SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
Commission file number 0-28179
ABLEAUCTIONS.COM, INC.
(Exact name of small business issuer in its charter)
Florida 59-3404233
------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1222 46th Avenue East
Fife, Washington
98424
(Address of principal executive offices)
(253) 926-1122
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of outstanding common shares, $ .001 par value, of the registrant
at August 10, 2002 was 26,536,315
ABLEAUCTIONS.COM, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
ABLEAUCTIONS.COM, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
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JUNE 30 DECEMBER 31
2002 2001
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ASSETS
Current
Cash and cash equivalents $ 416,567 $ 673,829
Accounts receivable - trade 448,078 105,468
Inventory 153,099 257,832
Prepaid expenses 177,149 227,745
Current portion of receivable on agreement for sale - 5,421
---------------------------
1,194,893 1,270,295
Note Receivable - 100,000
Trademark, net 7,843 8,788
Capital Assets, net 2,604,335 2,737,636
Web Site Development Costs, net 2,797 31,027
$ 3,809,868 $ 4,147,746
===================================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 1,971,048 $ 1,847,212
Current portion of promissory note 9,642 9,592
Deferred compensation on notes 2,921,587 2,762,808
-----------------------------
4,902,277 4,619,612
Promissory Note 1,029,822 1,030,718
-----------------------------
5,932,099 5,650,330
-----------------------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Capital Stock
Authorized:
62,500,000 common shares with a par value of $0.001
Issued and outstanding common shares:
June 30, 2002 - 25,843,065
December 31, 2001 - 25,127,020 25,843 25,127
Additional paid-in capital 23,697,273 23,439,124
Deferred Option Plan Compensation (204,783) (309,885)
Deficit (25,599,842) (24,618,078)
Accumulated Other Comprehensive Income (Loss) (40,722) (38,872)
-----------------------------
(2,122,231) (1,502,584)
-----------------------------
$ 3,809,868 $ 4,147,746
===================================================================================
ABLEAUCTIONS.COM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
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3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30 JUNE 30
2002 2001 2002 2001
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Revenues
Sales $ 1,387,444 $ 2,423,926 $ 2,834,638 $ 3,779,782
Commissions 723,660 808,709 1,976,224 1,769,132
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2,111,104 3,232,635 4,810,862 5,548,914
Cost Of Revenues 935,913 1,847,043 2,189,714 2,514,203
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Gross Profit 1,175,191 1,385,592 2,621,148 3,034,711
------------------------------------------------------
Expenses
Operating expenses (Note 3) 1,604,596 1,582,095 3,240,408 3,047,171
Amortization of goodwill - 74,320 - 145,575
Depreciation and amortization of capital assets 71,952 93,939 148,377 179,320
Interest on deferred compensation on notes 80,241 159,192 -
Interest on promissory note 23,898 30,057 47,760 47,388
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1,780,687 1,780,411 3,595,737 3,419,454
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Income (Loss) Before Other Items (605,496) (394,819) (974,589) (384,743)
Other Items
Interest income (3,266) 2,175 1,068 6,276
Foreign exchange gain (loss) (4,761) (957) (8,243) (1,552)
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(8,027) 1,218 (7,175) 4,724
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Income (Loss) From Continuing Operations (613,523) (393,601) (981,764) (380,019)
Loss On Disposition Of Subsidiaries - - - (431,082)
Loss From Discontinued Operations - - - (36,283)
------------------------------------------------------
Loss For The Period $ (613,523) $ (393,601) $ (981,764) $ (847,384)
==========================================================================================================
Basic And Diluted Loss Per Share
Income (Loss) from continuing operations $ (0.02) $ (0.02) $ (0.04) $ (0.02)
Loss for the period $ (0.02) $ - $ (0.04) $ (0.02)
==========================================================================================================
Weighted Average Number Of Shares Outstanding 25,485,042 20,976,661 25,276,114 20,976,661
==========================================================================================================
ABLEAUCTIONS.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
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6 MONTHS ENDED JUNE 30
2002 2001
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Cash Flows from Operating Activites
Income (loss) for the period from continuing operations $(981,764) $ (380,019)
Non-cash items included in net loss:
Depreciation and amortization 148,377 179,320
Amortization of goodwill - 145,575
Bad debts - 436
Interest on deferred compensation on notes 158,779 -
Stock based compensation 105,102 105,102
Shares issued for other than cash 94,122
---------------------------
(475,384) 50,414
Changes in operating working capital items:
(Increase) Decrease in accounts receivable (337,188) (165,419)
(Increase) Decrease in inventory 104,733 (333,150)
Increase (Decrease) in prepaid expenses 50,596 42,778
Increase (Decrease) in accounts payable and accrued 288,579 (8,075)
liabilities
---------------------------
Net cash used in operating activities (368,664) (413,452)
---------------------------
Cash Used in Discontinued Operations
Loss for the year from discontinued operations - (36,283)
Change in net assets of discontinued operations - 125,131
---------------------------
Net cash used in discontinued operations - 88,848
---------------------------
Cash Flows from Investing Activites
Purchase of capital assets, net 14,098 (53,591)
Proceeds on disposition of subsidiaries, net of cash divested - 23.207
Proceeds of receivable on agreement for sale - 4.404
Note receivable 100,000 -
---------------------------
NET CASH FROM (USED IN) INVESTING ACTIVITIES 114,098 (25,980)
---------------------------
Cash Flows from Financing Activites
Repayment of promissory note (846) (4,075)
---------------------------
Net cash from (used in) financing activities (846) (4,075)
---------------------------
Change in Cash And Cash Equivalents For The Period (255,412) (354,659)
Cash And Cash Equivalents, Beginning Of The Period 673,829 1,376,814
Effect Of Exchange Rates On Cash (1,850) 13,282
---------------------------
Cash And Cash Equivalents, End Of The Period $ 416,567 $1,035,437
==========================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
During the period ended June 30, 2002, the Company issued 716,045 common shares
in exchange for debt totalling $164,743, and services and compensation totalling
$94,122
ABLEAUCTIONS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
1. BUSINESS AND BASIS OF ORGANIZATION
Ableauctions.com, Inc. (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's primary business activity is as a high-tech
business-to-business and consumer auctioneer that conducts its auctions
live and simultaneously broadcasts 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.
The Company's primary operating subsidiaries at December 31, 2001 were:
Able Auctions (1991) Ltd., operating a Canadian-based auction
business.
Ableauctions.com (Washington) Inc., operating an U.S.-based auction
business.
Ehli's Commercial/Industrial Auctions, Inc., an U.S.-based liquidator
of automobiles and industrial equipment.
Icollector International Ltd., a Canadian-based Internet auction
facility.
Jarvis Industries Ltd., a Canadian-based auction house.
The unaudited consolidated financial statements of the Company at June 30,
2002 include the accounts of the Company and its wholly-owned subsidiaries,
and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the
interim period. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in these
interim statements under the rules and regulations of the Securities and
Exchange Commission ("SEC"). Accounting policies used in fiscal 2002 are
consistent with those used in fiscal 2001. The results of operations for
the six months period ended June 30, 2002 are not necessarily indicative of
the results for the entire fiscal year ending December 31, 2002. These
interim financial statements should be read in conjunction with the
financial statements for the fiscal year ended December 31, 2001 and the
notes thereto included in the Company's Form 10-KSB filed with the SEC on
April 23, 2001. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States.
ABLEAUCTIONS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
2. LIQUIDITY AND FUTURE OPERATIONS
The Company has sustained net losses and negative cash flows from operations
since its inception. At June 30, 2002 the Company has negative working capital
of $3,707,384. The Company's ability to meet its obligations in the ordinary
course of business is dependent upon its ability to establish profitable
operations and to obtain additional funding through public or private equity or
debt financing. Management is seeking to increase revenues though continued
marketing of its services; however, additional funding is required.
Management is working to obtain sufficient working capital from external sources
in order to continue operations. There is, however, no assurance that the
aforementioned events, including the receipt of additional funding, will occur
or be successful.
3. OPERATING EXPENSES
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3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30 JUNE 30
2002 2001 2002 2001
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OPERATING EXPENSES
Accounting and legal $ 86,102 $ 18,522 $ 102,336 $ 35,148
Advertising and promotion 238,791 276,639 519,624 534,588
Automobile 29,293 19,112 42,662 33,841
Bad debts 858 174 858 436
Commission 47,655 36,706 131,972 58,288
Consulting 83,458 88,078 127,477 191,614
Insurance 45,047 37,961 77,510 58,920
Investor relations and shareholder
information 19,234 19,734 1,176
Licenses and permits 1,158 616 1,158 1,610
Management fees 51,937 102,777 -
Office and administration 44,149 170,842 178,692 253,799
Rent and utilities 207,736 181,591 404,339 389,255
Repairs and maintenance 15,701 37,871 26,853 72,596
Salaries and benefits 656,109 651,099 1,347,669 1,296,542
Telephone 36,518 38,197 68,688 86,113
Travel 10,317 24,687 19,305 33,245
Website maintenance 30,533 68,754 -
-------------------------------------------------
Total operating expenses 1,604,596 1,582,095 3,240,408 3,047,171
=================================================
4. SUBSEQUENT EVENTS.
On July 17, 2002 the Company entered into an agreement to sell the Arizona
building for $1,700,000 and has moved its Tacoma, Washington operations into a
42,000 sq. ft. six acre auction facility that will now serve as the head office
for the Company. The selling price for the Company's Arizona property was
$1,700,000. The purchase price was paid $400,000 in cash, $1,000,000 by the
assumption of the mortgage on the property, and $300,000 in inventory with an
estimated value of $700,000 at retail and guaranteed to realize at least
$300,000 for the Company. This guarantee was secured with a charge against the
property.
5. STOCK OPTION PLAN
On May 28, 2002, the Company adopted the 2002 Consultant Stock Option Plan.
A total of 2,500,000 shares of common stock have been reserved to be issued
under the plan. As of June 30, 2002, no options had been granted under the
plan.
6. RELATED PARTY TRANSACTIONS
During the six month period ended June 30, 2002 the following related party
transactions occurred:
a) The Company paid rent of $51,460 to a company controlled by a director
and officer of the Company
b) The Company paid $76,238 in consulting fees to a company controlled by
a director and officer of the Company
c) Included in accounts payable is amount of $277,666 owing to a company
controlled by a director and officer of the Company
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The following discussion on our results of operations should be read in
conjunction with our audited consolidated financial statements and the related
notes for the year ended December 31, 2001. Our financial statements have been
prepared in accordance with United States generally accepted accounting
principles.
Results of Operations
Three Months Ended June 30, 2002 Compared To The Three Months Ended June 30,
2001.
Revenues. During the three months ended June 30, 2002, we had net auction
revenues of $2,111,104 compared to $3,232,635 during the same period in 2001, a
decrease of $1,121,531 or approximately 34.7%. Sales of goods were 65.7% of our
revenues during the three month period ended June 30, 2002, compared to 75.0%
during the three month period ended June 30, 2001. Due to cash flow constraints
in the latter part of 2001 and in 2002, we have not been in a position to
acquire as much inventory as our business plan had anticipated. As a result we
have conducted a larger proportion of our auctions on a consignment basis. We
anticipate that revenues from the sales of goods will increase as a percentage
of revenues, as we still plan to conduct a greater number of auctions using
inventory we purchase in buy-out situations, which generally results in higher
gross profit margins.
Operating Expenses. During the three month period ended June 30, 2002,
operating expenses were $1,780,687 as compared to $1,780,411 for the same
period in 2001. Operating expenses did not change compared to the corresponding
period in the previous year.
Personnel and consulting expenses were $839,159 or 47.2% of our operating
expenses during the three-month period ended June 30, 2002 as compared to
$775,883 or 43.5% of our operating expenses during the three-month period ended
June 30, 2001. These expenses consisted of salaries and benefits totaling
$656,109 as compared to $651,099 for the three month period ended June 30, 2001,
consulting and management fees $135,395 as compared to $88,078 for the three
month period ended June 30, 2001, and commissions totaling $47,655 as compared
to $36,706 for the three month period ended June 30, 2001. The increases in
personnel and consulting expenses are due to the increased payment of management
fees and the payment of severance as a result of our restructuring program.
During the three-month period ended June 30, 2002, advertising and promotion
expenses were $238,791 or 13.4% of our operating expenses as compared to
$276,639 or 15.3% of our operating expenses for the three-month period ended
June 30, 2001. Advertising expenses were lower as a result of our restructuring
program.
General overhead expense related to rent and utilities was $207,736 as compared
to $181,591 for the three month period ended June 30, 2001, telephone expense
was $36,518 as compared to $38,197 for the three month period ended June 30,
2001, travel expense related to operations was $10,317 as compared to $24,687
for the three month period ended June 30, 2001, repair and maintenance expense
was $15,701 as compared to $37,871 for the three month period ended June 30,
2001, automotive expense was $29,293 as compared to $19,112 for the three month
period ended June 30, 2001, insurance expense was $45,047 as compared to $37,961
for the three month period ended June 30, 2001 and office expense totaled
$44,149 as compared to $170,842 for the three month period ended June 30, 2001.
These expenses totaled $388,761, or 21.8% of our total operating expenses and
18.4% of our total revenue for the three month period ended June 30, 2002 as
compared to $510,261, or 28.6% of our total operating expenses and 15.8% of our
total revenue for the three month period ended June 30, 2001.
Professional fees were $86,102 during the three-month period ended June 30, 2002
as compared to $18,522 for the three-month period ended June 30, 2001.
Professional fees related to the preparation of our Securities Exchange Act
reports and American Stock Exchange filings and included professional fees
associated with the filing of an S-1 Registration Statement.
Depreciation and amortization expense was $71,952 for the three-month period
ended June 30, 2002 as compared to $93,939 for the three-month period ended June
30, 2001. Depreciation and amortization expense are lower than the previous
year as a result of the writing down of certain depreciable assets in 2001.
Gross Profit. Cost of goods sold was $935,913 for the three-month period ended
June 30, 2002 as compared to $1,847,043 for the three-month period ended June
30, 2001. Gross profit was $1,175,191 for the three month period ended June
30, 2002, or 55.7% of revenues, as compared to $1,385,592 for the three month
period ended June 30, 2001, or 42.8% of revenues.
Operating Income and Net Loss. For the quarter ended June 30, 2002, we realized
loss from operations of $605,496 as compared to $394,819 for the three month
period ended June 30, 2001. We realized an overall net loss for the quarter of
$613,523, or $0.02 per share as compared to an overall net loss of $393,601,
also $0.02 per share, for the period ended June 30, 2001.
Six Months Ended June 30, 2002 Compared To The Six Month Period Ended June 30,
2001.
Revenues. During the six months ended June 30, 2002, we had net auction
revenues of $4,810,862, compared to $5,548,914 during the same period in 2001, a
decrease of $738,052 or approximately 13.3%. Sales of goods were 58.9% of our
revenues during the six month period ended June 30, 2002, compared to 68.1%
during the same period in 2001. Due to cash flow constraints in the latter part
of 2001 and in 2002, we have not been in a position to acquire as much inventory
as our business plan had anticipated. As a result we have conducted a larger
proportion of our auctions on a consignment basis. We anticipate that revenues
from the sales of goods will increase as a percentage of revenues, as we still
plan to conduct a greater number of auctions using inventory we purchase in
buy-out situations, which generally results in higher gross profit margins.
Operating Expenses. During the six month period ended June 30, 2002, operating
expenses were $3,595,737, as compared to $3,419,454 for the six month period
ended June 30, 2001. Operating expenses are slightly higher than the
corresponding period in the previous year as a result of increased commissions,
which are variable as a result of the types of products purchased, increased
legal fees, and increased interest expense as a result of the deferred
compensation notes. We anticipate that overall operating expenses will decrease
for the rest of 2002 as a result of our restructuring program.
Personnel and consulting expenses were $1,709,895 or 47.6% of our operating
expenses during the six-month period ended June 30, 2002 as compared to
$1,546,444 or 45.2% of our operating expenses during the six-month period ended
June 30, 2001. These expenses consisted of salaries and benefits totaling
$1,347,669 as compared to $1,296,542 for the six month period ended June 30,
2001, consulting and management fees totaling $230,254 as compared to $191,614
for the six month period ended June 30, 2001, and commissions totaling $131,972
as compared to $58,288 for the six month period ended June 30, 2001. We
anticipate that such personnel and consulting expenses will decrease as a result
of our restructuring program to reduce overall operating expenses.
During the six-month period ended June 30, 2002, advertising and promotion
expenses were $519,624 or 14.5% of our operating expenses as compared to
$534,588 or 15.6% of our operating expenses for the six-month period ended June
30, 2001.
General overhead expense related to rent and utilities totaled $404,339 as
compared to $389,255 for the six month period ended June 30, 2001, telephone
expense totaled $68,688 as compared to $86,113 for the six month period ended
June 30, 2001, travel related to operations totaled $19,305 as compared to
$33,245 for the six month period ended June 30, 2001, repair and maintenance
expense totaled $26,853 as compared to $72,596 for the six month period ended
June 30, 2001, automotive expense totaled $42,662 as compared to $33,841 for the
six month period ended June 30, 2001, insurance expense totaled $77,510 as
compared to $58,920 for the six month period ended June 30, 2001 and office
expense totaled $178,692 as compared to $253,799 for the six month period ended
June 30, 2001. These expenses totaled $818,049, or 22.8% of our total operating
expenses and 17.0% of our total revenue for the six month period ended June 30,
2002 as opposed to $927,769, or 27.1% of our total operating expenses and 16.7%
of our total revenue for the six month period ended June 30, 2001.
We anticipate that general overhead as a percentage of operating expenses and
total revenue will further decrease in future periods as we achieve certain
economies from our operations. The overall level of general overhead expenses
in dollars is expected to decrease as a result of our restructuring program.
Professional fees were $102,336 during the six-month period ended June 30, 2002
as compared to $35,148 for the six-month period ended June 30, 2001.
Professional fees related to preparation of our Securities Exchange Act reports
and American Stock Exchange filings. They also included fees associated with
the filing of an S-1 Registration Statement. Professional fees are expected to
remain constant in 2002 unless we make future acquisitions.
Depreciation and amortization expense was $148,377 for the six-month period
ended June 30, 2002 as compared to $179,320 for the six-month period ended June
30, 2001. Depreciation and amortization expense is lower than the previous
year as a result of the writing down of certain depreciable assets in 2001.
Gross Profit. Cost of goods sold was $2,189,714 for the six-month period ended
June 30, 2002 as compared to $2,514,203 for the six-month period ended June 30,
2001. Gross profit was $2,621,148 for the six month period ended June 30, 2002,
or 54.5% of revenues, as compared to $3,034,711 for the six month period ended
June 30, 2001, or 54.7% of revenues. Until we developed our inventory
procurement model, normal gross margins were approximately 25% to 50% overall.
We believe gross profits will increase in future periods as we realize the
benefits of our inventory procurement model by buying large quantities of
discount merchandise and distributing this merchandise to our various outlets.
Operating Income and Net Loss. For the quarter ended June 30, 2002, we realized
A loss from operations of $974,589 as compared to a loss of $384,743 for the six
month period ended June 30, 2001. We realized an overall net loss for the
quarter ended June 30, 2002 of $981,764 or $0.04 per share as compared to
$847,384 or $0.02 per share for the six month period ended June 30, 2002.
We believe that our operations will become profitable. We believe that we will
incur overall losses in the near future if we are able to obtain additional
financing to expand the development and marketing of our Internet technology.
The losses will equal the excess technology development and marketing over the
income from operations. If we are unable to obtain additional financing, no
significant technology development and marketing will be undertaken in the near
term.
Liquidity and Capital Resources
Our working capital position at June 30, 2002 was a negative of $3,707,384. We
had cash and cash equivalents of $416,657, accounts receivables of $448,078,
inventory of $153,099, and prepaid expenses of $177,149 at June 30, 2002. We
anticipate that trade accounts receivables and inventory may decrease during the
remainder of fiscal 2002 as a result of our restructuring program. Cash flow
used for operating activities required $368,664 during the quarter ended June
30, 2002. We anticipate that cash will remain constant for 2002 until our
auction business becomes profitable. Our cash resources may decrease if we
complete additional acquisitions during 2002, or if we are unable to maintain
positive cash flow from our business through 2002. We intend to continue our
acquisition program only if additional financing is available.
Cash flow from investing activities during the quarter ended June 30, 2002
generated $114,098. This is mainly due to the repayment of a note receivable.
Net cash flow from financing activities during the quarter ended June 30, 2002
was $846. This is mainly due to re-payments on the principal portion of the
promissory note on our Scottsdale property.
We have reduced our operating and capital budget from $1 million, as stated in
our 2001 annual report, to $750,000. We intend to concentrate our resources on
achieving profitability during 2002. Management has suspended its acquisition
and expansion plans until additional financing is available on acceptable terms
and has reduced budgeted expenditures related to development and technology
upgrades. We believe that revenues from our operations and current working
capital will be sufficient to satisfy our working capital needs for the
remainder of 2002.
Subsequent Event
Only July 17, 2002, the Company entered into an agreement to sell its Arizona
building for $1,700,000 and has moved its Tacoma, Washington operations into a
42,000 sq ft. six acre auction facility that will now serve as the headquarters
for the Company.
The selling price for the Company's Arizona property was $1,700,000. The selling
price was paid as follows: $400,000 was paid in cash; $1,000,000 was paid by the
assumption of the mortgage on the property, and the balance of $300,000 was paid
in inventory with an estimated value of $700,000 at retail and guaranteed to
have a value of $300,000 to the Company, which guarantee was secured by a charge
against the building.
Issuance of Additional Shares
During the period ended June 30, 2002, the Company issued 716,045 common shares
in exchange for debt totaling $164,743, and services and compensation totaling
$94,122.
Stock Option Plan
On May 28, 2002, the Company adopted the 2002 Consultant Stock Option Plan. A
total of 2,500,000 shares of common stock have been reserved to be issued under
the plan. As of June 30, 2002, no options had been granted under the plan.
Outlook
We believe that we have created an infrastructure, Internet technology, and
inventory procurement model that will realize significant benefits in the
future. We intend to complete additional acquisitions during 2002, subject to
obtaining additional financing to complete these transactions. We anticipate
that we will be required to raise an additional $8 million to $15 million to
adequately fund the acquisitions and to satisfy our operating and capital budget
for 2002. In the event we are unable to obtain additional financing, we intend
to concentrate our resources on our existing operations.
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 do so and 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, the revenues from our auction operations, the success of our
geographical expansion, the availability of financing on acceptable terms, the
reliability of the assumptions of management in estimating costs, costs related
to the development of our web site and technologies, economic conditions and
competitive factors in the auction industry.
Plan of Operation
Our plan of operation is based on the operating history of Able Auctions (1991)
Ltd., our operating history, our experience in the industry, and our discussions
with third parties, the SEC filings of our competitors and the decisions of our
management. Set out below is a summary of our plan of operation and operating
budget for the remainder of the fiscal year ending December 31, 2002.
We will continue generating revenues through auctions and will attempt to
increase our volume of sales by increasing the number of live auctions at our
existing locations
We will continue to operate auctions at our 4 locations in Surrey and Coquitlam,
British Columbia; Fyfe, Washington; and San Mateo, California. We also hold
auctions at customer locations in bankruptcies and insolvencies. We hold, on
average, approximately 20 live auctions per month.
We will attempt to increase revenues by broadcasting our auctions on the
Internet and by selling merchandise on our web site
We launched our web site for public viewing in September 1999 and broadcasted
our first live auction in January 2000. We are in the process of further
refining the technologies related to broadcasting live auctions on our web site.
We intend to broadcast auctions from all our locations on an alternating basis.
We may add auctions of other auction houses if we acquire additional auction
locations or if we develop strategic affiliations with other auction houses to
broadcast their auctions.
Continue research and development to improve our web site and auction
broadcasting technologies
We plan to continue our research and development efforts to improve our web site
and auction broadcasting technologies. We are in the process of refining our
live auction broadcasting technologies and intend to develop software and
systems that will allow us to improve graphical presentations, the speed of our
bidding process, the preview of merchandise and the method of registering
bidders. We anticipate that we will spend approximately $200,000 on research
and development efforts during fiscal 2002, subject to securing additional
financing.
We intend to geographically expand by acquiring or entering into strategic
affiliations with auction companies
We intend to broadcast the auctions of other auction houses from a variety of
locations throughout North America. We also intend to license our software to
other auction companies and commence marketing efforts in the remainder of 2002.
Our management also intends to continue to identify possible auction companies
to enter into marketing strategic relationships.
Hire additional key personnel
We anticipate adding up to 15 new employees with e-commerce, software
development, and software maintenance experience during 2002 to manage and
market our iCollector division. The hiring of these employees will be subject
to the Company obtaining additional financing.
Summary of Operating and Capital Budget
Set forth below are our estimated cash operating and capital budgets for
operations, technology purchases, research and development and implementing our
expansion strategy for the remainder of the fiscal year ending December 31,
2002:
Marketing $ 250,000
Ongoing research and development 200,000
Expansion of inventories 200,000
Servers and operating systems 100,000
-------------
Required Capital: $750,000
As of June 30, 2002, we had a working capital deficit of approximately $3.7
million, including current liabilities related to deferred compensation notes in
the principal amount of $2.7 million issued in connection with our acquisition
of iCollector. These deferred compensation notes are convertible at our option
into common shares at $1.43 per share, subject to shareholder approval. We
intend to convert these notes into common shares if we cannot raise additional
capital on acceptable terms to fund payment of the notes and our working capital
requirements. We cannot assure you that our actual expenditures for that period
will not exceed our estimated operating budget. Actual expenditures will depend
on a number of factors, some of which are beyond our control, including, among
other things, the availability of financing on acceptable terms, if at all,
acquisition and/or expansion costs, and the reliability of the assumptions of
management in estimating the budgets.
In the event we determine that we may be unable to meet our on-going capital
commitments, we may take some or all of the following actions:
- reduce expenditures on research and development;
- reduce sales and marketing expenditures;
- reduce general and administrative expenses through lay offs or
consolidation of our operations;
- suspend operations that are not economically profitable; or
- sell assets, including licenses to our technologies.
Political and Economic Uncertainties
Our business and our ability to raise additional financing may be adversely
affected by political and economic risks and uncertainties. The general
economic slow down in the United States and Europe may adversely affect the
demand for products offered at our auctions. The events of September 11, 2001
and the political uncertainty in the Middle East may negatively affect the
general economy, the capital markets and our ability to raise capital on
acceptable terms, if at all. There can be no assurance that the Company will be
able to increase our revenues from operations or to raise sufficient financing
to meet our on-going obligations on acceptable terms, if at all. We also cannot
assure you we will successfully integrate the iCollector operations into our
business or that economic uncertainties will not have a material adverse affect
on our business and results of operations.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We believe that we do not have any material exposure to interest or commodity
risks. We are exposed to certain economic and political changes in international
markets where we compete, such as inflation rates, recession, foreign ownership
restrictions, domestic and foreign government spending, budgetary and trade
policies and other external factors over which we have no control.
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. In the past the majority of our revenues were derived from the business
operations of our wholly-owned subsidiary, Able Auctions (1991) Ltd., whose
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.
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual general meeting on June 27, 2002. At that meeting,
Abdul Ladha, Barrett E. G. Sleeman, Dr. David Vogt and Michael Boyling were
elected to the Board of Directors. The Shareholders also approved Morgan &
Company as the Company's independent auditor for the 2002 fiscal year.
The shareholders defeated a resolution to reverse-split the Company's common
stock.
The shareholders approved the change of the Company's name.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.1 Purchase and Sale Agreement for Arizona
Property. (Filed herewith)
99.1 Certification by Chief Executive Officer and Chief Financial
Officer. (Filed herewith.)
b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABLEAUCTIONS.COM INC.
Date: August 13, 2002 By: /s/ ABDUL LADHA
Name: Abdul Ladha
Title: President & Chief Executive
Officer (Principal Executive Officer)
Date: August 13, 2002 By: /s/ DANIEL LI
Name: Daniel Li
Title: Chief Financial Officer
(Principal Financial Officer)