UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-28179
ABLEAUCTIONS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3404233
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1222 46th Avenue East
Fife, Washington
98424
(Address of principal executive offices)
(Zip Code)
(253) 926-1122
(Registrant's telephone number including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO ISSUERS INVOLVE IN BANKRUPTCY
PROCEEDINGS DURNG THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. YES [ ] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The registrant has 28,726,449 shares
of common stock, $0.001, issued and outstanding as of September 30, 2002.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ x ]
ABLEAUCTIONS.COM, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30 DECEMBER 31
2002 2001
------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT
Cash and cash equivalents ......................................... $ 189,601 $ 501,351
Accounts receivable - trade ....................................... 241,670 54,109
Inventory ......................................................... 211,441 75,791
Prepaid expenses .................................................. 108,491 122,583
Current portion of receivable on agreement for sale ............... 64,054 5,421
------------ ------------
815,257 759,255
NOTE RECEIVABLE ........................................................ 128,108 100,000
TRADEMARK, NET ......................................................... -- 8,788
CAPITAL ASSETS, NET .................................................... 638,094 2,693,008
WEB SITE DEVELOPMENT COSTS, NET ........................................ -- 31,027
------------ ------------
$ 1,581,459 $ 3,592,078
============ ============
========================================================================================================================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities .......................... $ 857,647 $ 1,262,394
Current portion of promissory note ................................ -- 9,592
Note payable ...................................................... 133,287 --
Deferred compensation on notes .................................... -- 2,762,808
------------ ------------
990,934 4,034,794
PROMISSORY NOTE ........................................................ -- 1,030,718
------------ ------------
990,934 5,065,512
------------ ------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
CAPITAL STOCK
Authorized:
62,500,000 common shares with a par value of $0.001
Issued and outstanding common shares:
September 30, 2002 - 28,726,449
December 31, 2001 - 25,127,020 ............................ 28,726 25,127
Additional paid-in capital ........................................ 26,677,513 23,439,124
DEFERRED OPTION PLAN COMPENSATION ...................................... (25,620) (309,885)
DEFICIT ................................................................ (26,057,163) (24,618,078)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) .......................... (32,931) (9,722)
------------ ------------
590,525 (1,473,434)
------------ ------------
$ 1,581,459 $ 3,592,078
============ ============
ABLEAUCTIONS.COM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2002 2001 2002 2001
------------------------------------------------------------------------------------------------------------------------------------
REVENUES
Sales ......................................... $ 191,593 $ 241,182 $ 656,240 $ 1,176,196
Commissions ................................... 207,221 129,867 832,709 630,860
------------ ------------ ------------ ------------
398,814 371,049 1,488,949 1,807,056
COST OF REVENUES ................................... 61,399 215,411 309,600 723,831
------------ ------------ ------------ ------------
GROSS PROFIT ....................................... 337,415 155,638 1,179,349 1,083,225
------------ ------------ ------------ ------------
EXPENSES
Operating expenses (Note 3) .................. 686,312 506,080 2,041,966 1,953,205
Amortization of goodwill ...................... -- 72,789 -- 218,364
Depreciation and amortization of capital ...... 52,497 79,665 162,061 237,355
assets
Interest on deferred compensation on notes .... 78,413 -- 238,355 --
Interest on promissory note ................... 6,124 -- 6,124 --
------------ ------------ ------------ ------------
823,346 658,534 2,448,506 2,408,924
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE OTHER ITEMS ................... (485,931) (502,896) (1,269,157) (1,325,699)
------------ ------------ ------------ ------------
OTHER ITEMS
Interest income ............................... 1,582 15,475 1,752 21,751
(Loss) Gain on disposal of assets ............. 8,654 -- 8,654 --
Foreign exchange gain (loss) .................. 503 21,114 (1,072) 19,589
------------ ------------ ----------- ------------
10,739 36,589 9,334 41,340
------------ ------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS ........... (475,192) (466,307) (1,259,823) (1,284,359)
GAIN (LOSS) ON DISPOSITION OF BUSINESS OPERATIONS .. 300,853 (101,245) 300,853 (532,327)
DISCONTINUED OPERATIONS ............................ (282,982) (138,398) (480,115) 263,350
------------ ------------ ------------ ------------
LOSS FOR THE PERIOD ................................ $ (457,321) $ (705,950) $ (1,439,085) $ (1,553,336)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE
Income (Loss) from continuing operations ...... $ (0.02) $ (0.02) $ (0.05) $ (0.06)
Loss for the period ........................... $ (0.02) $ (0.03) $ (0.06) $ (0.07)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ...... 25,568,682 20,976,661 25,568,682 20,976,661
============ ============ ============ ============
ABLEAUCTIONS.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
---------------------------------------------------------------------------------------------------------------------
9 MONTHS ENDED SEPTEMBER 30
2002 2001
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the period from continuing operations ..................... $(1,259,823) $(1,284,359)
Non-cash items included in net loss:
Depreciation and amortization .................................. 162,061 237,355
Amortization of goodwill ....................................... -- 218,364
Bad debts ...................................................... -- 28,007
Gain on disposal of asset ...................................... (8,654) --
Interest on deferred compensation on notes ..................... 238,355 --
Stock based compensation ....................................... 114,103 157,653
Shares issued for other than cash .............................. 157,276 --
----------- -----------
(596,682) (642,980)
Changes in operating working capital items:
(Increase) Decrease in accounts receivable ..................... (438,354) 288,406
(Increase) Decrease in inventory ............................... (135,650) (36,805)
Increase (Decrease) in prepaid expenses ........................ 14,092 (158,061)
Increase (Decrease) in accounts payable and accrued liabilities 127,111 258,699
----------- -----------
Net cash used in operating activities .............................. (1,029,482) (290,741)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of capital assets, net .................................... (20,843) (35,950)
Proceeds on disposition of subsidiaries, net of cash divested ...... -- 23,207
Proceeds of receivable on agreement for sale ....................... -- 64,994
Proceeds on disposition of building ................................ 1,700,000 --
Investment in subsidiaries ......................................... -- 2,161,308
Note receivable .................................................... 100,000 --
----------- -----------
NET CASH FROM INVESTING ACTIVITIES ................................ 1,779,157 2,213,559
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of promissory note ....................................... (1,030,718) (7,202)
Share issuance costs ............................................... (7,497) (12,840)
----------- -----------
Net cash from (used in) financing activities ...................... (1,038,215) (20,042)
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS FOR THE PERIOD ...................... (288,541) 1,902,776
NET CASH USED IN DISCONTINUED OPERATIONS ................................ (172,478) (95,263)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .......................... 673,829 1,376,814
EFFECT OF EXCHANGE RATES ON CASH ........................................ (23,209) (18,504)
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................ $ 189,601 $ 3,165,823
=========== ===========
Supplemental disclosures with respect to cash flows (Note 10)
ABLEAUCTIONS.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
1. BUSINESS AND BASIS OF ORGANIZATION
Ableauctions.com, Inc. (the 'Company') was organized on September 30, 1996,
under the laws of the State of Florida, as J.B. Financial Services, Inc. On
July 19, 1999, an Article of Amendment was filed with the State of Florida
for the change of the Company's name from J.B. Financial Services, Inc. to
Ableauctions.com, Inc.
The Company's primary business activity is as a high-tech
business-to-business and consumer auctioneer that conducts live auctions.
Approximately 25% of these auctions are simultaneously broadcast over
the Internet. The Company liquidates a broad range of equipment, including
computers, electronics, office equipment, furniture and industrial
equipment that it acquires through bankruptcies, insolvencies and defaults.
The Company's primary operating subsidiaries at September 30, 2002 are:
Able Auctions (1991) Ltd., operating a Canadian-based auction
business.
Ableauctions.com (Washington) Inc., operating a U.S.-based auction
business.
Ehli's Commercial/Industrial Auctions, Inc., a U.S.-based liquidator
of automobiles and industrial equipment.
Icollector International Ltd., a Canadian-based Internet auction
facility.
Jarvis Industries Ltd., a Canadian-based auction house.
The unaudited consolidated financial statements of the Company at September
30, 2002 include the accounts of the Company and its wholly-owned
subsidiaries, and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair presentation of the financial position and operating results for
the interim period. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in these
interim statements under the rules and regulations of the Securities and
Exchange Commission ("SEC"). Accounting policies used in fiscal 2002 are
consistent with those used in fiscal 2001. The results of operations for
the nine month period ended September 30, 2002 are not necessarily
indicative of the results for the entire fiscal year ending December 31,
2002. These interim financial statements should be read in conjunction with
the financial statements for the fiscal year ended December 31, 2001 and
the notes thereto included in the Company's Form 10-KSB filed with the SEC
on April 23, 2002. The consolidated financial statements have been prepared
in accordance with generally accepted accounting principles in the United
States.
ABLEAUCTIONS.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
2. LIQUIDITY AND FUTURE OPERATIONS
The Company has sustained net losses and negative cash flows from
operations since its inception. At September 30, 2002 the Company has
negative working capital of $175,677. The Company's ability to meet its
obligations in the ordinary course of business is dependent upon its
ability to establish profitable operations and to obtain additional funding
through public or private equity or debt financing. Management is seeking
to increase revenues through continued marketing of its services; however,
additional funding is required.
Management is working to obtain sufficient working capital from external
sources in order to continue operations. There is, however, no assurance
that the aforementioned events, including the receipt of additional
funding, will occur or be successful.
3. OPERATING EXPENSES
---------------------------------------------------------------------------------------------------------------------------------
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2002 2001 2002 2001
--------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Accounting and legal ............................ $ 100,735 $ 15,440 $ 200,525 $ 43,999
Advertising and promotion ....................... 56,268 54,428 213,742 231,155
Automobile ..................................... 4,166 3,470 16,216 21,322
Bad debts ...................................... -- 3,433 858 3,695
Commission ...................................... -- 2,460 -- 3,127
Consulting ..................................... 28,578 30,688 99,607 90,474
Insurance ...................................... 30,618 34,313 87,024 89,271
Investor relations and shareholder ............. 14,964 4,736 34,698 5,913
information
Licenses and permits ........................... 890 643 2,048 1,974
Management fees ................................ 42,339 -- 145,116 --
Office and administration ...................... 60,105 2,297 114,062 76,616
Rent and utilities ............................. 70,708 102,085 211,837 368,375
Repairs and maintenance ........................ 6,459 23,364 20,986 63,849
Salaries and benefits .......................... 179,651 207,445 713,836 882,152
Telephone ...................................... 7,363 8,080 22,950 52,939
Travel ......................................... 17,090 13,198 23,329 18,344
Website maintenance ............................ 66,378 -- 135,132 --
---------- ---------- ---------- ----------
Total operating expenses ............................ 686,312 506,080 2,041,966 1,953,205
========== ========== ========== ==========
4. NOTE RECEIVABLE
In conjunction with our sale of certain assets belonging to Able Auctions
(1991) Ltd., we obtained a note. The note is payable in the amount of
US$5,338 per month for three years, without interest, due July 31, 2005 and
is secured by the pledge and escrow to the Company of the shares of Able
Solutions, Inc., the purchaser of the assets.
Note receivable 192,162
Less: current portion (64,054)
-------
128,108
5. STOCK OPTION PLAN
On September 6, 2002, the Company granted to employees and consultants
options to acquire a total of 4,605,000 common shares, 3,905,000 shares at
an exercise price of $0.15 and 700,000 shares at an exercise price of
$0.25.
6. RELATED PARTY TRANSACTIONS
During the nine month period ended September 30, 2002 the following related
party transactions occurred:
a) The Company paid rent of $66,312 to an entity controlled by its Chief
Executive Officer and director.
b) The Company paid and accrued a total of $114,221 in management fees
for services performed by its CEO. The payments were made payable to
an entity controlled by the Company's CEO and director.
c) Note payable of $133,287 is owing to a director of the Company.
d) During the quarter ended September 30, 2002, due to a lack of capital
to finance the transaction, the Company entered into a joint venture
with three of its directors to acquire inventory of crystal and fine
china for $337,179. The Company's share of the joint venture is 27%
and the financial statements reflect only the Company's pro-rata share
of the inventory. As at September 30, 2002, no inventory had been sold
by the joint venture.
7. DIVESTITURES
a) Effective August 1, 2002, the Company disposed of part of the assets
and liabilities of one of its subsidiaries, Able Auctions (1991) Ltd.
The purchase price is to be paid as follows:
Cash of US$192,162 payable in the amount of US$5,338 per month for
three years after the closing date, without interest, evidenced by a
promissory note and secured by the pledge and escrow to the Company of
shares in Able Solutions, Inc.
In addition the purchaser has guaranteed payment of the liabilities
assumed in the transactions.
The fair value of the assets and liabilities that were sold were as
follows:
Receivable $ 41,744
Inventory 102,858
Other assets 186,696
Liabilities (518,777)
-----------
$ (187,479)
===========
The revenues and expenses related to the operation of Able Auctions
(1991) Ltd until August 1, 2002, and for the comparative fiscal period
are included in discontinued operations.
b) The Company discontinued operations in Arizona and San Francisco in
July 2002 and August 2002 respectively. The losses incurred during the
nine month period ending September 30, 2002 are included in
discontinued operations.
In connection with the discontinuance of its Arizona operation the
Company entered into an agreement to sell its Arizona building for
$1,700,000. The sale price consisted of $400,000 in cash, assumption
of the mortgage on the property totaling $1,000,000, and a promissory
note for the balance of $287,500 payable in May 2003. This receivable
was assigned to a director of the Company in consideration of a
reduction in the amount of debt due to the director and for an
immediate injection of the funds into the Company. The Company
incurred a loss of $139,874 on the disposal of the Arizona property.
This loss is included in discontinued operations.
8. NOTE PAYABLE
The Company is indebted to a director of the Company in the amount of
$133,287, payable on demand with interest at 10% per annum, secured by a
General Security Agreement against the assets of the Company. The director
also has agreed to provide a line of credit in the amount of $1,000,000 to
the Company. The line of credit is also secured with the Company's assets.
9. WARRANTS
During the period ended September 30, 2002, the Company issued 100,000
warrants in exchange for legal services having a value of $17,730.
The warrants are convertible into the Company's common stock at a price of
$0.40 per share.
If any portion of the warrants are not exercised, the unexercised portion
will expire on June 30, 2004
10. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS
During the period ended June 30, 2002, the Company issued 716,045 common
shares in exchange for cancellation of debt totalling $164,743, and in
payment for services rendered and as compensation valued at $94,122
During the period ended September 30, 2002, the Company further issued
2,883,384 common shares in exchange for cancellation of debt totalling
$3,070,115 and in payment for services rendered and as compensation valued
at $63,154.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this Form 10-QSB 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.
Forward-looking statements include words such as "believes," "anticipates,"
"intends," "expects" and similar kinds of words. Forward-looking statements
involve risks, uncertainties and other factors, some of which are not yet known
to us. These risks, uncertainties and other factors may cause our actual results
or achievements to be materially different from the results or achievements
expressed or implied in the forward-looking statements. Such factors include,
but are not limited to, the following:
o risks related to our acquisition strategy and our ability to integrate
acquired businesses into our operations;
o our ability to obtain financing on acceptable terms;
o competition in the auction industry;
o market acceptance of live auction broadcasts on the Internet;
o our ability to retain our key personnel;
o our dependence on marketing relationships with auction houses and third
party suppliers;
o government regulation of Internet commerce and the auction industry;
o economic factors affecting the sales of auction merchandise;
o risks related to capacity and systems disruptions on the Internet;
the factors more fully discussed in this Quarterly Report and other factors,
some of which will be outside our control. You are cautioned not to place undue
reliance on these forward-looking statements, which relate only to events as of
the date on which the statements are made.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion relating to our results of operations should be read in
conjunction with our audited consolidated financial statements and the related
notes for the year ended December 31, 2001. Our financial statements have been
prepared in accordance with United States generally accepted accounting
principles.
Our results for the third quarter reflect management's ongoing efforts to reduce
costs and achieve profitability. We have implemented strong controls throughout
the organization that we believe will help us achieve profitability by year-end.
During this quarter we paid some of our debt with our common stock, we sold our
building in Arizona, and we entered into a licensing agreement
with Able Solutions, Inc. These actions have substantially reduced our overall
liabilities from $5,932,099 last quarter to $990,934.
Despite the traditionally slow summer months and the limited impact of our
cost-cutting efforts on this quarter, our technology division and our
subsidiary, iCollector International, Ltd., were profitable. Our general auction
operations and our automotive auctions in particular were most heavily affected
by the sluggish economy but are now showing signs of recovery. The elimination
of debt, curbing of overhead and licensing of certain non-performing operations
have helped to eliminate the drag on our business. Since September 2002, we have
increased our focus on specialty auctions and liquidations, acquiring larger
inventories at better margins. Some of these "specialty auctions" include 42,000
pieces of fine, name-brand crystal and china and inventory from an abandoned
tower in New York City. Management believes this strategy will play a pivotal
role in our growth.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTH PERIOD
ENDED SEPTEMBER 30, 2001
Revenues. During the three month period ended September 30, 2002, we had net
auction revenues of $398,814 compared to $371,049 during the same period in
2001, an increase of $27,765 or approximately 7.5%. Sales of goods were 48% of
our revenues during the three month period ended September 30, 2002, compared to
65% during the three month period ended September 30, 2001. Due to cash flow
constraints in the latter part of 2001 and in 2002, we have not been in a
position to acquire as much inventory as our business plan had anticipated. As a
result we have conducted a larger proportion of our auctions on a consignment
basis. If we are able to improve our cash flow, we plan to purchase more
inventory for sale. In that event, revenues from the sales of goods should
increase as a percentage of revenues, since sales of inventory we purchase
generally result in higher gross profit margins than sales of consigned
inventory.
Operating Expenses. During the three month period ended September 30, 2002,
operating expenses were $686,312 as compared to $506,080 for the same period in
2001, an increase of $180,232 or approximately 35.6%. Operating expenses are
higher than the corresponding period in the previous year as a result of
increased legal fees, management fees (in lieu of salary) paid to our President
and Chief Executive Officer and our former Chief Financial Officer, and website
maintenance.
Personnel and consulting expenses were $250,568 or 36.5% of our operating
expenses during the three month period ended September 30, 2002 as compared to
$240,593 or 47.5% of our operating expenses during the three-month period ended
September 30, 2001. These expenses consisted of salaries and benefits totaling
$179,651 as compared to $207,445 for the three month period ended September 30,
2001 and consulting and management fees of $70,917 as compared to $30,688 for
the three month period ended September 30, 2001. We paid no commissions during
the three month period ended September 30, 2002, as compared to $2,460 for the
three month period ended September 30, 2001. The increases in personnel and
consulting expenses relate to increased management fees and severance costs
that we paid which related to our cost-cutting measures.
During the three month period ended September 30, 2002, advertising and
promotion expenses remained relatively constant at $56,268 or 8.2% of our
operating expenses as compared to $54,428 or 10.8% of our operating expenses for
the three month period ended September 30, 2001.
Our general overhead expenses totaled $196,509, or 28.6% of our total operating
expenses and 49.3% of our total revenue for the three month period ended
September 30, 2002 as compared to $186,807, or 36.9% of our total operating
expenses and 50.3% of our total revenue for the three month period ended
September 30, 2001. General overhead expense related to rent and utilities was
$70,708 as compared to $102,085 for the three month period ended September 30,
2001, telephone expense was $7,363 as compared to $8,080 for the three month
period ended September 30, 2001, travel expense related to operations was
$17,090 as compared to $13,198 for the three month period ended September 30,
2001, repair and maintenance expense was $6,459 as compared to $23,364 for the
three month period ended September 30, 2001, automotive expense was $4,166 as
compared to $3,470 for the three month period ended September 30, 2001,
insurance expense was $30,618 as compared to $34,313 for the three month period
ended September 30, 2001 and office expense totaled $60,105 as compared to
$2,297 for the three month period ended September 30, 2001. The sizeable
increase in office expense was primarily related to our listing of additional
shares with the American Stock Exchange. Most of these additional shares related
to our acquisition of iCollector PLC.
Professional fees were $100,735 during the three month period ended September
30, 2002 as compared to $15,440 for the three month period ended September 30,
2001. Professional fees related to the preparation of our Securities Exchange
Act reports and American Stock Exchange filings, fees related to the preparation
of documentation for a line of credit from our President, Abdul Ladha, fees for
documentation prepared relating to our cost cutting measures, and fees for
general business consulting, including continued advice related to our
acquisition of iCollector PLC and its restructuring.
Depreciation and amortization expense was $52,497 for the three month period
ended September 30, 2002 as compared to $79,665 for the three month period ended
September 30, 2001. Depreciation and amortization expense is lower than the
previous year because certain depreciable assets were part of operations that
were discontinued in 2002 and were accounted for as a part of discontinued
operations.
Gross Profit. Cost of goods sold was $61,399 for the three month period ended
September 30, 2002 as compared to $215,411 for the three month period ended
September 30, 2001. Gross profit was $337,415 for the three month period ended
September 30, 2002, or 84.6% of revenues, as compared to $155,638 for the three
month period ended September 30, 2001, or 41.9% of revenues. The increase in
gross profit during this quarter resulted from sales of inventory that we owned,
rather than inventory that was consigned.
Operating Income and Net Loss. For the quarter ended September 30, 2002, we
realized a loss from operations of $475,192 as compared to $466,307 for the
three month period ended
September 30, 2001. During the three month period ended September 30, 2002, we
realized a gain in the amount of $300,853 on the disposition of discontinued
operations as compared to a loss of $101,245 on the disposition of discontinued
operations for the three month period ended September 30, 2001. We also realized
a loss of $282,982 from discontinued operations during the three month period
ended September 30, 2002, as compared to $138,398 for the three month period
ended September 30, 2001. During the three month period ended September 30,
2002, we realized an overall net loss of $457,321, or $0.02 per share as
compared to an overall net loss of $705,950, or $0.03 per share, for the three
month period ended September 30, 2001.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 2001
Revenues. During the nine month period ended September 30, 2002, we had net
auction revenues of $1,488,949, compared to $1,807,056 during the same period in
2001, a decrease of $318,107 or approximately 17.6%. Sales of goods were 44.1%
of our revenues during the nine month period ended September 30, 2002, compared
to 65.1% during the same period in 2001. Due to cash flow constraints in the
latter part of 2001 and in 2002, we have not been in a position to acquire as
much inventory as our business plan had anticipated. As a result we have
conducted a larger proportion of our auctions on a consignment basis. If we are
able to improve our cash flow, we plan to purchase more inventory for sale. In
that event, revenues from the sales of goods should increase as a percentage of
revenues, since sales of inventory we purchase generally result in higher gross
profit margins than sales of consigned inventory.
Operating Expenses. During the nine month period ended September 30, 2002,
operating expenses were $2,041,966, as compared to $1,953,205 for the nine month
period ended September 30, 2001. Operating expenses are higher than the
corresponding period in the previous year as a result of increased legal fees,
management fees and website maintenance. We anticipate that overall operating
expenses will decrease for the remainder of 2002 as a result of our cost cutting
measures.
Personnel and consulting expenses were $958,559 or 46.9% of our operating
expenses during the nine month period ended September 30, 2002 as compared to
$975,753 or 50% of our operating expenses during the nine month period ended
September 30, 2001. These expenses consisted of salaries and benefits totaling
$713,836 as compared to $882,152 for the nine month period ended September 30,
2001 and consulting and management fees totaling $244,723 as compared to $90,474
for the nine month period ended September 30, 2001. We paid no commissions
during the nine month period ended September 30, 2002, as compared to $3,127 in
commissions for the nine month period ended September 30, 2001. In August 2002,
as part of our cost cutting measures, we terminated certain employees and, in
connection with the termination, paid severance benefits. We expect this
reduction in personnel expenses to reduce overall operating expenses in the
future.
During the nine month period ended September 30, 2002, advertising and promotion
expenses were $213,742 or 10.5% of our operating expenses as compared to
$231,155 or 11.8% of our operating expenses for the nine month period ended
September 30, 2001.
General overhead expense related to rent and utilities totaled $211,837 as
compared to $368,375 for the nine month period ended September 30, 2001,
telephone expense totaled $22,950 as
compared to $52,939 for the nine month period ended September 30, 2001, travel
related to operations totaled $23,329 as compared to $18,344 for the nine month
period ended September 30, 2001, repair and maintenance expense totaled $20,986
as compared to $63,849 for the nine month period ended September 30, 2001,
automotive expense totaled $16,216 as compared to $21,322 for the nine month
period ended September 30, 2001, insurance expense totaled $87,024 as compared
to $89,271 for the nine month period ended September 30, 2001 and office expense
totaled $114,062 as compared to $76,616 for the nine month period ended
September 30, 2001. These expenses totaled $496,404, or 24.3% of our total
operating expenses and 33.3% of our total revenue for the nine month period
ended September 30, 2002 as opposed to $690,716, or 35.4% of our total operating
expenses and 38.2% of our total revenue for the nine month period ended
September 30, 2001.
As a result of our staff reductions, we anticipate that general overhead as a
percentage of operating expenses and total revenue will further decrease in
future periods.
Professional fees were $200,525 during the nine month period ended September 30,
2002 as compared to $43,999 for the nine month period ended September 30, 2001.
Professional fees related to the preparation of our Securities Exchange Act
reports and American Stock Exchange filings, and included professional fees
associated with the filing of an S-1 Registration Statement, fees related to the
preparation of documentation for a line of credit from our President, Abdul
Ladha, fees for documentation required by our cost cutting measures and fees for
general business consulting, including continuing services related to our
acquisition of iCollector PLC and its restructuring.
Depreciation and amortization expense was $162,061 for the nine month period
ended September 30, 2002 as compared to $237,355 for the nine month period ended
June 30, 2001. Depreciation and amortization expense are lower than the previous
year because certain depreciable assets were part of operations that were
discontinued in 2002 and were accounted for as discontinued operations.
Gross Profit. Cost of goods sold was $309,600 for the nine month period ended
September 30, 2002 as compared to $723,831 for the nine month period ended
September 30, 2001. Gross profit was $1,179,349 for the nine month period ended
September 30, 2002, or 79.2% of revenues, as compared to $1,083,225 for the nine
month period ended September 30, 2001, or 60.0% of revenues. Until we developed
our inventory procurement model, normal gross margins were approximately 25% to
60% overall. We believe gross profits will increase in future periods as we
realize the benefits of our inventory procurement model by buying large
quantities of discount merchandise and distributing this merchandise to our
various outlets.
Operating Income and Net Loss. For the nine month period ended September 30,
2002, we realized a loss of $1,259,823 from operations as compared to a loss of
$1,284,359 for the nine month period ended September 30, 2001. For the nine
month period ended September 30, 2002, we realized a gain of $300,853 on
disposition of discontinued operations as compared to a loss on disposition of
discontinued operations of $532,327 for the nine month period ended September
30, 2001. We also realized a loss of $480,115 from discontinued operations
during the nine month period ended September 30, 2001, as compared to a gain of
$263,350 for the nine month period ended September 30, 2001. We realized an
overall net loss for the nine month period ended September 30, 2002 of
$1,439,085 or $0.06 per share as compared to $1,553,336 or $0.07 per share for
the nine month period ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
In order to finance operations, provide working capital and purchase inventory,
we have secured a line of credit for up to $1 million from our President. The
line of credit is secured by our assets.
Our working capital position at September 30, 2002 was a negative $175,677. As
of September 30, 2002, we had cash and cash equivalents of $189,601, accounts
receivables of $241,670, inventory of $211,441, prepaid expenses of $108,491 and
$64,054 representing the current portion of a receivable due from the sale of
certain assets of our subsidiary, Able Auctions (1991) Ltd. We anticipate that
trade accounts receivables and inventory may decrease during the remainder of
fiscal 2002 as a result of our cost cutting measures. Cash flow used for
operating activities required $1,029,482 during the quarter ended September 30,
2002. We anticipate that cash resources will remain constant for 2002. Our cash
resources may decrease if we are unable to maintain positive cash flow from our
business through 2002. We intend to continue our acquisition program only if
additional financing is available.
Cash flow from investing activities during the quarter ended September 30, 2002
generated $1,779,157. This was due primarily to the repayment of a note
receivable related to the sale of our Arizona property.
Net cash flow from financing activities during the quarter ended September 30,
2002 was $1,038,215. This was also primarily due to the repayment of the
promissory note we received on the sale of our Arizona property.
We believe that revenues from our operations will be sufficient to satisfy our
working capital needs for the remainder of 2002, since management has suspended
our acquisition and expansion plans until additional financing is available and
has reduced budgeted expenditures related to technology development and
upgrades.
OUTLOOK
We believe that we have created an infrastructure, Internet technology, and
inventory procurement model that will realize significant benefits in the
future. Because under current market conditions we are unable to obtain bank
financing, we intend to concentrate our resources on existing operations rather
than expansion. We intend to meet our cash requirements through revenues
generated from our operations, a loan from our President and private or public
placements of our equity or debt. We are currently seeking such financing by
presenting our business plan to merchant and investment banks, fund managers and
investment advisors. We cannot assure you that we will successfully raise any
additional financing on acceptable terms, if at all, and our failure to do so
and meet our cash requirements will force us to abandon some of our plans of
operation, sell some of our assets or certain business operations or liquidate
our business, all of which will have a material adverse effect on our business
and results of operations.
We cannot assure you that our actual expenditures for this period will not
exceed our estimated operating and capital budget. Actual expenditures will
depend on a number of
factors, some of which are beyond our control, such as competitive factors in
the auction industry that may require us to spend more on advertising or
acquiring inventory than we planned.
We will continue to operate auctions at our British Columbia and Tacoma,
Washington locations. We also hold auctions on eBay and at customer locations in
bankruptcies and insolvencies. Between eBay and our physical locations, we hold,
on average, approximately 20 live auctions per month. We will also continue to
focus on larger specialty auctions and liquidations that require more capital up
front, but provide us with better margins.
We eventually intend to broadcast the auctions of other auction houses from a
variety of locations throughout North America. It is also our intention to
continue to license our software and intellectual property, as we did with Able
Solutions, Inc. in August 2002, to other auction companies and to commence
marketing efforts in the remainder of 2002. We also intend to continue to
identify possible auction companies with which to enter into marketing
relationships.
Set forth below is our estimated cash operating and capital budgets for
operations for the fiscal year ending December 31, 2002:
Continued support of iCollector Operations 250,000
Continued support of auction operations 200,000
Budget for Specialty Auctions 400,000
-------
REQUIRED CAPITAL: $850,000
As of September 30, 2002, we had a working capital deficit of $175,677.
In the event we determine that we may be unable to meet our on-going capital
commitments, we may take some or all of the following actions:
o reduce expenditures on iCollector and on our traditional auction house
operations;
o reduce the number of specialty auctions;
o reduce general and administrative expenses through lay offs or
consolidation of our operations;
o suspend operations that are not economically profitable; or
o sell assets, including licenses to our technologies.
Our business and our ability to raise additional financing may be adversely
affected by political and economic risks and uncertainties. The general economic
slow down in the United States and Europe may adversely affect the demand for
products offered at our auctions. The events of September 11, 2001 and the
political uncertainty in the Middle East may negatively affect the general
economy, the capital markets and our ability to raise capital on acceptable
terms, if at all. There can be no assurance that the Company will be able to
increase our revenues from operations or to raise sufficient financing to meet
our on-going obligations on acceptable terms, if at all. We also cannot assure
you we will successfully integrate the iCollector operations into
our business or that economic uncertainties will not have a material adverse
affect on our business and results of operations.
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3.1 Certificate of Incorporation(1)
3.2 Bylaws(1)
10.1 Commercial Line of Credit Agreement(2)
99. Certification of Officers of Ableauctions, Inc. Pursuant to 18
USCss.1350(2)
(1) Incorporated by reference from the registrant's registration statement
on Form 10-SB.
(2) Filed herewith.
b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABLEAUCTIONS.COM INC.
Date: November 14, 2002 By: /s/ ABDUL LADHA
Name: Abdul Ladha
Title: President & Chief Executive
Officer
(Principal Executive Officer)
Date: November 14, 2002 By: /s/ DANIEL LI
Name: Daniel Li
Title: Chief Financial Officer
Principal Financial Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULES 13A-14 AND 15D-14
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Abdul Ladha, Chief Executive Officer of Ableauctions, Inc., certify
that:
I have reviewed this quarterly report on Form 10-QSB of Ableauctions, Inc.
Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in the report.
I and the other certifying officers are responsible for establishing and
maintaining disclosure controls and procedures for the Company.
I have designed such disclosure controls and procedures to ensure that
material information is made known to them, particularly during the period in
which the periodic report is being prepared.
I have evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this report;
and
I have presented in the report my conclusions about the effectiveness of
the disclosure controls and procedures based on the required evaluation as of
that date.
I have disclosed to the Company's auditors and to the audit committee of
the board of directors (or persons fulfilling the equivalent function):
(i) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
(ii) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls;
and
I and the other certifying officers have indicated in the report whether or
not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: November 14, 2002
/s/ Abdul Ladha
------------------------------------
Abdul Ladha,
Chief Executive Officer
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO RULES 13A-14 AND 15D-14
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Daniel Li, Chief Financial Officer of Ableauctions, Inc., certify that:
I have reviewed this quarterly report on Form 10-QSB of Ableauctions, Inc.
Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
Based on my knowledge, the financial statements, and other financial
information included in the report, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of,
and for, the periods presented in the report.
I and the other certifying officers are responsible for establishing and
maintaining disclosure controls and procedures for the Company.
I have designed such disclosure controls and procedures to ensure that
material information is made known to them, particularly during the period in
which the periodic report is being prepared.
I have evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this report;
and
I have presented in the report my conclusions about the effectiveness of
the disclosure controls and procedures based on the required evaluation as of
that date.
I have disclosed to the Company's auditors and to the audit committee of
the board of directors (or persons fulfilling the equivalent function):
(i) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
(ii) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal controls;
and
I and the other certifying officers have indicated in the report whether or
not there were significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: November 14, 2002
/s/ Daniel Li
------------------------------------
Daniel Li,
Chief Financial Officer
EXHIBIT 99.
CERTIFICATION OF OFFICERS
OF ABLEAUCTIONS, INC.
PURSUANT TO 18 USCss.1350
I hereby certify that the accompanying report on Form 10-QSB for the period
ended September 30, 2002, and filed with the Securities and Exchange Commission
on the date hereof pursuant to Section 13(a) of the Securities Exchange Act of
1934 (the "Report") by Ableauctions, Inc. fully complies with the requirements
of that section.
I further certify that the information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of
the Company.
/s/ Abdul Ladha
----------------------------------
Abdul Ladha, President
and Chief Executive Officer
/s/ Daniel Li
----------------------------------
Daniel Li,
Chief Financial Officer