53,405 shares of common
stock of the Company at a deemed price of $6.756 per share. In
addition, the Company granted stock options to purchase an aggregate
of 105,000 shares of common stock for five years, with 75,000 of the
options exercisable at $6.756 per share and the remaining 30,000
options exercisable at $8.00 per share, subject to vesting criteria.
c) The Company signed a binding letter of intent to purchase Mesler's
Auction House ("Mesler's") of Scottsdale, Arizona. Under the letter of
intent, the Company has agreed to purchase Mesler's assets for
$500,000, which will be payable by $255,000 in cash and by issuing
30,625 (issued) shares of the Company. The Company has also agreed to
purchase real estate and a building from Mesler's for $3,500,000,
which will be paid by $1,200,000 in cash, $1,050,000 by assuming a
mortgage on the property, and by issuing shares of the Company for the
balance at a deemed price of $8.00 per share. The Company has issued
155,486 shares of common stock, pursuant to the above obligation. In
addition, the Company will purchase the inventory of Mesler's for
$450,000 in cash. On closing, the Company will grant to Mesler's an
option to purchase 150,000 shares of common stock at the price of
$8.00 per share for a term to be determined by the Company's Board of
Directors.
F-14
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
14. SUBSEQUENT EVENTS (cont'd.....)
d) The Company has signed a Letter of Intent to acquire Ehli's Auctions
for $1,100,000, which will be payable by $600,000 in cash and the
balance of $500,000 by issuing 63,163 shares of the Company's common
stock at a deemed price of $7.916 per share. On closing, the Company
will grant stock options to purchase 40,000 shares of common stock of
the Company at the market price per share at the time of closing,
subject to performance based vesting criteria.
e) The Company granted 102,500 stock options at a price of $5.00 per
common stock, exercisable to January 18, 2005.
15. STOCK BASED COMPENSATION EXPENSE
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". Accordingly, compensation cost for stock options is
measured as the excess, if any, of quoted market price of the Company's
stock at the date of grant over the option price. No stock based
compensation has resulted from the use of this standard.
Following is a summary of the status of the plan during 1999 and 1998:
==========================================================================================
Weighted
Average
Number Exercise
of Shares Price
------------------------------------------------------------------------------------------
Outstanding at December 31, 1997 and 1998 - $ -
Granted 812,500 $ 3.20
Forfeited - $ -
Exercised - $ -
------------
Outstanding at December 31, 1999 812,500 $ 3.20
==========================================================================================
Following is a summary of the status of options outstanding at December 31,
1999:
Outstanding Options Exercisable Options
------------------------------------------ ------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Number Life Price Number Price
- -------------------------------------------------------------------------------------------------------
$ 3.20 812,500 4.79 $ 3.20 652,500 $ 3.20
=======================================================================================================
F-15
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
================================================================================
15. STOCK BASED COMPENSATION EXPENSE (cont'd.....)
Compensation
Had compensation cost been recognized on the basis of fair value pursuant
to Statement of Financial Accounting Standards No. 123, net loss and loss
per share would have been adjusted as follows:
===========================================================================
1999 1998
---------------------------------------------------------------------------
Net loss
As reported $ (1,339,492) $ (944)
============== ==============
Pro forma $ (2,968,281) $ (944)
============== ==============
Basic and diluted loss per share
As reported $ (0.10) $ -
============== ==============
Pro forma $ (0.22) $ -
===========================================================================
The fair value of each option granted is estimated using the Black Scholes
Model. The assumptions used in calculating fair value are as follows:
========================================================================
1999 1998
------------------------------------------------------------------------
Risk-free interest rate 6.014% -
Expected life of the options 2 years -
Expected volatility 193% -
Expected dividend yield - -
========================================================================
F-16
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
F-17
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
==============================================================================================================================
June 30, December 31,
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current
Cash and cash equivalents $ 3,885,762 $ -
Accounts receivable - trade 529,244 96,790
Accounts receivable - other 4,446 171,015
Inventory 1,271,198 486,572
Prepaid expenses 230,860 73,452
--------------- ---------------
Total current assets 5,921,510 827,829
Trademark 10,975 12,151
Capital assets (Note 3) 5,011,665 1,170,859
Web site development costs (Note 4) 109,821 95,805
Goodwill 2,547,182 655,155
--------------- ---------------
Total assets $ 13,601,153 $ 2,761,799
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Bank indebtedness $ - $ 60,916
Accounts payable and accrued liabilities 433,170 277,706
Promissory note - current (Note 6) 8,594 -
--------------- --------------
Total current liabilities 441,764 338,622
Promissory note (Note 6) 1,042,273 -
--------------- --------------
1,484,037 338,622
--------------- ---------------
Stockholders' equity
Capital stock (Note 7)
Authorized
62,500,000 common shares with a par value of $0.001
Issued and outstanding
June 30, 2000 -20,874,579 common shares with a par value of $0.001 20,874 18,310
December 31, 1999 - 18,310,001 common shares with a par value of $0.001
Additional paid-in capital 16,185,277 3,740,108
Deficit (4,074,870) (1,346,686)
Accumulated other comprehensive income (loss) (14,165) 11,445
--------------- ---------------
Total stockholders' equity 12,117,116 2,423,177
--------------- ---------------
Total liabilities and stockholders' equity $ 13,601,153 $ 2,761,799
==============================================================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
F-18
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
==============================================================================================================================
Three Month Three Month Six Month Six Month
Period Ended Period Ended Period Ended Period Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
REVENUE
Sales $ 3,036,462 $ - $ 3,904,153 $ -
Commissions 313,816 - 546,252 -
-------------- -------------- -------------- -------------
3,350,278 - 4,450,405 -
COST OF GOODS SOLD 2,673,167 - 3,487,918 -
-------------- -------------- -------------- -------------
GROSS PROFIT 677,111 - 962,487 -
-------------- -------------- -------------- -------------
OPERATING EXPENSES
Accounting and legal fees 108,031 - 224,044 -
Advertising and promotion 190,364 - 344,652 -
Amortization of goodwill 19,086 - 33,778 -
Automobile 8,014 - 23,362 -
Bad debt (recovery) 12,059 - 8,363 -
Commission 101,899 - 117,952 -
Consulting fees 257,510 145,000 338,764 145,000
Depreciation and amortization 131,952 - 237,560 -
Insurance 33,051 - 33,051 -
Investor relations and shareholder information 109,815 349 376,386 349
Licenses and permits 12,004 - 26,358 -
Management fees 18,657 - 20,264 -
Office and miscellaneous 111,498 - 174,411 -
Rent and utilities 229,727 - 415,062 -
Repairs and maintenance 40,509 - 64,571 -
Salaries and benefits 564,674 - 860,743 -
Stock based compensation expense 17,033 17,033 -
Telephone 80,816 - 105,502 -
Travel and entertainment 160,958 - 276,563 -
-------------- -------------- -------------- -------------
2,207,657 145,349 3,698,419 145,349
-------------- -------------- -------------- --------------
Loss before other items (1,530,546) (145,349) (2,735,932) (145,349)
-------------- -------------- -------------- --------------
OTHER ITEMS
Interest income 8,447 - 22,890 -
Foreign exchange (loss) 13,893 - (15,142) -
-------------- -------------- -------------- -------------
22,340 - 7,748 -
-------------- -------------- -------------- -------------
Loss for the period $ (1,508,206) $ (145,349) $ (2,728,184) $ (145,349)
==============================================================================================================================
Basic and diluted loss per share $ (0.07) $ (0.01) $ (0.14) $ (0.01)
==============================================================================================================================
Weighted average number of shares outstanding 20,405,250 14,722,222 19,096,349 10,607,735
==============================================================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
F-19
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
=============================================================================================================================
Three Month Three Month Six Month Six Month
Period Ended Period Ended Period Ended Period Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
Loss for the period $ (1,508,206) $ (145,349) $ (2,728,184) $ (145,349)
Other comprehensive income, net of tax:
Foreign currency translation adjustments (76,793) - (14,165) -
-------------- -------------- -------------- -------------
Consolidated comprehensive loss $ (1,584,999) $ (145,349) $ (2,742,349) $ (145,349)
=============================================================================================================================
Basic and diluted comprehensive loss per share $ (0.08) $ (0.01) $ (0.14) $ (0.01)
=============================================================================================================================
Weighted average number of shares outstanding 20,405,250 14,722,222 19,096,349 10,607,735
=============================================================================================================================
The accompanying notes are an integral part of these
consolidated financial statements.
F-20
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
==============================================================================================================================
Accumulated
Common Stock Additional Other Total
------------------------- Paid-in Comprehensive Stockholders'
Shares Amount Capital Income Deficit Equity
- ------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 6,250,000 $ 6,250 $ - $ - $ (7,194) $ (944)
Common stock issued for cash 1,094,057 1,094 3,499,886 - - 3,500,980
Common stock issued for
acquisition of Able
Auctions (1991) Ltd. 1,843,444 1,843 71,895 - - 73,738
Common stock issued for
services 53,750,000 53,750 (45,150) - - 8,600
Common stock issued for
services 5,312,500 5,313 (4,463) - - 850
Return of shares to treasury
for cancellation (50,000,000) (50,000) 50,000 - - -
Common stock issued for
assets of Ross Auctioneers 60,000 60 167,940 - - 168,000
Translation adjustment - - - 11,445 - 11,445
Loss for the year - - - - (1,339,492) (1,339,492)
------------ ------------ ------------- ------------- ------------- -------------
Balance, December 31, 1999 18,310,001 18,310 3,740,108 11,445 (1,346,686) 2,423,177
Private placements 2,210,240 2,210 11,048,990 - - 11,051,200
Share issuance costs - - (1,147,670) - - (1,147,670)
Common stock issued for
acquisition of building 155,486 155 1,243,733 - - 1,243,888
Common stock issued for
acquisition of assets of
Falcon Trading Inc. 53,405 53 360,752 - - 360,805
Common stock issued for
acquisition of assets of
Messler's Auction House 30,625 31 244,969 - - 245,000
Common stock issued for
acquisition of assets of
Auctions West 10,000 10 69,990 - - 70,000
Common stock issued for
acquisition of assets of
Ehli Auctions 50,000 50 349,950 - - 350,000
Common stock issued for
acquisition of rights to
trade-mark 4,822 5 34,472 - - 34,477
Stock based compensation 50,000 50 222,950 - - 223,000
expense
Translation adjustment - - - (25,610) - (25,610)
Stock based compensation - - 17,033 - - 17,033
expense
Loss for the period - - - - (2,728,184) (2,728,184)
------------ ------------ ------------- ------------- ------------- -------------
Balance, June 30, 2000 20,874,579 $ 20,874 $ 16,185,277 $ (14,165) $ (4,074,870) $ 12,117,116
=============================== =============== ============== =============== =============== =============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
F-21
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTH PERIOD ENDED JUNE 30
==============================================================================================================================
Three Month Six Month Six Month
Period Ended Period Ended Period Ended
June 30, June 30, June 30,
2000 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period $ (1,508,206) $ (2,728,184) $ (145,349)
Items not affecting cash:
Amortization of goodwill 19,086 33,778 -
Depreciation and amortization 131,952 237,560 -
Consulting fees - - 145,000
Stock based compensation expense 17,033 17,033 -
Changes in non-cash working capital items:
Increase in accounts receivable 6,831 (265,885) -
Increase in inventory 55,419 (784,626) -
Increase in prepaid expenses (149,525) (157,408) -
Increase in accounts payable and accrued liabilities (390,788) 155,464 349
--------------- --------------- ---------------
Net cash used in operating activities (1,818,198) (3,492,268) -
--------------- --------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 6,274,200 11,274,200 -
Share issuance costs (847,670) (1,147,670) -
--------------- --------------- --------------
Net cash provided by financing activities 5,426,530 10,126,530 -
--------------- --------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital assets (226,353) (1,789,724) -
Web site development costs (23,470) (23,470) -
Acquisition of investment (900,000) (900,000) -
--------------- --------------- --------------
Net cash used in investing activities (1,149,823) (2,713,194) -
--------------- --------------- --------------
Change in cash and cash equivalents for the period 2,458,509 3,921,068 -
Effect of exchange rates on cash (25,573) 25,610 -
Cash and cash equivalents, beginning of period 1,452,826 (60,916) -
--------------- --------------- --------------
Cash and cash equivalents, end of period $ 3,885,762 $ 3,885,762 $ -
==============================================================================================================================
Supplemental disclosures with respect to cash flows (Note 9)
The accompanying notes are an integral part of these
consolidated financial statements.
F-22
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
1. HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized on September 30, 1996, under the laws of the
State of Florida, as J.B. Financial Services, Inc. On July 19, 1999, an
Article of Amendment was filed with the State of Florida for the change of
the Company's name from J.B. Financial Services, Inc. to Ableauctions.com,
Inc.
The Company is a high-tech business-to-business and consumer auctioneer
that conducts its auctions live and simultaneously broadcasts them over the
Internet. The Company liquidates a broad range of computers, electronics,
office equipment, furniture and industrial equipment that it acquires
through bankruptcies, insolvencies and defaults.
2. SIGNIFICANT ACCOUNTING POLICIES
Generally accepted accounting principles
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position, results of operations, comprehensive loss, changes in
stockholders' equity and cash flows at June 30, 2000 and for the period
then ended have been made. These financial statements should be read in
conjunction with the audited financial statements of the Company for the
year ended December 31, 1999. The results of operations for the period
ended June 30, 2000 are not necessarily indicative of the results to be
expected for the year ending December 31, 2000.
Principles of consolidation
These consolidated financial statements include the accounts of
Ableauctions.com, Inc. (formerly J.B. Financial Services, Inc.) and its
wholly owned subsidiaries, Able Auctions (1991) Ltd. and Ableauctions.com
(Washington) Inc. All significant inter-company balances and transactions
have been eliminated on consolidation.
Foreign currency translation
The Company accounts for foreign currency transactions and translation of
foreign currency financial statements under Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" ("SFAS 52").
Transaction amounts denominated in foreign currencies are translated at
exchange rates prevailing at transaction dates. Carrying values of monetary
assets and liabilities are adjusted at each balance sheet date to reflect
the exchange rate at that date. Non-monetary assets and liabilities are
translated at the exchange rate on the original transaction date. Gains and
losses from restatement of foreign currency monetary and non-monetary
assets and liabilities are included in income. Revenues and expenses are
translated at the rates of exchange prevailing on the dates such items are
recognized in earnings.
Financial statements of the Company's Canadian subsidiary, Able Auctions
(1991) Ltd. are translated into U.S. dollars using the exchange rate at the
balance sheet date for assets and liabilities. The functional currency of
Able Auctions (1991) Ltd. is the local currency, the Canadian dollar.
Translation adjustments, if necessary, are recorded as a separate component
of Stockholders' Equity.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the period. Actual results could differ from these estimates.
Cash and cash equivalents
The Company considers all investments with a maturity of three months or
less to be cash equivalents.
F-23
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Inventory
Inventory is stated at the lower of cost and net realizable value.
Software development
The Company has adopted Statement of Position 98-1 ("SOP 98-1"),
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", as its accounting policy for internally developed computer
software costs. Under SOP 98-1, computer software costs incurred in the
preliminary development stage are expensed as incurred. Computer software
costs incurred during the application development stage are capitalized and
amortized over the software's estimated useful life.
Capital assets and depreciation
Capital assets are recorded at cost less accumulated depreciation. The cost
of capital assets is depreciated using the declining balance method at the
following rates:
Building 4%
Computer equipment 30%
Computer software 30%
Furniture and fixtures 20%
Equipment 30%
Vehicles 30%
Leasehold improvements are depreciated using the straight-line method over
a period of 10 years.
Revenue recognition
The Company generally earns revenues from its auction activities either
through consignment sales, or through sales of inventory purchased by the
Company. For consignment sales, the Company earns auction fees charged to
consignees, and buyer's premiums charged to purchasers, determined as a
percentage of the sale price. For inventory sales, the Company earns a
profit or incurs a loss on the sale, to the extent the purchase price
exceeds or is less than the purchase price paid for such inventory.
For each type of auction revenue, an invoice is rendered to the purchaser,
and revenue is recognized by the Company, at the date of the auction. The
auction purchase creates a legal obligation upon the purchaser to take
possession of, and pay for the merchandise. This obligation generally
provides the Company with reasonable assurance of collection of the sale
proceeds, from which the Company's earnings are derived, including the fees
from consignees and purchasers, as well as resale profits.
Trademarks
The cost of the trademark acquired is being amortized on a straight-line
basis over its life of fifteen years.
Goodwill
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets at dates of acquisition and is being
amortized on a straight-line basis over periods of 10-20 years.
F-24
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
2. SIGNIFICANT ACCOUNTING POLICIES (cont'd.....)
Advertising costs
The Company recognizes advertising expenses in accordance with Statement of
Position 98-7, "Reporting on Advertising Costs". As such, the Company
expenses the cost of communicating advertising in the period in which the
advertising space or airtime is used.
Loss per share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). Under SFAS 128, basic and diluted earnings per share are to be
presented. Basic earnings per share is computed by dividing income
available to common shareholders by the weighted average number of common
shares outstanding in the period. Diluted earnings per share takes into
consideration common shares outstanding (computed under basic earnings per
share) and potentially dilutive common shares.
Income taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". A deferred tax
asset or liability is recorded for all temporary differences between
financial and tax reporting and net operating loss carryforwards. Deferred
tax expense (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Stock-based compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." Accordingly compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee is required to
pay for the stock.
Accounting for derivative instruments and hedging activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") which establishes
accounting and reporting standards for derivative instruments and for
hedging activities. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. In June 1999, the FASB issued SFAS 137
to defer the effective date of SFAS 133 to fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not anticipate that the
adoption of the statement will have a significant impact on its financial
statements.
Comprehensive income
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130 ("SFAS 130"), "Reporting Comprehensive Income". This statement
establishes rules for the reporting of comprehensive income and its
components.
F-25
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
3. CAPITAL ASSETS
================================================================================================
Net Book Value
--------------------------------
Accumulated June 30, December 31,
Cost Depreciation 2000 1999
-------------------------------------------------------------------------------------------------
Building $ 1,395,000 $ 18,600 $ 1,376,400 $ -
Computer equipment 1,004,422 272,976 731,446 843,713
Computer software 150,317 11,274 139,043 108,984
Furniture and fixtures 285,373 26,096 259,277 6,784
Land 2,105,000 - 2,105,000 -
Leasehold improvements 240,529 8,349 232,180 14,254
Equipment 168,000 30,556 137,444 161,700
Vehicles 46,951 16,076 30,875 35,424
--------------- --------------- --------------- ---------------
$ 5,395,592 $ 383,927 $ 5,011,665 1,170,859
================================================================================================
4. WEB SITE DEVELOPMENT COSTS
Web site development costs of $109,821 (net of amortization costs of
$24,638) (December 31, 1999 - $95,805) is comprised of hardware and
software costs incurred by the Company in developing its web site. The
Company's amortization policy concerning these costs is to amortize the
costs over a period of five years commencing from the date of operations.
5. BUSINESS COMBINATION
During the year ended December 31, 1999, the Company entered into an
acquisition agreement whereby the Company acquired of all the outstanding
shares of Able Auctions (1991) Ltd. ("Able"). The Company issued 1,843,444
of its common shares at a deemed value of $73,738 and paid $545,305 to
acquire the shares of Able. The Company also paid an additional $504,695
for shareholders' loans.
The total purchase price of $1,123,738 has been allocated as follows:
Cash $ 347,474
Accounts receivable 140,982
Inventory 215,194
Prepaid expenses 36,114
Capital assets 780,551
Goodwill 667,127
Accounts payable and accrued liabilities (136,863)
Loan payable (878,377)
Obligation under capital lease (48,464)
-------------
$ 1,123,738
Goodwill is amortized on a straight-line basis over a 20 year period.
During the period, the Company amortized $16,678 of goodwill, leaving a
balance of $638,477 at June 30, 2000.
F-26
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
6. PROMISSORY NOTE
==================================================================================================================
June 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------------------------
Promissory note, interest at 9% per annum, repayment at $8,569 per
month including principal and interest, secured by mortgage over
land and building, due July 24, 2028. $ 1,050,867 $ -
Less: Current portion 8,594 -
--------------- --------------
$ 1,042,273 $ -
==================================================================================================================
7. CAPITAL STOCK
a) On September 2, 1998, the Company implemented a 200:1 forward stock
split. On July 20, 1999, the Company effected a stock dividend of four
shares for every one share of record. On July 21, 1999, the Company
implemented a 5:1 forward stock split and on September 5, 1999, the
Company implemented a 4:1 reverse stock split. The consolidated
statements of changes in stockholders' equity have been restated to
give retroactive recognition of the stock splits and stock dividend
for all periods presented by reclassifying from common stock to
additional paid-in capital the par value of consolidated shares
arising from the splits and stock dividend. In addition, all
references to number of shares and per share amounts of common stock
have been restated to reflect the stock splits.
b) On March 26, 1999, the Company issued 53,750,000 shares at a deemed
value of $8,600 as payment of fees for services received.
c) On April 12, 1999, the Company issued 5,312,500 shares at a deemed
value of $850 as payment of fees for services received.
d) On July 19, 1999, the Company received from a shareholder 50,000,000
shares which were previously issued for services rendered, and
returned these shares to treasury for cancellation.
e) On August 24, 1999, the Company completed a private placement whereby
it issued 1,094,057 post consolidation units at a price of $3.20 per
unit for total consideration in the amount of $3,500,980. Each unit
consists of one restricted common share and half of a share purchase
warrant. Each whole warrant will entitle the holder to purchase an
additional restricted common share at a price of $3.20 per share until
August 24, 2000 and at $4.00 per share until August 24, 2001.
f) On October 18, 1999, the Company issued 60,000 shares at a deemed
value of $168,000 for the purchase of assets of Ross Auctioneers &
Appraisers Ltd.
g) On March 25, 2000, the Company completed a private placement of
1,000,000 units at a price of $5.00 per unit for total proceeds of
$4,700,000, net of issuance costs of $300,000. Each unit consists of
one share of common stock and one non-transferable share purchase
warrant. Each warrant entitles the holder to purchase one additional
share of common stock at a price of $5.00 until March 25, 2001 and at
a price of $6.00 until March 25, 2002.
F-27
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
7. CAPITAL STOCK (cont'd.....)
h) On March 29, 2000, the Company issued 53,405 shares of common stock at
a deemed value of $360,805 to purchase the assets of Falcon Trading
Inc.
i) On March 20, 2000, the Company issued 155,486 shares of common stock
at a deemed value of $1,243,888, for the purchase of a building in
Scottsdale, Arizona.
j) On March 20, 2000, the Company issued 30,625 shares of common stock at
a deemed value of $245,000 to purchase the assets of Mesler's Auction
House, and a non-transferable warrant entitling the holder to purchase
150,000 shares of common stock at a price of $8.00 until March 20,
2001.
k) On April 21, 2000, the Company paid cash of $31,493 and issued 4,822
shares of common stock at a deemed value of $34,477 to acquire rights
to a trademark from Simon Fraser University.
l) On May 2, 2000, the Company completed a private placement of 1,210,240
units at a price of $5.00 per unit for total proceeds of $5,203,440,
net of issuance costs of $847,670. Each unit consists of one share of
common stock and one non-transferable share purchase warrant. Each
warrant entitles the holder to purchase one additional share of common
stock at a price of $6.00 until May 2, 2001.
m) On May 23, 2000, the Company issued 10,000 shares of common stock at a
deemed value of $70,000 to purchase the assets of Auctions West.
n) On May 25, 2000, the Company paid cash of $900,000 and issued 50,000
shares of common stock at a deemed value of $350,000 to purchase the
assets of Ehli's Commercial/Industrial Auctions Inc.
o) During the six month period ended June 30, 2000, stock options
totaling 50,000 shares of common stock were exercised for proceeds of
$223,000.
8. STOCK OPTIONS AND WARRANTS
The following stock options were outstanding at June 30, 2000:
===================================================================
Number Exercise
of Shares Price Expiry Date
-------------------------------------------------------------------
787,500 $ 3.20 October 14,2004
47,500 5.00 January 18, 2005
30,000 8.00 February 28, 2005
75,000 6.76 February 28, 2005
50,000 7.15 May 15, 2005
35,000 6.53 May 16, 2005
80,000 6.53 May 16, 2010
===================================================================
F-28
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
8. STOCK OPTIONS AND WARRANTS (cont'd.....)
The following warrants were outstanding at June 30, 2000:
===================================================================
Number Exercise
of Shares Price Expiry Date
-------------------------------------------------------------------
547,029 $ 3.20 August 24, 2000
then at 4.00 August 24, 2001
1,000,000 5.00 March 25, 2001
then at 6.00 March 25, 2002
150,000 8.00 March 20, 2001
1,210,240 6.00 April 28, 2001
===================================================================
9. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
========================================================================
June 30, December 31,
2000 1999
------------------------------------------------------------------------
Cash paid for income taxes $ - $ -
Cash paid for interest 35,294 -
========================================================================
The following non-cash operating, investing and financing transactions
occurred during the six month period ended June 30, 2000:
a) The Company issued 53,405 shares of common stock at a deemed value of
$360,805 to purchase the assets of Falcon Trading Inc.
b) The Company issued 155,486 shares of common stock at a deemed value of
$1,243,888 for the purchase of a building and land in Scottsdale,
Arizona.
c) The Company issued 30,625 shares of common stock at a deemed value of
$245,000 to purchase the assets of Mesler's Auction House.
d) The Company assumed a promissory note in the amount of $1,046,358 for
the purchase of a building and land in Scottsdale, Arizona.
e) On May 23, 2000, the Company issued 10,000 shares of common stock at a
deemed value of $70,000 to purchase the assets of Auctions West.
f) On May 25, 2000, the Company issued 50,000 shares of common stock at a
deemed value of $350,000 to purchase the assets of Ehli's
Commercial/Industrial Auctions Inc.
g) On April 21, 2000, the Company issued 4,822 shares of common stock at
a deemed value of $34,477 to acquire rights to a trademark from Simon
Fraser University.
Therewere no non-cash operating, investing and financing transactions
during the six month period ended June 30, 1999.
F-29
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
Total comprehensive loss for the six month periods ended June 30, 2000 and
1999 were $2,725,316 and $145,349, respectively. The only item included in
other comprehensive loss is foreign currency translation adjustments in the
amounts of $(14,165) for the six month period ended June 30, 2000 and $Nil
for the six month period ended June 30, 1999.
================================================================================================
Foreign Accumulated
Currency Other
Translation Comprehensive
Adjustment Income
------------------------------------------------------------------------------------------------
Balance, December 31, 1998 and June 30, 1999 $ - $ -
================= =================
Balance, December 31, 1999 $ 11,445 $ 11,445
Current period change (25,610) (25,610)
---------------- ----------------
Balance, June 30, 2000 $ (14,165) $ (14,165)
================================================================================================
11. INCOME TAXES
The Company's total deferred tax asset is as follows:
=================================================================================================
June 30, June 30,
2000 1999
-------------------------------------------------------------------------------------------------
Tax benefit relating to net operating loss carryforwards $ 1,385,456 $ 610,361
Valuation allowance (1,385,456) (610,361)
--------------- ---------------
$ - $ -
=================================================================================================
12. DUE TO RELATED PARTIES
During the six month period ended June 30, 2000, the Company paid $27,474
in consulting fees to a company controlled by a director.
F-30
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
13. STOCK BASED COMPENSATION EXPENSE
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to account for stock-based compensation
using Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". Accordingly, compensation cost for stock options is
measured as the excess, if any, of quoted market price of the Company's
stock at the date of grant over the option price. There were compensation
costs of $246,950 incurred based on options granted in 2000. These costs
will be recognized over a period of three years, which is the average
vesting period of options.
During the six month period ended June 30, 2000, stock based compensation
expense of $17,033 was accrued.
Following is a summary of the status of the plan during 2000 and 1999:
===================================================================================================
Weighted
Average
Number Exercise
of Shares Price
---------------------------------------------------------------------------------------------------
Outstanding at December 31, 1998 and June 30, 1999 - $ -
============= =============
Outstanding at December 31, 1999 812,500 $ 3.20
-------------
Granted 372,500 6.35
Forfeited (30,000) 4.40
Exercised (50,000) 4.46
-------------
-
292,500
-------------
Outstanding at June 30, 2000 1,105,000 $ 4.17
===================================================================================================
Weighted average fair value of options granted during the period $ 5.05
===================================================================================================
Following is a summary of the status of options outstanding at June 30,
2000:
======================================================================================================
Outstanding Options Exercisable Options
------------------------------------ ---------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Contractual Exercise Exercise
Exercise Price Number Life Price Number Price
------------------------------------------------------------------------------------------------------
$ 3.20 787,500 4.29 $ 3.20 654,166 $ 3.20
5.00 47,500 4.55 5.00 47,500 5.00
8.00 30,000 4.66 8.00 - 8.00
6.76 75,000 4.66 6.76 - 6.76
7.15 50,000 4.87 7.15 - 7.15
6.53 35,000 4.88 6.53 - 6.53
6.53 80,000 9.88 6.53 - 6.53
======================================================================================================
F-31
ABLEAUCTIONS.COM, INC.
(formerly J.B. Financial Services, Inc.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2000
================================================================================
13. STOCK BASED COMPENSATION EXPENSE (cont'd.....)
Compensation
Had compensation cost been recognized on the basis of fair value pursuant
to Statement of Financial Accounting Standards No. 123, net loss and loss
per share would have been adjusted as follows:
=============================================================================================================
Three Month Three Month Six Month Six Month
Period Ended Period Ended Period Ended Period Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------------------------------------------------------- ----------------- ---------------- -----------------
Loss for the period
As reported $ (1,508,206) $ (145,349) $ (2,728,184) $ (145,349)
================ ================= ================ =================
Pro forma $ (1,675,644) $ (145,349) $ (2,895,622) $ (145,349)
================ ================= ================ =================
Basic and diluted loss per share
As reported $ (0.07) $ (0.01) $ (0.14) $ (0.01)
================ ================= ================ =================
Pro forma $ (0.08) $ (0.01) $ (0.15) $ (0.01)
=============================================================================================================
The fair value of each option granted is estimated using the Black Scholes
Model. The assumptions used in calculating fair value are as follows:
======================================================================
2000 1999
----------------------------------------------------------------------
Risk-free interest rate 6.54% -
Expected life of the options 2 years -
Expected volatility 221.73% -
Expected dividend yield - -
======================================================================
F-32