UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended September 30, 2009
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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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 incorporation or organization) | (I.R.S. Employer Identification No.) |
Suite
454 - 4111 Hastings Street
Burnaby
BC V5C 6T7 Canada
(Address
of principal executive offices)
604-293-3933
(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 o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No o [The registrant is not
currently subject to this requirement.]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller
reporting company x
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Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o; No x
The
number of outstanding common shares, $ .001 par value, of the registrant at
November 13, 2009 was 8,144,197.
ABLEAUCTIONS.COM,
INC.
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Page
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PART
I. FINANCIAL INFORMATION
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ITEM
1.
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F-2
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F-3
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F-4
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F-5
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F-6
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ITEM
2.
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3
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ITEM
3.
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11
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ITEM
4.
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11
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PART
II. OTHER INFORMATION
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ITEM
1.
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12
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ITEM
1A.
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12
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ITEM
2.
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12
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ITEM
3.
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12
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ITEM
4.
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12
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ITEM
5.
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12
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ITEM
6.
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12
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12
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13
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Item
1. FINANCIAL STATEMENTS
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
CONSOLIDATED
BALANCE SHEET
(Unaudited)
| SEPT 30 |
DEC
31
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|||||||
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2009
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2008
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|||||||
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ASSETS
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||||||||
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Current
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||||||||
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Cash and cash equivalents
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$ | - | $ | 223,592 | ||||
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Accounts receivable – trade, net of allowance
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437,768 | 545,740 | ||||||
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Employee
receivable
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342,266 | 248,072 | ||||||
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Mortgages and loans receivable
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1,907,229 | 2,294,745 | ||||||
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Inventory
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239,247 | 666,138 | ||||||
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Prepaid expenses
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49,823 | 63,841 | ||||||
| 2,976,333 | 4,042,128 | |||||||
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Deposits
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363,663 | 320,558 | ||||||
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Property
and Equipment
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95,127 | 118,712 | ||||||
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Property
Held for Sale
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2,429,255 | 2,193,475 | ||||||
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Property
Held for Development
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17,157,004 | 8,520,055 | ||||||
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Investment
in Joint Venture
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1,390,871 | 1,223,728 | ||||||
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Investment
in Surrey City Central
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1,877,085 | 1,671,638 | ||||||
| $ | 26,289,338 | $ | 18,090,294 | |||||
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LIABILITIES
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Current
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||||||||
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Bank indebtedness
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$ | 4,743 | $ | - | ||||
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Accounts payable and accrued liabilities
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220,683 | 519,043 | ||||||
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Due
to related parties
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105,028 | 1,363,765 | ||||||
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Bank
loan
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15,200,082 | 6,367,756 | ||||||
| 15,530,536 | 8,250,564 | |||||||
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STOCKHOLDERS’
EQUITY
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||||||||
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Capital
Stock
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||||||||
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Authorized:
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||||||||
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100,000,000 common shares with a par value of $0.001
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||||||||
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Issued
and outstanding:
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||||||||
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8,114,197
common shares at September 30, 2009
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5,906,957 common shares at December 31, 2008
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8,114 | 5,907 | ||||||
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Additional
paid-in capital
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38,891,314 | 37,903,221 | ||||||
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Deficit
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(29,277,878 | ) | (28,152,681 | ) | ||||
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Accumulated
Other Comprehensive Income
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1,137,252 | 83,283 | ||||||
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Treasury
Stock, at cost
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- | - | ||||||
| 10,758,802 | 9,839,730 | |||||||
| $ | 26,289,338 | $ | 18,090,294 | |||||
CONSOLIDATED
STATEMENT OF OPERATIONS
(Unaudited)
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3
MONTHS ENDED
September 30
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9
MONTHS ENDED
September 30
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2009
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2008
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2009
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2008
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Net
Revenues
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||||||||||||||||
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Sales
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$ | 244,430 | $ | 604,486 | $ | 1,436,564 | $ | 2,252,233 | ||||||||
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Cost
Of Revenues
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413,993 | 845,723 | 1,179,102 | 1,846,805 | ||||||||||||
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Gross
Profit
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(169,563 | ) | (241,237 | ) | 257,462 | 405,428 | ||||||||||
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Investment
Income
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84,762 | 81,550 | 220,583 | 155,253 | ||||||||||||
| (84,801 | ) | (159,687 | ) | 478,045 | 560,681 | |||||||||||
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Expenses
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Operating expenses
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523,434 | 655,955 | 1,504,284 | 1,869,516 | ||||||||||||
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Depreciation and amortization
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23,493 | 26,316 | 62,084 | 115,375 | ||||||||||||
| 546,927 | 682,271 | 1,566,368 | 1,984,891 | |||||||||||||
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(Loss)
Income from Operations
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(631,728 | ) | (841,958 | ) | (1,088,323 | ) | (1,424,210 | ) | ||||||||
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Other
Items
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||||||||||||||||
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Share of net income (loss) of joint venture
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| 435 | (9,025 | ) | (5,380 | ) | (16,588 | ) | ||||||||||
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Settlement of legal claim
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- | - | - | (65,035 | ) | |||||||||||
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Gain on Sale of Asset
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- | 3,423 | ||||||||||||||
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Impairment of asset
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(321,612 | ) | (321,612 | ) | ||||||||||||
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Foreign exchange gain
(loss)
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(34,861 | ) | (11,383 | ) | (34,917 | ) | (7,735 | ) | ||||||||
| (34,426 | ) | (342,020 | ) | (36,874 | ) | (410,970 | ) | |||||||||
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Income
(Loss) For The Period
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$ | (666,154 | ) | $ | (1,183,978 | ) | $ | (1,125,197 | ) | $ | 1,835,180 | |||||
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Basic
(loss) Earnings per Share
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$ | (0.09 | ) | $ | (0.24 | ) | $ | (0.18 | ) | $ | (0.37 | ) | ||||
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Diluted
(loss) Earnings per Share
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$ | (0.09 | ) | $ | (0.24 | ) | $ | (0.18 | ) | $ | (0.37 | ) | ||||
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Weighted
Average Number Of Shares Outstanding:
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Basic
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7,373,261 | 4,906,365 | 6,319,857 | 4,975,963 | ||||||||||||
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Diluted
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7,373,261 | 4,906,365 | 6,319,857 | 4,975,963 | ||||||||||||
ABLEAUCTIONS.COM,
INC.
(Unaudited)
| 3
MONTHS ENDED
SEPTEMBER
30
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9
MONTHS ENDED
SEPTEMBER
30
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2009
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2008
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2009
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2008
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(Loss)
Income for the Period
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$ | (666,154 | ) | $ | (1,183,978 | ) | $ | (1,125,197 | ) | $ | (1,835,180 | ) | ||||
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Other Comprehensive (Loss)
Income, net of tax
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Foreign currency translation adjustments
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709,452 | (613,602 | ) | 1,053,969 | (944,587 | ) | ||||||||||
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Consolidated
Comprehensive (Loss) Income
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$ | 43,298 | $ | (1,797,580 | ) | $ | (71,228 | ) | $ | (2,779,767 | ) | |||||
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Basic
Comprehensive (Loss) Income per Share
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$ | 0.01 | $ | (0.37 | ) | $ | (0.01 | ) | $ | (0.56 | ) | |||||
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Diluted
Comprehensive (Loss) Income per Share
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$ | 0.01 | $ | (0.37 | ) | $ | (0.01 | ) | $ | (0.56 | ) | |||||
ABLEAUCTIONS.COM,
INC.
(Unaudited)
| 9 MONTHS ENDED SEPTEMBER 30 | ||||||||
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2009
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2008
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Cash
Flows From Operating Activities
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Income (Loss) for the period from continuing operations
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$ | (1,125,197 | ) | $ | (1,835,180 | ) | ||
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Non-cash items included in net Income:
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Depreciation
and amortization
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62,084 | 115,375 | ||||||
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Stock
based compensation
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- | 20,625 | ||||||
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Gain
on sales of asset
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(3,423 | ) | - | |||||
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Inventory
write down
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200,000 | |||||||
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Impairment
of asset
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321,612 | |||||||
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Joint
Venture (Income) loss
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5,380 | 16,588 | ||||||
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Changes
in operating working capital items:
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||||||||
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(Increase)
Decrease in accounts receivable
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146,952 | 319,050 | ||||||
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(Increase)
Decrease in inventory
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230,731 | 231,326 | ||||||
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(Increase)
Decrease in prepaid expenses
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14,018 | (15,671 | ) | |||||
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(Increase)
Decrease in employee receivable
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(94,194 | ) | (56,048 | ) | ||||
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Increase
(Decrease) in accounts payable and accrued liabilities
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(305,479 | ) | (227,315 | ) | ||||
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Increase (Decrease) in deferred revenue
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- | (8,450 | ) | |||||
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Net cash (used in) from operating activities
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(869,128 | ) | (1,118,088 | ) | ||||
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Cash
Flows From Investing Activities
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||||||||
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Purchase (sale) of property and equipment, net
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2,599 | (27,654 | ) | |||||
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Purchase of property held for development
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(6,596,347 | ) | (3,423,850 | ) | ||||
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Loan advances
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(100,000 | ) | (2,200,644 | ) | ||||
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Loan repayment
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735,071 | 390,960 | ||||||
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Investment in joint venture
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(4,670 | ) | ||||||
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Investment
in surrey city central
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(205,447 | ) | - | |||||
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Other receivables
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- | 215,067 | ||||||
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Deposits
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- | (4,000 | ) | |||||
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Net
cash from (used in) Investing Activities
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(6,168,794 | ) | (5,050,121 | ) | ||||
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Cash
Flows From Financing Activities
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Proceed
from Bank Loan
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6,995,794 | 5,062,300 | ||||||
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Repayment
to related parties
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(177,079 | ) | - | |||||
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Advances from Director
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- | 935,209 | ||||||
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Purchase
of Treasury Stock
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(49,974 | ) | (374,304 | ) | ||||
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Proceeds
from issuance of capital stock, net
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- | (50,701 | ) | |||||
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Net
cash from (used in) financing activities
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6,768,741 | 5,572,504 | ||||||
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Effect
of Exchange Rates On Cash
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40,846 | (35,265 | ) | |||||
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Change
in Cash and Cash Equivalents For The Period
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(269,181 | ) | (595,705 | ) | ||||
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Cash
And Cash Equivalents, Beginning of Period
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223,592 | 1,594,657 | ||||||
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Cash
And Cash Equivalents (Bank Indebtedness), End Of Period
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$ | (4,743 | ) | $ | 963,687 | |||
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 provides liquidation and merchandising services along with auction and
point-of-sale technology to businesses to assist them with managing the sale of
their products. In
the past the Company provided the online auction technology and point-of-sale
services directly to its customers. Effective June 8, 2009, the
Company licensed its point-of-sale and online auction operations to third
parties in providing these services.
The
Company also provides mortgages and loans to individuals and companies, and
develops real estate property. The Company classifies its business interests
into four reportable segments: Auction, Liquidation & Technology Business:
consisting principally of liquidation and merchandizing services; Mortgages and
Loans: consisting of mortgages, loans and other investments Real Property &
Property Development: consisting principally of properties held for development
and a segment we call Other, which includes our remaining operations.
Financial information for Ableauctions.com’s various reportable segments is
presented in Note 13.
The
Company's operating subsidiaries are:
Unlimited
Closeouts, Inc., a U.S. based liquidation business.
Jarvis
Industries Ltd., a Canadian based liquidation business
Icollector.Com
Technologies Ltd., a Canadian based Internet auction facility.
Rapidfusion
Technologies Inc., a Canadian based Internet auction business.
Gruv
Development Corporation, a Canadian based real estate
Axion
Investment Corp., a Canadian based investment business.
1963
Lougheed Holdings Ltd., a Canadian based real estate holding
company
AAC
Holdings Ltd., a Canadian-based holding company (incorporated on April 24,
2007)
0716590
B.C. Ltd., a Canadian based real estate holding company
The
unaudited consolidated financial statements of the Company at September 30, 2009
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 2009 are consistent with
those used in fiscal 2008. The results of operations for the nine
month period ended September 30, 2009 are not necessarily indicative of the
results for the entire fiscal year ending December 31, 2009. These
interim financial statements should be read in conjunction with the financial
statements for the fiscal year ended December 31, 2008 and the notes thereto
included in the Company’s Form 10K filed with the SEC on March 25,
2009. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United
States.
The
Company has evaluated subsequent events through the date that the financial
statements were issued on November 12, 2009.
Accounting
changes
Effective
January 1, 2009, we adopted revised standards for business
combinations. These revised standards generally require an entity to
recognize the assets acquired, liabilities assumed, contingencies, and
contingent consideration at their fair value on the acquisition date. In
circumstances where the acquisition-date fair value for a contingency cannot be
determined during the measurement period and it is concluded that it is probable
that an asset or liability exists as of the acquisition date and the amount can
be reasonably estimated, a contingency is recognized as of the acquisition date
based on the estimated amount. It further requires that acquisition-related
costs be recognized separately from the acquisition and expensed as incurred,
restructuring costs generally be expensed in periods subsequent to the
acquisition date, and changes in accounting for deferred tax asset valuation
allowances and acquired income tax uncertainties after the measurement period
impact income tax expense. In addition, acquired in-process research and
development is capitalized as an intangible asset and amortized over its
estimated useful life. These new standards are applicable to business
combinations on a prospective basis beginning in the first quarter of 2009. We
did not complete any business combinations in the period ended September 30,
2009.
In the
first quarter of 2009, we adopted new standards that specified the way in which
fair value measurements should be made for non-financial assets and
non-financial liabilities that are not measured and recorded at fair value on a
recurring basis, and specified additional disclosures related to these fair
value measurements. The adoption of these new standards did not have a
significant impact on our consolidated financial statements.
In the
second quarter of 2009, we adopted new standards that provide guidance on how to
determine the fair value of assets and liabilities when the volume and level of
activity for the asset/liability has significantly decreased. These new
standards also provide guidance on identifying circumstances that indicate a
transaction is not orderly. In addition, the standards require disclosure in
interim and annual periods of the inputs and valuation techniques used to
measure fair value and a discussion of changes in valuation techniques. The
adoption of these new standards did not have a significant impact on our
consolidated financial statements.
In the
second quarter of 2009, we adopted new standards for the recognition and
measurement of other-than-temporary impairments for debt securities that
replaced the pre-existing “intent and ability” indicator. These new standards
specify that if the fair value of a debt security is less than its amortized
cost basis, an other-than-temporary impairment is triggered in circumstances
where (1) an entity has an intent to sell the security, (2) it is more
likely than not that the entity will be required to sell the security before
recovery of its amortized cost basis, or (3) the entity does not expect to
recover the entire amortized cost basis of the security (that is, a credit loss
exists). Other-than-temporary impairments are separated into amounts
representing credit losses, which are recognized in earnings, and amounts
related to all other factors, which are recognized in other comprehensive income
(loss). The adoption of these new standards did not have a significant impact on
our consolidated financial statements.
2.
MORTGAGES
& LOANS RECEIVABLE
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September
30, 2009
|
December
31, 2008
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i)
Loan advanced originally in the amount of $115,000 CAD and increased to
$125,000 CAD, bears interest at 10.9% per annum (receivable at $1,064
($1,135 CAD) per month), with the principal due for repayment on January
31, 2009, and secured by a mortgage on the property of the
borrower. The loan was extended month-to-month pending
renewal. The loan was repaid on May 15, 2009.
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- | 102,627 | ||||||
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ii)
Loan advanced in the amount of $230,000 CAD, bears interest at 10% per
annum (receivable at $1,797 ($1,917 CAD) per month), with the principal
due for repayment on April 4, 2007. The loan was subsequently
renewed under the same terms and is due for repayment on February 9,
2010. The loan is secured by a mortgage on the property of the
borrower and a General Security Agreement. The loan was repaid on July 17,
2009.
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- | 188,834 | ||||||
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iii)
Loan advanced to an employee in the amount of $55,000 CAD, bears interest
at 10% per annum (receivable at $429 ($458 CAD) per month), with the
principal due for repayment on February 9, 2009, and secured by a mortgage
on the property of the borrower and a personal guarantee of the
borrower. The loan was extended month-to-month pending
renewal. The loan was repaid on August 24,
2009.
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- | 45,156 | ||||||
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iv)
Loan advanced in the amount of $140,000 CAD, bears interest at 15% per
annum (receivable at $1,640 ($1,750 CAD) per month), with the principal
due for repayment on March 31, 2008, and secured by a mortgage on the
property of the borrower. The loan is in default and
foreclosure is pending.
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130,756 | 114,943 | ||||||
2. MORTGAGES
& LOANS RECEIVABLE(Continued)
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v)
Loan advanced on August 7, 2007 in the amount of $45,000 CAD, bears
interest at 9.75% per annum (receivable at $312 ($333 CAD) per month),
with the principal due for repayment on August 8, 2008, and secured by a
mortgage on the property of the borrower and personal
guarantees. The loan is in default and is in
foreclosure.
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42,028 | 36,946 | ||||||
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viii)
Loan advanced in the amount of $450,000 CAD, bears interest at 9.5% per
annum (receivable at $3,685 ($3,932 CAD) per month), with the principal
due for repayment on January 27, 2009, and secured by a mortgage on the
property of the borrower. The loan was extended month-to-month
pending renewal. The loan was repaid on July 16, 2009.
|
- | 369,458 | ||||||
|
ix)
Loan advanced in the amount of $1,750,000 CAD, bears interest at 12% per
annum (receivable at $16,400 ($17,500 CAD) per month), with the principal
due for repayment on July 17, 2009, and secured by a mortgage on the
property of the borrower. The loan was repaid on October 1,
2009.
|
1,634,445 | 1,436,781 | ||||||
|
ix)
Loan advanced in the amount of $100,000 pursuant to the Bridge Investment
Agreement entered into with certain investors as of March 5, 2009, to
provide bridge financing in connection with an acquisition. The
loan is repayable upon closing of the acquisition
transaction.
|
100,000 | - | ||||||
|
|
$ | 1,907,229 | $ | 2,294,745 |
3. RELATED
PARTY TRANSACTIONS
|
a)
|
During
the nine month period ended September 30, 2009, the Company incurred
$117,000 (2008: $117,000) in management fees to an officer of the
Company.
|
|
b)
|
At
September 30, 2009, a balance of $342,266 (December 31, 2008: $248,072) is
owing from an employee to the Company as a result of overpayments in
commissions, which will be offset by commissions to be paid in the
following quarters.
|
|
c)
|
During
the periods ended September 30, 2009 and 2008, the Company marketed
condominium units being developed in Surrey using the brand name “Overture
LivingTM”. The
mark, “Overture Living™” belongs to Abdul Ladha, the Company’s
President. Mr. Ladha did not receive compensation for the use
of this mark.
|
3. RELATED PARTY
TRANSACTIONS (Continued)
|
d)
|
On
August 19, 2008, the Company’s President entered into an Agreement to
Convert Debt with the Company. Pursuant to the Agreement, the
President agreed to accept units consisting of 1 share of the common stock
and a warrant to purchase 1.5 shares of the common stock as partial
payment of loans made to the Company. Pursuant to the
Agreement, the President accepted units consisting of 400,000 shares of
common stock and warrants for the purchase of 600,000 shares of common
stock as full payment of $384,000 in principal amount of the loans. The
number of units to be issued was computed by using the last sale price of
the Company’s common stock on August 19, 2008, which was
$0.96. The warrant exercise price is $1.08 and the warrant term
is 5 years. The agreement was subject to the approval of the
NYSE Amex (formerly the American Stock Exchange), which was received on
October 2, 2008. On October 6, 2008, the shares were issued and
all the warrants were exercised by the President, resulting in the
issuance of 1,000,000 common
shares.
|
|
e)
|
As
described in Note 6, the Company acquired a 50% interest in Surrey Central
City Holdings Ltd. (referred to as “Surrey”), from Bullion Reef Holdings
Ltd., an entity controlled by our President, Abdul Ladha, for a total
investment of $1,877,085 which was paid partially in cash and
partially with a promissory note. Bullion assigned
the right to collect $1,000,000 of the promissory note, plus accrued
interest, to Mr. Ladha and his spouse, Hanifa Ladha. On July
29, 2009, Mr. and Mrs. Ladha each converted his or her interest in the
promissory note, which is more fully described in Note 6, into 1,204,021
shares of the Company’s common stock, which represented a conversion by
each of them of $500,000 in principal amount and $20,137 in accrued
interest. As of September 30, 2009, $105,028 remained owing to Bullion
Reef Holdings Ltd. for the cash portion of the purchase
price.
|
4. PROPERTY
HELD FOR DEVELOPMENT
On August
3, 2005, the Company entered into a Contract of Purchase and Sale (the
“Agreement”) for property located at 9655 King George Highway, Surrey, British
Columbia (the “Property”). The Agreement was subject to the Company’s
satisfactory investigation of the development potential of the
Property. This investigation was completed on August 9, 2005, at
which time the Company released to the seller, Imara Venture Ltd. (the
“Seller”), a down payment of $41,195 to be credited against a total purchase
price of $1,270,000. The remaining balance was paid in cash on August
15, 2005. The purchase price was negotiated between the Company and
the Seller, who were not related to each other.
The
Company’s subsidiary Axion Investment Corp, is developing this property which
consists of approximately 1.46 acres that is zoned for mixed commercial and
residential use. Axion is developing the Property through the Company’s
wholly owned subsidiary, Gruv Development Corporation, by improving it with a
retail facility of approximately 4,326 square feet and with a residential
complex of approximately 91,132 square feet which will consist of 111
condominiums (the “Development”).
F-10
4. PROPERTY HELD FOR
DEVELOPMENT (Continued)
On March
16, 2007, the Company filed a disclosure statement with the Superintendent of
Real Estate under the Real Estate Development Marketing Act of British Columbia
to pre-sell the units. The Company engaged the services of Platinum
Project Marketing Group and Macdonald Realty Ltd. (the “Agent”) to market the
strata lots and, by May 9, 2007, the Company had entered into agreements to
pre-sell 100% of the condominiums prior to construction and collected
approximately $1.92 million ($2.34 million CAD) in deposits that are being held
in trust with the Agent.
If the
Company is successful in closing all its existing purchase contracts for the
condominiums and selling all its commercial units, it expects to receive sale
proceeds of approximately $22.1 million ($25.4 million CAD). The Agent has been
paid $341,446 ($366,749 CAD) for services provided to date. The Company is
committed to additional commissions and bonuses to be paid in the amount of
$600,082 ($689,750 CAD) upon the successful completion of the sales and transfer
of the strata lots.
After
receiving a building permit from the City of Surrey the Company advanced
performance bonds for service and work totaling $320,558 ($384,833 CAD) to the
City of Surrey, as commitment for the development. On satisfactory
completion of the intended service and work, the City of Surrey will refund the
deposits to the Company.
On
February 15, 2008, the Company entered into a construction management contract
with Cantera Management Group Ltd. (“Cantera”) to manage the development of the
project. In consideration for its services, the Company has agreed to pay
Cantera a fixed fee of $454,024 ($553,000 CAD) over the term of the contract
calculated on a percentage of completion basis.
On March
12, 2008, the Company obtained an updated conditional credit facility from the
Royal Bank of Canada for the Development in the amount of $14.28 million ($16.42
million CAD).
The
credit facility is secured by guarantees from Axion Investment Corporation and
Ableauctions.com Inc., by a general security agreement covering the assets of
Axion and by the property. The advances accrue interest at the prime
rate set by Royal Bank of Canada plus .75% per annum, payable monthly. A fee of
$47,073 ($48,000 CAD) was advanced to the Royal Bank of Canada for the
arrangement of this credit facility.
4. PROPERTY HELD FOR
DEVELOPMENT (Continued)
The
credit facility was granted subject to a number of conditions, including
appraisal of the project, the submission of an environmental report, the
submission of a soils report, confirmation of permits and approvals, engagement
of a project monitor, submission of a schedule of pre-sales contracts, the
purchase of insurance, expenditures of approximately $4.75 million ($4.84
million CAD) on the Development including the cost of the land, and fixed price
contracts for at least 50% of the project’s hard construction costs prior to the
initial draw and 80% by December 2008. Axion met all the conditions of the
construction credit facility by December 2008.
As of
September 30, 2009 draws totalling $13,388,097 ($14,334,635 CDN) had been made
against the credit facility. Borrowings are to be repaid from the net
sales proceeds received on the closing of sales of units in the
Development. In any event, all borrowings must be repaid in full by
December 31, 2009.
On
September 30, 2009 the construction of the Gruv Development was substantially
complete and a conditional occupancy permit was received from the City of
Surrey. On November 6, 2009, the final occupancy permit was received and as of
November 9, 2009, 82 of the 111 purchase contracts have been successfully closed
and funds totaling $17,994,313 CAD have been received. $15,076,061 CAD of the
credit facility provided by the Royal Bank has been
repaid.
5. INVESTMENT
IN JOINT VENTURE
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a)
|
On
July 14, 2006 Axion Investment Corp. (“Axion”), a wholly-owned subsidiary
of the Company, entered into a Joint Venture Agreement (the “Agreement”)
with two unrelated parties, Canitalia Industries (“Canitalia”) and 449991
B.C. Ltd. (“449991”), to form a joint venture for the purpose of
purchasing two vacant lots located in Langley, B.C. for development (the
“Project”). On July 28, 2006, Axion entered into a supplemental
agreement with these two parties in respect to an arrangement for a bank
loan to fund the purchase price and pay expenses related to acquiring the
properties.
|
|
b)
|
Pursuant
to the Agreement, a new company, Township Holdings Ltd. (“THL”), has been
formed and is equally and jointly owned by the three parties to the
Agreement.. All expenses incurred and all profits earned by THL
in conjunction with the Project are to be allocated in equal shares among
Axion and the two remaining parties. The initial deposit was
provided by Axion and 449991 BC Ltd. The total purchase price
of the property to be developed was $3.42 million ($3.49 million
CAD). During the 2006 year, Axion paid its share of the
investment in the amount of $1,441,913
CAD.
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5. INVESTMENT IN
JOINT VENTURE (Continued)
Pursuant
to an agreement dated July 28, 2006, Axion was to advance a loan to one of the
unrelated parties to pay for its portion of the purchase
price. During the 2006 year, Axion advanced a loan in the amount of
$516,028 to two shareholders of this party for a one year term, bearing interest
at 10% per annum. The loan was repaid during the 2006
year.
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c)
|
On
March 13, 2007, Axion authorized Envision Credit Union (“ECU”)
to make a demand loan to THL in the amount of $1.30 million ($1.4 million
CAD) for the benefit of the other two parties, Canitalia and 449991 (the
“Loan”). The parties have acknowledged that the Loan is for the
sole benefit of 449991 and Canitalia and have agreed that none of THL,
Axion or Abdul Ladha, the Company’s president, will have responsibility
for payments of the Loan (see the discussion below) and that THL, Axion
and Abdul Ladha will be fully indemnified for any expenses or payments
they become liable for thereunder.
|
In
exchange for the Loan, ECU received a promissory note from THL requiring the
payment of interest only at the rate of prime plus 1% per annum until ECU
demands payment of the principal. The loan is secured with a mortgage
against the Property and a security interest in the personal property of
THL. ECU also required Axion and Abdul Ladha to enter into a Debt
Service Agreement.
Pursuant
to the Debt Service Agreement, Mr. Ladha and Axion agree that they will be
responsible for the monthly interest payments required by the promissory note in
the event that 449991 and Canitalia fail to make the payments as
required.
If 449991
and Canitalia default on the loan obligation to ECU, Axion will be entitled, but
not obligated, to purchase the shares of stock in THL that are owned by the
responsible parties at a price discount to market. If Axion exercises
its right to purchase the stock owned by the responsible parties, then it will
have no further recourse against 449991 and Canitalia for payment of the
Loan.
If Axion
does not exercise its right to purchase the stock owned by the responsible
parties, then the responsible parties agree that they shall indemnify and hold
Mr. Ladha, Axion and THL harmless from and against any amounts that they or any
of them may pay in order to bring the Loan into good standing or to prevent ECU
from foreclosing on its security, including, without limiting the generality of
the foregoing, any payments of principal, interest, and legal fees made by
Axion, Mr. Ladha or THL.
|
d)
|
The
Company has originally estimated a value of $40,535 for the above
guarantee, and has provided a provision of $40,535 for the guarantee
liability, which is included in accounts payable and accrued liabilities
at September 30, 2009. The Company decided to leave the
guarantee at its original amount until expiration of the guarantee in the
year 2012, as the change in value is not significant. The
maximum potential amount of future payments under this guarantee as of
September 30, 2009 is $367,367.
|
|
e)
|
The
Company considered the limited exception contained in FIN 46R exempting
from consideration as a Variable Interest Entity a joint venture that is a
business, under certain conditions. In the Company’s view, this
joint venture meets these
conditions
|
|
f)
|
Summarized
financial statements for the joint venture
investment:
|
|
Sept
30, 2009
|
Dec
31, 2008
|
|||||||
|
Balance
Sheet
|
||||||||
|
Assets
|
$ | 3,239,264 | $ | 2,850,416 | ||||
|
Liabilities
|
- | - | ||||||
|
Equity
|
3,239,264 | 2,850,416 | ||||||
|
3
months ended
Sept
30
|
9
months ended
Sept
30
|
|||||||||||||||
|
Statement
of Operations
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
|
Revenue
|
$ | - | $ | 2,356 | $ | - | $ | 5,390 | ||||||||
|
Expenses
|
511 | 29,432 | 16,140 | 55,154 | ||||||||||||
|
Net
Income (Loss)
|
(511 | ) | (27,076 | ) | (16,140 | ) | (49,764 | ) | ||||||||
6. INVESTMENT
IN SURREY CITY CENTRAL
On
October 6, 2008 the board of directors approved a Development Agreement with the
Company’s president, Mr. Abdul Ladha, Overture Development Corporation, Surrey
Central City Ltd. (“Surrey”) and Bullion Reef Holdings Ltd.
(“Bullion”). Mr. Ladha is the sole officer, director and shareholder
of Overture Development Corporation and the sole officer and director of
Surrey. Bullion is the sole shareholder of Surrey. A trust
created for the benefit of Mr. Ladha’s family is the sole shareholder of
Bullion.
On
October 6, 2008 Surrey was the owner of 4 vacant lots (collectively referred to
as the “Property”) adjacent to the Gruv Development on 9655 King George Highway,
Surrey, British Columbia. Surrey intends to explore the potential of developing
the Property by improving it with a residential complex of at least 4-stories
which will consist of at least 76 condominiums. The Company’s board
of directors believes that this development has significant potential and
determined to acquire a 50% interest in Surrey.
6. INVESTMENT
IN SURREY CITY CENTRAL (Continued)
On the
date of the Development Agreement, Surrey had no assets other than the Property
and no liabilities. Surrey had 299 shares of common stock issued and
outstanding, all of which were owned by Bullion. The Company agreed
to purchase 149.5 of these shares from Bullion and agreed to pay $1,347,440 for
these shares. The purchase price was based on appraisals provided to
the Company by independent appraisers and a fairness opinion. The purchase price
is subject to an upward adjustment in the event that Surrey decides to develop
the Property with a 6-storey complex rather than a 4-storey
complex. The purchase price could also be increased to reflect the
increase in value that would accrue to the Property if Surrey were able to
acquire a lot adjacent to the Property commonly known as 13509 96th
Avenue, which was owned by an unrelated third party. On October 20,
2008, Surrey entered into an agreement to purchase the lot for approximately
$700,000 and the acquisition was completed on December 15, 2008. The
Development Agreement, as amended, required that the increase in value be
determined by at least 2 appraisers independent from the parties and each other.
If the appraisers were not able to agree on the increase in value, then
the increase in value was to be equal to the average of the appraisers’ findings
of increased value. The average of the appraisers’ findings of
increased value totalled $519,645.
The
Company is to pay $673,720 of the purchase price in cash and the remainder of
the purchase price with a promissory note. The promissory note
accrues simple interest at the rate of prime plus 2% per annum. On
October 22, 2008, the promissory note was amended to include a provision that
allows Bullion to convert up to $1 million of the principal amount and the
interest accrued thereon into shares of the Company’s common
stock. The number of shares of common stock to be issued to Bullion
upon conversion of the principal and accrued interest will be computed at 20%
above the last sale price of one share of the Company’s common stock on the date
on which the Development Agreement was executed. The last sale price
of our common stock on October 6, 2008 was $0.36, therefore the number of shares
of common stock will be computed using a price of $0.432 per
share. The entire unpaid principal balance, together with any accrued
interest and other unpaid charges or fees are due and payable on October 6,
2009.
6. INVESTMENT
IN SURREY CITY CENTRAL (Continued)
The
Development Agreement anticipates that Mr. Ladha and Overture Development
Corporation will provide certain management services to Surrey in developing the
Property in consideration for 12.5% of the net profit (the “Developer’s
Fee”). The term “net profit” means the revenue received from the sale
of the residential units after deducting expenses.
Net
profit is to be determined when the project receives a conditional occupancy
permit and when any and all loans or other debt related to the project have been
paid in full. If the sale of the residential units included in the
build-out of the Property fails to realize a net profit, Mr. Ladha and Overture
Development Corporation will not receive the Developer’s Fee. If
units remain unsold following the payment in full of the loans or other debt
related to the build-out of the Property, the Developer’s Fee will be paid as
each such unit is sold.
On
October 20, 2008, Surrey entered into an agreement to purchase a fifth lot,
13509 96th
Ave., for approximately $700,000 from an unrelated party. As
discussed above, on October 22, 2008 the Company and Bullion, Surrey, Mr. Ladha
and Overture Development Corporation agreed to amend the Development Agreement
to provide that Bullion would be entitled to convert up to $1 million of
principal amount and interest accrued on such amount into shares of the
Company’s common stock at a price of $0.432 per share. On April 30,
2009, Bullion assigned the right to collect $1 million of the principal amount,
plus interest accrued thereon, one-half to Mr. Ladha and one-half to his
spouse. On July 29, 2009, Mr. and Mrs. Ladha each converted his or
her interest in the promissory note described above into 1,204,021 shares of the
Company’s common stock, which represented a conversion by each of them of
$500,000 in principal amount and $20,137 in accrued interest.
The total
investment of $1,877,085 has been recorded as “Investment in Surrey City
Central” on the balance sheet. The amount of the promissory note that remains
outstanding as at September 30, 2009, is $105,028.
7. BANK
LOAN
On
October 11, 2006, the Company arranged for a credit facility in the amount of
$1,879,346 ($2,000,000 CAN) (the “Credit Facility”) from the Royal Bank of
Canada (the “Bank”). The Credit Facility bore interest at the prime
rate as announced by the Bank, plus 0.50% per year. Blended payments
of interest and principal in the amount of $14,914 CAN are due each
month. Principal is due to be paid in full on the last day of a two
to five year term chosen by the Company on the date of a draw
down. Repayment of the Credit Facility is secured by a mortgage,
which includes an assignment of rents, against the property where the Company’s
head office is located and a guarantee and postponement of claim signed by the
Company in favour of the Bank. As of September 30, 2009, the amount of the loan
was $1,797,889.
The
Company has an unsecured credit facility in the amount of $35,000 from Bank of
America, which bears an interest rate of 9.24% per annum payable
monthly.
7.
BANK LOAN (Continued)
| Bank Loan #1 (Note 4) | $ | 13,388,097 | ||
| Bank Loan #2 | 1,797,889 | |||
| Bank Loan #3 | 14,096 | |||
| Total Bank Loan | 15,200,082 |
8.
LICENSE AGREEMENTS
a) On
May 21, 2009, the Company and its subsidiary, iCollector Technologies Ltd.,
signed a License Agreement with ABC Live Auction World Ltd.
(“ABC”). The effective date of the License Agreement is May 15,
2009. ABC is an employee-owned entity not otherwise affiliated with
the Company.
Under the
terms of the License Agreement, ABC has sublicensed all of iCollector’s auction
and auction-hosting related technology, domain names, intellectual property and
various other assets (including those assets used in the operations of NAALive)
(“Licensed Assets”) in consideration for 50% of net profits realized from ABC’s
operations or 10% of ABC’s net auction revenue, whichever is
greater. The sublicense is non-exclusive. The License
Agreement will continue until terminated by a breach by either party or until
either party ceases its business or becomes insolvent.
Going
forward, both parties will continue to look for a suitable buyer or partner for
the iCollector business. If the Company completes a sale or license
of the iCollector business, then ABC will receive a minimum of 25% of the
consideration payable to the Company upon completion of the
transaction.
b) On
June 8, 2009, the Company and its subsidiary, RapidFusion Inc., signed a License
Agreement with Pacific Amber Technologies Inc. (“PATI”). The
effective date of the License Agreement is June 1, 2009. PATI is an
employee-owned entity not otherwise affiliated with the Company.
Under the
terms of the License Agreement, PATI has sublicensed all of RapidFusion’s Point
of Sale (“POS”) technology and its source code, domain names, intellectual
property and various other assets used in the operations of Rapidfusion’s
business (“Licensed Assets”) in consideration for 50% of net profits realized
from PATI’s operations or 5% of PATI’s gross profits from its POS revenues,
whichever is greater. The sublicense is non-exclusive. The
License Agreement will continue until terminated by a breach by either party or
until either party ceases its business or becomes
insolvent.
Going
forward, both parties will continue to look for a suitable buyer or partner for
the RapidFusion business. If the Company completes a sale or license
of the RapidFusion business, then PATI will receive a minimum of 25% of the
consideration payable to the Company upon completion of the
transaction.
9. SETTLEMENT
OF LEGAL CLAIM
On April
2, 2008, a former employee and agent, Mr. Steve Gold and Gold Network, Inc.
(collectively, the “Plaintiffs”), filed a legal action against the Company for
breach of contract relating to commissions they alleged were not paid to
them. The action was filed in the Superior Court of Ventura County,
California. On May 2, 2008 the Company reached an agreement with the
Plaintiffs regarding the dispute and paid the sum of $65,000 to the Plaintiffs
in exchange for a release of their claims. The Company has
recorded the full amount as “settlement of legal claim” in the Statement of
Operations for the period ended September 30, 2008.
10. CAPITAL
STOCK
Capital
Stock
On
October 6, 2008, 400,000 common shares were issued as a result of the debt
conversion agreement described in Note 3(d). On the same day, 600,000
additional common shares were issued due to the exercise of warrants granted
pursuant to the debt conversion agreement described in Note 3(d).
On July
29, 2009, 2,408,042 common shares were issued as a result of the promissory note
conversion agreement as described in Notes 3(e) and 6.
Stock-based
Compensation
During
the 9 month period ended September 30, 2008, the Company recognized an expense
of $20,625 in respect to stock options granted in the 2006 year, which are
vested as of September 30, 2008.
Treasury
Stock
On July
23, 2007, the Company initiated a stock purchase program. The
purchases would occur from time to time at the Company’s discretion, with the
Company’s currently available cash reserves. No specific number of
shares or dollar value has been established by the Company.
For the 9
month period ended September 30, 2008, the Company repurchased 2,886,255 shares
for a total cost of $374,304 which were all cancelled and returned to the
authorized capital stock of the Company.
For the 9
month period ended September 30, 2009, the Company repurchased 201,126 shares
for a total cost of $49,974, which were all cancelled and returned to the
authorized capital stock of the Company.
Warrants
a) On January 4, 2008, 795,384 of the warrants that were exercisable at $0.80
per share expired.
b) On
October 2, 2008, 600,000 warrants for the purchase of common stock having an
exercise price of $1.08 per share became exercisable pursuant to the debt
conversion agreement described in Note 3(d). All the warrants were
subsequently exercised for total proceeds of $648,000.
11.
SIGNIFICANT
EVENTS
On July
17, 2009, the Company executed a Share Exchange Agreement (“Exchange
Agreement”) with the Company’s significant shareholders, Abdul Ladha, the
Company’s Chief Executive Officer and a director, and his spouse (collectively
“Ladha”), Top Favour Limited, a British Virgin Islands corporation (“Top
Favour”), and the shareholders of Top Favour (the “TF Owners”). Under
the Exchange Agreement, the TF Owners would exchange their shares of Top Favour
capital stock for newly-issued shares of the Company. The Exchange
Agreement will expire on November 30, 2009 but can be extended upon approval
from both parties. Hereinafter, this share exchange transaction is
described as the “Share Exchange.”
Also, on
July 17, 2009, the Company executed a Voting Agreement with Top Favour and Ladha
(“Voting Agreement”).
Share Exchange
Agreement
Pursuant
to the Exchange Agreement, the TF Owners would become the Company’s controlling
shareholders holding approximately 97% of the outstanding common stock on a
post-transaction fully-diluted basis, and existing shareholders of the Company
would hold the remaining 3.0% of the outstanding common stock
post-transaction. Top Favour would become our wholly owned
subsidiary. In connection with Top Favour becoming our wholly owned subsidiary,
we would acquire the business and operations of Top Favour and its wholly owned
subsidiaries: Pingdingshan Hongyuan Energy Science and Technology Development
Co., Ltd., which controls and beneficially owns Henan Province Pingdingshan
Hongli Coal & Coking Co., Ltd. and its subsidiaries (collectively referred
to herein as the “SinoCoking Group”). Top Favour’s principal product
is coke, or carbon fuel produced by distillation of
coal.
As a
result of the Share Exchange:
• The
Company will acquire and own 100% of the issued and outstanding shares of
capital stock of Top Favour from the shareholders of Top Favour, making Top
Favour a wholly-owned subsidiary of the Company;
• The
Company will issue up to 13.2 million shares of its common stock to the former
shareholders of Top Favour, on a post-reverse stock split basis;
• The
Company shareholders immediately prior to the Share Exchange will, after
completion of the Share Exchange, own approximately 3% of the outstanding shares
of the Company; and
• The
former shareholders of Top Favour will own approximately 97% of the outstanding
shares of the Company.
Prior to
the consummation of the Share Exchange, the Company will distribute all of its
assets relating to the Ableauctions business (after payment or assignment of
liabilities) to a liquidating trust for the benefit of holders of the Company’s
common stock immediately prior to the closing of the Share
Exchange.
Following
the Share Exchange, the Company will cease operating the Ableauctions business,
and the business of Top Favour will be continued and will constitute the
principal business and operations of the Company.
The
closing of the Share Exchange will be contingent on the simultaneous closing of
a proposed financing of $75 million, which may be comprised of debt or equity
securities or both, to be determined by the board of directors in consultation
with Top Favour. If the financing is not obtained, Top Favour could
waive this condition.
As a
condition to and prior to the Share Exchange, the Company agreed to cause its
shareholders to vote to amend its Articles of Incorporation to effect a reverse
stock split which shall range between 1-for-20 and 1-for-50 and change its name
to “SinoCoking Coal & Coke Chemical Industries Inc.”
In the
event that any of the conditions to the Share Exchange are not satisfied or
waived, the Share Exchange may not be consummated. Neither the
Company nor Top Favour can provide any assurances that the Share Exchange will
ultimately be consummated.
For
accounting purposes, the Share Exchange will be treated as a reverse acquisition
which results in the legal acquirer, the Company, being treated as being
acquired by Top Favour under purchase accounting.
In
conjunction with the Share Exchange, Ableauctions has agreed to adopt a plan of
liquidation reasonably acceptable to Top Favour under which it shall establish a
liquidating trust for purposes of assuming outstanding liabilities and
distributing the assets of Ableauctions to its shareholders as of a certain
record date prior to the closing of the Share Exchange. In compliance
with applicable law and any required third party consents, Ableauctions agreed
to transfer all of its assets to, and to have its liabilities assumed by, the
liquidating trust prior to or concurrent with the closing of the Share
Exchange. Ableauctions and Abdul Ladha agreed to cause such plan of
liquidation to include a covenant to indemnify the Top Favour shareholders for
certain claims, damages, costs and expenses, and provide for a reserve fund of
at least $1,000,000 in cash or cash equivalents or other assets acceptable to
Top Favour which shall remain in place for at least 12 months following the
closing of the Share Exchange and shall be used to discharge any remaining
liabilities of Ableauctions not discharged prior to closing. The plan
of liquidation will also include a covenant to indemnify Abdul Ladha for certain
claims, damages, costs and expenses.
Top
Favour has agreed to file a listing application with the NYSE Amex Equities
exchange, with the intent of maintaining the listing of Ableauctions shares on
the exchange.
Closing
of the Share Exchange will require the satisfaction of a number of conditions,
briefly described below. These conditions include, but are not
limited to, the resignation of the current officers and directors of
Ableauctions, the appointment of Jianhua Lv as Chairman of the board of
directors, and the appointment of his designees to the board of directors to
take office immediately after the closing. Presently, Top Favour
intends to have Mr. Lv appointed as Chief Executive Officer, President and
Chairman of the Board, and Mr. Zan Wu as the Chief Financial Officer, Treasurer
and Secretary. At the time of closing, Ableauctions must have
completed its transfer of the prior business, assets and liabilities to the
liquidating trust, and Ableauctions must have no remaining assets or liabilities
immediately prior to closing. The holders of a majority of the issued
and outstanding shares of Ableauctions must have consented to or voted to
approve all matters contemplated by the Share Exchange Agreement that require
such shareholder approval. Any third party consents that Ableauctions
is required to obtain must have been obtained prior to
closing. Ableauctions must have determined, through its due diligence
investigation, that the financial statements of Top Favour are materially
accurate and complete, and this due diligence investigation will continue until
30 days after the date of the Exchange Agreement. Finally, Top Favour
shall have arranged, and the Company shall simultaneously consummate or shall
have secured an irrevocable commitment from a bona fide third party to
consummate, a debt or equity financing of at least $75 million. Under
the Share Exchange Agreement, the Share Exchange may be terminated by both
parties if Ableauctions and Top Favour mutually agree to terminate the Share
Exchange.
Voting
Agreement
Under the
Voting Agreement, Abdul Ladha and his spouse agree to convert their interests in
the convertible promissory note assigned to them by Surrey (see Note 6) into
shares of the Company’s common stock such that they will hold at least 49% of
the outstanding shares of the Company’s common stock immediately after such
conversion. They also agree to acquire additional shares of the Company’s common
stock (so long as the total of all such acquisitions does not exceed $400,000)
in order to maintain such percentage equity ownership. In addition,
they agree to vote all their common stock in favor of the Share Exchange and
certain other actions in furtherance of the Share Exchange at any annual or
special meeting of the Ableauctions’ shareholders. In the event
that any director fails to resign as a Board member in the manner contemplated
by the Exchange Agreement, Ladha agrees to acquire additional shares of the
Company’s common stock (so long as the total of all such acquisitions does not
exceed $400,000) and vote in favor of replacing the Company's board with Top
Favour's nominees.
12.
SUBSEQUENT
EVENTS
1) On
March 13, 2009 our wholly-owned subsidiary, 0716590 BC Ltd., entered into a
Contract of Purchase and Sale (the “Agreement”) for sale of the real property
located at 1963 Lougheed Highway, Coquitlam, British Columbia. The
property consists of approximately 19,646 square feet of commercial space and
approximately 2,300 square feet of residential space and is located on
approximately eight-tenths of an acre. The purchaser is Business
World Development Inc., a party unrelated to our company or any of our officers
or directors (the “Purchaser”).
The
Purchaser agreed to pay a purchase price of CDN$3,400,000 for the
property.
On April
6, 2009, the Agreement was amended to provide that we would provide financing to
the Purchaser. We have agreed to finance 80% of the purchase
price. The loan will have a term of 7 years and will bear simple
interest at 6.5% per annum. The payments will be amortized over 20
years. The loan will be secured by a mortgage, including an
assignment of rents, recorded against the property.
The sale
was completed on November 2, 2009.
|
2)
|
Effective
October 16, 2009, five of the Company’s subsidiaries, AAC Holdings Ltd.,
Jarvis Industries Ltd., Gruv Development Corporation, 1963 Lougheed
Holdings Ltd., and 0716590 B.C. Ltd. were amalgamated retaining the name
of AAC Holdings Ltd.
|
13.
SEGMENTED
INFORMATION
The
Company has four reportable segments:
-
Auction, Liquidation and Technology Business segment
- Real
Property and Property Development segment
-
Investment segment
- Other
segment
Through
the Auction, Liquidation and Technology Business segment, the Company provides
auction broadcast technology, liquidation and merchandizing services, and
technology to businesses to assist them with managing the sale of their
products.
This
segment consists of the operations of iCollector, Jarvis, Unlimited Closeouts
and Rapidfusion operations.
Through
the Real Property and Property Development segment, the Company manages its real
property and property development. This segment consists of the
operations of 1963 Lougheed Holding Ltd., a holding company where the
Ableauctions’ head office was located - 1963 Lougheed Highway, Coquitlam, B.C.,
Gruv Holding Corporation, the Company’s real estate project located at 9655 King
George Highway, Surrey, Gruv Development Corporation, 0716590 B.C. Ltd. and the
Company’s interest in the Township Holdings’ joint venture.
Through
the Mortgages and Loans segment, the Company manages its mortgages and loans to
third parties. This segment consists of investments made by Axion
Investment Corporation, Ableauctions.com Inc and AAC Holdings Ltd.
The Other
segment encompasses all other activities of the Company including management,
investor relations and other related head office expenses incurred by
Ableauctions.com Inc., which are also included in determining this segment’s
profits.
The
Company's reportable segments are strategic business units that offer different
products and services and are managed separately
Following
is the segmented information for the nine month period ended September 30,
2009:
|
Real Property
&
Property Development
|
Mortgages
&
Loans
|
Auction,
Liquidation
& Technology Businesses
|
Other
|
Total
|
||||||||||||||||
|
External
revenue by market
|
||||||||||||||||||||
|
US
|
- | - | 1,182,363 | - | 1,182,363 | |||||||||||||||
|
Canada
|
88,641 | - | 159,075 | - | 247,716 | |||||||||||||||
|
Other
|
- | - | 6,485 | - | 6,485 | |||||||||||||||
|
Total
Revenue From External Customer
|
88,641 | - | 1,347,923 | - | 1,436,564 | |||||||||||||||
|
Investment
income
|
- | 220,583 | - | - | 220,583 | |||||||||||||||
|
Interest
expense
|
44,034 | 193,378 | 642 | 77,092 | 315,146 | |||||||||||||||
|
Depreciation
and amortization
|
42,390 | - | 19,694 | - | 62,084 | |||||||||||||||
|
Segment
profit(loss)
|
(144,047 | ) | (57,750 | ) | (496,718 | ) | (426,682 | ) | (1,125,197 | ) | ||||||||||
|
Segment
assets
|
20,108,757 | 1,597,819 | 907,746 | 3,675,016 | 26,289,338 | |||||||||||||||
|
Expenditures
on long-lived assets
|
6,596,347 | - | (2,599 | ) | - | 6,593,748 | ||||||||||||||
|
Investment
in joint venture
|
1,390,871 | 1,390,871 | ||||||||||||||||||
|
Investment
in Surrey City Central
|
1,877,085 | - | - | - | 1,877,085 | |||||||||||||||
|
|
Following
is the segmented information for the nine month period ended September 30,
2008:
|
Real Property
&
Property Development
|
Mortgages
&
Loans
|
Auction,
Liquidation
& Technology Businesses
|
Other
|
Total
|
||||||||||||||||
|
External
revenue by market
|
||||||||||||||||||||
|
US
|
- | - | 1,814,581 | - | 1,814,581 | |||||||||||||||
|
Canada
|
118,829 | - | 290,687 | - | 409,516 | |||||||||||||||
|
Other
|
- | - | 28,136 | - | 28,136 | |||||||||||||||
|
Total
Revenue From External Customer
|
118,829 | - | 2,133,404 | - | 2,252,233 | |||||||||||||||
|
Investment
income
|
- | 138,073 | - | 17,180 | 155,253 | |||||||||||||||
|
Interest
expense
|
21,454 | 23,752 | - | 3,175 | 48,381 | |||||||||||||||
|
Depreciation
and amortization
|
25,359 | - | 90,016 | - | 115,375 | |||||||||||||||
|
Impairment
of assets
|
321,612
|
321,612
|
||||||||||||||||||
|
Segment
profit
|
31,169 | 78,867 |
(1,047,610
|
) | (897,606 | ) |
(1,835,180
|
)
|
||||||||||||
|
Segment
assets
|
11,572,002 | 1,225,668 | 1,849,755 | 2,112,641 | 16,760,066 | |||||||||||||||
|
Expenditures
on long-lived assets
|
3,422,796 | 27,654 | 3,450,450 | |||||||||||||||||
|
Investment
in joint venture
|
1,392,964 | - | - | - | 1,392,964 | |||||||||||||||
14. OPERATING
EXPENSES
| 3
MONTHS ENDED
SEPTEMBER
30
|
9
MONTHS ENDED
SEPTEMBER
30
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Operating
Expenses
|
||||||||||||||||
|
Accounting and legal
|
$ | 62,961 | $ | 78,043 | $ | 85,613 | $ | 121,420 | ||||||||
|
Advertising and promotion
|
1,638 | 6,810 | 17,815 | 22,182 | ||||||||||||
|
Automobile
|
4,465 | 2,539 | 17,880 | 21,657 | ||||||||||||
|
Bad
debts
|
- | - | 28,298 | 59,584 | ||||||||||||
|
Commission
|
- | 77,108 | - | 174,686 | ||||||||||||
|
Interest
expense
|
175,432 | 46,220 | 315,146 | 48,381 | ||||||||||||
|
Insurance
|
4,576 | 8,029 | 19,820 | 21,864 | ||||||||||||
|
Investor
relations and shareholder information
|
38,780 | 30,654 | 88,679 | 80,720 | ||||||||||||
|
Management
fees
|
39,000 | 39,000 | 117,000 | 117,000 | ||||||||||||
|
Office
and administration
|
18,566 | 23,673 | 92,817 | 62,303 | ||||||||||||
|
Rent,
utilities, and property tax
|
79,052 | 33,213 | 119,264 | 95,579 | ||||||||||||
|
Repairs
and maintenance
|
1,626 | 7,539 | 7,255 | 13,085 | ||||||||||||
|
Salaries
and benefits
|
75,913 | 251,178 | 504,955 | 861,356 | ||||||||||||
|
Telephone
|
7,299 | 18,152 | 31,228 | 40,504 | ||||||||||||
|
Travel
|
12,357 | 15,359 | 31,402 | 75,193 | ||||||||||||
|
Website
Maintenance
|
1,769 | 18,438 | 27,112 | 54,002 | ||||||||||||
|
Total
operating expenses
|
523,434 | 655,955 | 1,504,284 | 1,869,516 | ||||||||||||
F-24
15.
RECENT
ACCOUNTING PRONOUNCEMENTS
|
(i)
|
In
April 2009, the FASB issued new standards that require interim
disclosures regarding the fair values of financial
instruments. Additionally, the new standards require disclosure
of the methods and significant assumptions used to estimate the fair value
of financial instruments on an interim basis as well as changes of the
methods and significant assumptions from prior periods. The standards do
not change the accounting treatment for these financial instruments and
was effective for us beginning in the second quarter of fiscal year
2009.
|
|
(ii)
|
In
June 2009, the FASB issued new standards for the accounting for
transfers of financial assets. These new standards eliminate the concept
of a qualifying special-purpose entity; remove the scope exception from
applying the accounting standards that address the consolidation of
variable interest entities to qualifying special-purpose entities; change
the standards for derecognizing financial assets; and require enhanced
disclosure. These new standards are effective for us beginning in the
first quarter of fiscal year 2010 and are not expected to have a
significant impact on our consolidated financial
statements.
|
|
(iii)
|
In
June 2009, the FASB issued amended standards for determining whether
to consolidate a variable interest entity. These amended standards
eliminate a mandatory quantitative approach to determine whether a
variable interest gives the entity a controlling financial interest in a
variable interest entity in favor of a qualitatively focused analysis, and
require an ongoing reassessment of whether an entity is the primary
beneficiary. These amended standards are effective for us beginning in the
first quarter of fiscal year 2010 and we are currently evaluating the
impact that adoption will have on our consolidated financial
statements.
|
|
(iv)
|
In
August 2009, the FASB issued amended standards for the fair value
measurement of liabilities. These amended standards clarify that in
circumstances in which a quoted price in an active market for the
identical liability is not available, we are required to use the quoted
price of the identical liability when traded as an asset, quoted prices
for similar liabilities, or quoted prices for similar liabilities when
traded as assets. If these quoted prices are not available, we are
required to use another valuation technique, such as an income approach or
a market approach. These amended standards are effective for us beginning
in the fourth quarter of fiscal year 2009 and are not expected to have a
significant impact on our consolidated financial
statements.
|
|
(v)
|
In
October 2009, the FASB issued new standards for revenue recognition
with multiple deliverables. These new standards impact the determination
of when the individual deliverables included in a multiple-element
arrangement may be treated as separate units of accounting. Additionally,
these new standards modify the manner in which the transaction
consideration is allocated across the separately identified deliverables
by no longer permitting the residual method of allocating arrangement
consideration. These new standards are effective for us beginning in the
first quarter of fiscal year 2011, however early adoption is permitted. We
do not expect these new standards to significantly impact our consolidated
financial statements.
|
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain
information contained herein constitutes “forward-looking statements within the
meaning of section 27A of the Securities Act of 1933 and section 21E of the
Securities Exchange Act of 1934,” including without limitation statements
relating to goals, plans and projections regarding the Company’s financial
position and the Company’s business strategy. The words or phrases
“would be,” “will allow,” “intends to,” “may result,” “are expected to,” “will
continue,” “anticipates,” “expects,” “estimate,” “project,” “indicate,” “could,”
“potentially,” “should,” “believe,” “considers” or similar expressions are
intended to identify “forward-looking statements”, as well as all projections of
future results of operations or earnings. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results or achievements of the Company to be
materially different from any future results or achievements expressed or
implied by such forward-looking statements. Such factors include, but
are not limited to, the following: risks related to technological
change; the loss of the Company’s key personnel; the Company’s ability to
protect its intellectual property rights; government regulation of Internet
commerce and the liquidation industry; dependence on continued growth in use of
the Internet; capacity and systems disruptions; uncertainty regarding infringing
intellectual property rights of others, risks over which the Company has no
control, such as the downturn in the worldwide economy which has adversely
affected the value of real property, tightened the credit markets and impacted
discretionary spending by consumers, and the other risks and uncertainties
described in this report.
We do not
undertake any responsibility to release publicly any revisions to these
forward-looking statements to take into account events or circumstances that
occur after the date of this filing. Additionally, we do not
undertake any responsibility to update you on the occurrence of any
unanticipated events that may cause actual results to differ from those
expressed or implied by the forward-looking statements contained in this
filing. Please read carefully this report and the other filings we
make with the Securities and Exchange Commission.
Overview
Management’s
discussion and analysis of results of operations and financial condition are
based upon our financial statements. These statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America. These principles require management to make
certain estimates, judgments and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our
estimates based on historical experience and various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making the estimates, judgments and assumptions referred to
above. Actual results may differ from these estimates under different
assumptions or conditions.
The
following discussion of 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, 2008 contained in our Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 25, 2009.
Overview
We
provide liquidation and merchandising services along with auction and
point-of-sale technology to businesses to assist them with managing the sale of
their products. In the past we have provided the online auction
technology and point-of-sale services directly to our
customers. Effective June 8, 2009, we licensed our point-of-sale and
online auction operations to third parties in providing these
services.
We also
provide mortgages and loans to individuals and companies, and develop real
estate. We classify our business interests into 4 reportable
segments: the auction, liquidation and technology business, which consists
principally of liquidation and merchandizing services; loans, which consists of
mortgages and loans; real property and property development, which consists
principally of properties held for development; and a segment we call “other”
which encompasses our corporate activities such as investor and public relations
and administration. We have included information in the discussion
below about our websites. Information included on our websites is not
a part of this report.
Auction,
Liquidation and Technology Segment
Liquidation
Services - We sell merchandise through our Unlimited Closeouts and
Ableauctions’ liquidation stores located in California and British
Columbia. We also generate revenues by providing inventory brokerage
services at www.unlimitedcloseouts.com.
Auction
Broadcast Services – Prior to May 21, 2009, we broadcast business and
industrial auctions over the Internet for auctioneers and members of the
National Auctioneers Association (NAA). These auctions are
facilitated using our proprietary technology (www.ableauctions.com/technology)
through the website www.naalive.com and
www.naaonlinesolutions.com. Additionally, we broadcast antique and
collectible auctions over the Internet for numerous galleries and auction houses
throughout the world. Prior to December 31, 2008, these auctions were
facilitated using eBay’s live auction technology. Beginning on
January 1, 2009, these auctions were facilitated using our proprietary
technology (www.ableauctions.com/
technology) through the website, www.iCollector.com. We also provided
auction-related products and services for a fee (www.icollectorlive.com/services.aspx). On
May 21, 2009 we licensed the operation of our auction broadcast services to ABC
Live Auction World Ltd. In exchange for the transfer, we will receive
the greater of 50% of the net profits or 10% of the net auction revenue earned
by ABC. In conjunction with the transfer, ABC hired from us those
employees who were responsible for supporting these
services.
Point-of-Sale
(POS) Services - Through our subsidiary, Rapidfusion Technologies, Inc.
(www.rapidfusion.com/technology), we sold, installed and supported our
proprietary point-of-sale (POS) sales processing and reporting
systems. On June 8, 2009 we licensed the POS operations to Pacific
Amber Technologies Inc. In exchange for the transfer, we will receive
50% of the net profits realized from the operations or 5% of gross profits from
the point-of-sale revenues, whichever is greater. In conjunction with
the transfer, Pacific Amber Technologies Inc. hired from us those employees who
were responsible for supporting these products and services.
Real
Property Development and Lending Segments
Our
wholly owned subsidiary, Axion Investment Corporation, develops real estate and
makes short term loans.
As of
September 30, 2009, our loan and real estate segments included the following
investments:
|
Investment
|
Amount
|
|||
|
Loans
|
$ | 1,907,229 | ||
|
Real
property
|
$ | 2,429,255 | ||
|
Real
property held for development
|
$ | 17,157,004 | ||
|
Investment
in joint venture
|
$ | 1,390,871 | ||
| Investment in Surrey City Central Holdings Ltd. | $ | 1,877,085 | ||
Through
Axion we developed a vacant parcel of land located at 9655 King George
Highway. We refer to this development as Phase I of the Gruv
Development in this report. We acquired the property in August 2005
for $1,270,000.
We
developed the property by improving it with a retail facility of approximately
4,326 square feet and with a residential complex consisting of 111
condominiums. We expect revenue of approximately $22.1
million ($25.4 million CAD) from the sale of the commercial and residential
units and we estimate that the cost to develop the property will be
approximately $18.4 million ($21.2 million CAD).
We
entered into agreements to pre-sell 100% of the 111 residential condominiums
prior to construction and have collected approximately $1.92 million ($2.34
million CAD) in deposits that are being held in trust with Macdonald Realty
Ltd. We paid $341,446 ($366,749 CAD) to Macdonald Realty for its
services to date. We have budgeted an additional $600,082 ($689,750 CAD) to be
paid to Macdonald Realty for the balance of commissions and bonuses due upon the
successful completion of the sales and the final transfer of property
title.
We
received a building permit from the City of Surrey to develop the property and
we have advanced refundable performance bonds for service and work totalling
$363,553 ($384,833 CAD) as commitment for the development of Phase
I.
On
February 15, 2008 we entered into a Construction Management Agreement with
Cantera Management Group Ltd. (“Cantera”) to manage the development of Phase I.
In consideration of these services, we have agreed to pay Cantera a fixed fee of
$454,024 ($553,000 CAD) over the term of the contract calculated on a percentage
of completion basis.
On March
12, 2008, we obtained an updated conditional credit facility in the amount of
$14.28 million ($16.42 million CAD) from the Royal Bank of Canada for the
development of Phase I.
The
credit facility is secured by guarantees from Axion and Ableauctions.com Inc.,
by a general security agreement covering all of the assets of Axion and by the
property. The advances accrue interest at the prime rate announced by
Royal Bank of Canada plus 0.75% per annum. A fee of $47,073 was paid to the
Royal Bank of Canada for arrangement of this credit facility. Of this
amount, $35,378 was paid during the 2007 fiscal year with the remaining balance
paid in the first quarter of 2008.
The
credit facility was granted subject to a number of conditions, including
appraisal of the project, the submission of an environmental report, the
submission of a soils report, confirmation of permits and approvals, engagement
of a project monitor, submission of a schedule of pre-sales contracts, the
purchase of insurance, a cash investment by Axion of approximately $4.75 million
($4.84 million CAD) toward the development including the cost of the land, and
fixed price contracts for at least 50% of Phase I’s hard construction costs
prior to the initial draw and 80% by December 2008. By November 10,
2008, Axion had fulfilled all the obligations of the construction credit
facility.
Construction
Progress as of September 30, 2009: ($ CAD)
|
Project costs of work completed to
date:
|
$ | 19,171,505 | ||
| Project costs of remaining work: | $ | 2,086,364 | ||
| Estimated total project costs: | $ | 21,257,869 | ||
| Current outstanding principal balance of | ||||
| Loan from the Royal Bank of Canada: | $ | 14,334,636 |
In
addition to the Royal Bank of Canada credit facility, we have from time-to-time
borrowed funds from our president and chief executive officer, Abdul Ladha, to
cover cash shortfalls that occasionally result from timing issues that may
temporarily prevent us from borrowing against the credit facility. As
at November 12, 2009 there was no outstanding amount due to Mr. Ladha for these
loans.
On
October 6, 2008, we entered into a Development Agreement to acquire a 50%
interest in Surrey Central City Holdings Ltd. (“Surrey”), a private company
controlled by Mr. Ladha. Surrey owns four properties adjacent to
Phase I of our Gruv Development. Through
Surrey, we intend to explore the potential of developing a second phase of this
project by improving Surrey’s properties with a residential complex consisting
of 76 to 138 condominiums.
Under the
terms of the Development Agreement, we acquired a 50% interest in the capital
stock of Surrey from Surrey’s sole shareholder, Bullion Reef Holdings Ltd.
(“Bullion”), an entity controlled by Mr. Ladha and owned by the Ladha Family
Trust. While Mr. Ladha is not a beneficiary of the Ladha Family
Trust, members of his family are beneficiaries. The purchase price
for the 50% interest was $1,347,440, subject to adjustment. According
to the Development Agreement, the purchase price could be increased to reflect
the increase in value that will accrue to the Property if Surrey decides to
develop the Property with a 6-storey complex rather than a 4-storey
complex. The purchase price could also be increased to reflect the
increase in value that would accrue to the Property if Surrey were able to
acquire a lot adjacent to the Property commonly known as 13509 96th
Avenue, which was owned by an unrelated third party. On October 20,
2008, Surrey entered into an agreement to purchase the lot for approximately
$700,000 and the acquisition was completed on December 15, 2008. On
April 30, 2009 the purchase price was adjusted to $1,867,085 based on an
increase in value that resulted from the purchase of the 5th lot
adjacent to the property.
We agreed
to pay $673,720 of the purchase price in cash and the remainder with a
promissory note due in one year bearing interest at the prime rate as announced
by the Royal Bank of Canada plus 2% per annum. The promissory note
included a provision allowing Bullion to convert up to $1 million of the
principal amount, and any interest accrued thereon, into shares of our common
stock at a price of $0.432 per share. On April 30, 2009
Bullion assigned the right to receive $1 million of the promissory note, plus
interest accrued thereon, to Abdul Ladha and his spouse, Hanifa
Ladha. On July 27, 2009 Mr. and Mrs. Ladha each exercised their
conversion rights and each received 1,204,021 shares of our common stock, which
represented a conversion by each of them of $500,000 in principal amount and
$20,136.99 in accrued interest. As at November 12, 2009 the promissory note had
been paid in full.
The
Development Agreement also anticipates that Mr. Ladha and Overture Development
Corporation will provide services to Surrey in developing the
Property. These services include managing the build-out; working with
government agencies to obtain approval of the development and obtaining the
plans, permits and approvals required to complete the build-out; providing
contractor’s services, including liaising with various trades to coordinate
construction of the build-out and supervising and directing construction of the
build-out; preparing and implementing a marketing plan; providing the
construction bonds; and obtaining financing and home warranty coverage for the
development. Mr. Ladha and Overture Development Corporation will
jointly receive 25% of the net profit from Phase I and 12.5% of the net profit
from the development of the property owned by Surrey for providing these
services.
On
September 30, 2009 the construction of the Gruv Development was substantially
complete and a conditional occupancy permit was received from the City of
Surrey. On November 6, 2009, the final occupancy permit was received and as of
November 9, 2009, 82 of the 111 purchase contracts have been successfully
closed and funds totaling $17,994,313 CDN have been received. $15,076,061 CDN of
the credit facility provided by the Royal Bank has been
repaid.
Other
Segment
Ableauctions.com
Inc. manages our corporate and public company affairs and all related activities
such as investor and public relations.
Trends,
Events and Uncertainties
On
December 31, 2008 eBay terminated the operation of its eBay Live Auction
platform. This decision along with the ongoing weakness in the U.S.
economy has continued to negatively impact our liquidation and live auction
broadcast services operations.
In order
to mitigate the adverse impact of lower revenues, we have subcontracted out the
operations of both our live auction broadcast business as well as our point of
sale business. In both cases, the subcontractors have licensed the related
technologies, domain names, intellectual property and various other assets and
hired from us the employees responsible for supporting these
operations. Under the license agreements, we receive the greater of a
percentage of the net profits realized from operations or a percentage of the
net auction revenue.
Although
we have implemented strong cost control measures to reduce recurring operating
expenditures related to these business units, if the U.S. economy does not
experience a significant recovery during the 2009 fiscal year, we expect that
our operations will continue to be adversely affected. There can be no assurance
that we will be able to increase our revenues from either of these operations
during the remainder of 2009. As a result, we are currently exploring all
avenues to mitigate any further losses in this sector including the divestiture
and possible liquidation or winding-down of these operations.
On July
17, 2009 we, Abdul Ladha and Hanifa Ladha executed a Share Exchange Agreement
with Top Favour Ltd., a British Virgin Islands corporation, and the shareholders
of Top Favour Ltd. pursuant to which we will acquire all of the outstanding
capital stock of Top Favour Ltd.from its shareholders. In conjunction
with the share exchange:
|
·
|
We
will issue up to 13.2 million shares of our common stock to the former
shareholders of Top Favour Ltd.;
|
|
·
|
The
shareholders of Ableauctions immediately prior to the acquisition will,
after completion of the acquisition, own approximately 3% of our
outstanding shares of common stock;
and
|
|
·
|
The
former shareholders of Top Favour Ltd. will own approximately 97% of our
outstanding shares of common stock.
|
We agreed
to adopt a plan of liquidation reasonably acceptable to Top Favour Ltd. under
which we will establish a liquidating entity for purposes of assuming
outstanding liabilities and distributing our assets to our shareholders as of a
certain record date prior to the closing of the
acquisition. Following the acquisition, we will cease operating the
Ableauctions business, and the business of Top Favour will be continued and will
constitute our principal business and operations. We cannot guarantee
that the acquisition will be consummated.
We have
no off-balance sheet arrangements, special purpose entities or financing
partnerships.
We
currently have no commitments for capital expenditures.
Critical
Accounting Policies and Estimates
We have
identified several accounting principles that we believe are key to an
understanding of our financial statements. These important accounting
policies require management’s most difficult, subjective judgments.
Foreign
Currency Translation
We have
operations in both Canada and the U.S. with significant transactions in the
currencies of both countries. Consequently, we are exposed to and
have experienced significant gains and losses in respect to foreign
exchange.
We
account for foreign currency transactions and translation of foreign currency
financial statements under Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation" ("SFAS 52"). We use the current rate method
as the functional currency is the Canadian dollar. All assets and liabilities
are translated at the current rates, while stockholders’ equity accounts are
translated at the appropriate historical rate or rates. Revenues and expenses
are translated at the weighted-average rate for the year. Gains and losses from
restatement of foreign assets and liabilities are included in comprehensive
income. Revenues and expenses are translated at the rates of exchange
prevailing on the dates such items are recognized in earnings.
Financial
statements of our Canadian subsidiaries are translated into U.S. dollars using
the exchange rate at the balance sheet date for assets and
liabilities. Our investments in the structural capital of the
Canadian subsidiaries have been recorded at the historical cost in U.S.
dollars. The resulting gains or losses are reported as a separate
component of stockholders’ equity. The functional currency of the
Canadian subsidiaries is the local currency, the Canadian dollar.
Loans
and Real Property
During
the nine months ended September 30, 2009, our investment in loans generated
approximately $220,583 in revenues. During the nine months ended
September 30, 2009, 7% of the value of our assets was held in the form of loans
and 87% of the value of our assets was held in the form of real
estate.
| Type |
Carrying
Amount
|
%
of Total Assets
|
||||||
|
Cash
& Current Assets
|
$ | 1,069,104 | 4 | % | ||||
|
Other
Assets
|
$ | 458,790 | 2 | % | ||||
|
Real
Estate (held for sale)
|
$ | 2,429,255 | 9 | % | ||||
|
Real
Estate (development)
|
$ | 17,157,004 | 66 | % | ||||
|
Real
Estate (Joint Venture)
|
$ | 1,390,871 | 5 | % | ||||
|
Real
Estate (Surrey City Central)
|
$ | 1,877,085 | 7 | % | ||||
|
Loans
|
$ | 1,907,229 | 7 | % | ||||
|
Total
|
$ | 26,289,338 | 100 | % | ||||
Revenue
Recognition
A
substantial portion of our revenues are earned through non-traditional sources,
particularly online liquidation. Our policies with respect to the
timing and amount of revenue recognition from our online liquidation activities
are critical to an understanding of our financial statements.
Our net
revenues result from fees and revenue associated with Internet based listing
fees and auction activities. Internet related listing fees are
derived principally from enabling independent auction houses to simultaneously
broadcast their auctions over the Internet. These fees are recognized
upon successful completion of each individual auction when the final terms of
sales and commissions have been determined.
We
generally earn revenues from our auction activities either through consignment
sales or through sales of inventory we purchase. For consignment
sales, we earn auction fees charged to consignees, and buyer’s premiums charged
to purchasers, determined as a percentage of the sale price. For
inventory sales, we earn a profit or incur 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 we
recognize revenue, 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 us with
reasonable assurance of collection of the sale proceeds, from which our earnings
are derived, including the fees from consignees and purchasers, as well as
resale profits.
The
Company also earns royalty fees through sublicensing certain of its auction and
auction-hosting related technology, domain names, intellectual property and
various other assets. Revenue is accrued on a quarterly basis as
royalty fees are earned.
Segmented
information
During
the 9 months ended September 30, 2009, we facilitated auctions and liquidations
over the Internet, which meant that participants could come from anywhere in the
world. However, our business presence is in both Canada and the
U.S.
In
accordance with Statement of Financial Accounting Standards No. 131,
“Disclosures about Segments of an Enterprise and Related Information”, we make
required disclosures of information regarding our geographic
segments.
Stock
Based Compensation
The
granting of stock options can represent a significant source of financing for
us. Consequently, the accounting policies by which we account for
these options is critical to an understanding of our financial
statements.
We have
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 our stock at the
date of the grant over the amount an employee is required to pay for the
stock.
We have
adopted the disclosure provisions of Statement of Financial Accounting Standards
No. 123, “Accounting for Stock Based Compensation” for stock options granted to
employees and directors. We disclose, on a supplemental basis, the
pro-forma effect of accounting for stock options awarded to employees and
directors as if the fair value based method had been applied, using the
Black-Scholes model. On October 1, 2006, we adopted SFAS 123(R) which
requires that employee stock option expense be recognized under the fair value
method rather than the intrinsic value method. We believe that the
impact of the adoption of SFAS 123(R) will not be significant to our overall
results of operations and financial position.
Income
Taxes
Income
taxes are provided for 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 carry forwards. Deferred tax
expense (benefit) results from the net change during the year of deferred tax
assets and liabilities.
We have
net operating losses carried forward of approximately $7,300,000 which expire in
years ranging from 2009 to 2028. We have provided a full valuation
allowance of approximately $2,771,600 on the deferred tax asset because of the
uncertainty of realizability.
Contractual
Obligations
We are
committed under the following contractual obligations.
|
Contractual
Obligations
|
Payments
Due By Period
|
||||||||||||||||
|
Total
|
Less
than 1 year
|
1
to 3 Years
|
3
to 5 Years
|
Over
5 Years
|
|||||||||||||
|
Operating
lease obligations
|
$ | 49,451 | $ | 23,756 | $ | 25,695 | - | ||||||||||
We are
committed to payments with respect to agreements to lease office
premises.
Results
of Operations
Three
months ended September 30, 2009 compared to the corresponding period in
2008.
Revenues.
During the three months ended September 30, 2009, we had revenues of
$244,430 compared to revenues of $604,486 during the same period in 2008, a
decrease of $360,056 or 60%. The decrease in revenues is a result of a 45%
decrease in revenues from our liquidation business and a 97% decrease in
revenues from our Live Auction services.
Revenues
from our liquidation services totalled $212,942 (or 87% of our total revenue)
compared to revenues of $386,623 (or 64% of our total revenue) during the same
period in 2008. The revenue from our liquidation service decreased by $173,681
or 45% compared to the three months ended September 30, 2008.
Revenues
from our live auctions services totalled $3,901 (or 2% of our total revenue)
compared to revenues of $124,542 (or 21% of our total revenue) during the same
period in 2008.
Our
liquidation services accounted for 87% of total revenue for the three month
period ending September 30, 2009. We believe that the decrease, both
in the results of our liquidation business and in the number of antique and
collectible auctions we managed during the quarter, is directly related to the
recession in the United States, which has had an adverse effect on both consumer
and business spending, and that the recession could continue to have a dampening
effect on the revenues we earn from this segment of our business. The
decline in revenues generated by our live auctions operations is also
attributable to eBay’s decision to terminate its Live Auction
platform.
During
the three months ended September 30, 2009, we had investment income of $84,762
compared to $81,550 for the same period in 2008. The investment in
property development is long term in nature and, as a result, returns will be
realized on completion of projects. As of September 30, 2009, our holdings
in real estate, including our headquarters and entities that hold real estate
for development, totalled approximately $22,854,215, representing the lower of
cost or market for these assets.
Gross Profit and Cost of
Revenue. Cost of revenue was $413,993 for the three months ended
September 30, 2009, compared to $845,723 during the same period in
2008. Gross profit was $(169,563) for the three months ended
September 30, 2009, compared to gross profit of $(241,237) for the three months
ended September 30, 2008. The negative gross profit is a direct result of the
write-down of inventory in the amount of $200,000 and $359,187 for the three
months ended September 30, 2009 and September 30, 2008
respectively.
Operating
Expenses. During the three month period ended September 30, 2009,
we put a number of cost cutting measures in place to withstand the decrease in
revenues from our liquidation and live auction broadcast
operations. Operating expenses during the three month period ended
September 30, 2009 were $523,434 or approximately 214% of revenue compared to
$655,955 or approximately 109% during the three month period ended September 30,
2008. Operating expenses are expected to further decrease in the
fourth quarter of the 2009 fiscal year as we realize the effects of additional
cost cutting measures.
During
the three month period ended September 30, 2009, the cost of investor relations
and shareholder information services was $38,780 as compared to $30,654 for the
same period in 2008. We expect the cost of investor
relations in 2009 will remain steady throughout the year.
During
the three month period ended September 30, 2009, salaries and benefits totalled
$75,913 as compared to $251,178 for the same period in 2008. The
decrease of $175,265 or approximately 70% from the previous year was due to cost
cutting measures implemented, including reducing the number of
employees.
Total
personnel expenses, including salaries and benefits, totalled $114,913 or 22% of
our operating expenses during the three-month period ended September 30, 2009 as
compared to $367,286 or 59% of our operating expenses during the three-month
period ended September 30, 2008. In addition to salaries and
benefits, personnel expenses included management fees of $39,000 (compared to
$39,000 for the same period in 2008), and commissions of zero (compared to
$77,108 for the same period in 2008). Current cost cutting
measures are expected to reduce personnel expenses for the remainder of the
year.
During
the three-month period ended September 30, 2009, advertising and promotion
expenses were $1,638 or less than 1% of our operating expenses as
compared to $6,810 or 1% of our operating expenses for the three-month period
ended September 30, 2008.
General
overhead expenses were $129,710 during the three month period ended September
30, 2009 (compared to $126,942 for the same period in 2008). General overhead
expenses comprised 25% of our total operating expenses (compared to 20% for the
same period in 2008). General overhead expenses include rent and utilities,
which totalled $79,052, telephone, which totalled $7,299, travel related to
operations, which totalled $12,357, repairs and maintenance, which totalled
$1,626, automotive, which totalled $4,465, insurance, which totalled $4,576,
website maintenance, which totalled $1,769 and office and administration
expenses, which totalled $18,566
Depreciation
and amortization expense was $23,493 for the three-month period ended September
30, 2009 as compared to $26,316 for the three-month period ended September 30,
2008.
Net
Loss. We realized a net loss of $666,154 or $(0.09) per share
for the three months ended September 30, 2009 as compared to a net loss of
$1,183,978 or $(0.24) per share for the three months ended September 30,
2008.
Nine
months ended September 30, 2009 compared to the corresponding period in
2008.
Revenues.
During the nine months ended September 30, 2009, we had revenues of
$1,436,564 compared to revenues of $2,252,233 during the same period in 2008, a
decrease of $815,669 or 36%. The decrease in revenues is a result of an 18%
decrease in revenues from our liquidation business and a 77% decrease in
revenues from our Live Auction services.
Revenues
from our liquidation services totalled $1,093,818 (or 76% of our total revenue)
compared to revenues of $1,330,699 (or 59% of our total revenue) during the same
period in 2008. The revenue from our liquidation service decreased by 18% for
the nine months ended September 30, 2008.
Revenues
from our live auctions services totalled $129,697 (or 9% of our total revenue)
compared to revenues of $562,728 (or 34% of our total revenue) during the same
period in 2008.
Our
liquidation services accounted for 76% of total revenue for the nine months
ended September 30, 2009. We believe that the decrease, both in the
results of our liquidation business and in the number of antique and collectible
auctions we managed during the period, is directly related to the recession in
the United States, which has had an adverse impact on both consumer and business
spending, and that the recession could continue to have a dampening effect on
the revenues we earn from this segment of our business. The decline
in revenues generated by our live auctions operations is also attributable to
eBay’s decision to terminate its Live Auction platform.
During
the nine months ended September 30, 2009, we had investment income of $220,583
compared to $155,253 for the same period in 2008. The investment in
property development is long term in nature and, as a result, returns will be
realized on completion of projects. As of September 30, 2009, our holdings
in real estate, including our headquarters and entities that hold real estate
for development, totalled approximately $22,854,215, representing the lower of
cost or market for these assets.
Gross
Profit and Cost of Revenue. Cost of revenue was $1,179,102 or 82%
of our revenues for the nine months ended September 30, 2009, compared to
$1,846,805 or 82% of our revenues during the same period in
2008. Gross profit was $257,462 or 18% of total revenue for the nine
months ended September 30, 2009, compared to gross profit of $405,428 or 18% of
total revenue for the nine months ended September 30, 2008.
Operating
Expenses. During the nine months ended September 30, 2009, we put a
number of cost cutting measures in place to withstand the decrease in revenues
from our liquidation and live auction broadcast operations. Operating
expenses during the nine months ended September 30, 2009 were $1,504,284 or
approximately 105% of revenue compared to $1,869,516 or approximately 83% of
revenue during the nine months ended September 30, 2008. Operating
expenses are expected to further decrease in the third quarter of the 2009
fiscal year as we realize the effects of additional cost cutting
measures.
During
the nine months ended September 30, 2009, the cost of investor relations and
shareholder information services was $88,679 as compared to $80,720 for the same
period in 2008. We expect the cost of investor relations
in 2009 will remain steady throughout the year.
During
the nine months ended September 30, 2009, salaries and benefits totalled
$504,955 as compared to $861,356 for the same period in 2008. The
decrease of $356,401 or approximately 41% from the previous year was due to cost
cutting measures implemented.
Total
personnel expenses, including salaries and benefits, totalled $621,955 or 41% of
our operating expenses during the nine months ended September 30, 2009 as
compared to $1,153,042 or 64% of our operating expenses during the nine months
ended September 30, 2008. In addition to salaries and benefits,
personnel expenses included management fees of $117,000, and commissions of zero
(compared to $291,686 for the same period in 2008). Current cost
cutting measures, including the reduction in the number of employees, are
expected to reduce personnel expenses for the remainder of the
year.
During
the nine months ended September 30, 2009, advertising and promotion expenses
were $17,815 or 1% of our operating expenses as compared to $22,182 or 1% of our
operating expenses for the nine months ended September 30, 2008.
General
overhead expenses decreased by $37,409 or approximately 10%, to $346,778
during the nine months ended September 30, 2009 (compared to $384,187 for the
same period in 2008). General overhead expenses comprised 23% (compared to 21%
for the same period in 2008) of our total operating expenses and 24% (compared
to 17% for the same period in 2008) of our total revenue. General
overhead expenses include rent and utilities, which totalled $119,264,
telephone, which totalled $31,228, travel related to operations, which totalled
$31,402, repairs and maintenance, which totalled $7,255, automotive, which
totalled $17,880, insurance, which totalled $19,820, website maintenance, which
totalled $27,112 and office and administration expenses, which totalled
$92,817.
Depreciation
and amortization expense was $62,084 for the nine months ended September 30,
2008 as compared to $115,375 for the nine months ended September 30, 2008.
Depreciation and amortization expense was lower during the nine months ended
September 30, 2008 as we fully amortized one of our intangible
assets.
Net
Loss. We realized a net loss of $1,125,197 or $(0.18) per
share for the nine months ended September 30, 2009 as compared to a net loss of
$1,835,180 or $(0.37) per share for the nine months ended September 30,
2008.
Liquidity
and Capital Resources
Our
capital requirements, particularly as they relate to our real estate development
projects, have been and will continue to be significant.
During
the past 12 months we have funded our operations with our revenues, with
interest from our investments and with loans from our executive officer,
director and major shareholder, Mr. Abdul Ladha. A moderate portion
of the revenue we receive comes from the auctions held through iCollector and
the National Auctioneers Association. eBay’s recent decision to terminate the
operations of its eBay Live Auction platform, as well as the recession in the
United States, have had a material adverse affect on our operations, and we
expect this to continue at least through the end of the fiscal
year.
Currently
we believe that revenues from our operations together with interest earned on
our loan portfolio and our cash on hand, which increased significantly due to
the payment of loans and the sale of a building, both of which occurred after
September 30, 2009, will be sufficient to satisfy our working capital needs for
the remainder of this fiscal year. During the next 12 months, if we
need to raise additional capital, we will likely do so by borrowing again from
Mr. Ladha, although he is under no obligation to continue to lend us
funds. We have no commitments for financing for our future needs and
we cannot guarantee that financing will be available to us, on acceptable terms
or at all. If we do not earn revenues sufficient to support our
business and we fail to obtain other financing, we may be required to curtail,
or even to cease, our operations.
As of
September 30, 2009 we had a deficiency in our working capital of $12,554,203
made up of accounts receivable of $437,768, employee receivable of $342,266,
mortgages and loans receivable of $1,907,229, inventory of $239,247 and prepaid
expenses of $49,823 minus current liabilities of $15,530,536.
Cash used
for operating activities totalled $869,128 due primarily to a decrease in
accounts payable and accrued liabilities during the nine months ended September
30, 2009. Our cash resources may decrease further if we are unable to
achieve positive cash flow from our business through 2009.
Cash flow
used in investing activities during the nine months ended September 30, 2009 was
$6,168,794. Cash was used from loan advances to increase our investment in
property held for development. Cash flow from financing activities
was $6,768,741, which primarily resulted from proceeds from bank
loans.
Subsequent
Events
|
|
Subsequent
to September 30, 2009, we entered into the following
transactions:
|
|
1)
|
On
March 13, 2009 our wholly-owned subsidiary, 0716590 BC Ltd., entered into
a Contract of Purchase and Sale (the “Agreement”) for sale of the real
property located at 1963 Lougheed Highway, Coquitlam, British
Columbia. The property consists of approximately 19,646 square
feet of commercial space and approximately 2,300 square feet of
residential space and is located on approximately eight-tenths of an
acre. The purchaser is Business World Development Inc., a party
unrelated to our company or any of our officers or directors (the
“Purchaser”).
|
|
|
The
sale was completed on November 2, 2009. The Purchaser paid CDN$3,400,000
for the property.
|
|
|
We
provided financing to the Purchaser. We have agreed to finance
80% of the purchase price, or $2,720,000. The loan has a term
of 7 years and bears simple interest at the rate of 6.5% per
annum. The payments are amortized over 20 years. The
loan is secured by a mortgage, including an assignment of rents, recorded
against the property.
|
|
2)
|
Effective
October 16, 2009, five of the Company’s subsidiaries, AAC Holdings Ltd.,
Jarvis Industries Ltd., Gruv Development Corporation, 1963 Lougheed
Holdings Ltd., and 0716590 B.C. Ltd. were amalgamated retaining the name
of AAC Holdings Ltd.
|
|
3)
|
On
September 30, 2009 the construction of the Gruv Development was
substantially complete and a conditional occupancy permit was received
from the City of Surrey. On November 6, 2009, the final occupancy permit
was received and as of November 9, 2009, 82 of the 111 purchase contracts
have been successfully closed and funds totaling $17,994,313 CDN have been
received. $15,076,061 CDN of the credit facility provided by the Royal
Bank has been repaid.
|
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, 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.
We may
have significant market risks relating to our operations resulting from foreign
exchange rates from our investments or if we enter into financing or other
business arrangements denominated in currency other than the U.S.
dollar. Variations in the exchange rate may give rise to foreign
exchange gains or losses that may be significant.
Regulations
under the Securities Exchange Act of 1934 (the “Exchange Act”) require public
companies to maintain “disclosure controls and procedures,” which are defined as
controls and other procedures that are designed to ensure that information
required to be disclosed by the issuer in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commission's rules and
forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
We
conducted an evaluation, with the participation of our Chief Executive Officer,
who is also our Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures as of September 30, 2009. Based on that
evaluation, our Chief Executive Officer/Chief Financial Officer has concluded
that, as of September 30, 2009, our disclosure controls and procedures were not
effective due to the material weakness described below.
A
material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5) or
combination of control deficiencies that result in more than a remote likelihood
that a material misstatement of the annual or interim financial statements will
not be prevented or detected. Management has identified the following
material weakness which has caused management to conclude that, as of September
30, 2009, our disclosure controls and procedures were not
effective:
We do not
have sufficient segregation of duties within accounting functions, which is a
basic internal control. Due to our size and nature, segregation of
all conflicting duties may not always be possible and may not be economically
feasible. However, to the extent possible, the initiation of
transactions, the custody of assets and the recording of transactions should be
performed by separate individuals. Management evaluated the impact of
our failure to have segregation of duties on our assessment of our disclosure
controls and procedures and concluded that the control deficiency that resulted
represented a material weakness.
In order
to remediate this weakness, we will need to hire a number of additional
employees. Until we are able to hire additional employees to
remediate this weakness, management has determined to report more frequently to
our audit committee and to have members of our audit committee review our
control procedures on a regular basis.
There
have been no changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during
the fourth quarter of 2008 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Part
II - OTHER INFORMATION
None.
ITEM 1A. RISK FACTORS
As a
smaller reporting company we are not required to provide this
information.
On July
27, 2009 Abdul Ladha and his spouse, Hanifa Ladha, each converted his or her
interest in a promissory note issued by us into 1,204,021 shares of our common
stock, which represented a conversion by each of them of $500,000 in principal
amount and $20,136.99 in accrued interest. We relied on Section 4(2)
of the Securities Act to issue the common stock inasmuch as the securities were
offered and sold without any form of general solicitation or general advertising
and the offerees were accredited investors and possessed information about our
business and operations that registration would otherwise provide.
None.
None.
None.
Exhibits:
| 3.1 | Certificate of Incorporation (1) |
| 3.1.1 | Amendment to Certificate of Incorporation (2) |
| 3.2 | By-laws (1) |
| 10.1 | Share Exchange Agreement dated July 17, 2009 among Ableauctions.com, Inc., Abdul Ladha, Hanifa Ladha, Top Favour Ltd. and the shareholders of Top Favour Ltd. (3) |
| 10.2 | Voting Agreement dated July 17, 2009 between Abdul Ladha and Hanifa Ladha and Top Favour Ltd. (3) |
| 31.1 | Certification pursuant to Rule 13a-14(a) and 15d-14(a) (4) |
| 31.2 | Certification pursuant to Rule 13a-14(a) and 15d-14(a) (4) |
| 32 | Certification Pursuant to 18 U.S.C. Section 1850 as Adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002(4) |
(1)
Incorporated by reference from the Form 10-SB filed with the Securities and
Exchange Commission on November 13, 1999, as amended on December 30,
1999.
(2)
Incorporated by reference from the Form 10-QSB for the quarter ended June 30,
2004 filed with the Securities and Exchange Commission on August 12,
2004.
(3)
Incorporated by reference from the Form 8-K filed with the Securities and
Exchange Commission on July 17, 2009
(4) Filed
herewith.
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:
November 13, 2009
|
By:
|
/s/ ABDUL LADHA | |
| Abdul Ladha | |||
| President, Chief Executive | |||
| Officer, Chief Financial Officer | |||