able-10q3312009.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark One)
|
|
x
|
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 March
31, 2009 |
|
|
|
OR |
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r
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the
transition period from ________________ to __________________.
Commission
file number 0-28179
ABLEAUCTIONS.COM,
INC.
(Exact
name of small business issuer in its charter)
Florida
|
59-3404233
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
Suite
200 - 1963 Lougheed Highway
Coquitlam,
British Columbia
V3K-3T8
(Address
of principal executive offices)
(604)
521-3369
(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 r
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.
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). r Yes r No
Large
accelerated filer r
|
Accelerated
filer r
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|
|
Non-accelerated
filer r
(Do not check if a smaller reporting company)
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes r No x
The
number of outstanding common shares, $ .001 par value, of the registrant at May
6, 2009 was 5,754,172.
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31,
2009
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
BALANCE SHEET
(Unaudited)
|
|
MARCH
31
|
|
|
DECEMBER
31
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|
|
|
2009
|
|
|
2008
|
|
ASSETS
|
|
|
|
|
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Current
|
|
|
|
|
|
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Cash
and cash equivalents
|
|
$ |
364,947 |
|
|
$ |
223,592 |
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Accounts
receivable – trade, net of allowance
|
|
|
634,321 |
|
|
|
545,740 |
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Employee
receivable
|
|
|
278,072 |
|
|
|
248,072 |
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Mortgages
and loans receivable
|
|
|
2,315,968 |
|
|
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2,294,745 |
|
Inventory
|
|
|
486,077 |
|
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|
666,138 |
|
Prepaid
expenses
|
|
|
55,665 |
|
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63,841 |
|
|
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4,135,050 |
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4,042,128 |
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Deposits
|
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|
309,802 |
|
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|
320,558 |
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Property
and Equipment
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2,198,172 |
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2,312,187 |
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Property
Held for Development
|
|
|
9,536,629 |
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8,520,055 |
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Investment
in Joint Venture
|
|
|
1,181,138 |
|
|
|
1,223,728 |
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Investment
in Surrey City Central
|
|
|
1,676,123 |
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1,671,638 |
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|
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|
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$ |
19,036,914 |
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$ |
18,090,294 |
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LIABILITIES
|
|
|
|
|
|
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Current
|
|
|
|
|
|
|
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Accounts
payable and accrued liabilities
|
|
$ |
265,995 |
|
|
$ |
519,043 |
|
Due
to related party
|
|
|
1,363,765 |
|
|
|
1,363,765 |
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Bank
loan
|
|
|
8,069,889 |
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|
6,367,756 |
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|
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9,699,649 |
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8,250,564 |
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STOCKHOLDERS’
EQUITY
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Capital
Stock
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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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|
Issued
and outstanding:
|
|
|
|
|
|
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5,907,281
common shares at March 31, 2009
|
|
|
|
|
|
|
|
|
5,906,957
common shares at December 31, 2008
|
|
|
5,907 |
|
|
|
5,907 |
|
Additional
paid-in capital
|
|
|
37,903,221 |
|
|
|
37,903,221 |
|
|
|
|
|
|
|
|
|
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Deficit
|
|
|
(28,320,471 |
) |
|
|
(28,152,681 |
) |
Accumulated
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
Treasury
Stock, at cost
|
|
|
(224,471 |
) |
|
|
83,283 |
|
|
|
|
(26,921 |
) |
|
|
- |
|
|
|
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9,337,265 |
|
|
|
9,839,730 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
19,036,914 |
|
|
$ |
18,090,294 |
|
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
STATEMENT OF OPERATIONS
(Unaudited)
|
|
THREE
MONTHS ENDED
|
|
|
|
MARCH
31
|
|
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|
2009
|
|
|
2008
|
|
Net
Revenues
|
|
|
|
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Sales
and commissions
|
|
$ |
641,347 |
|
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$ |
797,888 |
|
|
|
|
|
|
|
|
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Cost
Of Revenues
|
|
|
406,678 |
|
|
|
414,510 |
|
Gross
Profit
|
|
|
234,669 |
|
|
|
383,378 |
|
Investment
Income
|
|
|
81,024 |
|
|
|
35,002 |
|
|
|
|
315,693 |
|
|
|
418,380 |
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Expenses
|
|
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|
|
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Operating
expenses
|
|
|
468,002 |
|
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|
507,701 |
|
Depreciation
and amortization
|
|
|
16,408 |
|
|
|
45,358 |
|
|
|
|
484,410 |
|
|
|
553,059 |
|
Loss
from Operations
|
|
|
(168,717 |
) |
|
|
(134,679 |
) |
|
|
|
|
|
|
|
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Other
Items
|
|
|
|
|
|
|
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Share
of net income (loss) of joint venture
|
|
|
(587 |
) |
|
|
712 |
|
Provision
for legal claim
|
|
|
- |
|
|
|
(65,035 |
) |
Foreign
exchange gain
|
|
|
1,514 |
|
|
|
4,951 |
|
|
|
|
927 |
|
|
|
(59,372 |
) |
|
|
|
|
|
|
|
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|
Loss
for the Period
|
|
|
(167,790 |
) |
|
$ |
(194,051 |
) |
|
|
|
|
|
|
|
|
|
Basic
Loss per Share
|
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
Diluted
Loss per Share
|
|
$ |
(0.03 |
) |
|
$ |
(0.04 |
) |
Weighted
Average Number of Shares Outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,852,673 |
|
|
|
5,072,026 |
|
Diluted
|
|
|
5,852,673 |
|
|
|
5,072,026 |
|
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
STATEMENT OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
|
|
THREE
MONTHS ENDED MARCH 31
|
|
|
|
2009
|
|
|
2009
|
|
Loss
for the Period
|
|
$ |
(167,790 |
) |
|
$ |
(194,051 |
) |
|
|
|
|
|
|
|
|
|
Other Comprehensive
Loss, net of tax
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(307,754 |
) |
|
|
(410,664 |
) |
|
|
|
|
|
|
|
|
|
Consolidated
Comprehensive Loss
|
|
$ |
(475,544 |
) |
|
$ |
(604,715 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Comprehensive Loss per Share
|
|
$ |
(0.08 |
) |
|
$ |
(0.12 |
) |
ABLEAUCTIONS.COM,
INC.
CONSOLIDATED
STATEMENT OF CASH FLOWS
(Unaudited)
|
|
THREE
MONTHS ENDED MARCH
31
|
|
|
|
2009
|
|
|
2008
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
Loss
for the year from continuing operations
|
|
$ |
(167,790 |
) |
|
$ |
(194,051 |
) |
Non-cash
items included in net income (loss):
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
16,408 |
|
|
|
45,358 |
|
Stock-based
compensation
|
|
|
- |
|
|
|
8,000 |
|
Joint
Venture Share of Income
|
|
|
587 |
|
|
|
(712 |
) |
|
|
|
(150,795 |
) |
|
|
(141,405 |
) |
Changes
in operating working capital items:
|
|
|
|
|
|
|
|
|
(Increase)
Decrease in accounts receivable
|
|
|
(99,432 |
) |
|
|
63,914 |
|
(Increase)
Decrease in inventory
|
|
|
179,116 |
|
|
|
(147,142 |
) |
(Increase)
Decrease in prepaid expenses
|
|
|
7,870 |
|
|
|
17,977 |
|
(Increase)
Decrease in employee receivable
|
|
|
(30,000 |
) |
|
|
(30,389 |
) |
|
|
|
|
|
|
|
|
|
Increase
(Decrease) accounts payable and accrued liabilities
|
|
|
(250,442 |
) |
|
|
(113,546 |
) |
Increase
in deferred revenue
|
|
|
- |
|
|
|
(6,630 |
) |
Net
cash used in operating activities
|
|
|
(343,683 |
) |
|
|
(357,221 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment, net
|
|
|
- |
|
|
|
(19,058 |
) |
Purchase
of property held for development
|
|
|
(1,363,474 |
) |
|
|
(122,071 |
) |
Loan
advances
|
|
|
(100,000 |
) |
|
|
(450,775 |
) |
Investment
in surrey city Central
|
|
|
(4,485 |
) |
|
|
- |
|
Other
receivables
|
|
|
- |
|
|
|
94,013
|
|
Deposits |
|
|
- |
|
|
|
(4,001 |
) |
Net
cash from (used in) investing activities
|
|
|
(1,467,959 |
) |
|
|
(501,892 |
) |
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Advances
from Bank Loan
|
|
|
1,989,018 |
|
|
|
- |
|
Repayment
of Bank Loan
|
|
|
- |
|
|
|
- |
|
Purchase
of treasury stock
|
|
|
(26,921 |
) |
|
|
(224,678 |
) |
Net
cash (used in) from financing activities
|
|
|
1,962,097 |
|
|
|
(224,678 |
) |
|
|
|
|
|
|
|
|
|
Effect
Of Exchange Rates On Cash
|
|
|
(9,100 |
) |
|
|
(25,485 |
) |
Change
in Cash and Cash Equivalents For The Period
|
|
|
150,455 |
|
|
|
(1,083,791 |
) |
Cash
And Cash Equivalents, Beginning Of Period
|
|
|
223,592 |
|
|
|
1,594,657 |
|
|
|
|
|
|
|
|
|
|
Cash
And Cash Equivalents, End Of Period
|
|
$ |
364,947 |
|
|
$ |
485,381 |
|
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
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. The Company also provides mortgages and loans to
individuals and companies, and develops real 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 Other consisting of all other
activities of the Company including management, investor relations and other
related head office expenses. Financial information for Ableauctions.com’s
various reportable segments is presented in Note 11.
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 March 31, 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 three
month period ended March 31, 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.Accounting
changes
Effective
January 1, 2009, we adopted Statement of Financial Accounting Standards
(SFAS) No. 141 (revised 2007), “Business Combinations” (SFAS
No. 141(R)) as amended by FASB staff position FSP 141(R)-1, “Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies.” SFAS No. 141(R) generally requires 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. SFAS No 141(R) is applicable to business combinations on
a prospective basis beginning in the first quarter of 2009. We did not complete
any business combinations in the first quarter of 2009.
Effective
January 1, 2009, we adopted Statement of Financial Accounting Standards
(SFAS) No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51 (SFAS
No. 160). SFAS No. 160, which was retrospectively applied and requires
the noncontrolling interest to be separately presented as a component of
shareholders’ equity on the Condensed Consolidated Statements of Financial
Position and Shareholders’ Equity.
In
February 2008, the FASB issued FSP 157-2, “Effective Date of FASB Statement
No. 157” (FSP 157-2), which delayed the effective date of SFAS
No. 157, “Fair Value Measurements” (SFAS No. 157) for all
non-financial assets and non-financial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), until the beginning of the first quarter of 2009.
Therefore, effective January 1, 2009, we adopted SFAS No. 157 for
non-financial assets and non-financial liabilities. The adoption of SFAS
No. 157 for non-financial assets and non-financial liabilities that are not
measured and recorded at fair value on a recurring basis did not have a
significant impact on our consolidated financial statements.
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
2. MORTGAGES & LOANS
RECEIVABLE
|
|
March
31, 2009
|
|
|
December
31,
2008
|
|
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 has been extended month-to-month pending
renewal.
|
|
|
99,104 |
|
|
|
102,627 |
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
182,351 |
|
|
|
188,834 |
|
|
|
|
|
|
|
|
|
|
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 has been extended month-to-month pending
renewal.
|
|
|
43,606 |
|
|
|
45,156 |
|
|
|
|
|
|
|
|
|
|
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 is
currently under negotiation.
|
|
|
110,997 |
|
|
|
114,943 |
|
|
|
|
|
|
|
|
|
|
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 extended month-to-month pending
renewal.
|
|
|
35,678 |
|
|
|
36,946 |
|
|
|
|
|
|
|
|
|
|
vi)
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 has been extended
month-to-month pending renewal.
|
|
|
356,775 |
|
|
|
369,458 |
|
|
|
|
|
|
|
|
|
|
vii)
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.
|
|
|
1,387,457 |
|
|
|
1,436,781 |
|
|
|
|
|
|
|
|
|
|
viii)
Loan advanced in the amount of $100,000 pursuant to the Bridge Investment
Agreement entered with other investors as of March 5, 2009, to provide
bridge financing in connection with an acquisition by a US public
company. The loan is repayable upon closing of the acquisition
transaction, and the Company will receive shares of the public company
equal to 0.75% of the total shares of common stock outstanding after the
acquisition transaction.
|
|
|
100,000 |
|
|
|
- |
|
|
|
$ |
2,315,968 |
|
|
$ |
2,294,745 |
|
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
3. RELATED
PARTY TRANSACTIONS
a)
|
During
the three month period ended March 31, 2009, the Company incurred $39,000
(2008: $39,000) in management fees to a director of the
Company.
|
b)
|
At
March 31, 2009, a balance of $278,072 (December 31, 2008: $248,072) is
owing from employees 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 March 31, 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.
|
d)
|
On
August 19, 2008, the 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 9, the Company acquired a 50% interest in Surrey Central
City Holdings Ltd. (referred to as “Surrey”), resulting in a balance of
$1,363,765 owing to the director as of March 31,
2009.
|
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 are not related to each other.
The
Company’s subsidiary Axion Investment Corp, intends to develop this property
which consists of approximately 1.46 acres that is zoned for mixed commercial
and residential use. Axion intends to develop 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”).
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 Macdonald Realty Ltd.
If the
Company is successful in selling all of the condominiums, 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.
The
Company has obtained a building permit from the City of Surrey and has 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.
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
4. PROPERTY
HELD FOR DEVELOPMENT (continued)
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 Surrey 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 will 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.
The
credit facility has been 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. As of November 10, 2008, Axion
has fulfilled all the conditions of the construction credit
facility.
As of
March 31, 2009 draws totalling $6,527,829 ($8,233,551 CDN) had been made against
the credit facility. Borrowings are to be repaid from 100% of the net
sales proceeds received on the closing of sales of units in the
Project. In any event, all borrowings shall be repayable in full by
December 31, 2009.
On April
28, 2008, construction of the project commenced and it is estimated that it will
be completed by September 30, 2009. If the development is suspended for any
reason, including but not limited to the Company’s inability to obtain any
additional financing that may be required or additional permits, the Company
will not be able to recover all of its expenses. There can be no
assurance that the development will be successful or that developing the
property in this manner will increase or even maintain its value.
5. INVESTMENT
IN JOINT VENTURE
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.
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.
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 the president 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 the president of the Company to enter into a Debt Service
Agreement.
Pursuant
to the Debt Service Agreement, the president 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.
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
5. INVESTMENT
IN JOINT VENTURE (continued)
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
the president, 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, the president 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 March 31, 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 March 31,
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:
|
|
March
31, 2009
|
|
Dec
31, 2008
|
|
Balance
Sheet
|
|
|
|
|
|
|
Assets
|
|
$ |
2,750,824 |
|
|
$ |
2,850,416 |
|
Liabilities
|
|
|
- |
|
|
|
- |
|
Equity
|
|
|
2,750,824 |
|
|
|
2,850,416
|
|
|
Three months
ended March 31, 2009
|
|
Three months
ended March 31, 2008
|
|
Statement
of Operations
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
- |
|
|
$ |
2,191 |
|
Expenses
|
|
|
1,761 |
|
|
|
55 |
|
Net
Income (loss)
|
|
|
(1,761 |
) |
|
|
2,136
|
|
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
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.
Surrey is
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.
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
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. As
discussed below, 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.
In the
event that Surrey is unable to successfully obtain the approval of a preliminary
development plan and a commitment for financing to complete the build-out of the
Property, or if for any reason Surrey determines that the build-out of the
Property is not in its best interests, notice of this event will be provided to
the Company. Within 20 days of receiving the notice, the Company may
put the stock purchased to Bullion and Bullion will, within 120 days from
receiving the put notice, repurchase the stock by paying to the Company in cash
the purchase price (including the adjustments described above, if any), less
one-half of the expenses incurred by Surrey in its efforts to develop the
Property. This put right will expire within 12 months from the date
of the Development Agreement.
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 un-related party. 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
will 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. The total number of shares that could be issued if
Bullion converts up to $1 million of principal and interest accrued thereon
would total 2,465,277 shares.
The
total investment of $1,676,123 has been recorded as “Investment in Surrey City
Central” on the balance sheet as of March 31, 2009, with an amount of $1,363,765
owing to Bullion as of March 31, 2009.
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
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 March 31, 2009, the amount of the loan was
$1,542,060.
Bank
Loan #1 (Note 4)
|
|
$ |
6,527,829 |
|
Bank Loan #2
|
|
|
1,542,060 |
|
Total
Bank Loan
|
|
|
8,069,889 |
|
8. 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 “provision for legal claim” in the Statement of
Operations during the period ended March 31, 2008, with the offsetting liability
included in accounts payable and accrued liabilities at March 31,
2008.
9. CAPITAL
STOCK
Stock-based
Compensation
During
the 3 month period ended March 31, 2008, the Company recognized an expense of
$8,000 in respect to stock options granted in the 2006 year, which are vested as
of March 31, 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 3
month period ended March 31, 2008, the Company repurchased 1,530,966 shares for
a total cost of $224,678.
For the 3
month period ended March 31, 2009, the Company repurchased 112,386 shares for a
total cost of $26,921. Subsequent to March 31, 2009, the Company
repurchased an additional 40,723 shares for a total cost of
$10,396. On May 1, 2009, the total number of 153,109 shares
repurchased were cancelled and returned to the authorized capital stock of the
Company.
Warrants
On
January 4, 2008, 795,384 of the warrants that were exercisable at $0.80 per
share expired.
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
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 will pay a purchase price of CDN$3,400,000 for the
property. The sale is due to close on November 2, 2009.
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.
11.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 information consists of the 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 information consists
of 1963 Lougheed Holding Ltd., a holding company where the Ableauctions’ head
office is 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 marketable securities,
mortgages and loans to third parties. This segment consists of
investments 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.
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
Following
is the segmented information for the period ended March 31,
2009:
|
|
Real Property
&
Property Development
|
|
|
Mortgages
&
Loans
|
|
|
Auction,
Liquidation
& Technology Businesses
|
|
|
Other
|
|
|
Total
|
|
External
revenue by market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
- |
|
|
|
- |
|
|
|
503,523 |
|
|
|
- |
|
|
|
503,523 |
|
Canada
|
|
|
31,894 |
|
|
|
- |
|
|
|
102,380 |
|
|
|
- |
|
|
|
134,274 |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
3,550 |
|
|
|
- |
|
|
|
3,550 |
|
Total
Revenue From External Customer
|
|
|
31,894 |
|
|
|
- |
|
|
|
609,453 |
|
|
|
- |
|
|
|
641,347 |
|
Investment
income
|
|
|
- |
|
|
|
81,024 |
|
|
|
- |
|
|
|
- |
|
|
|
81,024 |
|
Interest
expense
|
|
|
16,010 |
|
|
|
47,391 |
|
|
|
- |
|
|
|
- |
|
|
|
63,401 |
|
Depreciation
and amortization
|
|
|
7,948 |
|
|
|
- |
|
|
|
8,460 |
|
|
|
- |
|
|
|
16,408 |
|
Segment
profit
|
|
|
(26,891 |
) |
|
|
6,249 |
|
|
|
(55,221 |
) |
|
|
(91,927 |
) |
|
|
(167,790 |
) |
Segment
assets
|
|
|
15,147,012 |
|
|
|
931,295 |
|
|
|
1,402,385 |
|
|
|
1,556,222 |
|
|
|
19,036,914 |
|
Expenditures
on long-lived assets
|
|
|
1,363,474 |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
1,363,474 |
|
Investment
in joint venture
|
|
|
1,181,138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,181,138 |
|
Investment
in Surrey City Central
|
|
|
1,676,123 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,676,123 |
|
Following
is the segmented information for the period ended March 31, 2008:
|
|
Real Property
&
Property Development
|
|
|
Mortgages
&
Loans
|
|
|
Auction,
Liquidation
& Technology Businesses
|
|
|
Other
|
|
|
Total
|
|
External
revenue by market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
|
|
|
- |
|
|
|
- |
|
|
|
605,026 |
|
|
|
- |
|
|
|
605,026 |
|
Canada
|
|
|
39,574 |
|
|
|
- |
|
|
|
143,189 |
|
|
|
- |
|
|
|
182,763 |
|
Other
|
|
|
- |
|
|
|
- |
|
|
|
10,099 |
|
|
|
- |
|
|
|
10,099 |
|
Total
Revenue From External Customer
|
|
|
39,574 |
|
|
|
- |
|
|
|
758,314 |
|
|
|
- |
|
|
|
797,888 |
|
Investment
income
|
|
|
- |
|
|
|
35,002 |
|
|
|
- |
|
|
|
- |
|
|
|
35,002 |
|
Interest
expense
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Depreciation
and amortization
|
|
|
10,269 |
|
|
|
- |
|
|
|
35,089 |
|
|
|
- |
|
|
|
45,358 |
|
Segment
profit
|
|
|
33,828 |
|
|
|
36,368 |
|
|
|
(127,622 |
) |
|
|
(136,625 |
) |
|
|
(194,051 |
) |
Segment
assets
|
|
|
8,681,360 |
|
|
|
1,809,157 |
|
|
|
2,900,451 |
|
|
|
83,407 |
|
|
|
13,474,375 |
|
Expenditures
on long-lived assets
|
|
|
122,071 |
|
|
|
- |
|
|
|
19,058 |
|
|
|
- |
|
|
|
141,129 |
|
Investment
in joint venture
|
|
|
1,456,408 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,456,408 |
|
ABLEAUCTIONS.COM,
INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2009
(Unaudited)
12. OPERATING
EXPENSES
|
|
THREE
MONTHS ENDED MARCH 31
|
|
|
|
2009
|
|
|
2008
|
|
Operating
Expenses
|
|
|
|
|
|
|
Accounting
and legal
|
|
$ |
5,197 |
|
|
$ |
1,866 |
|
Advertising
and promotion
|
|
|
4,999 |
|
|
|
6,586 |
|
Automobile
|
|
|
7,684 |
|
|
|
3,028 |
|
Commission
|
|
|
- |
|
|
|
40,413 |
|
Interest
|
|
|
63,401 |
|
|
|
- |
|
Insurance
|
|
|
6,476 |
|
|
|
7,412 |
|
Investor
relations and shareholder information
|
|
|
30,447 |
|
|
|
23,670 |
|
Management
fees
|
|
|
39,000 |
|
|
|
39,000 |
|
Office
and administration
|
|
|
44,376 |
|
|
|
10,428 |
|
Rent
and utilities
|
|
|
19,542 |
|
|
|
15,801 |
|
Repairs
and maintenance
|
|
|
4,097 |
|
|
|
3,640 |
|
Salaries
and benefits
|
|
|
205,679 |
|
|
|
317,321 |
|
Telephone
|
|
|
11,785 |
|
|
|
7,779 |
|
Travel
|
|
|
7,944 |
|
|
|
14,610 |
|
Website
maintenance
|
|
|
17,375 |
|
|
|
16,147 |
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
$ |
468,002 |
|
|
$ |
507,701 |
|
13.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
(i)
|
In
April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value
When Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly”
(FSP 157-4). FSP 157-4 provides 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. FSP 157-4 also provides
guidance on identifying circumstances that indicate a transaction is not
orderly. In addition, FSP 157-4 requires 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. FSP 157-4 is
effective for us beginning in the second quarter of fiscal year 2009. The
adoption of FSP 157-4 is not expected to have a significant impact on our
consolidated financial statements.
|
(ii)
|
In
April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition
and Presentation of Other-Than-Temporary Impairment” (FSP 115-2/124-2).
FSP 115-2/124-2 amends the requirements for the recognition and
measurement of other-than-temporary impairments for debt securities by
modifying the pre-existing “intent and ability” indicator. Under FSP
115-2/124-2, an other-than-temporary impairment is triggered when there is
an intent to sell the security, it is more likely than not that the
security will be required to be sold before recovery, or the security is
not expected to recover the entire amortized cost basis of the security.
Additionally, FSP 115-2/124-2 changes the presentation of an
other-than-temporary impairment in the income statement for those
impairments involving credit losses. The credit loss component will be
recognized in earnings and the remainder of the impairment will be
recorded in other comprehensive income. FSP 115-2/124-2 is effective for
us beginning in the second quarter of fiscal year 2009. Upon
implementation at the beginning of the second quarter of 2009, FSP
115-2/124-2 is not expected to have a significant impact on our
consolidated financial statements.
|
(iii)
|
In
April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim
Disclosure about Fair Value of Financial Instruments” (FSP 107-1/APB
28-1). FSP 107-1/APB 28-1 requires interim disclosures regarding the fair
values of financial instruments that are within the scope of FAS 107,
“Disclosures about the Fair Value of Financial Instruments.” Additionally,
FSP 107-1/APB 28-1 requires 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. FSP 107-1/APB 28-1 does not change the
accounting treatment for these financial instruments and is effective for
us beginning in the second quarter of fiscal year
2009.
|
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,” 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 auction
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 the risk factors disclosed in this
report and in 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.
We
provide liquidation and merchandizing services along with auction and
point-of-sale technology to businesses to assist them with managing the sale of
their products. 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 the management of cash and marketable
securities held for investment. 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 store
located in California and British Columbia. We also generate revenues
by providing inventory brokerage services at www.unlimitedcloseouts.com.
Auction Broadcast Services –
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. Commencing January 1, 2009, these auctions are
facilitated using our proprietary technology (www.ableauctions.com/technology)
through the website, www.iCollector.com.
We also provide auction-related products and services for a fee
(www.icollectorlive.com/services.aspx).
Point-of-Sale (POS) Services -
Through our subsidiary, Rapidfusion Technologies, Inc.
(www.rapidfusion.com/technology), we sell to retailers, install and support our
proprietary point-of-sale (POS) sales processing and reporting system.
Real
Property Development and Lending Segments
Our
wholly owned subsidiary, Axion Investment Corporation, develops real estate and
makes short term loans.
As of
March 31, 2009, our loan and real estate segments included the following
investments:
Investment
|
|
Amount
|
|
Loans
|
|
$ |
2,315,968 |
|
Real
Property
|
|
$ |
2,088,379 |
|
Real
Property held for development
|
|
$ |
9,536,629 |
|
Investment
in joint venture |
|
$ |
1,181,138 |
|
Investment
in Surrey City Central Holdings Ltd.
|
|
$ |
1,676,123 |
|
When we
deem it necessary, we use the income earned by these investments to support our
operations.
Currently,
through Axion, we are developing 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 intend
to develop 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
$320,558 ($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 has been 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
($4.84 million CAD) toward the development including the cost of the land, and
fixed price contracts for at least 50% of Phase I’s hard construction costs
prior to the initial draw and 80% by December 2008. By November 10,
2008, Axion had fulfilled all the obligations of the construction credit
facility.
Construction
Progress as of April 30, 2009: ($ CAD)
Project
costs of work completed to date:
|
|
$ |
13,828,313 |
|
Project
costs of remaining work:
|
|
$ |
6,668,905 |
|
Estimated
total project costs:
|
|
$ |
21,257,869 |
|
Current
outstanding principal balance of loan from the Royal Bank of
Canada:
|
|
$ |
9,752,095 |
|
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
of May 6, 2009, we had borrowed approximately $913,000 from Mr. Ladha, all of
which has been repaid.
On April
28, 2008, construction of Phase I commenced and it is estimated that it will be
completed by September 30, 2009. If the development is suspended for any reason,
including but not limited to our inability to obtain financing, permits or
trades, we will not be able to recover all of our expenses. There can
be no assurance that the development will be successful or that developing the
property in this manner will increase, or even maintain, its value.
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. We believe that such a development could
potentially generate revenue of approximately $16 million to $30 million before
expenses and income splitting.
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.
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
also includes 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. The total number of shares that
could be issued if Bullion converts up to $1 million of principal and interest
accrued thereon would total 2,465,277 shares. On April 30, 2009
Bullion assigned the promissory note to Abdul Ladha and his spouse, Hanifa
Ladha. We will have the right, for a period of one year, to sell back
our interest in Surrey for the original purchase price, less one-half of the
expenses incurred by Surrey in its efforts to develop the Property, in the event
financing or approval of a preliminary development plan cannot be
obtained.
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.
Other
Segment
Ableauctions.com
Inc. manages our corporate and public company affairs and all related activities
such as investor and public relations and the management of our cash and
marketable securities held for investment.
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.
The
downturn in the U.S. economy has affected the capital available for purchasing
goods that are not necessities. The impact of this is evident in our
liquidation operations, where revenues were approximately 48% lower during the
2008 fiscal year compared to the 2007 fiscal year. Likewise, eBay’s decision to
shut down its Live Auction platform has had a material adverse effect on our
live auction broadcast business, where revenues are approximately 68% lower for
the three months ended March 31, 2009 compared to the same period in the
previous year. There can be no assurance that we will be able to
increase our revenues from either of these operations during the remainder of
2009. 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. 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.
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.
During
the three months ended March 31, 2009, our investment in loans generated
approximately $81,024 in revenues. During the three months ended
March 31, 2009, 12% of the value of our assets was held in the form of loans and
76% of the value of our assets was held in the form of real
estate.
Type
|
|
Carrying
Amount
|
|
|
%
of Total Assets
|
|
Cash
& Current Assets
|
|
$ |
1,819,082 |
|
|
|
10 |
% |
Other
Assets
|
|
$ |
419,595 |
|
|
|
2 |
% |
Real
Estate (head office)
|
|
$ |
2,088,379 |
|
|
|
11 |
% |
Real
Estate (development)
|
|
$ |
9,536,629 |
|
|
|
50 |
% |
Real
Estate (Joint Venture)
|
|
$ |
1,181,138 |
|
|
|
6 |
% |
Real
Estate (Surrey City Central)
|
|
$ |
1,676,123 |
|
|
|
9 |
% |
Loans
|
|
$ |
2,315,968 |
|
|
|
12 |
% |
Total
|
|
$ |
19,036,914 |
|
|
|
100 |
% |
A
substantial portion of our revenues are earned through non-traditional sources,
particularly Internet auctions. Our policies with respect to the
timing and amount of revenue recognition from our auction 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.
Because
we facilitate auctions and liquidations over the Internet, 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.
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 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.
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 |
|
|
|
|
- |
|
As noted
above, we are committed to payments with respect to agreements to lease office
premises.
Results
of Operations
Three months ended March 31,
2009 compared to the corresponding period in 2008.
Revenues. During the
three months ended March 31, 2009, we had revenues of $641,347 compared to
revenues of $797,888 during the same period in 2008, a decrease of $156,541 or
20%. The decrease in revenues is a result of a 2% increase in revenues from our
liquidation business and a 65% decrease in revenues from our Live Auction
services.
Revenues
from our liquidation services totaled $443,450 (or 69% of our total revenue)
compared to revenues of $433,245 (or 54% of our total revenue) during the same
period in 2008. The revenue from our liquidation service has increase slightly
compared to the three months ended March 31, 2008.
Revenues
from our live auctions services totaled $71,002 (or 11% of our total revenue)
compared to revenues of $201,980 (or 25% of our total revenue) during the same
period in 2008. The decrease in revenues is a direct result of the termination
of eBay’s Live Auction platform. The number of auction sessions facilitated
during the three months ended March 31, 2009 decreased by approximately 73% to
90 compared to 338 auction sessions for the same period in
2008.
Our
liquidation services accounted for 69% of total revenue for the three month
period ending March 31, 2009. We anticipate that revenues from our
liquidation sector will continue to represent a significant percentage of
overall revenues. We believe that the results of our liquidation business
and the number of antique and collectible auctions we manage is directly related
to the general economy of the US, and that the current economic down-turn in the
US could continue to have a dampening effect on our revenues in those two areas
of our business.
During
the three months ended March 31, 2009, we had investment income of $81,024
compared to $35,002 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 March 31, 2009, our holdings in
real estate totaled approximately $14,482,269, representing the lower of cost or
market for these assets.
Gross Profit and Cost of
Revenue. Cost of revenue was $406,678 or 63% of our revenues for
the three months ended March 31, 2009, compared to $414,510 or 52% of our
revenues during the same period in 2008. Gross profit was $234,669 or
37% of total revenue for the three months ended March 31, 2009, compared to
gross profit of $383,378 or 48% of total revenue for the three months ended
March 31, 2008.
The
decrease in gross profit as a percentage of revenue reflects the performance of
our liquidation services, which realized lower gross profit margins in the first
quarter of 2009 compared to the same period in 2008. Future gross
profit margins may vary considerably from quarter-to-quarter depending on the
performance of our various divisions. We believe that over time, our
gross profit as a percentage of revenue will range between 25% and 30%, based on
the anticipated returns from our revenue streams.
Operating Expenses.
During the three month period ended March 31, 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 March 31, 2009 were $468,002 or
approximately 73% of revenue compared to $507,701 or approximately 64% during
the three month period ended March 31, 2008. Operating expenses are
expected to further decrease in the second quarter of the 2009 fiscal year as we
realize the effects of additional cost cutting measures.
During
the three month period ended March 31, 2009, the cost of investor relations and
shareholder information services was $30,447 as compared to $23,670 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 March 31, 2009, salaries and benefits totaled
$205,679 as compared to $317,321 for the same period in 2008. The
decrease of $111,642 or approximately 35% from the previous year was due to cost
cutting measures implemented.
Total
personnel expenses, including salaries and benefits, totaled $244,679 or 52% of
our operating expenses during the three-month period ended March 31, 2009 as
compared to $396,734 or 78% of our operating expenses during the three-month
period ended March 31, 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 $40,413 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 March 31, 2009, advertising and promotion expenses
were $4,999 or 1% of our operating expenses as compared to $6,586 or 1% of our
operating expenses for the three-month period ended March 31, 2008.
General
overhead expenses increased by $40,434 or approximately 51%, to $119,279
during the three month period ended March 31, 2009 (compared to $78,845 for the
same period in 2008). This was mainly due to fees paid to NYSE Amex during the
quarter for transactions that were required to be approved by the
exchange. General overhead expenses comprised 25% (compared to
16% for the same period in 2008) of our total operating expenses and 19%
(compared to 10% for the same period in 2008) of our total
revenue. General overhead expenses include rent and utilities, which
totaled $19,542, telephone, which totaled $11,785, travel related to operations,
which totaled $7,944, repairs and maintenance, which totaled $4,097, automotive,
which totaled $7,684, insurance, which totaled $6,476, website maintenance,
which totaled $17,375 and office and administration expenses, which totaled
$44,376.
Depreciation
and amortization expense was $16,408 for the three-month period ended March 31,
2008 as compared to $45,358 for the three-month period ended March 31, 2008.
Depreciation and amortization expense was higher during the three months ended
March 31, 2008 due to amortization of our intangible assets.
Net Loss. We
realized a net loss of $167,790 or $(0.03) per share for the three months ended
March 31, 2009 as compared to a net loss of $194,051 or $(0.04) per share for
the three months ended March 31, 2008. The loss for the period ended
March 31, 2009 is attributed primarily to a loss from operations of $62,338 from
Auction Broadcast Services and a loss of $39,789 from Liquidation Services, and
depreciation in the amount of $16,408.
Liquidity and Capital
Resources
Our
capital requirements, particularly as they relate to expansion, our plan to
purchase inventory we liquidate, our continued development of our software for
live auctions, and our real estate development projects, have been and will
continue to be significant. Our future cash requirements and the
adequacy of available funds will depend on many factors, including the pace at
which we are able to make acquisitions, the pace at which we can deploy our
technology and related services to auction houses, the acceptance of our
packaged services by our clients, the availability of merchandise to purchase
for auction and liquidation and the rate of construction on our development
project.
To date,
we have funded our operations with our revenues, with dividends and interest
from our investments and with the proceeds of the sales of our
securities. A moderate portion of the revenue we earn has come from
the auctions we hold through eBay and the National Auctioneers Association.
eBay’s recent decision to terminate the operations of its eBay Live Auction
platform has had a material adverse affect on our operations, and we expect this
to continue at least through the end of the fiscal year. Some of this will be
mitigated as we switch over to an alternative live bidding platform solution
available to our customers thru our NAALive operations.
Currently,
however, we believe that revenues from our operations together with interest
earned on our loan portfolio and our cash on hand 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 intend to do so through public or private offerings of our
securities or from loans, if we are able to obtain them. 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, either through an offering of our securities or by obtaining
loans, we may be required to curtail, or even to cease, our
operations.
As of
March 31, 2009 we had a deficiency in our working capital of $5,664,611 made up
of cash and cash equivalents of $364,947, accounts receivable of $634,321,
employee receivable of $278,072 mortgages and loans receivable of $2,315,968,
inventory of $486,077 and prepaid expenses of $55,665 minus current liabilities
of $9,699,649.
Cash used
for operating activities totaled $343,683 due to primarily a decrease in
accounts payable and accrued liabilities during the three months ended March 31,
2009. Our cash resources may decrease further if we complete an
acquisition during 2009, experience a delay in our construction financing, or if
we are unable to maintain positive cash flow from our business through
2009.
Cash flow
used in investing activities during the three-months ended March 31, 2009 was
$1,467,959. Cash was used from loan advances and to increase our investment in
property held for development. Cash flow from financing activities
was $1,962,087, which primarily resulted from proceeds from bank
loans.
Other
Events
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 will pay a purchase price of CDN$3,400,000 for the
property. The sale is due to close on November 2, 2009.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
We
believe that we do not have any material exposure to interest or commodity
risks. We are exposed to certain economic and political changes in international
markets where we compete, such as inflation rates, recession, foreign ownership
restrictions, 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.
ITEM 4: DISCLOSURE CONTROLS AND PROCEDURES
Our Chief
Executive Officer (“CEO”)/President, and Chief Financial Officer (“CFO”) carried
out an evaluation of the effectiveness of our disclosure controls and procedures
as of the end of the period covered by this report (the “Evaluation
Date”). Based on those evaluations, as of the Evaluation Date, our
CEO/President and CFO determined that our disclosure controls and procedures are
effective.
There
have been no changes in the Company’s 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 period covered by this report that have materially affected, or
are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
Part
II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
During
the three months ended March 31, 2009, we made the following purchases of our
common stock:
Month
|
|
Total
Number of Shares Purchased
|
|
|
Average
Price Paid per Share
|
|
|
Total
Number of Shares Purchased as Part of a Publicly Announced Plan or
Program
|
|
Maximum
Number (or Approximate Dollar Value) of Shares that may yet Be Purchased
Under the Plan or Program
|
January
|
|
|
54,770 |
|
|
$ |
0.233 |
|
|
|
54,770 |
|
|
February
|
|
|
23,506 |
|
|
$ |
0.260 |
|
|
|
23,506 |
|
|
March
|
|
|
34,110 |
|
|
$ |
0.236 |
|
|
|
34,110 |
|
|
Total
|
|
|
112,386 |
|
|
|
|
|
|
|
112,386 |
|
As
determined by the board of
directors
|
(1) The
plan was announced on July 23, 2007.
None.
None.
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 will pay a purchase price of CDN$3,400,000 for the
property. The sale is due to close on November 2, 2009.
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.
Exhibits:
3.1 Certificate
of Incorporation (1)
3.1.1 Amendment
to Certificate of Incorporation (2)
3.2 By-laws
(1)
10.1 Contract
of Purchase and Sale with Business World Development Inc., as amended (3)
_______________
(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 April 16, 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:
May15, 2009
By:/s/ ABDUL
LADHA
Name:
Abdul Ladha
Title:
President, Chief Executive Officer,
Chief
Financial Officer